SG Market (07 Aug 17)

MARKET OVERVIEW
- The market is likely to drift lower in the holiday-shortened week, with investors focused on next batch of results from Singtel, City Dev and ST Engineering.
- Technically, the STI faces topside resistance at 3,360, with downside support is at 3,275.

SECTOR WATCH
*Property developers
- Brisk demand for new private homes continued unabated following another good take-up during the weekend launch of Le Quest, a 516-unit mixed development in Bukit Batok.
- Developed by Qingjian Realty, the 99-year leasehold project, all 280 units available were snapped up at an average price of $1,280 psf.
- MKE prefers UOL and City Dev for exposure to the residential sector.

CORPORATE RESULTS
*UOL
- 2Q17 results were in line as net profit jumped 59% to $109.4m on higher sales recognition from Principal Garden condo project, higher contributions from associates and fair value gains on investment properties.
- Revenue climbed 10% to $399.1m, with property development (+19%) accounting for 55% of turnover, while its hotel business was flat.
- The group plans to launch tow condo projects next year - 140-unit freehold development at Amber Road and a 750-init project at Potong Pasir Avenue 1.
- Trades at 0.79x P/B.
- MKE last had a Buy with TP of $9.05.

*Venture Corp
- 2Q17 net profit surged 61% to $69.8m, beating expectations on improved operational leverage.
- Revenue leapt to to $1.01b (+48.3%) to cross $1b for the first time, underpinned by strong execution of customers' orders.
- Gross margin dipped 1.6ppt to 21.9%, but pretax margin improved 0.7ppt to 8.3%.
- Last traded at 17.8x FY17e consensus P/E.

*Jardine C&C
- 2Q17 net profit of US$188.7m (+0.9%) was bolstered by fair value gains of US$15.4m. Excluding the non-trading items, core net profit fell 9.4% to US$173.3m, bringing 1H17 earnings to US$375m (+13%), or 43% of full-year consensus estimate.
- For the quarter, revenue rose 6% to US$4.29b, while operating margin was stable at 8.6% (-0.1ppt).
- Astra's profit contributions fell 5% to US$130.8m on declines across automotive (-21%), financial services (-8%),agribusiness (-35%), infrastructure & logistics (-41%), with only its heavy equipment business (+70%) doing well.
- Direct motor interests (-7%) were also hit by poor earnings from Malaysia (-55%) and Indonesia (-41%), with Vietnam (+10%) and Singapore (+4%) holding up.
- Interim DPS of US$0.18 was maintained.
- NAV/share at US$15.19.

*Cosco Shipping
- 2Q17 net loss narrowed to $20.8m (2Q16: $36.8m loss), shored by a positive FX swing of $14m.
- Revenue slid 31% to $524.7m, as persistent weakness in its core shipyard (-31.6%) business overshadowed improved contribution from the dry bulk shipping (+4.7%) due to higher charter rates.
- Gross margin widened 2.4ppt to 3.9%.
- Bottom line was lifted by a $32m write-back on trade receivables, although partly knocked by a $9.6m disposal loss and $7.6m drop in tax credit.
- Last traded at 3x P/B.

*Manufacturing Integration Tech
- Turned around to 1H17 net profit of $2.8m (1H16: $0.8m loss).
- Revenue leapt 52% to $33.1m on strong orders, underpinned by the upcycle in the semiconductor industry and impending new major handset launches, as well as better contract equipment manufacturing business.
- Gross margin expanded 9ppt to 34%.
- Declared maiden interim DPS of 0.25¢ (1H16: nil).
- Order book stood at $22.4m at 4 Aug '17, with management expecting recent momentum for new orders to persist.
- Net cash increased to $19.7m (8.8¢/share or 34% of market cap) from $14.1m in Dec '16.
- NAV/share at $0.2234.

*Chip Eng Seng
- 2Q17 net profit plummeted 94.3% to $0.8m, partly hit by higher provisions relating to a construction project.
- Revenue sagged 9.3% to $212.6m, mainly dragged by property development (-8.2%) and construction (-13.8%) divisions, while both hospitality (+5%) and property investments (+13%) improved on higher occupancies.
- Gross margin shrank 5.6ppt to 17% on the shift in revenue mix.
- Bottom line was impacted by higher marketing expenses for Grandeur Park Residences, which was launched in Mar '17, and the newly opened Maldives resort Grand Park Kodhipparu.
- Construction order book increased to $538.4m (1Q17: $457.2m).
- NAV/share at $1.2025.

*Yeo Hiap Seng
- 2Q17 net profit tumbled 35% to $5.3m despite realising a $5.4m FX gain on liquidation of subsidiaries.
- Revenue dropped 22.7% to $87.2m, as F&B sales were undermined by pricing pressure and transition to new distributors in Cambodia, as well as absence of $1.6m dividend income from the divested Super Group.
- Gross margin contracted 9.3ppt to 30.2%.
- Declared a special DPS of 2¢ (2Q16: nil).
- NAV/share at $1.1464.

