Global Investments: Daiwa issued an unrated report on Global Investments (GIL) today. GIL is a mutual fund company with focus on income generation. As of 31 March 2015, listed equities, bonds and cash & other net assets account for around 69% of its total asset portfolio. The total carrying value of these listed-assets is $218m, representing 104% of GIL’s market capitalization. The market is essentially ascribing a 0 value to its unlisted loan portfolio & securitization and operating lease (Ascendos) assets, investments which had generated $12.1m in dividend and interest income for 2014.
GIL’s listed equity portfolio has 18% exposure to the Shanghai Composite Index and 51% to the Hang Seng Index, with total value of $72m. Despite strong performance of global financial markets recently, management remains mindful of the heightened volatility and adopts an active management strategy in a bid to increase shareholder return through generation of alpha.
Based on its latest closing price of $0.151, the stock is yielding 10% at 2014’s distribution rate of $0.015/share. GIL also recently provided dividend guidance of SGD0.0075 for 1H15, to be declared in August 2015. The stock is trading at a trailing 2014 PER of 8.6x and PBR of 0.7x.
Wednesday, June 17, 2015
Strategy (UOB KH)
Strategy: UOB Kay Hian did an analysis of fundamentals for dividend yield stocks ahead of reversing yield compression. On this basis, house likes SingTel and SATS. Negatively impacted stocks are SIA Eng and StarHub.
High yielding stocks have done well. Since the Global Financial Crisis (GFC) in 2008, an abnormally low interest rate environment has prevailed. This resulted in outperformance of high dividend yield stocks as yield compression set in.
Despite concerns over the potential reversal of yield compression, house believes selected yield stocks will remain favoured. Hence, even with an expected rise in interest rates, UOBKH thinks investors should still maintain selected high dividend stocks in their portfolio for steady returns.
Also, yield stocks with solid growth prospects will also be better positioned to mitigate rising rates. Risk adverse investors could opt for dividend stocks that are less correlated with interest rates. This includes SingTel and SATS, which are its top dividend yield picks.
Another low beta but safe alternative is SPH.
High yielding stocks have done well. Since the Global Financial Crisis (GFC) in 2008, an abnormally low interest rate environment has prevailed. This resulted in outperformance of high dividend yield stocks as yield compression set in.
Despite concerns over the potential reversal of yield compression, house believes selected yield stocks will remain favoured. Hence, even with an expected rise in interest rates, UOBKH thinks investors should still maintain selected high dividend stocks in their portfolio for steady returns.
Also, yield stocks with solid growth prospects will also be better positioned to mitigate rising rates. Risk adverse investors could opt for dividend stocks that are less correlated with interest rates. This includes SingTel and SATS, which are its top dividend yield picks.
Another low beta but safe alternative is SPH.
Keppel Corp
Keppel Corp: CLSA has a rpt reiterating its Sell call with TP of $6.91, as the market has not yet priced in the severity of the downturn in the O&M segment.
Year-to-date order wins stand at $330m, just 11% of the street's full year expectations of $3-4b.
Net orderbook as of 1Q15 was $11.7b, of which ~$7b will be recognised in 2015, implying 2016/17 revenues will likely fall off a cliff. With its O&M orderbook shrinking rapidly, margins are expected to follow due to operating leverage.
In addition, Keppel’s property segment which represents 64% of CLSA's is not really cheap on a valuation basis, trading at 20% discount to RNAV and in line with other Singapore-focused developers.
Year-to-date order wins stand at $330m, just 11% of the street's full year expectations of $3-4b.
Net orderbook as of 1Q15 was $11.7b, of which ~$7b will be recognised in 2015, implying 2016/17 revenues will likely fall off a cliff. With its O&M orderbook shrinking rapidly, margins are expected to follow due to operating leverage.
In addition, Keppel’s property segment which represents 64% of CLSA's is not really cheap on a valuation basis, trading at 20% discount to RNAV and in line with other Singapore-focused developers.
Super Group
Super Group: (S$1.11) Eyeballing El Nino's effects
Prices of soft commodities, including coffee, CPO and sugar, may be inflated by 10% in FY16, depending on the severity of El Nino conditions.
Weather patterns around the globe are being disrupted with heavy rains and flooding in southern US and parts of Latin America, along with droughts in Australia and Asia.
Maybank-KE estimates that instant coffee manufacturer Super's gross profit could be dragged by the higher cost of raw materials, with robusta coffee being the largest cost component, making up 30% of each coffee sachet.
The house believes that coffee prices should be capped due to bean hoarding by farmers, which should help offset the potentially smaller crop.
Further, impact of higher costs would be moderated by the launch of new premium products in Super's key markets come 2H15, including four new flavoured coffee mixes in China, on the back of the stronger seasonality.
