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. 

Goodpack

OCBC on 15 Mar 2012

Following Goodpack’s (GP) announcement that it has entered into an agreement with General Motors South Africa (GMSA) for the use of their Intermediate Bulk Containers (IBCs), its share price has risen almost 29% in slightly over a week. While this major development is a major catalyst for the group going forward – with the potential for GP to increase its automotive sector penetration over the next 24 months – an almost one-third increase in GP’s market capitalization at this juncture seems overdone. Based on GP’s recent 1H12 results, it is currently on track for a full-year 9% YoY revenue growth, which we deem insufficient to support the recent spike in its price. Furthermore, actual utilization of IBCs for GMSA has not commenced. Therefore, in light of the recent sharp price appreciation, profit-taking opportunity has emerged. We change our rating to SELL at an unchanged fair value estimate of S$1.70.

Strong rally following GM win
Following Goodpack’s (GP) announcement that it entered into an agreement with General Motors South Africa (GMSA) for the use of their Intermediate Bulk Containers (IBCs), its share price has risen almost 29% in slightly over a week. While this major development is a huge catalyst for the group going forward – with the potential for GP to increase its automotive sector penetration over the next 24 months – an almost one-third increase in GP’s market capitalization following the announcement (as a result of the share price surge) seems overdone.

Still in the process of tying up the details of the deal
GP is still in the process of tying up the loose ends in terms of operational specifications with the various component export suppliers for GMSA, and actually deployment of the IBCs has not yet commenced. Even at the earliest, which we are projecting before or around 4QFY12, any revenue contribution from this deal will not be material in FY12.

Further penetration into automotive sector required
Based on GP’s recent 1H12 results, it is currently on track for a full-year 9% YoY revenue growth, which we deem insufficient to support the recent spike in its price. As such, we feel that market has been premature in pricing in the full impact of the GMSA deal even before the actual utilization of IBCs.

Time to take profit; SELL
GP’s share price was trading as low as S$1.36 at the start of the month, and with the recent rally in GP’s share price, profit-taking opportunity has emerged. While the deal has good long term potential, at this juncture, we are maintaining our fair value estimate of S$1.70 but changing our rating to SELL. We advocate investors to use this opportunity to realize some profits and re-enter once GP’s share price re-consolidates at lower levels. We prefer to be buyers at S$1.60 or lower. 

SMRT

UBS on 15 Mar 2012

UBS downgraded Singapore's public transport operator SMRT Corp Ltd to sell from neutral, citing a squeeze on profitability and cut its target price to S$1.41 from S$1.70.

The government's push for higher spending on rail means structurally lower margins for SMRT, and with all of its revenue from Singapore, the company would find it harder to mitigate the tougher operating environment, UBS said.

It decreased its earnings per share estimates for SMRT in 2013 and 2014 by 12 and 11 percent respectively, citing weaker-than-expected ridership for its Circle Line.

UBS retained its neutral rating on Comfortelgro Corp Ltd , saying the firm would be supported by its overseas divisions.

Cambridge Industrial Trust

DMG & Partners Research on 14 Mar 2012

THE management of Cambridge Industrial Trust (CIT) has just announced the acquisition of the property at 16 Tai Seng Street for a purchase consideration of $59.25 million.

On completion of the acquisition of the property in Q2 2012, CIT will lease back the property to the seller for a period of six years.

This acquisition, which is expected to bring in an additional dividend of 0.16 cent, will be funded through a combination of 40 per cent debt from the Acquisition Term Loan Facility and 60 per cent cash from the net proceeds from the Medium Term Note (MTN) issuance.

16 Tai Seng Street is a purpose-built, contemporary, five-storey industrial building with an ancillary showroom, with a current gross floor area of approximately 16,282 square metres.

Located in the central part of Singapore, it is near the Tai Seng MRT station and is easily accessible by the Central Expressway as well as the Pan Island Expressway.

16 Tai Seng Street is a JTC leasehold estate of 30+30 years' tenure commencing from July 4, 2007.
In addition, the seller will be undertaking alterations and additions (A&A) to construct additional floors, which will increase the gross floor area of the subject property from approximately 16,282 sq m to approximately 19,878 sq m.

Upon completion, a further sum of $13.08 million will be paid for the extension on the property.
The A&A works are expected to be completed within 12 months (Q2 2013) from the date of completion of the acquisition.

We view this acquisition positively as the company is able to gain a spread of 2 per cent (4.5 per cent interest rate incurred due to MTN and term loan against an average cap rate of 6.5 per cent) through this action with no dilution to shareholders' equity.

We maintain our 'buy' call with a TP of $0.605.
BUY

Cosco Corp

Kim Eng on 15 Mar 2012


What’s the fuss all about? Cosco simply looks overvalued. While the market has grown more optimistic about the marine sector on account of a few key contract wins by the established offshore yards, Cosco still does not have the credentials or the fundamentals to ride those coattails. Its recently-reported FY11 financials also do not inspire confidence. We maintain our Sell recommendation on Cosco and maintain our target price at $0.72.


Numbers are down and will stay down. While Cosco’s FY11 net profit decline of 44% to $139.7m despite an 8% pickup in revenue came as no particular surprise to the market, its share price has been resilient and valuations have stayed rich. However, we believe that market optimism on the stock is misplaced, as we see no recovery to its earnings based on its current orderbook and our projection of new order wins. Core margins remain weak, hovering at an abysmal 2.8%.


Financials still problematic. Cosco’s financial metrics continue to be weak across the board. Gearing, for one, has jumped from 7% in FY10 to 29% at end-FY11 after the company increased borrowings to expand its yards and finance its ongoing orders. In addition, provisions are still being made for its ongoing jobs due to start-up and execution issues, particularly with regard to the more complex offshore jobs.


Orderbook not growing. With a recent US$190m order win for the bulk carrier segment unexciting, net orderbook now stands at US$6.2b. This is still lower than its peak of US$7.0b at June 2011. US$300m in new orders have been secured year-to-date. This is still running short of management’s expectation to secure some US$2b in orders for FY12. Furthermore, the quality of new orders remains in question, with weak pricing for bulkers, and a risk to margins for potential offshore wins.


Premium unjustified, maintain Sell. With peers trading at a PER of 12x, we see no reason for Cosco to trade at a premium in view of its declining EPS. A re-rating to its peers values Cosco at $0.72, or downside of 39.7%, hence our Sell call.

UE E&C

Kim Eng on 15 Mar 2012

Company background: UE E&C is a construction and engineering company that was spun off from its parent United Engineers last year. It has been in the construction business for nearly 30 years and was listed in February last year with an IPO price of $0.48 per share. The principal construction entity under UE E&C is Greatearth Construction, which has been graded A1 by the Building and Construction Authority (BCA) of Singapore in both the General Building and Civil Engineering categories, allowing it to tender for public sector contracts of unlimited value.

Recent development: UE E&C’s share price rose by 18% on the day after the company released its FY11 results at the end of last month. Apart from a better-than-expected net profit of $64.5m, bringing its book value to $0.61 per share, it also declared a total dividend of 6 cents per share, compared to none a year ago.

Bumper yield drove share price higher. The total dividend of 6 cents per share (2 cents ordinary; 4 cents special) translates to a dividend yield of 10.3%, despite the surge in share price by 32% since the day its full-year results were announced. While we are impressed by this year’s payout of nearly 25%, we note that the company does not have a fixed dividend policy and has skipped dividends completely last year.

