CDL Hospitality Trust

PHILLIP SECURITIES on 1 Feb 2012

CDL Hospitality Trust (CDLHT) ended 2011 on a strong note. Fourth quarter 2011 revenue was $37.8 million (+13.4 per cent year-on- year), net property income was $35.5 million (12.7 per cent year- on-year), distributable income after deducting retained income was $28.4 million (6.6 per cent year-on- year) and DPU was 2.94 cents (5.8 per cent year-on- year).

For the whole year, DPU totalled 11.05 cents, forming 98 per cent of our DPU estimates and 8.3 per cent higher than 2010 (10.21 cents).

The remarkable FY2011 result was mainly due to organic growth across the Singapore and overseas hotels portfolio with the best Q3 and Q4 RevPAR (excluding Studio M Hotel) recorded in 2011 since IPO.

One-off property tax refund of $3.3 million, contribution from Studio M Hotel in Q211, and additional variable income of $0.84 million recognised in Q1 2011 from Australia hotels were also part of the attributing factors. It is undeniable that CDLHT has turned in a stellar performance in FY2011.

However, given the impact of global economic slowdown, moderation of RevPAR is in sight where AOR (average occupancy rate) is expected to fall first, followed by the ADR (average daily rate) regardless of the seasonal effect.Our target price increased to $1.53. On a risk- reward basis, we maintain our 'neutral' recommendation.
NEUTRAL

Tiger Airways

DBS VICKERS RESEARCH on 1 Feb 2012

TIGER Airways reported higher than expected net loss after tax of $17.4 million in Q3 2012, compared to a profit of $22.5 million in Q3 2011.

Despite the third quarter (October-December) being the traditional high demand period for air travel, Tiger Airways was unable to turn around both its operations; Tiger Australia reported operating losses of $8.6 million while Tiger Singapore reported operating losses of $4.8 million in Q3 2012. Tiger Airways also recorded a $7 million provision charge on dues from Philippine partner SEAir.

The Australian operations continue to be impacted by under-utilisation of fleet as the airline has been flying a reduced number of sectors since the lifting of its suspension. Of the 10 aircraft stationed in Australia, we reckon only about six are necessary currently.

But efforts in Australia are bearing fruit, as they have received permission to fly 38 sectors now (up from 32) and are looking to establish a second base in Australia by mid-2012.

Over in Singapore, Tiger ramped up capacity by almost 70 per cent in Q3 2012, but the demand on new routes and frequencies has likely been slower than expected.

Apart from the high fixed costs, high fuel costs continued to dent profitability. This will continue to impact Tiger's profitability in the coming quarters as well.

While the group is focused on rebuilding its business in Australia under a new management team and looking to deploy additional aircraft to its new 33 per cent-owned Indonesian associate, PT Mandala Airlines, we believe profitability is still some way off. Maintain 'hold' with a target price of $0.70.
HOLD

SMRT

OCBC Research on 1 Feb 2012

SMRT announced that its 3Q12 revenue gained 10% YoY (+2.7% QoQ) to S$268.2m on the back of higher MRT and bus ridership. However, higher operating expenses offset this growth with a S$31.4m or 16% YoY (+1.8% QoQ) increase, and reduced net profit to S$37.0m or -13.9% YoY (+8.6% QoQ). Going forward, we expect operating expenses to remain elevated and tweaked our net profit estimates lower by 4%. Despite the challenging outlook, management has confirmed our previous assertion and reiterated its commitment to maintain its dividend payout policy. Although selling pressure will likely persist in the interim following its lacklustre 3Q12 results, we believe an attractive entry point for SMRT has emerged especially with its FY12F dividend yield of 4.5%. Maintain BUY at an unchanged fair value estimate of S$2.04.

Similar story in 3Q12. SMRT announced that its 3Q12 revenue gained 10% YoY (+2.7% QoQ) to S$268.2m on the back of higher MRT and bus ridership. However, higher operating expenses – mainly due to electricity and diesel costs, repairs and maintenance costs – offset this growth with a S$31.4m or 16% YoY (+1.8% QoQ) increase, and reduced net profit to S$37.0m or -13.9% YoY (+8.6% QoQ). SMRT’s 3Q12 revenue did not disappoint as it came in within 1% of our estimates but the surge in operating expenses caused our bottom-line estimates to deviate by 18%.

Going forward – operating expenses to remain high. With diesel prices on an uptrend recently, SMRT could see its energy costs increase after its diesel hedge ends this month. Furthermore, an anticipated increase in the number of train runs in the face of higher ridership is also expected to negate any potential cost savings from its electricity hedge, which ends in Sep 2012. Similarly, staff costs will increase following a seasonal bump from merit increments in 4Q while management adds headcount to fulfil additional service requirements. As such, we tweaked our net profit estimates lower by 4%.