The company is also stocking up more raw materials during current low prices, which is expected to buffer margins for at least 2-3 quarters in a worst case scenario.
Maybank-KE thinks that Super stands a good chance of recovery this year, supported by healthy revenue growth in core markets, backed by a return innew markets, on the group's comprehensive rebranding efforts.
The house maintains Buy with a TP of $1.57.
Prices of soft commodities, including coffee, CPO and sugar, may be inflated by 10% in FY16, depending on the severity of El Nino conditions.
Weather patterns around the globe are being disrupted with heavy rains and flooding in southern US and parts of Latin America, along with droughts in Australia and Asia.
Maybank-KE estimates that instant coffee manufacturer Super's gross profit could be dragged by the higher cost of raw materials, with robusta coffee being the largest cost component, making up 30% of each coffee sachet.
The house believes that coffee prices should be capped due to bean hoarding by farmers, which should help offset the potentially smaller crop.
Further, impact of higher costs would be moderated by the launch of new premium products in Super's key markets come 2H15, including four new flavoured coffee mixes in China, on the back of the stronger seasonality.
The company is also stocking up more raw materials during current low prices, which is expected to buffer margins for at least 2-3 quarters in a worst case scenario.
Maybank-KE thinks that Super stands a good chance of recovery this year, supported by healthy revenue growth in core markets, backed by a return innew markets, on the group's comprehensive rebranding efforts.
The house maintains Buy with a TP of $1.57.
SG Market (17 Jun 15)
Singapore shares may stage a slight technical rebound after Wall Street closed higher for the first time in three days, in a light volume session with investors staying on the sidelines as they await for more information on the Greece debt crisis and the Fed’s FOMC meeting.
Regional bourses are trading higher this morning in Tokyo (+0.3%) and Sydney (+0.7%), but lower in Seoul (-0.1%).
From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.
Stocks to watch:
*Property: Transaction volumes for strata-titled commercial properties continue to hit new lows since the GFC, as easing business activities crimp demand from end-users, while individual investors' borrowing capacities are being capped by lending curbs. 81 caveats were lodged for strata office units between Jan-May'15, a 72.7% y/y drop, and the lowest level since 1H09 when 63 caveats were lodged. In the retail space, 84 caveats (-58.4% y/y) were lodged for strata units.
*REITs: An update by SGX revealed that S’pore’s retail REITs averaged total returns of 13.7% over the past 12 months, with an average distribution yield of 6.1%, led by strong contributions coming from Lippo Malls Indonesia Retail Trust, Frasers Centrepoint Trust, Starhill Global REIT, CapitaLand Retail China Trust and CapitaLand Mall Trust.
*ST Engineering: ST Aerospace secured a 7-year contract worth more than US$100m for aircraft component support with Flybe. ST Aerospace will provide comprehensive component Maintenance-By-the-Hour support for Flybe’s growing fleet of Bombardier Dash 8 Q400 aircraft.
*Keppel Corp: Majority-owned Ocean Mineral Singapore has entered into a 15-year exploration contract for polymetallic nodules at a site within the Clarion-Clipperton Fracture Zone of the Pacific Ocean with the International Seabed Authority.
*Noble: Company has committed $42.9m so far into buying back shares, with the group recently snapping up 12.98m shares @ $0.7087 per share in its third share buyback transaction this month.
*Singapore eDevelopment: Proposed placement of 15m new shares (5.3% current shares issued) at $0.081 each to Fan Ben, the founder of HK-listed Neo-Neon Holdings. Net proceeds of $1.2m is intended for general working capital.
*Sembcorp Marine: Franklin Templeton emerged as a substantial shareholder following the purchase of 890,900 shares at an average price of $2.99, via open market transaction.
*Rex: Jointly-controlled entity Lime Petroleum Norway will be participating in the drilling of Haribo prospect in PL616 in the North Sea, scheduled to start in Jun ‘15.
Regional bourses are trading higher this morning in Tokyo (+0.3%) and Sydney (+0.7%), but lower in Seoul (-0.1%).
From a chart perspective, the STI is capped below the 200-dma at 3,360, with downside support at 3,268.
Stocks to watch:
*Property: Transaction volumes for strata-titled commercial properties continue to hit new lows since the GFC, as easing business activities crimp demand from end-users, while individual investors' borrowing capacities are being capped by lending curbs. 81 caveats were lodged for strata office units between Jan-May'15, a 72.7% y/y drop, and the lowest level since 1H09 when 63 caveats were lodged. In the retail space, 84 caveats (-58.4% y/y) were lodged for strata units.
*REITs: An update by SGX revealed that S’pore’s retail REITs averaged total returns of 13.7% over the past 12 months, with an average distribution yield of 6.1%, led by strong contributions coming from Lippo Malls Indonesia Retail Trust, Frasers Centrepoint Trust, Starhill Global REIT, CapitaLand Retail China Trust and CapitaLand Mall Trust.
