Singapore Residential

OCBC on 16 Mar 2012

URA data yesterday showed that 3,138 new private residential units were sold in Feb 12. Excluding EC and landed units, 2,379 units were sold - up 27% MoM and 122% YoY - the most units sold in 31 months since Jul 09. While Jan 12 sales were mostly dominated by new OCR launches, this grew into broad-based buying across the market in Feb 12. In our view, buyers sidelined by the Dec 11 ABSB curbs likely re-entered the market after witnessing the strong bounce in Jan 12 new home sales. We see additional property curbs as the forefront risk for domestic residential developers at this juncture. Maintain NEUTRAL on residential developers. Our top property picks are CMA (FV: S$1.79, BUY) and CAPL (FV: S$3.40, BUY). We have a SELL rating on CDL (FV: S$8.92).

Highest sales figure (ex. landed and EC) in 31 months
URA data yesterday showed that 3,138 new private residential units were sold in Feb 12. This was up 51% MoM and 155% YoY. Excluding EC and landed units, 2,379 units were sold - up 27% MoM and 122% YoY - the most units sold in 31 months since Jul 09. The Feb 12 take-up rate also increased above par to 110%.

Mid-tier segment sales bounce after Jan 12 lull
While the pace of sales in the mass-market segment (Outside Central Region or "OCR") carried its momentum into Feb 12 with 1,801 units sold (1,757 in Jan 12), we also saw strong sales performance in the mid-tier segment (Rest of Central Region or "RCR") where 524 new homes were sold, up a whooping 457% MoM. This was mostly due to a sell-out launch at Guillemard Edge (275 units sold), and a pickup in sales at Thomson Grand and Centra Residence.

Broad-based buying underpinned by strong liquidity
The previous month’s sales were mostly dominated by new OCR launches but this grew into broad-based buying across the market in Feb 12. In our view, buyers sidelined by the Dec 11 ABSB curbs likely re-entered the market after witnessing the strong bounce in Jan 12 new home sales. With ample liquidity and strong HDB resale prices, we now expect the healthy sales momentum to carry on in 1H12, barring additional policy curbs.

More property curbs as forefront risk now
We see additional property curbs as the forefront risk for domestic residential developers at this juncture. Given the government’s track record, we believe its commitment to prevent property overheating is unambiguous. Moreover, macro-economic uncertainties persist, in our view, which could have a lagged impact on domestic economic growth and buyer demand ahead. Maintain NEUTRAL on residential developers. Our top property picks are CMA (FV: S$1.79,BUY) and CAPL (FV: S$3.40, BUY). We have a SELL rating on CDL (FV: S$8.92).

Industrial Reit

OCBC on 16 Mar 2012


The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our Feb sector report. We note that the YTD aggregate acquisition consideration in the subsector now amounts to S$606.9m, above the S$556.4m level seen in 4Q11. In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view. There is also a recent trend of financing acquisition via a combination of debt and equity. Noteworthy was MLT’s recent issuance of perpetual securities. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. We maintain our OVERWEIGHT view on the industrial REIT subsector.

Industrial REITs continue to acquire
The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our Feb sector report. Following Ascendas REIT’s proposed acquisition of three properties at Science Park Drive in Feb 2012, we note that two other industrial REITs, namely Mapletree Logistics Trust (MLT) and Cambridge Industrial Trust, have also announced their respective acquisitions. All the acquisitions are expected to be DPU-accretive, according to the REIT managers. In addition, the YTD aggregate acquisition consideration in the industrial REIT subsector now amounts to S$606.9m, above the S$556.4m level seen in 4Q11.

Aggregate leverages may continue to inch up
In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view, having taken a proactive approach in their capital management strategy. Mapletree Industrial Trust (MINT), for instance, had successfully refinanced part of its S$209.2m borrowings due in Sep 2012 via the issuance of S$125m 7-year fixed-rate notes recently, thereby extending its average debt duration from 2.5 years to 3.2 years.

Maintain OVERWEIGHT view
There is also a recent trend of financing acquisition via a combination of debt and equity, especially when a REIT’s debt-to-asset level approaches the 40% mark and when the acquisition is sizable. Noteworthy was MLT’s recent issuance of perpetual securities, which followed suit on successful launches by several corporations such as Genting Singapore and Global Logistics Properties. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. The only concern, we believe, is the successful deployment of the net proceeds on yield-accretive acquisitions. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. Maintain OVERWEIGHT view on the industrial REIT subsector.