Dividend payout policy unchanged. Despite its recent woes and higher operating expenses, management has confirmed our previous assertion and reiterated its commitment to maintain its dividend payout policy.

Downward pressure will persist but dividend play remains. With an uninspiring 3Q12 performance, consensus estimates for SMRT’s FY12 earnings will likely come off. Coupled with lingering concerns over possible penalty payments and increases to maintenance expenses upon the conclusion of the Committee of Inquiry’s (COI) investigations, we expect further selling pressure on its shares in the interim. However, with a fall of 1.7% (vs. +9.8% of STI) since the start of the year and an unchanged dividend policy (FY12F dividend yield 4.5%), we believe an attractive entry point for SMRT has emerged. Maintain BUY at an unchanged fair value estimate of S$2.04. 

SIA Engineering

OCBC Research on 1 Feb 2012

SIA Engineering Co Ltd (SIAEC) last night reported its 3QFY12 revenue grew 12.6% YoY to an all-time quarterly high of S$303.4m and PATMI gained 5.3% to S$63.5m. Management attributed the growth in revenue to 1) higher fleet management programme revenue and 2) an increase in airframe and component overhaul work. But higher subcontract and staff costs to support the increased workload during the quarter also saw EBIT margin fall to 9.4%, from 12.8% a year ago. Despite the challenges posed by uncertainties in the global economy, management guided that demand for its services is expected to remain stable. In addition, SIAEC is estimated to provide a dividend yield of 5%. Thus, we retain our fair value of S$3.88 per share and BUY rating on SIAEC. 


Strong revenue growth but lower margin.

SIA Engineering Co Ltd (SIAEC) last night reported its 3QFY12 financials. 3QFY12 revenue grew 12.6% YoY to an all-time quarterly high of S$303.4m and PATMI gained 5.3% to S$63.5m. Management attributed the growth in revenue to 1) higher fleet management programme revenue and 2) an increase in airframe and component overhaul work. But higher subcontract and staff costs to support the increased workload during the quarter also saw EBIT margin fall to 9.4%, from 12.8% a year ago. In addition, SIAEC’s PATMI was once again boosted by stronger contributions from share of profits of joint venture and associated companies, which grew 20.1% to S$40.7m and contributed to 56.3% of pre-tax profit.

Raise FY12 revenue but lower PATMI estimates.
For 9MFY12, SIAEC’s revenue edged up 2.2% to S$853.4m and PATMI grew 2.6% to S$202.8m, meeting 77.4% and 73.9% of our previous full-year revenue and PATMI estimates. We have since made some minor adjustments to our full-year estimates in order to factor in stronger revenue growth and higher costs, despite management’s intention to improve productivity and manage costs. Our new estimates of FY12 revenue is 2.6% higher while PATMI is 1.7% lower, at S$1,130.5m and S$269.9m respectively.

Maintain BUY and S$3.88 fair value.
Despite the challenges posed by uncertainties in the global economy, management guided that demand for its services is expected to remain stable. In addition, the longer-term outlook for MRO service providers is still intact, and SIAEC is estimated to provide a dividend yield of 5%. Thus, we retain our fair value of S$3.88 per share and BUY rating on SIAEC.

Starhill Global REIT

OCBC Research on 1 Feb 2012

Starhill Global REIT (SGREIT) reported FY11 DPU of 4.12 S cents, roughly in line with both our and consensus DPU forecast of 4.2 S cents. While performance in 4Q11 was partially impacted by negative rental office reversions and rental disruption from the asset redevelopment from its Singapore portfolio, we note that take-up rate for its office space continues to be healthy, while higher rentals were achieved for new and renewed leases for its retail segment. Management also reiterated that the asset redevelopment at Wisma Atria is on track for completion by 3Q12. As at 31 Dec 2011, SGREIT is in a comfortable financial position, with aggregate leverage at 30.8% and no major debt refinancing until 2013. It also enjoys a long weighted average lease term of 6.5 years by NLA. We keep our fair value unchanged at S$0.70, based on a DDM valuation method. Maintain BUY.

Consistent set of 4Q11 results. Starhill Global REIT (SGREIT) reported 4Q11 NPI of S$36.5m and distributable income of S$22.2m, down 0.6% and 4.7% YoY respectively. The slight decline in earnings was mainly due to lower contribution from Singapore properties and higher expenses at China and Japan properties. 4Q DPU came in at 1.01 S cents (-2.9% YoY), bringing the full-year DPU to 4.12 S cents (6.9% DPU yield). This is roughly in line with both our and consensus DPU forecast of 4.2 S cents.

