Saturday, June 12, 2010

First Ship Lease Trust-ocbc

Shipping trusts: Counterparty risks

Potential counterparty risks. FSL Trust (FSLT)’s recent struggles with charterer Groda Shipping and bunker-supplier Daxin Petroleum have put counterparty risks at the forefront for the Singapore-listed shipping trusts sector. Our biggest concern is the opacity of the industry and shipping trust structure (akin to a fund-of-funds that relies on the credit strength of its charterers and sub-charterers). Some of the trusts have, and are likely to continue to, lease out vessels to lower-tier vessel operators as 1) they likely are more attracted to alternative financing options and 2) asset yields are higher as you go down the credit chain. While publicly-listed companies and even top-tier private companies are well-covered, publicly available information is extremely hard to come by for several names (Groda is a good example). The trusts have emphasized their focus on credit management – FSLT in fact models itself as a financier and has appointed a “Chief Risk Officer”. But it is unclear how much access to information / warning signals managers have actually had – whether it is the Groda vessel re-delivery / arrest saga at FSLT or the CSAV renegotiation request for Pacific Shipping Trust (PST).

How well-protected are the trusts? Another concern, in our opinion, is the balance of power between third-party ship owners and charterers. For instance, it is not clear if FSLT will be able to recover from Groda compensation for 1) lost revenue from the disruption of vessel operations; 2) legal and other expenses; 3) payments made to secure the release of the two tankers; and 4) any other payments to Daxin. A protracted legal battle could cast a shadow over distributions to unitholders and could also affect FSLT’s ability to competitively raise debt – the manager had earlier indicated plans to raise unsecured debt (one reason is the expiry of loan-to-value covenant waivers next year). The privilege of being a ship owner loses a little shine when weighed against the vulnerability to charter renegotiations, defaults or even vessel arrests by third-party creditors.

Still in the doldrums. On the positive side, the demand picture for some sub-sectors is markedly brighter, though concerns remain on the speed and trajectory of economic growth. We note that credit defaults typically peak several months after the broader industry hits bottom. The sector, on average, still trades at a steep discount to IPO prices (see Exhibit 1). Due to subdued trading volumes, we are DISCONTINUING COVERAGE of the sector [prev: NEUTRAL] and associated stocks, FSLT [prev: HOLD, S$0.48] and PST [prev: HOLD, US$0.29].

Thursday, June 10, 2010


10th Malaysia Plan

Highlights of the 10th Malaysia Plan


Following are the highlights of Prime Minister Datuk Seri Najib Tun Razak's speech when tabling the Tenth Malaysia Plan (10MP) at the Dewan Rakyat today:

* Theme: Towards Economic Prosperity and Social Justice

* The 10MP (2011-2015) is critical for the continuation of the national agenda to realise Vision 2020 and become an advanced and

* RM20 billion facilitation fund to be set up for public private projects.

* Electricity sector will be made more competitive, subsidies to be removed gradully

* Malaysia has earmarked plans to develop the Malaysian Rubber Board’s land in Sungai Buloh at an estimated cost of RM10 billion.The land covers an area of 3,300 acres, he said in his speech.

* Petroliam Nasional Bhd, Malaysia’s state oil company, plans to build a RM3 billion-ringgit liquefied natural gas regasification plant in Melaka, south of Kuala Lumpur

* Malaysia has identified 52 high-impact projects worth RM63 billion to implement. They include seven highway projects at an estimated cost of RM19 billion. The government also plans two coal electricity generation plants at a cost of RM7 billion.

* 10MP targets the gross national income per capita to increase to RM38,850 (US$12,140) in 2015; requires the GDP to grow at 6 per cent per annum.

* Growth will be led by the services and manufacturing sectors, revitalising the agricultural sector towards higher value added as well as the adoption of ICT, biotechnology and other relevant technologies.

* The key challenge is to stimulate private sector investments to grow at 12.8 per cent or RM115 billion per annum.

* Government committed to reducing the fiscal deficit from 5.3 per cent of the GDP in 2010 to less than 3 per cent per annum in 2015.