$400m contracts added in the past year. UE E&C was quick to replenish its outstanding orderbook, which had run low, with new contracts from its own development projects and projects from overseas, in particular Brunei and Vietnam, where it has a long presence. Its current outstanding orderbook is estimated to be around $600m, to be delivered until 2015.

 Big on ECs. UE E&C appears to be in the right residential property segment, the red-hot Executive Condominium (EC) market. It has a 30% stake in Austville Residences, for which it is also the main contractor. The project is already 76% sold. It is also developing a new, as-yet-unnamed EC project in Pasir Ris. We expect the take-up for this segment to remain strong at an average price of $700 psf. The recent six-fold increase in allocation of new EC units for second-timers from 5% to 30% during the first month of sales will draw more buyers to EC projects.

Fortune REIT

OCBC on 14 Mar 2012


Fortune REIT has a portfolio of 16 suburban retail malls in HK, of which two were recently acquired in Feb 2012. We are positive on the HK retail sector given the continued growth of the economies of HK and mainland China. Rents will continue to climb to catch up with the rapid rise of retail property prices since 2009. Knight Frank projects that retail rents in non-core areas will rise by 5% this year. Management has a record of extracting good ROI from asset enhancement initiatives and continues to have opportunities to do so over at least the next three years. The recent acquisition of two properties in Feb could serve as a driver when the contributions are reflected in the 1Q12 results. With a P/B of 0.5x and FY12F dividend yield at ~7.4%, we think the stock is quite undervalued. We initiate with a BUY rating and HK$4.88 fair value.

New acquisition of two properties
Two shopping mall properties, Belvedere Garden and Provident Centre, were recently acquired in Feb for HK$1.9b. The yield-accretive acquisition was funded by debt. There is much potential for Fortune to improve their monthly passing rents of ~HK$16.5-19.5 psf (versus HK$32.2 psf for the original portfolio). Like the other suburban retail malls in Fortune’s portfolio, the two new properties have sizeable population catchment areas and are easily accessible by public transportation, including train stations.

Expanding retail market
Retail sales in Hong Kong jumped 25% YoY to HK$406b in 2011, reflecting an increase in consumption by locals and foreigners, including 28m tourists from the mainland. With HK and China’s real GDP projected to grow at 3% and 8.5% respectively in 2012 (Bloomberg), and with median household incomes growing, retail sales should continue to do well. Prices of retail spaces have grown significantly faster than average retail rents, and rents will probably continue to catch up. Knight Frank projects that retail rents in non-core areas will increase by 5% this year.

Upgrading existing properties
Management has a comprehensive asset enhancement programme in place and it intends to spend HK$50m-100m per year on asset enhancement initiatives (AEI). Its current portfolio has enough potential for AEI over at least the next three years. With target ROI of at least 15%, we view properly-executed AEI as a cost-effective way to pursue revenue and dividend growth.

Initiate with a BUY
We initiate with a BUY rating and a HK$4.88 fair value estimate based on a Dividend Discount Model (DDM) analysis. Fortune provides stable dividends with opportunity for growth through continued expansion of the retail market, the upgrading of existing properties and its recent acquisition of two new properties. Trading at a P/B of 0.5x, we see reasonable price upside.

Tiger Airways

OCBC on 14 Mar 2012

Tiger Airways (TGR) this week reported an 81% passenger load factor (PLF) in Feb 2012. However, TGR’s decent PLF in Feb 2012 can be primarily attributed to a significant seat capacity reduction of 17% YoY to 474k, as number of passengers flown fell 19% YoY to 384k. Management said demand for its flights was weak in Feb 2012 because 1) the Chinese New Year holiday fell in Jan this year, and 2) Tiger Airways Australia in Feb 2012 was still operating at a less than optimal capacity. Furthermore, SGD-adjusted jet fuel prices (JETKSIFC Index) have, thus far in 4QFY12, averaged 3% higher QoQ. We maintain our SELL rating and fair value estimate of S$0.60/share on TGR due to the less than encouraging recent operating statistics and persistently high jet fuel prices.

81% PLF – result of significant capacity reduction
Tiger Airways (TGR) this week reported an 81% passenger load factor (PLF) in Feb 2012. This is only the second time it has recorded a PLF of more than 80% since the grounding of its Australian operations last year. However, TGR’s decent PLF in Feb 2012 can be primarily attributed to the significant seat capacity reduction of 17% YoY to 474k, as number of passengers flown fell 19% YoY to 384k. Management said demand for its flights was weak in Feb 2012 because 1) the Chinese New Year holiday fell in Jan this year, compared to Feb in 2011, and 2) Tiger Airways Australia in Feb 2012 was still operating at a less than optimal capacity. It is also notable that, for the third consecutive month, TGR has retrospectively adjusted its comparative year-ago monthly operating statistics. TGR said these adjustments are the result of reclassification of operating statistics, without providing further details. While the adjustments are not significant, TGR’s YoY operating statistics comparison will seem a tad worse when matched against previously announced numbers.

High jet fuel prices still on uptrend
Thus far in 4QFY12, SGD-adjusted jet fuel prices (JETKSIFC Index) have averaged 3% higher QoQ. In fact, it has been two and a half years since quarterly average jet fuel prices have seen the current level. With fuel costs contributing to 40-45% of total expenses, persistently high jet fuel prices are likely to continue to depress TGR’s profitability.

Maintain SELL
Despite recent positive developments such as 1) TGR’s 33%-owned joint-venture PT Mandala Airlines receiving its Air Operator’s Certificate and 2) Tiger Airways Australia receiving the approval from authorities to increase daily flying to 64 sectors, we maintain our SELL rating and fair value estimate of S$0.60/share on TGR. This is due to the less than encouraging recent operating statistics, which perhaps suggest the market has been overly optimistic with TGR’s turnaround, and persistently high jet fuel prices, which admittedly are not within TGR’s control.

Yamada Green Resources

UOBKayhian on 14 Mar 2012


Investment highlights

• BUY with a target price of S$0.33 due to stronger earnings from a larger production capacity, improved gross margins and increased sales with a wider distribution network. 
• The target price translates to 4.0x 2012F PE, pegged at a 70% discount to Singapore-listed peers’ average. Yamada Green Resources (Yamada) is currently trading at 4.0x FY11 PE and 2.6x FY12F PE vs an earnings growth of 50.0%.

Our view

• Macroeconomic should favour Yamada as the government continues to encourage rural agriculture. To curb food inflation, the Chinese government plans to allocate Rmb1.2t for developing the agricultural industry, improving rural areas and farmers' livelihood this year. At the fifth session of the 11th National People’s Congress, Chinese Premier Wen Jiabao reiterated that the government remains committed in its efforts to boost agriculture production by developing technology and investing in rural infrastructure. We believe Yamada will benefit from such policies as the government can use Yamada as a conduit to encourage corporate high technology farming. 
• Expansion in mushroom cultivation to boost earnings for FY12. Yamada reported a 70.1% surge in revenue for 1HFY12 to Rmb252.0m due mainly to higher sales of self-cultivated fungi as the group almost doubled its shiitake mushroom cultivation base from 2,614mu in 1HFY11 to 5,134mu in 1HFY12. As a result, PBT escalated 130% to Rmb81.2m from Rmb35.3m in the previous period if we exclude the Rmb14.6m valuation gains of the eucalyptus trees in 1HFY11. We believe earnings growth momentum is likely to continue for the second half, particularly so as they have signed on new exclusive distributors for their mushrooms.
• Completed acquisition in the Eucalyptus plantations will improve margins. Yamada reported lower gross profit margins in the fungi segment from 49.8% in 2QFY11 to 42.2%, mainly due to rising raw material cost of synthetic logs. With the acquisition of 21,000mu of eucalyptus trees in Dec 11, it will fulfill 20% of the synthetic logs requirement in FY13 and 50% in FY14, thus controlling cultivation costs and consistency in the quality of their edible fungi. Gross margins are likely to improve going forward.

