SG Market (08 Feb 18)

MARKET OVERVIEW
- Expect choppy trading to persist as markets try to find its footing amid rising US bond yields and in-line results from bellwethers DBS and Singtel.
- From a technical perspective, the STI has failed to cover the 3,414-3,470 breakdown gap that occurred on 6 Feb. Underlying support now lies at 3,370 with near term resistance at 3,470.

CORPORATE RESULTS
*DBS
- 4Q17 net profit jumped 33% to a new quarterly high of $1.22b. This brought FY17 core earnings to $4.39b, in line with consensus forecast.
- For the last quarter, net interest income climbed 15% to $2.1b, driven by healthy loan expansion (+7% y/y, +3% q/q) and improved NIM of 1.78% (+7bps y/y, +5bps q/q).
- Non-interest income held steady at $958m (+0.6%) as growth in wealth management (+44%) and investment banking (+140%) was overshadowed by lower net trading income (-43%).
- Loan provisions fell significantly to $225m (-51% y/y, -72% q/q) as residual O&G support service exposures were dealt with in previous quarter.
- NPL ratio ticked up to 1.7% (4Q16: 1.4%, 3Q17: 1.7%) but capital position improved with Tier 1 CAR at 14.3% (4Q16: 14.1%, 3Q17: 14%).
- Declared final DPS of $0.60 and special DPS of $0.50, bringing FY17 total payout to $1.43 (FY16: $0.60).
- Trading at 1.42x P/B against historical average of 1.25x

*Singtel
- 3QFY18 net profit slipped 8.5% to $890m, dragged by lower contributions from associates Bharti Airtel and Globe.
- Revenue rose 4.4% to $4.6b on improved consumer (+3.1%) and digital life (+121.9%) segments helped offset lower takings from enterprise (-3.9%).
- Australian consumer operations (+8%) was lifted by increased customers, higher NBN migration payments and increased equipment sales but Singapore (-3%) suffered from continued shift from voice to data communications.
- Accordingly, EBITDA margin inched 0.4ppt to 28.1%.
- This brought 9MFY18 core earnings to $2.74b (-5.2%), barely meeting expectations.
- Lowered guidance for FY18 revenue growth from mid-single digit to low single digit, and maintained EBITDA growth in the mid-single digit level.
- Trades at 13.8x forward P/E and 5.3% yield.

*Perennial
- 4Q17 net profit climbed 7.9% to $27.6m, bringing FY17 core earnings to $48.1m (FY16: 0.3m).
- However, revenue for the quarter tumbled 25.7% to $16m in absence of takings from TripleOne Somerset as a result of the deconsolidation following the divestment of a 20.2% equity stake to 30%.
- Gross margin held steady at 56% (-0.5ppt).
- Bottom line was held up by higher fair value gains of $39.2m (+60.7%), and lower finance costs (-25.5%), as well as a jump in JV/associate income to $20.9m (+57.2%).
- NAV/share at $1.663.

*mm2 Asia
- 3QFY18 net profit jumped 52.9% to $6.4m, pushing 9MFY18 net profit to $17.4m (+56%), but at 64% of the street's FY18 forecast.
- Quarter revenue surged 190.4% to $52.4m mainly on new contributions from cinema acquisitions (Lotus Fivestar and Cathay Cineplexes), as well as increased contribution from UnUsUaL and its core business.
- Gross margin narrowed to 46.1% (-3.1ppt) on change in sales mix.
- But, bottom line was pressured by minority interests (+203.4%) and a spike in taxes (+111.7%).
- Separately, group announced an issuance of $47.9m in convertible debt securities to finance expansion plans in cinema operations.
- Last traded at 20.6x forward P/E.

*UnUsUal
- 3QFY18 results came in line as net profit surged 158% from a low base to $2.51m, bringing 9MFY18 earnings to $6.54m (+26%).
- For the quarter, revenue soared to $10.6m (+143%) on markedly stronger concert/event promotion takings (+$5.2m) and production revenue (+$1m).
- Operating margin widened 1.5ppt to 28.2%, as staff expenses (+75% to $1m), a key operating cost component, rose slower than top line.
- Trades at 53.1x forward P/E.