* 10MP: 10 main premises
First : Internally driven, externally aware
Second : Leveraging on our diversity internationally
Third : Transforming to a high-income nation through specialisation
Fourth : Unleashing productivity-led growth and innovation
Fifth : Nurturing, attracting and retaining top talent
Sixth : Ensuring equality of opportunities and safeguarding the vulnerable
Seventh: Concentrated growth, inclusive development
Eighth : Supporting effective and smart partnerships
Ninth : Valuing our environmental endowments
Tenth : Government as a competitive corporation

* 10MP-Five Strategic Thrusts

First: Designing government philosophy and approach to transform Malaysia
using NKRA methodology
Second: Creating a conducive environment for unleashing economic growth
Third: Moving towards inclusive socio-economic development
Fourth: Developing and retaining a first-world talent base and
Fifth: Building an environment that enhances quality of life

*10MP allocation for non-physical infrastructure to be increased to 40 per cent compared with 21.8 per cent under the 9MP, focus to be given to skills development programmes, R&D activities and venture capital funding

*A world-class civil service college will be established to raise the competency of civil servants

* Focus on 12 national key economic areas of NKEAs to be announced in October
(i) Oil and gas
(ii) Palm oil and related products
(iii) Financial services
(iv) Wholesale and retail
(v) Tourism
(vi) Information and communication technology (ICT)
(vii) Education services
(viii) Electric and electronic
(ix) Business services
(x) Private healthcare
(xi) Agriculture
(xii) Greater Kuala Lumpur

* A special unit, the Economic Transformation Unit, will be established to plan and coordinate the implementation and development of the NKEAs.

* A Competition Commission and Appeal Tribunal will be established to ensure more orderly and effective implementation of the law.

* The government will continue to strive to place Malaysia among the top five most competitive countries in the world.

* A Facilitation Fund of RM20 billion will be provided to help the private sector to finance public-private partnership projects.

* Through the Facilitation Fund, the government expects to attract private sector investments worth at least RM200 billion. Among the projects that are being considered are land reclamation in Westport in Port Klang, Malaysia Truly Asia Centre in Kuala Lumpur and Senai High Technology Park in Iskandar Malaysia, Johor.

* A special unit under the Prime Minister''s Department will be set up to set the direction and drive the National Innovation System and innovation policies and strategies.

* Government financing for public venture capital companies will be in the form of equity and not loans.

* A Mudharabah Innovation Fund (MIF)with an allocation of RM500 million will be introduced to provide risk capital to government venture capital companies.

* A Business Growth Fund with an initial allocation of RM150 million will be set up to bridge the financing gap between the early stage of commercialisation and venture capital financing for high tech products.

* The bankruptcy laws will be simplified to support a risk-taking culture, eliminate the stigma of failure and allow high calibre and credible entrepreneurs who fail to become active again.

*High speed broadband project to cover major towns, priority economic growth areas and industrial areas, broadband coverage for suburban and rural areas broadband service for the rural population through wireless infrastructure offering a variety of affodable packages

*East Coast Expressway from Kuantan to Kuala Terengganu to be completed in the plan period at a total cost of RM3.7 billion and to be linked to the Kuantan Port which will be upgraded

*The electrified double track rail project from Gemas to Johor baharu, estimated to cost RM8 billion, will be implemented to complete the electrified double track rail project from Padang Besar in the north to Johor Baharu in the south

*A sewerage treatment plant using green technology to be constructed in Lembah Pantai, Kuala Lumpur, similar plants throughout the country to follow. - Agencies

Suntec REIT-dbs

Suntec REIT
BUY S$1.30
Price Target : 12-Month S$ 1.47

Much more value within

• FY10 office income largely secured, focus on retail leasing efforts

• AEIs and acquisitions for medium term growth

• Maintain Buy with DCF-backed TP of $1.47

Maintain Buy call with target price of $1.47. Suntec’s share price has retraced 7% from the recent peak of $1.41. At the current price, the stock offers FY10-11F yields of 7.4% and 7.1%, respectively, an attractive 470-445bps spread over the 10-year bond yield. With Suntec’s core earnings remaining robust and potential for further medium term earnings upside from AEI activities, we are maintaining our Buy call with a DCF backed target price of $1.47, offering 20% total return.