*ST Engineering: ST Aerospace secured a 7-year contract worth more than US$100m for aircraft component support with Flybe. ST Aerospace will provide comprehensive component Maintenance-By-the-Hour support for Flybe’s growing fleet of Bombardier Dash 8 Q400 aircraft.
*Keppel Corp: Majority-owned Ocean Mineral Singapore has entered into a 15-year exploration contract for polymetallic nodules at a site within the Clarion-Clipperton Fracture Zone of the Pacific Ocean with the International Seabed Authority.
*Noble: Company has committed $42.9m so far into buying back shares, with the group recently snapping up 12.98m shares @ $0.7087 per share in its third share buyback transaction this month.
*Singapore eDevelopment: Proposed placement of 15m new shares (5.3% current shares issued) at $0.081 each to Fan Ben, the founder of HK-listed Neo-Neon Holdings. Net proceeds of $1.2m is intended for general working capital.
*Sembcorp Marine: Franklin Templeton emerged as a substantial shareholder following the purchase of 890,900 shares at an average price of $2.99, via open market transaction.
*Rex: Jointly-controlled entity Lime Petroleum Norway will be participating in the drilling of Haribo prospect in PL616 in the North Sea, scheduled to start in Jun ‘15.
Tuesday, June 16, 2015
O&M
O&M: Cash calls on the horizon; smaller O&M players at risk
More cash calls by smaller offshore and marine firms with high debt levels could be on the horizon as funds dry up amid a crude oil slump and OSV oversupply.
Market watchers cite that credit situation between O&M companies and financial lenders are stretched, with the latter unwilling to finance new vessels unless contracts have been secured.
Utilisation levels for OSVs plummeted in 1Q15, in tandem with a 15% fall in charter rates from peak levels, as oil companies scaled back their exploration budgets and capex spending.
Amid the downturn, highly geared firms may be hard pressed to slash charter rates and sacrifice margins for operating cash flow.
Asset disposal is not exactly an option given the lack of interested buyers in an oversupplied markets, which depresses vessel prices further.
The rising risk premiums in the bond markets also leave equity funding as the only feasible option from many of the smaller offshore players.
Likely candidates taking this route include Otto Marine, Swiber and Marco Polo Marine given their high debt levels. At the latest financials, Otto Marine's net gearing stood at 200%, among the highest in the industry, with its short term debt 12.5x larger than its $18.6m cash.
Despite a rights issue in Jan, Swiber's net gearing stayed elevated at 170%, with US$308m debt maturing in 2016 and another US$784m due in 2017. Marco Polo's net gearing is 87.3% but with the operator taking delivery of its US$214m jack-up rig in 2H15, its debt burden is expected to mount.
Maybank-KE believes the earnings downgrade cycle has not ended and there is no urgency to turn outright positive. The house prefers Ezion (Buy, TP $1.55) and Pacific Radiance (Buy, TP $0.80) for their resilience and competitive cost structure.
More cash calls by smaller offshore and marine firms with high debt levels could be on the horizon as funds dry up amid a crude oil slump and OSV oversupply.
Market watchers cite that credit situation between O&M companies and financial lenders are stretched, with the latter unwilling to finance new vessels unless contracts have been secured.
Utilisation levels for OSVs plummeted in 1Q15, in tandem with a 15% fall in charter rates from peak levels, as oil companies scaled back their exploration budgets and capex spending.
Amid the downturn, highly geared firms may be hard pressed to slash charter rates and sacrifice margins for operating cash flow.
Asset disposal is not exactly an option given the lack of interested buyers in an oversupplied markets, which depresses vessel prices further.
The rising risk premiums in the bond markets also leave equity funding as the only feasible option from many of the smaller offshore players.
Likely candidates taking this route include Otto Marine, Swiber and Marco Polo Marine given their high debt levels. At the latest financials, Otto Marine's net gearing stood at 200%, among the highest in the industry, with its short term debt 12.5x larger than its $18.6m cash.
Despite a rights issue in Jan, Swiber's net gearing stayed elevated at 170%, with US$308m debt maturing in 2016 and another US$784m due in 2017. Marco Polo's net gearing is 87.3% but with the operator taking delivery of its US$214m jack-up rig in 2H15, its debt burden is expected to mount.
Maybank-KE believes the earnings downgrade cycle has not ended and there is no urgency to turn outright positive. The house prefers Ezion (Buy, TP $1.55) and Pacific Radiance (Buy, TP $0.80) for their resilience and competitive cost structure.
OCBC (technical)
OCBC: Still trading within the downward trend channel, with resistances above the $10 levels, and near term support around $9.95. Stronger support at the bottom end of channel, at around $9.80
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