Singapore Banks

Singapore Banks: Singapore’s December 2014 loan book display signs of weakness especially on the corporate front. Overall full year loan growth was slowest since 2009. System loans (DBU + ACU) eked out growths of only 0.1% m/m, 1.5% q/q and 9.2% y/y, despite being lifted by 2% depreciation in SGD. DBU loans were flat (-0.03% m/m, +0.8% /q, +5.9% y/y). Decline in domestic business loan book (-0.4% m/m, +0.4% q/q, +6.4% y/y) were only partially offset by increase in consumer loan balances (+0.5% m/m, +1.3% q/q, +5.16% y/y). The business front is depressed by manufacturing loans (-6.4% m/m, -3.6% m/m, -6.3% y/y), trade loans (-1.2% m/m, -3.1% q/q, +2.9% y/y) and financial institution loans (-2.0% m/m, -1.0% q/q, +5.9% y/y), offset by agriculture and mining (+1.9% m/m, +7.7% q/q, +27.3% y/y), construction and building (+0.9% m/m, +4.3% q/q, +13.6% y/y) and transport (+2.8% m/m, +4.9% q/q, +17.3% y/y). Most notably, persistent deceleration in trade loans reflects a challenging global environment. The consumer front is lifted by housing loans (+0.7% m/m, +1.6% q/q, +6.5% y/y) and credit card loans (+2.0% m/m, +3.8% q/q, +4.8% y/y) but weighed by car loans (-1.6% m/m, -4.8% q/q, -19.2% y/y) and shares financing (-1.4% m/m, -8.9% q/q, -15.2% y/y). Housing loans may remain lethargic as property prices are expected to lose another 15-20% this year while SIBOR rallies. Our house projects a slowdown in loan growth in 2015 to average 9% for full year. Deposit growth picked up 0.6% m/m (+1.9% q/q, +2.4% y/y) in December, an improvement from November’s +0.3% m/m but slow nonetheless. System LDR and SGD-LDR eased by 71bps and 26bps respectively to ~110% and 86%. We expect the surprise MAS reduction in SGD NEER, along with the consequent and anticipated (buoyed by US rate hike) boost to SIBOR, to benefit banks NIMs. DBS remains our sector top pick (Buy, TP $23.50), best positioned with lowest SGD LDR ratio. UOB is similarly rated Buy with TP of $23.18 but OCBC is rated Hold with TP of $10.40 for execution risks of the Wing Hang Bank M&A.

Olam

Olam: GS highlights a seasonally strong quarter for Olam, driven by higher volumes for Confectionary and Industry Raw Materials. GS maintains Neutral with TP of $2.20.

Wilmar

Wilmar: Stable downstream, but weak upstream. Oilseeds & Grains margins may stay high on recovering China soybean crushing margins, while Consumer Products margins may further improve driven by Rice and Flour business, which turned profitable in 3Q14. However, CPO refining margins may stay weak due to industry overcapacity and as biodiesel margins may gradually taper off (unfavorable economics and as previously secured contracts expire). Upstream earnings may also weigh on results, with the low CPO and sugar price environment. GS maintains Neutral, with TP raised to $3.15 (from $2.90).

Noble

Noble: Goldman highlights earnings risk in 4Q14, but improving 2015 outlook While a certain degree of price volatility is positive for trading margins (e.g., creates arbitrage opportunities), extreme commodity price volatility can be negative for margins (e.g., higher counterparty risks). As such, the sharp decline in oil prices in 4Q14 (-40%) may cause some downside risks to Energy earnings. Furthermore, the decline in the broader commodity prices such as thermal coal and iron ore has increased asset impairment risks. However, GS notes that Noble’s outlook for 2015 is improving due to: 1) oil ‘super-contango’ (traders can leverage the curve by buying and holding the commodity); 2) improving supply-demand factors (oil supply abundant, high demand); 3) rising volume offtakes (metals, coal, oil); 4) lower interest costs (lower gearing post the Agri division’s stake sale); and 5) lower working capital requirements (lower commodity prices). GS maintains BUY rating, but lowered its TP to $1.45 (from $1.55).

GP Hotels

GP Hotels: 4Q14 net profit soared 61% to $8.4m, while revenue climbed 7.2% to $16m, from Parc Sovereign Hotel and Fragrance Hotel Pearl, offset by lower revenue from other hotels. Occupancy fell 6.9ppt to 81.4%, while RevPAR fell $5.5 to $86.8. Bottom line boosted by the reversion of overprovision of taxes in prior years, amounting $3.4m. On outlook, management acknowledges keen competition with an onslaught of new rooms. JLL expects 3,200 new rooms in Singapore this year. Perhaps a relief could come from an uptick in tourist arrivals as Singapore celebrates its golden jubilee and hosts the SEA Games this year. Final DPS of 0.5¢ declared GP hotels is trading at 0.5x P/B and 1.4% yield

SG Market (02 Feb 15)