Demand remains strong. Singapore portfolio, which formed 58.9% (S$27.1m) of 4Q revenue, registered a slight 0.9% decline in NPI to S$21.1m. The softer performance, we note, was mainly attributed to negative rental office reversions and rental disruption from the asset redevelopment at Wisma Atria (WA). However, take-up rate showed that its office space continues to be in good demand, as evidenced by a 1.2ppt and 3.1ppt QoQ increase in occupancy at WA and Ngee Ann City (NAC), respectively, to 95.8% and 94.9%. In addition, higher rentals were achieved for new and renewed leases for its retail segment. As some of these leases were secured at end-2011, we expect the positive impact to show in 2012.

Sound fundamentals. Management also reiterated that the asset redevelopment at Wisma Atria is on track for completion by 3Q12 and intends to minimize the disruption with a two-phase handover in 1Q12 and 2Q12. We note that pre-commitment for the redeveloped space was maintained at 75%. As at 31 Dec 2011, SGREIT is in a comfortable financial position, with aggregate leverage at 30.8% and no major debt refinancing until 2013. It also enjoys a long weighted average lease term of 6.5 years by NLA. We now introduce our FY13 forecasts. Our fair value remains unchanged at S$0.70, based on a DDM valuation method. Maintain BUY.

SIA Engineering

Kim Eng on 1 Feb 2012

SIA Engineering (SIE SP): 3Q results in line with expectations
Previous day closing price: $3.47
Recommendation – Hold (maintained)
Target price – $3.66 (maintained)

SIA Engineering’s (SIE) 3QFY Mar12 results were in line with expectations. Net profit grew by 5.3% YoY for the quarter to $63.5m. Revenue grew by 12.5%, indicating a healthy workload for the quarter. Most of the
increase came from higher fleet management programme revenue and an increase in airframe and component overhaul work, which tends to be lower margin work.

Operating profit was, however, 18% lower which saw YoY margins fall from 12.9% to 9.4%, mainly due to
higher subcontract costs, and as a result of the higher revenue. But this was handily made up by associates
and joint ventures, which grew 20.1% to $40.7m. Associates now account for 56% of earnings. This is in line
with our expectations of a ramp-up in associate contributions due to continued strength in the broader Asian
commercial aviation market. The components business usually shows a pickup following a recovery in the
airframe maintenance business.

Overall, a satisfactory set of results with no surprises. We are leaving unchanged our forecast for a steady
2.7% growth in earnings for FY Mar12. The stock currently trades at 14.2x FY Mar12F EPS. SIE’s share
price should be supported by the stability of its earnings and its ability to continue paying a healthy dividend.
Maintain Hold with a target price of $3.66, based on SIE’s mid-cycle P/BV of 3x.

SMRT

Kim Eng on 1 Feb 2012

No major surprises. SMRT’s 3QFY Mar12 results were in line with our expectations but slightly below market
consensus. Net profit fell by almost 14% YoY to $37.0m, weighed down by higher energy and other operating
expenses. Looking ahead, management expects the profitability of its train operations to be impacted by the
increased costs arising from the recent MRT service disruptions. Reiterate Sell.

Challenging earnings outlook. Persistent cost pressure remains our biggest concern as SMRT’s EBIT
margin narrowed by 4.6ppt to 16.7% in 9MFY Mar12 compared to 21.3% a year ago. The permanent spike in repair and maintenance expenses in subsequent quarters will put another dampener on its bottomline.
Management also cautioned that its bus business could be further impaired if diesel prices were to stay at
their current high levels.

CCL may face plateaued ridership. Particularly disappointing was the fact that average weekday ridership
for the Circle Line (CCL) stayed stagnant QoQ at around 300,000. While management is still guiding for a
breakeven daily ridership of 400,000 to be achieved within 6-9 months from the opening of the final 12
stations of CCL last October, we think that this projection now seems overly optimistic as the gestation period
could be much longer than expected.

Taxi and rental business divisions shine. On the bright side, its taxi segment performed better than
expected, with revenue jumping by 28.4% YoY to $29.6m due mainly to higher fees from a larger average
hired out fleet. Rental income from commercial spaces rose by 11% YoY to $20.7m as a result of the increase
in leasable area following redevelopments at several MRT stations. Average occupancy rate has also
improved to 98.2% from 96.4% in the last quarter.

No catalyst in sight. We trim our FY Mar12F-14F forecasts by 3-4% to take into account a lower ridership
growth assumption. However, our target price is unchanged at $1.50 after rolling forward the valuation to
FY Mar13F PER of 15x. We maintain our Sell recommendation on SMRT in view of its relatively expensive
valuations and tepid earnings growth prospects.