*Singhaiyi
- 3QFY18 net profit jumped 83.3% to $2m, bringing 9MFY18 net profit to $33.2m (9MFY17: $8.8m).
- Revenue for the quarter jumped 3.5x to $41.7m on revenue recognition following completion of its Executive Condo project, The Vales.
- Gross margin collapsed to 14.1% (-37.1ppt) on a significant shift in top line towards different geographies as well as lower margin property development projects.
- Bottom line was affected by the absence of FX gains (3QFY17: $1.9m), although mitigated by lower finance costs (-88.3%) as well as a turnaround in contributions from JVs & associates to $0.4m (3QFY17: -$7,000).
- Last traded at 0.66x P/B.

*CSC
- Continued to bleed with net loss of $2.1m (3QFY17: $5.6m loss), dragging 9MFY18 losses to $7.7m (3QFY17: $17.9m loss).
- Quarterly revenue surged 69.7% to $94.9m on higher work volume in Singapore
- Gross margin widened 1.1ppt to 4.5% due to firmer contract prices amid recovering demand for foundation engineering works.
- However, bottom line was marred by sticky administrative expense of $6m (+3.4%), but partly offset by lower tax expense (-83.4% to $0.1m) and other income (+617% to $0.9m) arising from disposal of old equipment.
- Order book swelled to $210m (3QFY17: $190m).
- Management is cautiously optimistic on its 2H18 outlook on the back of the series of en-bloc sales, positive economic condition and uptick of construction activities over the past 3 quarters.

*Neo Group
- 3QFY18 net profit jumped to $2.1m (3QFY17: $0.1m) due to the absence of a $5.2m disposal loss.
- However, revenue fell 4.2% to $44.7m on reduced trades of low margin products at its supplies & trading business (-$2.7m), and closure of non-performing outlets for the food retail segment (-$0.4m).
- Gross material margin expanded 5.5ppt to 54.9% amid an on-going strategic review across business segments to improve profitability.
- Bottom line growth was partly weighed by a $2.2m drop in tax credit to $0.3m.
- Net gearing fell from 2x in 2QFY18 but remained elevated at 1.75x.
- NAV/share at $0.224.

POSITIVE NEWS
*ComfortDelGro
- Acquiring bus and coach firm New Adventure Travel Group (NAT) for £13.4m ($25m).
- The deal for NAT translates to 5.5x EBITDA and is the group's first expansion of its scheduled bus operations outside of London.
- NAT is one of the leading operators in South Wales, UK, and has a license to operate 117 buses and coaches across 4 depots, comprises of Cardiff, Swansea, Newport and Pontypridd.
- NAT derives the bulk of its revenue from scheduled public bus service routes, with the remaining from chartered coach services.
- Trades at 14.4x forward P/E and indicative yield of 5.1%.
- MKE maintains Buy with TP of $2.40.

*ParkwayLife REIT
- Entered into a partnership with G.K. Nest to acquire a Japanese elderly nursing rehabilitation facility for ¥1.5b ($17.8m), or 7.4% below market valuation.
- The 120-room facility, Konosu Nursing Home Kyoseien, will be leased to Iryouhoujin Shadan Kouaika for 20 years at an annual gross rental of ¥112m ($1.33m).
- Acquisition is slated to complete by 1Q18.
- Offers 4.9% indicative yield and trades at 1.58x P/B.

*Ezion (suspended)
- Secured US$1.5b refinancing package from six lenders, namely DBS, OCBC, UOB, Maybank, CIMB and Caterpillar Financial.
- The package will be secured by 100m vendor shares owned by CEO Chew Thiam Keng and family (about half of their personal holdings).
- The deal include minimal fixed principal repayments over the next six years at lowered interest rates, and up to US$118m additional revolving credit facilities.
- The next step in Ezion's debt restructuring is to secure regulatory and shareholder approvals for the proposed issuance of new bonds, shares, and warrants to the relevant stakeholders.
- Ezion will apply to lift its share trading suspension after obtaining shareholders' approval at the EGM in Mar.

*OKP Holdings
- 51:49 JV with HSB Holdings to acquire a freehold nine-storey office complex at 6-8 Bennett Street, Perth, Australia, for A$43.5m.
- OKP's first overseas investment property has 10,219 sqm of NLA, occupying land area of 3,115 sqm, and currently is 68% occupied with WALE of 6.02 years.
- The property will be funded by a mix of internal funds and bank borrowings.

NEGATIVE NEWS
*Profit warning
- China Yuanbang Property