Lian Beng Group

Kim Eng on 14 Mar 2012

Catalyst from Taiwan. We estimate that the spin-off and listing of Lian Beng’s subsidiaries in Taiwan could propel its valuation from $0.62 to $0.71. To recap, Lian Beng has proposed to spin off two subsidiaries (one in the engineering and leasing of construction machinery business, the other in the concrete manufacturing business) and list them on the Taiwan Stock Exchange. The proposal received shareholder approval this month. We expect Lian Beng to raise about $29m from the expected sale of 30% stake in the subsidiaries, based on a PER valuation of 11.5x and FY12 forecast earnings of $9.3m. If all goes well, we expect the listing to take place by end-2Q12.

More cash than ever, now at $185m. We expect Lian Beng to return some capital to shareholders in the form of a special dividend, which it can well afford. An additional one cent per share of special dividend works out to just $5.3m cash and will translate to an incremental yield of 2.6% on top of the existing forecast yield of 4.6%. We believe a special dividend of up to 1.6 cents per share is possible, based on its $185m cash less its committed capital for property developments, for a total dividend of 3.4 cents per share, or 8.7% yield.

Property developments at reasonable levels. Lian Beng has taken stakes in four property projects in the past 12 months. The latest was a 10% stake in the joint venture led by Oxley Holdings for the $96.2m acquisition of a freehold mixed development in Seletar Garden, the first successful collective sale this year. The total attributable development cost for the four projects is $176.4m, which is well supported by its war chest of $185m cash.

Get it before all the action begins. Buy now and be rewarded by the imminent Taiwan listing of Lian Beng’s subsidiaries and potential special dividends of up to 1.6 cents per share. This is in addition to the stock’s attractive ex-net cash FY12 PER of 1.7x, and a dividend yield that is already nearly 5.0%.

IEV Holdings

Kim Eng on 14 Mar 2012


Background: IEV Holdings offers a range of integrated engineering solutions that covers all aspects of a field life cycle, from the installation of new facilities and the repair and maintenance of existing assets to the eventual decommissioning of ageing structures. It also provides subsea products and services in the Asia Pacific and mobile natural gas to the industrial sectors in Indonesia and Vietnam.


Recent development: IEV held a briefing for its FY11 results last week. Net profit fell by 33.6% YoY to RM11.2m due mainly to lower GPM arising from the shift in its product mix and higher administrative and other operating expenses (predominantly professional fees and expenses related to its IPO last October). At the briefing, management also outlined several strategies to propel growth for IEV.




Transformation into niche turnkey constructor. In the offshore engineering division, IEV stands to benefit from the marginal field development sector. It has already secured the first platform reuse project in Malaysia that was announced on 19 December 2011 and which is expected to be completed by year-end. At the other end of the life cycle, decommissioning has gained momentum in several countries and IEV is also expected to benefit from this market segment. Two turnkey decommissioning projects in Malaysia, which were awarded to the group last year, are expected to be completed sometime in 1H12. As at the end of last month, the group’s orderbook amounted to about RM280m (or US$88m).


Integrated energy company. IEV is making inroads into the mobile natural gas segment, where we understand that it is working towards securing several stranded gas sources in Indonesia, as well as “Operation Cooperation” programme with Pertamina EP to secure feed gas supply for its future expansion needs. It is also expected to start the development of its new mobile natural gas supply chains to monetise stranded gas sources in 2Q12. Management will step up marketing efforts to increase CNG sales to existing customers while negotiating gas sales and purchase agreements with new customers.


Expectation is high. Management believes that IEV will make a quantum leap this year in view of strong growth potential in the engineering and energy sectors. The stock has more than tripled from its IPO price of $0.30, reflecting market optimism for its outlook. Based on Bloomberg estimates, the counter trades at about 7.4x FY12 PER. Key risk includes sound execution and implementation of its business plans.

HealthCare Reits

OCBC on 13 Mar 2012

Both Healthcare REITs reported an improved financial performance during the recently concluded 4QCY11 results period, driven by both organic and inorganic growth. In addition, First REIT (FREIT) and Parkway Life REIT (PLREIT) also expanded their geographical footprint by penetrating into new markets recently. We expect further acquisitions to come as both REITs seek to leverage on the robust fundamentals in the regional healthcare scene. As the macroeconomic environment remains uncertain and volatile, we opine that Healthcare REITs would provide a safe shelter for investors. This is underpinned by their long-term defensive lease structures with substantial downside revenue protection and strong sponsor support. Maintain OVERWEIGHT on Healthcare REITs. Under our coverage, we have a BUY rating on FREIT with a fair value estimate of S$0.89.

Improved performance driven by organic and inorganic growth
First REIT (FREIT) and Parkway Life REIT (PLREIT) both exhibited similar growth characteristics during the recently concluded 4QCY11 results period. Their improved financial performance was underpinned by organic and inorganic growth as a result of contributions from recent acquisitions. Due to the triple net lease structure inherent in most of the master leases of Healthcare REITs, FREIT and PLREIT were able to command high net property income margins of 98.9% and 91.5%, respectively as at FY11.

Expanding their regional footprint
PLREIT recently stepped up its acquisition drive, purchasing three nursing homes in Japan (JPY3.0b, or ~S$50m); and marked its maiden foray into Malaysia with the acquisition of strata titled units (RM16.0m, or ~S$6.45m) within Gleneagles Medical Centre, Kuala Lumpur. FREIT’s last acquisition came in Aug last year, with the purchase of Sarang Hospital in South Korea. This too represented a venture into a new geographical market. These events suggest that both Healthcare REITs are seeking to expand their footprint in the regional healthcare scene, which is a sound move, in our opinion. This would raise their profiles and diversify their operations. Moreover, healthcare fundamentals in the region remain resilient, bolstered by rising income levels, growing demand for quality healthcare services and changing demographics towards a greying population.

Maintain OVERWEIGHT
We reiterate our OVERWEIGHT rating on Healthcare REITs. With the still uncertain and volatile macroeconomic environment, we opine that Healthcare REITs would provide a safe shelter for investors. This is underpinned by their long-term defensive lease structures with substantial downside revenue protection, thus providing strong income visibility. PLREIT has also benefited from the high inflationary pressures in Singapore last year with its CPI + 1% rent revision formula (positive rental reversion of 5.3% for its Singapore hospitals commencing Aug 2011). Moreover both REITs are backed by strong sponsors. Under our coverage, we have a BUY rating on FREIT with a fair value estimate of S$0.89.