Office rents flattening, demand picking up. Office asking rents at Suntec Towers have remained steady qoq with stronger demand seen coming from the shipping, IT and oil & gas industries. Additional leasing activities since 1Q had reduced the remaining 10% expiries due this year and enabled the group to lock in c95% of office revenue this year. In addition, forward renegotiation of FY11 rental contracts had enabled the group to lower the 25% lease renewals due next year.

Retail focus on Suntec Mall. We anticipate retail revenue to remain stable in the near term. With 17.6% and 25.1% of NLA to be renewed over FY10-11, we expect management to focus on driving occupancy, improving pedestrian footfalls with the opening of the 2 new MRT stations and enhancing tenant mix to optimize returns from this property.

Acquisitions and AEI to drive earnings in the medium term. Park Mall AEI is still on the cards, although no fixed time frame has been indicated. The building is well located and can be repositioned to tap the growing pool of young patrons in that area. We believe catalyst to spur this exercise could come in the form of the enhancement of The Atrium scheduled to start towards end of next year. With the normalization in cost of capital, the group is relooking at potential new acquisitions for growth. However, with firming sellers’ expectations owing to the improved sentiment, we believe any acquisition remains relatively opportunistic at this point.

Office leasing activities picking up pace

Office rents appear to have stabilized. Asking rents at Suntec office remained steady qoq while demand picked up from Q1. While the bulk of demand is still from renewals, Suntec is seeing take up from expansion as well as new demand from tenants in the shipping, IT and oil & gas industries. As a result, occupancy had inched ahead of the 95.5% seen in 1Q. In addition, a proportion of the remaining 10% of NLA due to be renewed this year, as at 1Q10, had also been recontracted, thus enabling Suntec to lock in c95% of their office revenue for this year. Furthermore, forward renegotiation of rental contracts due in 2011 are also taking place and we expect this to reduce renewals due in 2011, which stood at 25% of NLA as at 1Q10. According to media reports, IDA has already expressed their intention to give up their premises at Suntec Office when their lease expires next year. Thus Suntec will have significant leadtime to re-let the space. More importantly, any take up will result in a positive rental reversion, based on current asking levels.

Focus on Suntec Mall retail leasing

The focus of retail leasing would remain on Suntec Mall as this source of income accounts for close to 43% of 1Q10 total revenue. 1Q occupancy had dipped slightly on frictional vacancy while rental rates averaged $10.89psf/mth. So far, the opening of the two new MRT stations had generated a slight uptick in pedestrian flow. However, improvement in retail sales remained modest. As such, we expect the group to focus its efforts on increasing occupancy, improving shopper footfalls, raising tenant retail sales as well as continue on its strategy to enhance tenant mix. Hence, we expect rental rents to remain relatively stable in the near term.

AEI and acquisition strategies

Going forward, we see potential asset enhancement activity for Park Mall as well as new acquisitions as potential medium term catalysts. Park Mall’s makeover is still on the cards, although there is no fixed time frame earmarked. It is well located, in close proximity to Dhoby Ghaut MRT station in the Orchard Rd/Bras Basah Rd growth corridor. Hence, there would be significant scope to reposition this building to appeal to young adults in the area. With the planned enhancement of CMT’s The Atrium scheduled to start towards end of next year, we believe this could be a means to spur management to relook its Park Mall plans. Unlike in 2008/09, the normalization of the cost of capital would enable Suntec to relook new acquisitions as a catalyst for growth. These include Suntec Office strata space as well as other third party properties. However, with better visibility in the office rental market, prices of recent third party transactions of these strata space in Mar and April ranged between $2160- 2300psf compared to $1800psf a year ago. As such, we expect new acquisitions to remain relatively opportunistic at this point.