*Sarine
- 2Q17 net profit slumped 46.5% to US$3.2m, bringing 1H17 earnings to US$5.7m (-36.9%), or just 27% of full-year consensus estimate.
- Quarter revenue slipped 13% to US$18.2m on lower sales due to the illicit competition in India.
- Gross margin narrowed 0.7ppt to 68.4%.
- Bottom line was weighed by higher operating expenses from R&D (+11.4%) and general & admin cost (+14.5%) due to professional fees.
- NAV/share at $0.3051.

*Challenger Technologies
- 2Q17 net profit inched up 2% to $3.8m on lower taxes (-23%).
- Revenue slid 14% to $78.7m, weighed by weak performances in retail and tradeshow divisions.
- Gross margin widened 2ppt to 22.3% following closure of several underperforming retail outlets.
- Maintained interim DPS of 1.1¢.
- NAV/share at $0.2336.

*CEI
- 1H17 net profit declined 22.7% to $3.6m, as revenue slipped 2.1% to $67.5m.
- Operating margin contracted 1.8ppt to 6.3% due to absence of a $0.5m write-back of provision, and higher staff cost amid increased headcounts to support higher order book for 2H17.
- Order book increased to $53.1m (FY16: $46.8m), and majority of orders are expected to be fulfilled in 2017.
- Maintained interim DPS of 1.04¢, but cut special DPS to 3¢ (1H16: 3.76¢).
- NAV/share at $0.453.

*Nera Telecommunications:
- 2Q17 net profit dropped 40% to $1.4m, as taxes spiked more than double, albeit pared by absence of an FX loss (2Q16: $1.8m).
- Revenue slipped 1.3% to $50.3m amid lower sales for network infrastructure in Singapore and Australia.
- Gross margin shrank 2.6ppt to 23.4% on a shift in product mix and lower project write-back.
- Bottom line was also eroded by higher staff costs.
- Maintained interim DPS of 1¢.
- NAV/share at $0.1899.

*GSH
- Turned around to 2Q17 net profit of $71.7m (2Q16: $3.2m loss), mainly due to a $74.9m disposal gain arising from sale of its entire 51% stake in GSH Plaza.
- Revenue surged 73% to $30.6m on stronger property development (+146%), as well as hospitality (+40%) due to higher occupancy and average room rates at its two hotels in Sabah, Malaysia.
- Gross margin narrowed 2ppt to 45%.
- Excluding disposal gain, however, bottom line was hurt by a spike in staff costs and increased finance expenses.
- Proposed special DPS of 1¢ (2Q16: nil)
- NAV/share at $0.212.

*Multi-Chem
- 2Q17 net profit of $3.9m (+175%) was boosted by $3.5m disposal gain.
- Revenue grew 31% to $105.6m, bolstered by core IT division (+39.3%), which outweighed a drop in the PCB segment (-56.9%) due to lost capacity after the disposal of drilling machines in China.
- Gross margin shrank 2.9ppt to 13.7% amid reduced profitability in IT.
- Net cash position improved to $44.7m ($0.49/share, or 54% of market cap) from $39.2m in FY16.
- Maintained interim DPS of 1.11¢.
- NAV/share at $1.0755.

*AF Global
- 2Q17 net profit slumped 33% to $1.5m on absence of FX gains (2Q16: $1.4m).
- Revenue rose 5% to $12.9m, bolstered by higher hotel contribution, while leisure and property businesses were muted.
- Gross margin widened 1.2ppt to 46.1%, and bottom line was also cushioned by higher JV profit (+$0.9m).
- NAV/share at $0.25.

*GCCP Resources
- 2Q17 close to breakeven with net profit of RM0.3m (2Q16: RM4.4m loss).
- Revenue spiked 113% to RM5.2m, due to increase in orders of ground calcium carbonate (GCC) stones.
- Gross margin expanded to 76% (+20ppts) due to ready stocks of GCC limestone from previous extraction activities.
- Group expects performance in the following months to be sustained by a step-up contract from another major customer.
- NAV/share at RM0.07.

*Serial System
- 2Q17 net profit edged higher to US$3.4m (+3%) on lower taxes (-26%) and reduced associate losses (-20%).
- Revenue slipped 1% to US$373.9m as stronger contribution from distribution of electronic components (+14%) was offset by a slump in consumer products (-83%).
- Gross margin expanded to 7% (+0.4ppts) on a favourable shift in sales mix.
- Interim DPS hiked to 0.29¢ (2Q16: 0.18¢).
- NAV/share at US$0.1511.

*Federal Int'l
- 2Q17 net profit rose 10.2% to $1.2m, despite a 137.1% spike in revenue to $43.7m, led by higher sales from the Zawtika 1C project.
- However, gross margin narrowed 8.1ppt to 14.4% due to lower profitability from the trading segment.
- Bottom line was further impacted by higher admin costs (+8.6%) on increased insurance for its land rig and professional & consulting fees arising from to its Indonesian operations.
- NAV/share at $0.601.