Mapletree Logistics Trust

OCBC on 13 Mar 2012


Mapletree Logistics Trust (MLT) announced yesterday that it will be acquiring a portfolio of seven dry warehouse facilities in Japan from Goodman Japan Limited for a total consideration of JPY17.5b (~S$292m). According to management, the acquisition is expected to be DPU-accretive, generating a stabilized weighted average NPI yield of ~6.2%. This is higher than the implied NPI yield of 5.6% for MLT’s existing Japan portfolio. We understand that management intends to fund the investment through a combination of debt and proceeds raised from the issuance of its S$350m perpetual securities. When the acquisition is completed (likely in Apr 2012), MLT’s aggregate leverage may come around 38%, as compared to 41.4% as at 31 Dec 2011. We maintain our BUY rating with a revised fair value of S$1.20 (S$1.18 previously) on MLT.

Details of acquisition assets
Mapletree Logistics Trust (MLT) announced yesterday that it will be acquiring a portfolio of seven dry warehouse facilities in Japan from Goodman Japan Limited for a total consideration of JPY17.5b (~S$292m). All seven logistics facilities, we note, are built with modern specifications and are strategically located within key logistics hubs in the Hokkaido, Greater Tokyo, Nagoya and Osaka regions. The properties also have a young weighted average building age of 4.9 years and allow for an additional 30,000 sqm of GFA (24.1% of existing aggregate GFA) when their permissible plot ratios are maximized.

Favourable NPI yield and lease duration
According to management, the acquisition is expected to be DPU-accretive, generating a stabilized weighted average NPI yield of ~6.2%. This is higher than the implied NPI yield of 5.6% for MLT’s existing Japan portfolio. Presently, the properties are 100% leased to quality, single users for the next 5-25 years, with a weighted average lease to expiry of 9.3 years. This should provide strong and predictable cash flow to MLT’s rental revenue, as well as customer and geographical diversification, in our view.

Perpetual securities to fund part of purchase consideration
We understand that management intends to fund the investment through a combination of debt and proceeds raised from the issuance of its S$350m perpetual securities. When the acquisition is completed (likely in Apr 2012), MLT’s aggregate leverage may come around 38%, as compared to 41.4% as at 31 Dec 2011. Going forward, we believe that eyes will be on the successful deployment of the remaining proceeds on yield-accretive investments, so as to make up for shortfall in distributable income resulting from the distribution payment of the perpetual securities. As for now, we factor in the impact from the perpetual securities issuance and acquisitions into our FY12-13 forecasts. This raises our RNAV-based fair value from S$1.18 to S$1.20. We maintain our BUY rating on MLT.

Offshore and Marine Sector

DMG & Partners Research on 12 March 2012

THE offshore & marine (O&M) sector has performed well since the start of the year with share prices up 15-36 per cent year-to-date. PE valuations have expanded 40-70 per cent from its low in 2011, but current valuations at 13-17 times are well below peak of 25-30 times seen in the last upcycle.

We see reasons to remain bullish: 1) Underlying market drivers remain positive: world oil demand is growing, oil prices remain above US$100 per barrel and E&P (exploration and production) spending outlook is bullish; 2) Rising charter rates and attractive payback period are likely to draw renewed interest for newbuild drilling rigs; and 3) Petrobras offers more opportunities than just the deepwater rig projects.

In our view, Keppel O&M and Sembcorp Marine (SMM) are well positioned for more big-ticket wins. Maintain 'overweight' on the sector with Keppel Corp as our top pick. Most of the oil majors and national oil companies have declared higher capital expenditure (capex) in 2012. On aggregate, we estimate capex spending to be higher by 6-10 per cent y-o-y. Singapore yards have turned more positive: enquiries for newbuild rigs are much higher now compared to three months ago. We believe this will lead to more offshore orders.

Day rates for semi-submersible rigs and high-specs jack-up rigs have increased by 20-30 per cent in the past 12 months while utilisation rates for newer rigs are hovering around 90-100 per cent. As payback period for newbuild rigs remains attractive between 5.7 and 7.5 years, we believe rig owners will come back to the yards sooner rather than later.

We are switching our top pick to Keppel Corp. We reiterate our preference for big-cap O&M stocks given their direct exposure to the Petrobras-related jobs. Since the start of the year, our top pick, SMM, has risen 36 per cent year-to-date. We now have Keppel Corp as our top pick simply due to a higher upside and it being a laggard to SMM.

We would avoid Chinese shipbuilders as poor outlook for commercial shipbuilding and depressed margins on new contracts could hit FY13-14 forecast earnings. Key risks to our recommendation are: 1) a severe debt crisis; and 2) steep decline in crude oil prices.
Sector - OVERWEIGHT

Singapore Post

Kim Eng on 13 Mar 2012

Potential for higher payout, reiterate Buy. SingPost’s recent issue of $350m in perpetual securities is superior to other issues as it commands the highest debt rating in the market and its 4.25% coupon rate is also the lowest. We see this as an opportune time to remind investors of the company’s financial strength and the fundamental stability of its core mail business. Reiterate Buy on SingPost for its very attractive dividend yield of 6.4%, which we believe is almost guaranteed, based on its history of very stable earnings, even before counting any potential upside from special dividends. Our target price is slightly reduced to $1.05 as we roll forward our valuation basis to FY Mar13F.

Not at shareholders’ expense. The $350m senior perpetual cumulative securities, or Perps, pay a 4.25% coupon, which is higher than SingPost’s overall cost of debt of 3.13-3.5%. With the Perps, the group’s interest expense is expected to double to $26m. Nonetheless, management’s dividend commitment of 6.25 cents per share is intact. In fact, there may be room for dividend upside as SingPost may not use up all the additional funds for acquisitions. And even as the company continues to face cost pressures, our earnings sensitive analysis shows that pre-tax income can withstand a decline of 20% before the payout ratio begins to look too generous on paper.

Time to flex financial muscle? To recap, SingPost has not even used up half the $200m it raised in March 2010 for acquisitions. The additional $350m raised will give the group substantial firepower to gun for bigger acquisitions, if not offer a higher dividend payout or even buy back its own shares that are giving a higher yield than its coupon rate.

Balancing optimal gearing ratio and ROE. Management is comfortable with a gearing level of up to 2x. With Perps being classified as equity, SingPost’s net gearing thus falls from 0.5x as of FY11 to $224m net cash including the Perps. This implies significant debt headroom not only for expansion, but also in support of our argument for higher dividend payouts to optimise its gearing ratio and ROE.

Dividend provides valuation support. We roll forward the basis of our target price to FY Mar13F, using a historical average PER of 14x to arrive at a target price of $1.05, slightly reduced from $1.09 previously. While SingPost continues to face cost pressure, its dividend payout should provide valuation support. Buy for a total return of 15%.

Liongold Corp

Kim Eng on 13 Mar 2012

Background: Liongold Corp Ltd (formerly The Think Environmental Co Ltd) invests in and manages gold mining and exploration businesses. It owns mining concessions in countries such as Ghana, Mali, Mongolia and the Philippines. Liongold aims to develop its existing gold mining licences into physical production while continuing to amass such licences in gold-rich regions. It is also divesting its environmental businesses to focus on gold mining.

Recent developments: Liongold made a takeover bid for Australian-listed gold exploration and mining firm, Signature Metals Limited (SML), last December. The all-share general offer values SML at S$69.6m, a 54% premium over its market cap at the time of offer.

Started with small-scale mining. Liongold’s foray into gold mining started with the acquisition of a 70% stake in Mornington Offshore Inc last February. The latter holds mining licences in Mali, Ghana, Mongolia and the Philippines. Liongold aims to use modern methods to recover gold that was not previously available to alluvial miners.