Singapore shares are likely to brace for another week of hits and misses following the weaker-than-expected US 4Q GDP growth, Eurozone inflation and China official PMI data, as well as the late selldown in STI index stocks last Fri. For this week, investors will be looking out for US manufacturing and jobs reports and some key local corporate earnings, including OSIM and SIA Engineering (Tue), SATS and Sing Post (Wed), GLP (Thu) and SIA (Fri) to set the tone for the market. Asian shares opened mixed this morning, with Tokyo (-1.1%), Seoul (+0.2%) and Sydney (+0.6%) not giving any clear direction. From a chart perspective, the STI is exhibiting a bearish harami set-up with support at 3,377 with overhead resistance at 3,465. Stocks to watch: *GP Hotels: 4Q14 net profit soared 61% y/y to $8.4m, mainly boosted by a reversion of overprovision of taxes in prior years ($3.4m). Excluding that, operating profit fell 17% y/y. Meanwhile, revenue climbed 7.2% to $16m from positive performance at Parc Sovereign Hotel and Fragrance Hotel Pearl, but partially offset by lower revenue from its remaining hotels and the closure of Fragrance Hotel Elegance. Operationally, average occupancy rate fell 6.9ppt to 81.4%, while RevPAR fell $5.5 to $86.8. First and final DPS of 0.5¢ declared (FY13: 0.26¢). BVPS of $0.6835. *MTQ: 4Q14 net profit fell 66% y/y to $2.2m, dragged by lower gross profit (-14%) from its oilfield engineering business and the inclusion of losses from recently-acquired subsidiary, Binder. Bottom line was also weighed by higher staff costs (+5%). Meanwhile, revenue remained flat at $74.9m, buoyed by contribution from Bahrain and Neptune. BVPS at $0.90. *Ezra: Subsea Services division, EMAS AMC, secured multiple contracts from various energy companies valued >US$65m (including options), taking year-to-date wins to US$355m. Scope of work includes project management, engineering, transportation and installation works for an FPSO in Africa. *United Engineers: Substantial shareholders, OCBC and Great Eastern, extended their exclusivity agreement with TCC from 30 Jan to 13 Feb, in relation to a possible sale of their combined stake. *Xyec Holdings: Voluntary conditional cash partial offer of 42.9% by Mamezou Holdings at $0.30/share. *Del Monte Pacific: To undertake a 493-for-1000 renounceable underwritten rights issue of up to 641.9m new shares at an issue price of $0.325 or 10.60 pesos apiece. Net proceeds of $202.5m intended to repay a bridging facility obtained to partially finance the acquisition of the consumer food business recently completed. *Roxy Pacific: To acquire a freehold land parcel at 609 Wellington Street, Perth, for A$17m. The acquisition is conditional upon approval to develop a hotel with at least 332 rooms. *PREH: To acquire 31.2% in AXA Tower for $1.17b ($1,735 psf). Management believes the under-utilised property provides a strong upside potential. *YuuZoo: Signed MOU with Activistic, an Australian company specializing in micro-donations and micro-payments. The partnership is intended to provide a platform across the YuuZoo networks to capture, manage and distribute micro-donations and micro-payments for charitable purposes. *Ramba Energy: Exclusive period with Risco Energy Investments to farm out a 25% working interest in the Lemang production sharing contract has lapsed. *Rex: Signed farm-in agreement with Rhein Petroleum (Tulip Oil’s 90% subsidiary) to acquire a participating interest in Altweide, with site area of 11 sq km, located in Upper Rhine Graben, Germany. *Japfa: Acquired remaining 15% stake in Japfa Comfeed Myanmar for US$5.7m. *IEV Holdings: Secured US$1.3m contract in India to supply its proprietary Marine Growth Preventer products to five new offshore platforms and one existing offshore platform for a major oil and gas company. *Shangri-La Asia: Positive operating profit guidance for FY14, due to improved performance from investment properties in China and lower pre-opening expenses of new projects. However, net profit is likely to be lower on smaller fair value gains from investment properties. Profit warnings: - Hai Leck (2QFY15) due to lower sales and decline in gross profit margin; - Blumont (4Q14 and FY14) due to fair value readjustments of financial assets; - Santak (1HFY15) from lower gross margin and significant expenses for its new precision machined component; - Hiap Seng (3QFY15) from cost overruns; - IFS Capital (4Q14 and FY14) net loss is expected to narrow y/y, although still dragged by impairment of loan losses; - Singapore eDevelopment (FY14) from losses and provision from claims incurred from its legacy construction business, as well as non-cash fair value adjustment of exchangeable notes.

Tuan Sing

Tuan Sing ($0.415): 4Q net profit slipped 4% y/y to $24.3m, mostly due to lower non-recurring fair value adjustments (FVA). Profit before tax and FVA is $26.5m (vs 4Q13 $3.5m), boosted by doubling in gross profit, one-time gain in negative goodwill ($26.9m) from the acquisition of Grand Hotel Group (GHG) and higher contribution from associates, offset by higher operating expenses and finance costs. Revenue surged 72% to $112.1m, reflecting faster progressive revenue recognition (by POC method) at three Singapore residential properties Seletar Park Residence (SPR), Sennett Residence (SR) and Cluny Park Residence (CPR) in the property segment, and maiden contribution ($12.0,) from the two five-star hotels Grand Hyatt Melbourne and Hyatt Regency Perth held under GHG. Operating expenses ballooned 15x to $22.9m due to consolidation of GHG and acquisition expenses amounting to $17.8m. Finance costs increased due to interest on additional borrowings used for acquisition of Robinson Point in 2013 and GHG in 2014. Share of profits from associates amounted to $6.1m (vs $0.4m in 4Q13, which includes $5.9m loss from corporate guarantees given to Pan-West’s bankers), contributed equally by GHG (pre-acquisition) and GulTech. Pan West continues to record accumulated losses that exceeded Tuan Sing’s cost of investment and contractual obligation. Also the result of recent acquisitions, net borrowings increased $451.8m to $1.1b and net gearing climbed from 0.80x at Sep14 to 1.34x at Dec14. Market may have priced in the high gearing as the stock is now trading at 0.6x P/BV, lowest among peers. Going forward, total order book of $763.2m (vs $750.3m in Sep14) will be progressively recognized as construction continues. SPR is expected to be completed by FY15, SR in 2016 and CPR in 2018. 43.3%-owned GulTech will commence its production run for printed circuit boards in its new plant in Wuxi, China. Tuan Sing maintained its first and final dividend at 0.5₵ per share.