Swiber

OCBC on 16 Mar 2012

Swiber Holdings (Swiber) plans to issue up to 101.071m new shares via placement. The issue price is S$0.635, representing a discount of about 9.74% to the VWAP of S$0.7035 for trades on the preceding day before the trading halt. Swiber’s share base would be enlarged by about 20.0%, and net proceeds of about S$62.5m will be used for general working capital. This development is not a surprise given the relatively high placement activity level among O&M companies recently. For placements, we think it is worth looking at where the proceeds will be channeled to in order to ascertain whether it is beneficial to existing shareholders of the company. Meanwhile, we tweak our estimates to account for the placement, reducing our fair value estimate to S$0.61, based on 10x blended FY12/13F core earnings. Maintain HOLD.

To raise S$62.5m via placement
Swiber Holdings (Swiber) has entered into a placement agreement with Religare Capital Markets which will procure on a best efforts basis subscriptions for up to 101.071m new Swiber shares. The issue price is S$0.635 per placement share, representing a discount of about 9.74% to the VWAP of S$0.7035 for trades on the preceding day before the trading halt. Should the placement be fully subscribed, Swiber’s share base would be enlarged by about 20.0%, and the group will be able to raise net proceeds of about S$62.5m which will be used for general working capital.

Placements have been common in the O&M scene recently
This development is not a surprise given the relatively high placement activity level among O&M companies recently, such as Ezion Holdings, Ezra Holdings and of course Swiber Holdings. Besides the terms of the placement, it is worth looking at where the proceeds will be channeled to in order to ascertain whether a placement is beneficial to existing shareholders of the company. If they are used for 1) expansion plans and business opportunities that are earnings accretive, or 2) the equity raised is used to pay off debt that has a higher cost of capital, then it may be argued that the placement is in the interest of shareholders.

Maintain HOLD
After securing US$36m worth of charter contracts in early Mar, Swiber’s order book has risen to over US$1.1b. Looking ahead, the group is likely to secure more projects, given the buoyant industry outlook and its strong foothold in certain geographic areas. The focus should be on execution at decent margins. Meanwhile, we tweak our estimates to account for the placement, reducing our fair value estimate to S$0.61, based on 10x blended FY12/13F core earnings. Maintain HOLD. 

Biosensors

CIMB RESEARCH on 15 March 2012

GIVEN the huge size of the Chinese market (US$500 million), we think there will be ample headroom for earnings growth, through JWMS and Biosensors' BioMatrix. We make no changes to our 'outperform' rating, earnings estimates or sum-of-the-parts target price.

We find the replacement of a co-CEO system with the more conventional single-boss structure appealing, giving clarity and well-defined roles.

Jack Wang (ex-JWMS CEO) will lead the group henceforth, which is now well placed to diversify. He is seen as the natural achiever of the group's long-term ambition of becoming a first-class global medical device company.

Jeffrey Jump will continue to do what he does best, in sales and marketing, and remain as an executive member of the board.

BIG has been offered an opportunity by JTC Corp to develop a new manufacturing and R&D innovation centre in Singapore. The acquisition consideration of $6.2 million is understood to be a third of the market price of similar plots of land.

The overall facility costs could be more economical than long-term leasing. Also, by funding construction with commercial bank loans, BIG should be able to minimise upfront cash outflows for this investment.

We like BIG for its clear earnings visibility and high growth expected in the near term backed by strong licensing revenue in Japan and the full consolidation of JWMS.

Yet, the biggest catalyst, SFDA approval for the launch of BioMatrix (with the more efficient Bio A9 drug) in China, has yet to come.

BIG now owns 25 per cent of the DES market in China, and approval for BioMatrix could swell this number, turning it into the biggest player there.
OUTPERFORM

M1

Kim Eng on 16 Mar 2012

Share price: S$2.51
Target price: S$2.85 (from $2.35)

Upgrade to Buy. We expect margin concerns for M1 to fade for a while as the new iPad should not cause a dent, the iPhone 5 launch is unlikely till October 2012 and the telco appears to have shed its previous aggressive stance on fibre, even as the government steps in to smoothen NBN rollout issues. Upgrade to Buy with a target price of $2.85 (including DPS of $0.145) for a total return of 14%.

No adverse margin impact expected from new iPad. When Apple’s new iPad comes onto the market, expected to be available today, we do not expect M1 to suffer a margin upset. The iPad tends to have a much smaller impact on subscriber acquisition costs than the iPhone. In fact, with all the telcos making a concerted break away from unlimited data caps on their new iPad plans (now only 10GB bundled), we are hopeful tablets will play a larger role in boosting data ARPUs.