SML bid a major milestone. SML focuses on gold exploration and mining in Ghana, West Africa. It has a 70% interest in the Konongo gold project, which comprises 192 sq km of granted tenure and contains 16 gold deposits along Ghana’s historic Ashanti Gold Belt. SML has JORC-certified resources of 1.47m oz of gold. Liongold believes that SML is undercapitalised, underperforming and there is strong development potential with some capital injection.

More acquisitions to come. Liongold intends to be a driver of consolidation in the gold mining sector and is currently reviewing eight other acquisition opportunities. Its target investment exposure would consist of 45% in first world markets, 45% in emerging markets and 10% in challenging environments.

A hard-to-value business. The stock trades at a historical PER of 730x and P/BV of 13.6x. But current financials mainly reflect its environmental business while ignoring the valuation and potential income from its gold mining operations. While this is a unique company which offers investors an alternative exposure to gold, we would prefer to see more concrete development in gold production to be sure. Key risks include its ability to recover gold from its mines and a decline in gold price.

Wilmar

OCBC on 12 Mar 2012


Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers at around S$4.90 or better. Meanwhile, WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. While there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman Fielder could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term.

Punished after muted 4Q11 showing
Wilmar International Limited (WIL) saw its share price tumble 17.1%, after reporting a muted set of 4Q11 results on 22 Feb, to hit a recent low of S$4.86. YTD, the stock is down 0.6% compared to the STI’s 12.6% rally. Since the stock price has fallen below our unchanged fair value of S$5.15, based on 15x FY12F EPS, we upgrade our rating from Sell to HOLD based on valuation grounds. However, we would turn buyers around S$4.90 or better.

Bottom likely passed but margin pressures remain
While we believe WIL’s operations should not worsen from here, it is notable that management continues to maintain a slightly cautious tone. WIL’s Oilseeds & Grains business is especially challenged because of the margin pressures it is facing in China, as a result of prevailing excess capacity. As a recap, WIL’s Oilseeds & Grains segment saw margin falling 98% QoQ to US$0.3/MT. Furthermore, with the exception of its Consumer Pack segment, WIL’s all other business segments experienced QoQ margin contraction in 4Q11.

10.1% stake in Goodman Fielder
WIL recently announced that it has paid A$115m to acquire a 10.1% stake in Goodman Fielder, Australasia’s leading listed branded food company, to become its largest shareholder. WIL said it is currently assessing whether to increase its stake Goodman, which produces baked goods, dairy products, home ingredients and commercial food products. WIL added it will work with Goodman’s management to increase collaboration between the two groups over time. However, while there are potential synergies between the two groups, any potential collaboration would take time to crystallise and a further increase in stake in Goodman could possibly face scrutiny from the Australian authorities. Hence, we hold off adjusting our estimates since any synergistic boost to WIL’s earnings would not happen in the near term. 

Ezra Holdings

OCBC on 12 Mar 2012

Ezra Holdings (Ezra) announced that it has entered into an agreement to place out 110m shares to institutional and other investors, as well as existing members of the company at an issue price of S$1.10. This represents a discount of about 8.4% to the VWAP of S$1.2007 for trades on 8 Mar 2012. Estimated net proceeds of about S$118.8m will be used for working capital and a range of other purposes. However, the group may still need more funds going forward. We tweak our sum-of-parts valuation to reflect the divestment of Ezion shares as well as the potential increase in share base when the above placement is completed, reducing our fair value estimate to S$1.28 (prev. S$1.51). Due to limited upside potential, we downgrade our rating to HOLD.

Placement to raise S$121m
Following its trading halt on Friday, Ezra Holdings (Ezra) announced that it has entered into a placement agreement with Credit Suisse and DBS Bank in order to raise capital. 110m shares (12.7% of existing share capital) will be placed to institutional and other investors, as well as existing members of the company at an issue price of S$1.10. This represents a discount of about 8.4% to the VWAP of S$1.2007 for trades on 8 Mar 2012, which does not seem too substantial.

For working capital and a range of purposes
After deducting associated costs and expenses, the placement is expected to raise about S$118.8m for Ezra. The group intends to use the funds for general working capital and corporate purposes and/or business opportunities, strategic investments, JVs and/or the paying down of existing debt, capital expenditure or vessel acquisitions.

Still needs more funds?
As mentioned in our 16 Jan 2012 report, out of Ezra’s US$357.5m short-term debt, we estimate that about US$140m of this comprises mainly vessel loans (secured debt) that may be rolled over to a longer term. However, embedded within its US$647.3m of long-term debt is a 4% convertible bond issue (US$100m) which bondholders are likely to redeem. Along with capex of about US$150-175m this year, we estimate the group would need to prepare at least US$460m for these purposes. After taking into account Ezra’s cash level of US$116m, this placement, and its recent divestment of Ezion shares, the group may still need at least US$207m more funds by the end of this year. This could be supported by divestment of non-core assets, as well as the debt markets.

Downgrade to HOLD
We tweak our sum-of-parts valuation to reflect the divestment of Ezion shares as well as the potential increase in share base when the above placement is completed, reducing our fair value estimate to S$1.28 (prev. S$1.51). Due to limited upside potential, we downgrade our rating to HOLD. 

Global Logistic Properties

Kim Eng on 12 Mar 2012

Background: Global Logistic Properties (GLP) is a market leader in developing, owning, managing and leasing logistics facilities in China and Japan. It has a presence in 25 Chinese cities with 10.4m sqm of GFA, and seven cities in Japan with 3.6m sqm of completed GFA. The Government of Singapore Investment Corporation (GIC) owns a 50.6% stake in GLP.

Recent development: Media reports have suggested that GLP is looking to list some of its Japanese assets in Tokyo as a REIT in an IPO that could raise US$1b. Management clarified that while it is studying various options, no decision has been made.


Opportunity to recycle capital in Japan. GLP joined hands with China Investment Corporation (CIC) last December to acquire a portfolio of 15 logistics assets from Lasalle Investment Management in a US$1.6b deal. These properties, however, are not expected to be the seed assets for the potential IPO. In our view, an IPO would free up capital to be redeployed into China, which should see stronger growth. It will also allow GLP to build up its fund management expertise.

China still an attractive growth market. Despite Beijing recently lowering its 2012 GDP growth forecast to 7.5%, we believe that the economic restructuring will spur domestic consumption, and hence lead to continued strong demand for GLP’s warehousing space. Currently, e-commerce operators Amazon and Vancl are among its top three tenants in China. Bain & Company estimates that online shopping in China will grow at 48% pa from 2010 to  RMB1.5t next year, potentially overtaking the US as the world’s largest e-commerce market. This should fuel demand for modern logistics facilities.

No lack of capital. As at last December, GLP has a cash position of US$1.8b with net gearing of 0.33x. Proceeds from the potential IPO could further fund the capex needed to grow in China. In addition, GLP is one of the first Singapore-listed companies to tap on the demand for perpetual securities, raising S$750m from the issue of 5.5% perpetuals last December and this January. As its properties are long-term assets, this should provide for better asset-liability management.

Goodpack

Kim Eng on 12 Mar 2012

A game changer, this time for the auto sector. Goodpack recently announced its maiden contract from the auto sector. We believe the agreement with General Motors South Africa (GMSA) will spearhead the implementation of its IBC solution within the entire GM Group and put pressure on GM’s competitors to follow suit. Assuming a similar trajectory to the synthetic rubber market, we estimate revenue will double within three years, turning Goodpack into a US$1.8b market cap company. This would imply a share price of S$4.00.


