Thursday, July 11, 2013

Analysing The Impact Of US Dollar And Yen Volatility (UOBKH)

Analysing The Impact Of US Dollar And Yen Volatility
We highlight companies and sectors that could be impacted by the recent trend reversal of the yen and US dollar vs Singapore dollar.

What’s New
• Highlighting the impact of currency volatility. Over the past several months, the yen and US dollar had a slight trend reversal against the Singapore dollar, with the yen strengthening 4.1% against the Singapore dollar and US dollar, firming 4.8% against the Singapore dollar. This report highlights sectors and companies that could be impacted by the fluctuation of the two currencies.

• Impact of US dollar strength. For strengthening US dollar, potential winners include aviation (SIA), shipyards and plantations. Oil services companies such as Ezra (BUY, Target: S$1.46), Ezion (BUY, Target: S$2.60) and Swiber (BUY, Target: S$0.86) report in US dollar but the impact is mixed. For Ezion, we estimate the impact to be negligible but for Ezra, the impact is significant due to its low pretax margins. The group estimates that a 10% weakening of various operating currencies against the US dollar will boost FY12 pretax profit by 12%. Plantation companies such as Bumitama (BUY, Target: S$1.23) and IFAR (BUY, Target: S$1.25) are also beneficiaries as sales are in US dollar but most costs are in local currency terms.

• SIA – One of the biggest winners of US dollar strength. For FY13, a 1% increase in US dollar would raise SIA's (HOLD, Target: S$11.50) PBT by 8.5% and vice versa. As for ST Engineering (HOLD, Target: S$3.93), the group is also a beneficiary of a stronger US dollar as every 1 cent rise in US dollar will lead to approximately S$20m increase in revenue and S$2m in PBT.

• 7% of OUE’s gross asset value in US dollar. Within the developers, 7% of OUE’s (BUY, Target: S$3.63) gross asset value (US Bank Tower) has exposure to US dollar. We think further potential upside could be realised when the building undergoes asset enhancements. The proposed ‘REIT’ing of its hospitality and retail assets is a price catalyst.

• Yen pick-up has minimal impact on REITs. For REITs, most of the REITs that have exposure to Japan adopt hedging or natural hedges to match debt with assets. We highlight the impact on the next page. As for non-covered stocks, we discuss the potential impact:

• Saizen REIT (Non-rated): Has 100% of assets exposed to Japan, but gearing is about 30%, so there could be some positive impact from strengthening yen.

• GLP (Non-rated): A 10% strengthening of US dollar vs yen would have reduced 2012 profit by 2.3% (as reported in 2012 annual report). 66% of revenues in 1H12 (US$228m) was from Japan, while 64% of assets (US$7,681m) were also in Japan. Total Japan debt is US$3,295m, giving a gearing of 43% for Japan properties.

• Croesus (Non-rated): Natural hedge through adoption of 44% yen denominated debt to assets. Income hedges of at least 80% of distributable income over the next two years to mitigate income fluctuations. IPO in early May also marked the bottom of the yen decline, hence equity investors would benefit from recent yen rally.

• Stocks for action in 2H13. We see the FSSTI grinding sideways in 2H13 until the macro uncertainties over the Fed “tapering” abates and global growth visibility improves. Our top picks include DBS, Keppel Corp, Bumitama, OUE, Suntec REIT, CCT, Courts, Silverlake, Ezion and AREIT. Key SELLs are SMRT, IHH and Genting Singapore.

Source/Extract/Excerpts/来源/转贴/摘录: UOB Kay Hian research
Publish date: 11/07/13

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