Capital management activities

Suntec does not have any debt refinancing due in FY10 and as such can concentrate on activities to optimize its capital structure. We believe some of the options open involve reviewing its overall debt profile which includes addressing its FY11 loans as well as its current CB issue. This would enable the group to potentially reduce its financing cost of 3.77% and improve its 4.3x interest cover ratio. Currently, 45% of the group’s interest cost is on a floating basis. With interest rates expected to rise in the medium term, we believe this is a prudent move, particularly when a large proportion of the bulk of the Sreit sector debt are also due to be rolled over in 2011 and 2012.


Suntec is trading at an attractive 445-470bps yield premium over the 10 yr government bond yield of 2.65%. With its core earnings largely secured for this year and asset enhancement activities and new acquisitions to provide upside surprise in the medium term, we believe Suntec offers investors value at current price.

First Ship Lease Trust-DBS

First Ship Lease Trust
(Downgrade from HOLD)
Price Target : 12-Month S$ 0.36 (Prev S$ 0.55)

More black clouds
• 2 vessels (chartered to defaulting lessee Groda) detained in ports for non-payment of bunker fuel

• Potential cash outflow to secure release and free ships of liabilities

• FY10F DPU cut by another 19% to 3.9UScts

• Downgrade to Fully Valued, TP reduced to S$0.36

Two FSLT-owned vessels detained. Over the last week, First Ship Lease has announced the "arrest" of two of its vessels, Nika 1 and Verona 1 at ports in China (Qingdao) and Japan, (Shimotsu) respectively. In maritime parlance, "arrest" implies the detaining of the ships by the nearest maritime port authorities, usually on the request of a creditor. In the case of these ships, the vessels have been "arrested" by Daxin Petroleum, a Singapore-based bunker supplier, for the nonpayment of bunker fuel supplied to these vessels, which are currently on bareboat charter to affiliates of Groda Shipping.

The amount outstanding is estimated to be about US$4.1m. What is still unknown is the legal intricacies, given that jurisdictions of two separate countries are involved. These are the same ships on which the lessee, Groda Shipping defaulted about a month back. To recap, charterer Groda Shipping had redelivered these 2 product tankers in May much before the scheduled date, owing to cash flow problems. Groda has not made lease payments for the ships in June, and FSLT management has been negotiating with sub-charterer Rosneft with regards to continuing the underlying COA contract without Groda in the middle. The ships had not been taken over by FSLT yet, pending a due diligence of associated liabilities. Now, with this current situation, we believe FSLT's immediate focus will be on securing the release of the ships, by paying a security payment or "bail" as such, so that the vessel can resume normal operations for Rosneft.

S& P puts FSL on CreditWatch negative. Following the recent negative news flow, Standard & Poor's Ratings Services recently placed its '”BB-'” long-term corporate credit rating on First Ship Lease Trust on CreditWatch with negative implications. It also withdrew the 'B+' issue rating on FSL's proposed US$200 million senior unsecured notes, which the company originally intended to launch in December 2009 but withdrew due to unfavorable market conditions.

Too many uncertainties. S&P feels that FSLT's credit profile could come under pressure partly because of the uncertain length of time of the vessel arrests and associated potential legal expenses. In addition, the arrest will make it difficult for the Russian government-controlled sub-charterer OJSC Oil Company, Rosneft, to use the arrested vessels for its longterm contracts of affreightment (COAs) commitments. Moreover, the situation is likely to make the re-delivery process of the two vessels lengthier and more expensive, potentially complicating FSLT's access to the US$3m cash deposits originally made for each one of them.

More cash outflows probable. FSL management understands that a total amount of US$4.8m will be required to be posted as security to secure the release of the two ships, which is somewhat higher than the underlying claim. Once the ships are released, litigation will proceed to settle claims. Thus, FSLT will not only have to fork out about US$5m in bailing out the vessels, but also potentially incur further legal and professional fees. It could also face delays in obtaining the original US$6m security deposits on the Groda leases, as the vessel redelivery process gets complicated. Moreover, the COA revenues from sub-charterer, Rosneft, could be affected by this event and we believe Rosneft could even potentially walk out if there are lengthy delays in releasing the ships.