Aggressive capex needed. Our discussions with management also suggest that the group is considering M&A activities to accelerate its entry into the auto sector. This market is at least four times the size of Goodpack’s existing rubber and juices market, which are still growing. Any IBC fleet expansion requirement would therefore be on top of the guided 250k-300k (current fleet size of 2.1m) per annum increment. This would necessitate more aggressive capex, though it is obviously a happy problem to have, given the attractive margins of around 25%.


Capital recycling engine. Capex may run up to almost US$900m over the next three years. Management will have to find alternative ways to finance this requirement. It could spin off its IBC fleet into a business trust, a solution we first mooted in our strategy report, Private Screening, dated 3 October 2011. We believe this would be a positive development towards creating a capital recycling engine.


Not paying for auto potential at current price. The stock has fallen by 15% over the past 12 months, as the market remained doubtful about its penetration into the auto sector. However, we would like to highlight that at the current price, investors are paying only for an exgrowth value for a company with one of the highest barriers of entry in our stock coverage universe. Discounting the stable cash flow to be generated over the next five years plus the scrap value of its IBC fleet would already give us a value equivalent to its current market cap.


Don’t miss the boat. We expect Goodpack to gain good traction in the auto sector over the next 12 months, which will re-rate the stock to above its historical PER mean. Our conservative estimates only take into account Goodpack fulfilling less than 15% of GM’s potential requirement by 2014. We upgrade our 12-month target price to $2.65, pegged at 20x FY13F earnings, for an upside of 63%. Reiterate Buy.

Hoe Leong

OCBC on 9 Mar 2012

Hoe Leong Corp (Hoe Leong)’s FY11 revenue and net profit came in at were S$81m and S$24m respectively, and were within our expectations. Net revenue increased by 31% YoY due to improvements across all its three segments, while net profit jumped by 236% YoY, driven by a sale-and-leaseback transaction and higher share of results from associates/JVs. Excluding the two abovementioned items, Hoe Leong’s pretax profit would have fallen by 67% to S$2.2m (FY10: S$6.4m), mainly due to lower contribution from a vessel which was off-hire for about five months. We keep our FY12F projections largely unchanged, but raised our valuation peg to 5x (previously 3.5x) on improved market sentiments. This pushes up our fair value estimate to S$0.29 (previously S$0.20). Maintain HOLD.

FY11 net profit boosted by sale of property 
Hoe Leong Corp (Hoe Leong)’s FY11 revenue and net profit came in at S$81m and S$24m respectively, and were within our expectations. Net revenue increased by 31% YoY due to improvements across all its three segments, while net profit jumped by 236% YoY, driven by a sale-and-leaseback transaction and higher share of results from associates/JVs. Excluding the two abovementioned items, Hoe Leong’s pretax profit would have fallen by 67% to S$2.2m (FY10: S$6.4m), mainly due to lower contribution from a vessel which was off-hire for about five months.

Korean plant kicking in 
With the completion of Korea Crawler Track Ltd, a manufacturing facility for the group’s house-brand products, the group should see growth and margin improvement going forward. Besides cost savings, having control over the manufacturing process would also enable the group better manage its supply and distribution and in time gain market share over ‘pure distributors’ who rely solely on equipment manufacturers for their supply.

Transition into an Oil & Gas Player
The group’s transition into an offshore oil & gas player is still in the early stages. It currently operates one PSV and one barge, and has four AHTS and 18 oil tankers under two JVs. The next stage of growth is to demonstrate its operational capabilities and establish a decent track record, such that it is able to secure quality long-term contracts with oil companies. This may take several years. In the meantime, we keep our FY12F estimate largely unchanged, but raise our valuation peg to 5x (previously 3.5x) on improved market sentiments. This pushes up our fair value estimate to S$0.285 (previously S$0.20). Maintain HOLD.

Keppel Land

OCBC on 9 Mar 2012


Since we last reiterated BUY on Keppel Land on 20 Jan (FV: S$3.32), the share price has appreciated 31.1% (STI +5.6%). We see this driven by three catalysts: 1) a large 20 S-cents dividend (announced 19 Jan) which eliminated the discount on the corresponding cash component of RNAV - now riskless and to be paid out, 2) increasing expectations of policy loosening in China, and 3) stronger than expected Jan 12 residential sales in Singapore. Currently, we feel it is too early to call a bottom for the domestic office sector and also remain cautious on the residential space. These risks are balanced out, however, by 1) potential RNAV accretion given ample capital (10% net gearing) and 2) continued expectations for policy loosening in China. This being so, we see the shares as fairly priced and downgrade to HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV).

Up 31% since reiterating BUY rating
Since we last reiterated BUY on 20 Jan (FV: S$3.32), the share price has appreciated 31.1% (STI 5.6%). We see this driven by three catalysts: 1) a large 20 S-cents dividend (announced 19 Jan) which eliminated the discount on the corresponding cash component of RNAV - now riskless and to be paid out, 2) increasing expectations of policy loosening in China, and 3) stronger than expected Jan12 residential sales in Singapore. Moreover, KPLD was a value laggard – as of end FY11, KPLD was trading at 55% discount to RNAV versus CAPL’s 40% and CDL’s 31% – which we believe was attractive to investors looking for a value buffer in the market rally.

Office bottom not in sight yet
Given macroeconomic uncertainties and an ample office pipeline of 4.2m sqft NLA in FY12-13, we believe it is too early to call a bottom for the domestic office sector, a major driver for KPLD’s share price. Over 2H11, we saw office rents peak as Grade A rents declined 0.5% QoQ in 4Q11 while Grade B rents fell by 0.4%. We see persistent downside risks for the share price should headline rentals and capital values continue to decline.

Remain cautious for residential segment
We also remain cautious on the residential sector and note that luxury and mid-tier segment sales had been subdued YTD. The bulk of KPLD’s unsold exposure is outside the mass market, except for The Luxurie (368/622 units unsold), and there is limited upside in terms of development sales ahead, in our view.

Downgrade to HOLD
However, we see these headwinds mostly balanced out by 1) potential RNAV accretion given ample capital (10% net gearing) and 2) continued expectations for policy loosening in China. This being so, we judge the shares as fairly priced and downgrade to HOLD with an unchanged fair value estimate of S$3.32 (35% discount to RNAV). 

Regional Plantations

CIMB Research on 8 March 2012

THE main takeaway from the Palm Oil Conference is the speakers' upbeat take on the near-term prospects for crude palm oil (CPO) prices. Most of the experts expect spot prices to head higher in the near term and peak in Q2 before retracing in H2 2012.

Given that plantation stocks tend to track CPO price, plantation stocks are set to outperform in the near term if CPO prices do rally in Q2. We maintain our 'trading buy' call on the sector given our short-term bullish view on CPO price. Our top picks are BW Plantations, Indofood Agri and Sime Darby.


During the conference, seven speakers provided their views on CPO price. The price bands for 2012 spanned RM2,590 to RM4,000 ($1,078 to $1,665) per tonne, and the mean of the average price forecast worked out to around RM3,129, lower than last year's RM3,219. Most of the presenters held the view that prices could head higher in the near term and peak in Q2 before trending down in the later part of 2012.

