SG Market (30 Apr 18)

MARKET OVERVIEW
- The market is likely to head higher following the dramatic easing of geopolitical tensions in Korea, 10Y US Treasury yield dipping back below 3% as well as solid 1Q18 earnings from DBS, the first of the three banks to report results.
- Technically, - Technically, the STI could attempt re-test the last high of 3,610. Downside support is at 3,510.

CORPORATE RESULTS
*DBS Group
- 1Q18 net profit surge 26% to a quarterly record of $1.52b, clearly beating estimates on broad-based growth in loans and non-interest income.
- Net interest income rose 16% to $2.13b as loans grew 10% (+16% in constant currency terms) on stronger property and consumer loans.
- Net interest margin widened to 1.83% (+9bps) on higher SGD, USD and HKD interest rates
- Non-interest income climbed 17% to $1.23b from higher wealth management (+49%) and brokerage (+29%) as well as net trading income (+36%).
- A positive jaw led to a 1.6ppt drop in cost-income ratio to 41.6%.
- Total allowances shrank 18% to $164m with NPL ratio at 1.6% as new non-performing asset formation at a four-year low.
- CET1 capital remained at 14% (4Q17: 13.9%)
- ROE of 13.1% was the highest in a decade.
- Trades at 1.6x P/B.
- MKE maintains Hold with TP of $29.66.

*Sheng Siong
- 1Q18 net profit rose 6.6% to $18.3m, in line with estimates.
- Revenue grew 5.1% to $228.3m on contribution from higher same store sales (+5.6%) and seven new stores (+6.7%).
- Gross margin improved to 26.2% (+1ppt) on favourable sales mix of fresh products and suppliers' rebates.
- Bottom line was weighed admin costs of $38.3m (+11.8%) due to higher headcount and bonus provision.
- Trades at 21x forward P/E.
- MKE has a Buy with TP of $1.20

*Raffles Medical
- 1Q18 net profit edged up 1.7% to $15.8m, meeting street tempered expectations.
- Revenue grew $120.2m (+4.6%) on increased patient loads as well as a new contract to provide air borders screening services.
- Operating margin held steady at 15.7% as staff cost control (+3.9%) was offset by higher inventories and consumables used (+11.9%).
- Raffles Hospital Extension has been completed and its specialist centre opened on 22 Jan.
- Trades at 31.6x forward P/E.
- MKE last had a Hold with TP of $1.13

*CDL Hospiality Trusts
- 1Q18 DPS of 2.17¢ (+7.4%) was in line with estimates as the Singapore portfolio recorded an improved performance despite a competititve landscape.
- Revenue and NPI was up 11.6% and 5.4% to $51.8m and $37.8 respectively, mainly due to inorganic growth from The Lowry Hotel in Manchester, UK and Pullman Hotel Munich in Germany
- RevPAR for the Singapore hotels improved 0.8% to $161 in 1Q18 although average occupany rate dipped 0.8ppt to 87.6%.
- Leverage of 33.2% gives it a regulatory debt headroom of $608m.
- Trades at annualised 1Q yield of 5% and 1.1x P/B

*Oxley
- 3Q18 net profit declined 33% to $30.6m on revenue of $238.8m (-38%), bringing 9M18 earnings to 75% of full year estimates.
- Gross margin narrowed by 8.7ppt to 15.1%, due to recognition of construction costs in relation to certain plots in The Royal Wharf Phase 1A and 1B, as well as certain expenses incurred on investment properties and hotel operations.
- The Group had total unbilled contract value of $1.57b, of which $0.14b was attributable to the projects in Singapore and remaining $1.43b was attributable to overseas projects.
- Net gearing increased to 2.4x due to the Group's higher capital needs in asset acquisition and upcoming projects.
- Trades at almost 47% discount to RNAV.

*Manulife US REIT
- 1Q18 results missed, as headline DPU slid 8.5% to 1.51US¢ on a rights-enlarged unit base (+65%).
- Post adjustment for rights, DPU slipped 0.7% on weaker occupancies in Figueroa and Michelson against 1Q17.
- Revenue and NPI surged to US$31.2m (+57%) and US$19.7m (+54%), on contributions from two newly acquired properties, Plaza and Exchange.
- Overall portfolio occupancy ticked lower by 0.1ppt q/q to 95.8%.
- Aggregate leverage edged up 0.4ppt q/q to 34.1%.
- Pending unitholders' approval on 15 May '18 for the acquisition of two sponsor's assets for US$387m (28% of total asset).
- Offers annualised 1Q yield of 6.4%, and last traded at 1.16x P/B.