Easing up on aggressive fibre stance. M1 appears to be easing up on its aggressive stance on fibre. At the recent IT Show 2012, it raised its promotional monthly rate for 100Mbps home fibre broadband from $39 to $45, putting it closer to SingTel’s rate of $49.90 and StarHub’s $49.65. Even so, M1’s rate is still considered attractive vis-à-vis its peers because its price point is lower and it also includes a bundled mobile broadband plan with 5GB data cap.

Enough time for margins to recover. With the new iPad out on the market, the next iPhone (iPhone 5 or just the new iPhone?) is not expected to be launched until October. This is in line with the timing of the iPhone 4S last year, when Apple pushed back the rollout date from a traditional June launch closer to the year-end holiday season. M1’s margins had taken a beating in 4Q11, hence this will give it time – at least two quarters - for its margins to recover.

Fibre to get higher speed limit, positive for M1. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet works on increasing its permanent installation capacity and comes out with a way to better handle demand fluctuations, we anticipate faster growth in fibre net-adds this year. NGNBN take-up has been slow last year, but if the teething issues are resolved, this will be a positive catalyst for M1.

Pacific Andes Resources Development

Kim Eng on 16 Mar 2012

Background: Pacific Andes Resources Development Ltd (PARD) sources, transports and supplies frozen seafood products to the international markets, focusing on the frozen fish supply chain management business. It is also the controlling shareholder (58%) of China Fishery Group Limited (CFG SP).

Recent development: PARD announced last week that it will undertake a 1-for-2 rights issue at S$0.14 per share to raise about S$220m. The rights pricing is a 39% discount to its closing share price then of S$0.23. The share price has since declined by 13% and the stock goes ex-rights today.

Palpable frustration. The level of frustration among investors over the dilution from PARD’s rights issue was palpable at a recent company briefing. It was its third rights issue after two 1-for-1 issues in 2007 and 2009 at S$0.52 and S$0.15, respectively.

Up against a stone wall. Management was vague and non-committal on the purpose of the fund-raising, except to say that it was for potential acquisitions and working capital. It reiterated that the funds were not meant to cover debt repayments and that the company is comfortable with its net gearing level of approximately 80%.

Test of investor confidence. PARD’s profitability and macro fundamentals are still positive, as highlighted in our report in February, 2012 Small Caps: Not stopping the love. While we concede that its business is built on scale which requires large amounts of working capital, this round of rights issue out of left field will severely test investor confidence.

Viz Branz

OCBC on 15 Mar 2012

Yesterday’s market action saw the share price of Viz Branz (VB) rose more than 14% to as high as S$0.535 before correcting down to close at S$0.430 at the end of the day. However, a check with management revealed no change to its strategy or any significant developments in its geographical growth markets of China and Indochina. As such, the price action could be purely speculative in nature (sharp share price gains on high trading volumes). With renewed interest in Viz Branz following the strong rally in its share price, we advocate investors utilize this opportunity to realize some profits and re-enter at lower levels. We reiterate our HOLD rating at an unchanged fair value estimate of S$0.37 as we continue to like the counter for its promising 2H12 outlook and growth potential.

Strong rise in Viz Branz’s share price
Yesterday’s market action saw the share price of Viz Branz (VB) rose more than 14% to as high as S$0.535 before correcting down to close at S$0.430 at the end of the day. It was a continuation from Tuesday’s strong rally of 16.7%, which saw VB hit a then all-time high of S$0.455. In light of VB’s relatively light daily trading volume, the sharp gains on both days on unusually high volumes, came as a huge surprise to the market. However, management communicated to us that there were no changes to daily company operations, and also denied any knowledge of any developments regarding VB’s existing share ownership structure.

Speculation behind price action
In our last report issued on 14 Feb 2012, we raised our fair value estimate from S$0.33 to S$0.37 following VB’s impressive 1H12 performance, which produced record sales of S$91.2m. Since then, there have been no changes to VB’s management strategy and/or significant developments in its geographical growth markets of China and Indochina. As such, the price action could be purely speculative in nature (huge share price gains on high volumes).

Father-son tussle could be factor
The long-running tussle between VB’s CEO and its previous CEO (son and father relationship), which had arisen over the ownership of some company shares, could be the reason behind these speculative trading actions. This remains unresolved with the transfer of a 15% stake as the primary focus.

Investors should take profit; maintain HOLD
The ascent in VB’s share price has rejuvenated interest in Viz Branz. Investors should utilize this opportunity to realize some profits and re-enter at lower levels. We reiterate our HOLD rating at an unchanged fair value of S$0.37 as we continue to like the counter for its promising 2H12 outlook and growth potential.