Our average CPO price forecast of RM2,970 appears conservative compared to the mean. We are surprised that some of the speakers expect biodiesel mandates/subsidies to be intact, growth of palm oil supply from Indonesia to be lower and crude oil prices to be higher than our forecast of US$110 per barrel.

We do not discount the possibility of CPO price reaching the RM4,000 projected by some experts as it could transpire if soybean crop damage is worse than expected, CPO output is lower and crude oil price is higher.
But we continue to hold the view that the high CPO price is unlikely to be sustained for long, as it may lead to inflationary pressure and may prompt governments to tighten monetary policies or roll back biodiesel subsidies to avoid social unrest.

We maintain our 'trading buy' call on regional planters and preference for Indonesian planters. We like the Indonesian (BW Plantations, London Sumatra, SIMP, Sampoerna Agro) and Singapore planters (Indofood Agri) for their more attractive valuations. In Malaysia, we like Sime Darby and Hap Seng Plantations. 
Sector - TRADING BUY

Property Sector

Kim Eng on 9 Mar 2012

Mass market is not cool for now. The implementation of the 3-10% Additional Buyer’s Stamp Duty (ABSD) last December took the market by surprise, but its impact on the take-up of mass market projects has not been as dire as feared. Foreigners, the target of the latest housing curbs, did buy fewer units in January but the slack was picked up by Singaporeans and PRs, who constituted about 90% of buyers in recent launches. However, we think it is too early to turn positive on residential developers.

Developer sales in January beat expectation. A total of 2,077 homes (including 205 Executive Condominium units) were sold in January, a sharp increase from the 670 units moved in the previous month. A staggering 96% were units priced below $1,500 psf, suggesting that nearly all of the action was in the mass market segment with very few sales in the mid- and high-end segments. Mixed developments were the top-selling projects, such as Watertown ($1,169 psf) and The Hillier ($1,289 psf).

Developers are still landbanking. The first two tenders for 1H12 Government Land Sales (GLS) sites sold well, with seven developers making bids in each tender and top offers that are rather bullish, presumably encouraged by the strong take-up in mass market projects. To recap, the 1H12 GLS programme has a reduced supply of residential land but a bigger allocation to EC sites, yielding 7,020 units (41% EC), down from 8,115 units (14% EC) in 2H11.

Double-edged sword. Though developer sales hit a 14-month high in January, there were weak patches in the market, such as the slow take-up of Riversound Residence and Archipelago. In our view, January’s strong sales are unsustainable but if the trend persists, the government may be prompted to roll out more curbs, such as the recent tweaking of second-timer allocation for new HDB and Executive Condominium (EC) units. But if the strong sales do taper off, developers will be stuck with costly landbank. Either way it is bad news for them.

Prefer undervalued diversified players. We prefer the more diversified players and reiterate our Buy calls on CapitaLand and Keppel Land. We are neutral on the pure residential developers in Singapore. Maintain Hold on Wing Tai, SC Global and Ho Bee, all of which predominantly operate in the high-end segment where sales currently are at a standstill.

Marco Polo Marine

Kim Eng on 9 Mar 2012

Raising forecasts, upgrade to Buy. We raise our FY Sep12F-14F estimates for Marco Polo Marine (MPM) by 10-13% to factor in new contributions from the group’s recently completed third dry dock. Despite being a seasonally weak period, 1QFY Sep12 has turned in earnings that achieved 21% of our revised full-year forecasts. We upgrade the stock to Buy on rising optimism.

Ride on buoyant demand. With the commissioning of its third dry dock in January this year, we understand that this bigger and deeper facility, which measures 190m by 45m by 9m, is fully capable of docking merchant vessels up to 45,000 dwt. In our view, MPM is well-positioned to take advantage of the buoyant demand for ship repair and conversion business, bolstered by the thriving commodity shipping as well as oil and gas activities in the region, in particular Indonesia.

New order win. MPM successfully clinched a ship outfitting contract worth S$22.5m in January. Following this latest order win from an undisclosed third-party customer, the total value of newbuild, ship repair and conversion projects procured by the group increased to S$57.5m We forecast an 18% increase in FY Sep12 EPS given that about 80% of its orderbook will be recognised during this financial year.

BBR listing to crystallise value. With the completion last year of its acquisition of a 49% stake in associate company PT Pelayaran Nasional Bina Buana Raya (BBR) and the accompanying reflagging exercise, management’s next goal is to make BBR financially self-sustaining through a listing on the Jakarta Stock Exchange. Assuming that it is able to list at 8x forward PER, we estimate that MPM’s stake in BBR could be worth about 31% of its current market capitalisation. If the listing eventuates, we believe it could help crystallise value for MPM and provide a major re-rating catalyst for the share price.

Unjustified valuation gap. MPM has been a relative laggard in the recent market rally even compared with its other mid-cap offshore and marine peers. We see the widening valuation gap as unjustifiable in the light of recent positive developments. Upgrade to Buy with the target price raised to $0.48, still based on 8x FY Sep12F PER.

Singapore Banking

Kim Eng on 9 Mar 2012

Maintain Underweight. Our 2012 growth forecasts have been marginally raised, and we now project a higher aggregate operating profit growth rate of 7.6% (4.9% previously) for the three banks. At the net profit level, we expect growth to taper off to 4.2% on the back of higher provisions. Trading at an average P/BV of 1.2x, valuations could be more attractive, especially since we expect ROEs to slip further to 10.7% on a blended basis for 2012, from 11.1% in 2011 and a long-term mean of 12.1%. We retain our Sell calls on DBS, OCBC and UOB.

2011 operating profit flat YoY. The 4Q11 results season saw the results of all three banks meeting expectations. Cumulatively, recurring net profit rose 4% YoY, a tad higher than our earlier projection of 1.4%, with the variance largely a function of lower-than-expected provisions. Operating profit was flat on the back of negative JAWS, as operating income growth of 4% lagged the 10% expansion in overheads.

Some NIM stabilisation. We expect NIMs to stabilise on the domestic front, aided in part by a more stable SIBOR, a recovery in SOR and better yields on corporate loans. The offset is that we expect deposit costs to remain competitive, particularly for US$ deposits, while NIMs are likely to remain under pressure in the regional countries. On a cumulative basis, we are modelling gross loan growth of 11.6% (27% in 2011), premised on loan growth of 10.7% domestically and a faster 12.6% in the region.

GDP growth remains a concern… We had earlier highlighted a fairly strong 0.8 correlation between the general business expectations (manufacturing) index and Singapore’s GDP growth, with the latter lagging the former by about three months. The index has been negative for two quarters now (-10 in 3Q11 and -11 in 4Q11), portending slower economic growth ahead. The consensus GDP growth forecast for 2012 currently stands at 3.5% versus our in-house forecast of 3%, and the risk at this stage is of growth undershooting.

…while credit costs are likely to rise. NPLs have ticked up but management at all three banks see no evidence of a deterioration in the loan books as yet. Nevertheless, we have factored in further NPL increases, and the risk to our earnings at this stage is that our credit cost assumptions are still fairly benign.

Fragrance Group

Kim Eng on 8 Mar 2012


Fragrance Group recently provided more updates on the proposed spin-off and listing of its hotel business. Under the restructuring exercise, the group’s hotel assets will be held by its new investment holding company, Global Premium Hotels. According to an independent valuation on 22 November 2011, the net tangible assets spun off would amount to $635.2m. Fragrance stands to receive a total consideration of $558.0m, after netting off a discount of $67.2m and a dividend of $10.0m. We understand that the net proceeds of about $420.5m will be mainly used to repay debts and expand its property business. In addition, a special dividend may be paid out to shareholders, after taking into account the group’s overall cash position and future growth strategies.