*Micro-Mechanics
- 3QFY18 net profit jumped 18.7% to $4.1m, lifting 9MFY18 earnings to $13.2m (+29.2%), below expecatations at 66% of full year estimates.
- Revenue for the quarter rose 13% to $16.1m on higher sales in China, the Philippines, and US.
- Gross margin narrowed 1.6ppt to 55.8% on higher production headcount, and higher depreciation for additional machines.
- Bottom line was helped by absence of $0.18m FX loss and operating cost controls.
- Trading at 12.4x forward P/E.

*iFast
- 1Q18 net profit leapt 52.6% to $2.8m, meeting expectations.
- Revenue rose 40.1% to $31m as AUA increased 24.8% to hit a record $8.07b for both B2C and B2B business divisions.
- However, China operation incurred steeper loss of $1.2m (+22.8% y/y, +1.1% q/q) as it is still in gestation stage of building its brand and business in the new market.
- Going forward, increasing focus will be channelled towards gaining scale as a platform, while continuing to improve its service offerings
- Overall, the group expects to perform better in 2018
- Declared a higher first interim DPS of 0.75¢ (1Q17: 0.68¢)
- Trades at 22x forward P/E.

*Tuan Sing
- 1Q18 net profit jumped 53% to $8.2m, boosted by disposal gain of $3.9m. Excluding the one-off item, earnings of of $4.2m (-20.7%) would have come in below estimates.
- Revenue edged up 2% to $76.5m on higher contributions from its industrial services segment (+16.9%), partially offset by lower sales of residential development projects (-12.1%).
- Gross margin expanded to 21.7% (+1.2ppt) on the change in sales mix.
- Bottom line was hit by higher admin expenses (+9% to $6.2m) and finance costs (+66% to $10.1m) despite stronger contributions from 44.5%-owned Gultech (+16% to $4.2m).
- Trades at 49% discount to NAV/share of $0.836.

*GL
- 9MFY18 net profit surged 83% to US$53m on higher other income of US$28.7m (9MFY17: US$2.4m) , mainly from compensation from a compulsory acquisition of a hotel, and recovery of a writted off loan.
- Revenue grinded 4% higher to US$259.4m, helped by stronger GBP and AUD against USD during the period, as well as higher oil prices.
- Gross margin ticked up 0.7ppt to 59.6%.
- NAV/share at US$0.882.

*Jiutian Chemical
- 1Q18 net profit more than tripled to Rmb23.4m (1Q17: Rmb6.2m) on operating leverage.
- Revenue rose 20% to Rmb326m as higher ASPs of DMF (+11%) and Methylamine (+37%) were partially offset by lower sales volume of 9% and 1% respectively.
- Consequently, gross margin fattened to 17% (+9ppt).
- Bottom line was supported by slower growth in distribution (+8%) and admin (+7%) expenses, although this was partially pared by losses form its associate of Rmb8.7m (1Q17: Rmb0.3m profit).

POSITIVE NEWS
*Mapletree Industrial Trust
- Executed a novation agreement in respect of an OTP for an industrial property located at 7 Tai Seng Drive with its Sponsor, Mapletree Investments and the vendor of the Property, Mapletree Logistics Trust (MLT)
- MIT has also signed an agreement to lease (ATL) with an established information and communication technology company. The long-term lease commitment from a high-quality tenant will further enhance the portfolio resilience.
- It has a GFA of about 256,600 sf on a land area of about 96,500 sf. The site is zoned for Business 2 use with its land lease tenure of 30 years commencing from 16 March 1993 and an option to extend for an additional 30 years.
- Pursuant to the ATL, MIT will be undertaking upgrading works to increase the power capacity and floor loading capacity, and to provide additional telecommunication infrastructure as well as space for mechanical and electrical equipment.
- When completed in the 2H of 2019, the Property will be fully leased to the Tenant for an initial term of 25 years with annual rental escalations and an option to renew exercisable by the Tenant for the remaining land lease tenure.
- Assuming the cost of the proposed acquisition and upgrading works of $95m are fully funded by debt, the aggregate leverage ratio is expected to increase from 33.1% (as at 31 March 2018) to 34.6%.
- Trades at annualised yield of 5.8% and 1.37x P/B