Avoid for now. Taking the above factors into consideration, we reduce our DPU forecasts for FY10 and FY11 by a further 19% and 9% respectively, and downgrade the stock to Fully Valued at a revised TP of S$0.38 (higher target yield of 15%, given the worsening credit profile)). Unless further clarity emerges in this evolving situation, we believe it would be advisable to avoid the stock, though it appears potentially cheap in terms of dividend yield.

Wednesday, June 9, 2010


Share Price : RM2.99
Fair Value : RM2.74
Recom : Underperform (Maintained)
52wk Price Range (RM) 2.55-3.38

Field Report: Tan Thang Looking To Sell Like “Hot Pho”

♦ Tan Thang surrounded by high-density areas. Despite being located 9km away from HCMC’s CBD, the areas surrounding the site of the Tan Thang project do not at all lack the hustle and bustle of HCMC. An estimated population of 900,000 within 5km radius of the site will translate to ready buyers for the 7,000 units of apartments of the Tan Thang project. In addition, demand will also come from HCMC’s 12m population as well as wealthy Viet Kieu or overseas Vietnamese and “the powers that be” based in Hanoi.

♦ Ready to launch. Previously farm land, the land is flat and just a little lower than the road level that means it does not need extensive ground treatment other than some filling to raise the elevation. Most importantly, the land is 100% cleared of squatters.

♦ Yenso Park should do well too. To our surprise, the consultants we spoke to in Vietnam told us that at present, the prospects of the property market in Hanoi are actually stronger than HCMC. This is because Hanoi is where “the powers that be” are based. In fact, some believe that “liquidity from Hanoi” had helped to stoke the property bubble in HCMC before it burst in 2008. According to the consultants, “given the right products, Yenso Park should do well”.

♦ Forecasts. Maintained.

♦ Risks to our view. These include: (1) New construction contracts secured coming in above our target of RM1bn per annum in FY07/10-11; and (2) A stronger-than-expected recovery in construction margins.

♦ We are Neutral on the construction sector. On one hand, we foresee improved investors’ risk appetite for construction stocks following: (1) The massive underperformance of the sector vis-à-vis the market in 4Q2009 and 1Q2010; and (2) A better sector news flow and new expectations leading up to the announcement of the 10th Malaysia Plan (10MP) in June 2010. On the other hand, certain negative elements remain such as: (1) The still slow pace of the roll-out of public projects, shrinking margins and declining dominance of established players in large-scale projects locally; and (2) The not-so-rosy outlook and increased operating risks in key overseas markets.

♦ Maintain Underperform. We are raising our indicative fair value for Gamuda by 34% from RM2.05 to RM2.74, having imputed in for the first time a value of RM1,231m, translating to 54sen per share on a fully-diluted basis, to Gamuda’s two property projects in Vietnam based on DCF.

Tuesday, June 8, 2010



07 June 2010

Hit By Forex And Raw Material Price Volatility S0.23-BEYO.SI

􀁺 While Beyonics’ 3Q ended Apr ’10 topline performance came in line with management’s guidance, up 9.4% yoy and down 3% qoq, bottomline performance of $628,000 was way below management’s expectations of $4mln, reflecting the unexpected sharp weakening of the US$ against both the S$ and Malaysian Ringgit at the end of Apr’10 (see Exhibit 5 & 6), extreme volatility of their raw material price (see Exhibit 7) and some production yield issues.

􀁺 The silver lining is that the company generated $7.8mln in positive operating cash flow, more than sufficient to finance its capex of $3.15mln. After debt repayment of $7.1mln, cash holdings total $60mln against short term debts of $51mln and long term debts of $21.3mln. With shareholders funds of $297.1mln, gross gearing is 24%.

􀁺 Looking ahead, while customer orders continue to improve in line with recovery of the global economic environment, management is cautious due to the Euro crisis, China’s tightening measures and continued volatility in the forex and raw material market prices.

􀁺 With the uncertain outlook caused by macro factors as well as volatility of forex and raw material prices, we use historical valuations as benchmark for comparisons. At 16x trailing PE, we are recommending investors to Sell and switch to cheaper comparable such as Broadway at only 5.6x PE, despite having only upgraded the stock to a Buy on 15 March ’10.
Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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