We expect the proposed listing of Global Premium Hotels to help unlock value for shareholders and increase Fragrance Group’s overall financial capacity and flexibility to strengthen the growth of its property business. Moreover, by creating a separate listed entity, the hotel business will have additional financial capacity and direct access to capital markets. In our view, the new listing may kindle interest in other smaller hotel plays listed here.

Ezion Holdings

OCBC on 8 Mar 2012

Ezion Holdings (Ezion) has secured a charter contract worth US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China (likely China Datang). Estimated ROE is attractive at about 55-60%, but there are certain risks in this project, such as yard execution risk since the unit will be built in a Chinese yard. China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of offshore wind turbines. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle, reducing our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY.

Secures US$65.7m liftboat contract
Ezion Holdings (Ezion) has secured a charter contract worth about US$65.7m over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China. The unit is on bareboat charter, and it will contribute US$16.4m in revenue and about US$9.4m in net profit per year. Total project cost is around US$72m with a 77%-23% debt-equity split. Estimated ROE is attractive at about 55-60%, but there are certain risks in this project as well.

Yard execution risk 
We understand that the unit will be built in a Chinese yard, which is not surprising since the customer is a state-linked entity and the unit will be used to support energy generation in China. Depending on the yard chosen, there would be varying degrees of execution risk since Chinese yards have little track record in building liftboats. Should there be a delay in delivery, the compensation obtained from the yard may or may not be sufficient to cover Ezion’s penalty towards the customer of the charter contract.

Entering China’s offshore wind industry
China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of wind turbines at an offshore wind farm. From our understanding, the top five power companies in China are China Huaneng, China Guodian, China Datang, China Huadian and China Power Investment Corp; we think the customer is likely to be China Datang. The liftboat is expected to work in the Yellow Sea in 3Q13 upon completion, and this project is expected to have a positive material impact on the group’s earnings in FY13. We tweak our EPS estimates to account for the new contract as well as the recent placement of new shares which has received SGX’s approval-in-principle. This reduces our fair value estimate to S$1.05 (prev. S$1.18). Maintain BUY. 

Mapletree Logistics Trust

OCBC on 8 Mar 2012


Mapletree Logistics Trust (MLT) announced early this week that it is considering the issuance of SGD-denominated perpetual securities. We view the initiative positively, as it provides the much-needed ammunition for its acquisition plans and to pare down its aggregate leverage. At the investor presentation held on 6 Mar, management also took the opportunity to share with us its growth plans across different geographical locations. We are confident that MLT will be able to continue optimizing its portfolio yield, given its disciplined approach towards acquisitions. We are holding off revising our estimates pending more details on the securities issuance. However, as we roll over valuations to FY13 and factor in the recent acquisitions in Malaysia, our fair value is now raised to S$1.18 (S$1.10 previously). Maintain BUY on MLT.

Proposed issuance of perpetual securities
Mapletree Logistics Trust (MLT) announced earlier this week that it is considering the issuance of SGD-denominated perpetual securities. We view the initiative positively as it provides the much-needed ammunition for its acquisition plans. As the perpetual securities are expected to be fully accounted as equity, the issuance also has the effect of paring down MLT’s aggregate leverage. Based on our conversations during an investor presentation held on 6 Mar, we estimate that the aggregate principal amount may fall in the range of S$300-500m, with a five-percent handle for its distribution rate. Together with an expected positive revaluation of its properties in the coming Mar quarter, we believe its leverage may be brought down from 41.4% as at 31 Dec 2011 to a more comfortable 36.5-38.5% level.

Prudent approach towards investments
Management also took the opportunity to share with us its growth plans across different geographical locations during the presentation. In particular, MLT reiterated that it has been careful not to rush into investments but rather work closely with its sponsor on various overseas acquisitions – a prudent move in our view, given the current uncertain market conditions. The group also highlighted that there are ~S$300m worth of pipeline assets from sponsor that are completed, and that it may acquire some of them during the course of the year. We are confident that MLT will be able to continue optimizing its portfolio yield, given its disciplined approach towards acquisitions. We note that its acquisition of two properties in Malaysia just a week ago were made at attractive initial NPI yields of 8.7-8.8%, significantly higher than the implied yield of 7.1% for its existing Malaysia portfolio.

Retain BUY
We will hold off revising our estimates pending more details on the securities issuance. However, as we roll over valuations to FY13 and factor in the recent acquisitions, our fair value is now raised to S$1.18 (S$1.10 previously). Maintain BUY on MLT.

Q&M Dental Group

UOBKayhian on 8 Mar 2012

Investment highlights

• Q&M Dental Group (Q&M) provides dental healthcare services in Singapore and is expanding into China, with nine dental clinics and proposed JVs to own a dental hospital group, dental clinic and dental laboratories. Recently, Q&M has also ventured into Malaysia with two dental outlets in Johor and another one in Kuala Lumpur. 
• In our view, Q&M is currently trading at a lofty valuation of 45.3x 2011 PE and 40.5x 2012F PE vs consensus earnings growth of 36.0% (PEG of 1.13).

Our view

• Revenue growth would be a function of clinics, dentists and procedures. Q&M has been expanding its Singapore clinics and dentists with a CAGR of 20% and 37% respectively over 2009-11. Q&M targets to have a strong network of 60 clinics by 2015. While 14% of total procedures are specialised and accounts for 30% of the revenue, Q&M expects to boosts the proportion to 20% of procedures and 50% of revenue through comprehensive in-house training programmes. We think that Q&M would definitely have the scale and expertise in conducting such courses with its two highly-equipped dental centres.
• Favourable government policies. Although there are no explicit policies to boost the dental healthcare sector, Finance Minister Tharman Shanmugaratnam had reported that the government will commit S$8b a year for the next five years on healthcare expenditure from S$4b currently. Ministry of Health had also made changes in the Community Health Assist Scheme (CHAS) to allow more middle- to lower-income Singaporeans to receive subsidised outpatient medical and dental services at CHAS clinics. For example, CHAS will subsidise S$256.50 for a complete denture that would cost S$534-834 in dental clinics. Applicants of such a scheme must be a Singaporean, 40 years and above and with a per capita household monthly income of less than S$1,500. Q&M expects 700,000 Singaporeans can apply under this scheme.
• Secondary listing of its China operation. Q&M targets to own and operate 50 dental outlets and 20 laboratories in China by 2015 and is looking to invest an estimated Rmb400m in Chinese JVs. The acquisition target must provide a profit guarantee of 10 years, service agreement of 10 years and management agreement of 30 years so that Q&M can continue to carry on the licence after the service agreement has expired. With a projected combined profit of Rmb70m-80m, Q&M looks to list the China operations in Hong Kong or China.

Risks

• Execution risks remain for Q&M to embark on such an aggressive China expansion. However, if it is able to list the China operation overseas at peers’ valuation, this could enhance its market value.
• Secondly, Q&M had announced that they will invest Rmb400m in China. However, as cash on balance sheet is only S$13.6m, we expect Q&M to undergo some cash injection in the form of capital fund raising or strategic investment by institutional funds.