*Vard Holdings
- Has been selected by Prysmian Group for the design and construction of one cable laying vessel. The contract value, including owner supplied special equipment, amounts to €170m (NOK1.6b).
- The vessel is scheduled for delivery from Vard Brattvaag in Norway, in 4Q 2020. Several of the Group's specialized subsidiaries are also involved in the project through deliveries of equipment and solutions.
- Trades at 0.86x P/B

*BreadTalk
- Set up a 50.5% owned JV with Din Tai Fung Restaurant (15%), and several other partners to operate the Din Tai Fung brand of restaurants in UK.
- First outlet is scheduled to open by end 2018 in Covent Garden, London, with a second restaurant at Centre Point in the pipeline.

*SIA Engineering
- Entered into a non-binding LOI with Cebu Air, Inc to further collaborate to expand maintenance, repair and overhaul (MRO) services in the Philippines.
- Both companies will explore the feasibility of potential growth opportunities for its two JV companies in the Philippines through the expansion of line maintenance operations, growth of hangar facilities and expansion of training academy services.
- It is expected that these growth opportunities will have an estimated investment value of US$15m to US$20m and is likely to generate employment in the Philippines.
- Trades at about 21x P/E and 2.5x P/B

NEUTRAL NEWS
* Keppel Corp
- Signed a non-binding MOU with Filinvest Development Corporation to develop solutions for sustainable urbanisation in the country.
- Will explore cooperation opportunities in developing and enhancing urban solutions for Filinvest's development portfolio.
- The partnership seeks to leverage the strengths of Keppel Urban Solutions, an end-to-end integrated master developer of urban developments that brings together the Keppel's diverse capabilities in energy, property, infrastructure, data centres and connectivity to create highly liveable, smart and sustainable communities.
- Trades at 13x P/E and 1.3x P/B

*Frasers Property
- Entered into a conditional share purchase agreement with Tran Thai Lands Company Limited to acquire 24m shares, representing 75% of the issued share capital of Phu An Khang Real Estate Joint Stock Company (PAK).
- It is intended that PAK will undertake the development of a residential-cum-commercial project on a mixed-use development plot in District 2, Ho Chi Minh City, Vietnam to be held by PAK.
- The aggregate consideration of VND 408.6b ($23.89m) implies a purchase valuation of 0.75x P/B, based on PAK's unaudited proforma NAV of VND544.8b (S$31.86m) upon completion of the proposed acquisition.
- The Consideration will be fully satisfied in cash on the occurrence of stipulated events and will be funded by the Group's internal cash resources and/or external bank borrowings
- Trades at 0.8x P/B.

*Ascendas Hospitality Trust
- Acquiring KY-Heritage Hotel Dondaemun, a freehold 215-room four-star hotel in Seoul, for 73b won ($90.1m).
- The consideration is at a 3.2% discount to the latest valuation of the hotel and translates to a pro-forma NPI yield of 4.1%.
- The acquisition is expected to be fully funded by debt, and complete by Jun '18.
- Pro-forma 9MFY18 DPS is expected to increase 0.01¢ to 4.15¢.
- Offers an annualised 9MFY18 yield of 6.9%.

*Koh Brothers
- Entered into a JV with FEC Properties to jointly acquire and redevelop two freehold residential sites through the special purpose entity, FEC Skypark (FECS)
- Its 20% stake in the Total Land Acquisition Cost is $81,464,360, which the group will fund its investment in FECS by internal resources and external borrowings.
- FECS intends to redevelop the Estoril Site and the Hollandia Site into a single residential project with a combined GFA of 22,500 sqm.
- The latest JV will allow the Group to expand its development portfolio in Singapore.
- Trades at 0.5x P/B

NEGATIVE NEWS
*Hai Leck
- Warned of a net loss for 3QFY18 but is expected to remain profitable for 9MFY18.
- Expected loss is due to lower revenue arising from market conditions.