Thursday, August 4, 2011

MIIF: Good Assets Run Deep (SIAS)

Macquarie International Infrastructure Fund Ltd
 Intrinsic Value S$0.680
 Prev Closing S$0.565
Good Assets Run Deep

We visited three of Macquarie International Infrastructure Fund Ltd’s (MIIF) assets in late July and were left impressed by all three of them, particularly the Changshu Xinghua Port (CXP) and Taiwan Broadband Communications (TBC). The former was due to the management’s strategy of initiating contacts with customers while the latter was a result of TBC’s out of the box digital features.

As such, we are raising our CXP and TBC FY12 revenue growth forecast from 9% to 12% and 5% to 8% respectively. Consequently, our FY12 NPAT forecast of MIIF increased by 2%. Maintain Invest with an intrinsic value of S$0.680.

Fundamental Drivers:
Site Visit Summary: Amongst the three sites we had visited, we would like to highlight CXP and TBC – we have upgraded our forecasts for these assets.

CXP is poised to benefit from incremental port usage as 1) continuous steel exports from China, 2) five of the top seven paper-making companies in Jiangsu are CXP’s clients and China’s paper needs is growing fast, 3) demand for Pacific Forest Products’ New Zealand Wood is rising thanks to China’s strict policy on deforestation and availability of space in the port. Management is also continuously exploring new opportunities to improve the port’s utilization rate such as meeting customers’ needs.

TBC has a strong underlying business model and the innovativeness of the team to come up with customer desired digital features is likely to assist TBC’s topline growth. We also expect its broadband division to slowly capture market share on the back of cheaper pricing and emphasis on customer service. As such, we project TBC digital services top line contribution to grow by a CAGR of 30% for the next three years.

The Only Highway to the Heart of Guangzhou
Prime Artery to the Heart: The Hua Nan Expressway Phase I and II (HNE) is strategically located across the centre of Guangzhou city and well connected by eight expressways and other main roads. Its prime location and high accessibility make it the only high speed route available in the city.

The Infrastructure:
The HNE is 81% owned by MIIF, 10% owned by Guangzhou government entity and 9% owned by Topwise Consultants Ltd and Preciseway Management Ltd. This joint venture of companies has the rights to operate and collect tolls and ancillary revenue until 2026. After which, the assets (excluding cash) will be transferred to the Guangzhou government free of cost.

The highway starts from the Panyu Bridge in the south and converge with the second Northern Ring Road (二环), the primary linkage between the Baiyun Airport and Huangzhou New Railway Station. The bulk of the road has three to four lanes in each direction except for the tunnel at Shimentang hill which has two lanes each way. We understand that traffic jams do occur at the tunnel during holiday seasons as families seek to visit tourist attractions outside the city. Other than this instance, traffic flow is relatively smooth.

Toll Rates and Capacity Estimates: The average toll rates for HNE are approximately RMB0.60/km and any changes to the toll rates will require the approval of the Guangdong Pricing Bureau. The rates are expected to remain unchanged for the rest of the concession period. As of 2010, there are approximately 50.6m vehicles travelling on the highway annually. The highway may be able to transport a maximum of about 90m vehicles annually (taking into account heavy traffic), indicating the capacity to transport additional 4.0% CAGR of traffic volume for the next 15 years.

Any Competitors?: Presently, there are two non-toll roads that run parallel to HNE - Xinguang Expressway and Keyun Road. Xinguang Expressway was detolled in December 2010 and consequently, HNE’s 1Q11 revenue dipped 4.2% YoY. We do not anticipate HNE’s revenue to suffer any further decline as Xinguang Expressway has become more congested following the detoll.

Based on the Guangzhou Urban Master Plan, the authority has no plans to construct a new Expressway that will compete against HNE. Furthermore, it will be too costly and complicated to build a highway that is similar to HNE.

Outlook and Valuation: HNE is likely to benefit from the growing GDP per capita in Guangzhou and rising vehicle ownership. This is evidenced by HNE’s rising revenue and traffic volume which rose at a CAGR of 4.5% and 7.8% respectively. Going forward, we project moderate growth from HNE with an annual EBITDA increase of 5%. We have already incorporated the upside into our previous model and hence, we are leaving the forecast performance for this segment intact.

The Preferred Port of Call
Port with Top Class Facilities: The CXP is an international “Class One” port that is located within the Yangtze River Delta. Established in 1994, it currently has eight berths, two gantry container cranes, ten multi-use portal cranes, 14 warehouses (area of 107,300 sqm) and 608,147sqm of yard storage space. Based on the total land area of 1m sqm, the site space is approximately 71.5% used while port utilization rate is estimated to be around 70%.

The Port: This port is situated along the Yangtze River Delta and has close proximity to major cities like Shanghai, Suzhou, Nantong and Wuxi. It is 51.3% owned by Pan United Corporation, 38% owned by MIIF, 5.7% owned by Petroships and 5% owned by Jiangsu Changshu Economic Development Group. The JV’s concession of this port ends on 2044.

Port Business – Servicing the Customers Well: CXP’s business grew bigger and more diversified following the introduction of log cargo and greater revenue from non-steel cargo. This growth is largely the effort of the commercial team which initiates contact and deal with the customers directly, unlike their peers. Management also attempted to maximize port efficiency by securing jobs with shorter turnaround time and higher margin. Currently, no single segment contributes more than 30% of the port’s revenue.

We expect steel business to grow steadily, largely driven by the imbalance between China and international steel prices. Additionally, China is expected to raise its steel exports in competition against other major steelmakers.

On the other hand, the paper and pulp business is projected to increase thanks to the strategic partnership with Westerlund, which owns 75% stake in Changshu Westerlund Warehousing (CWW, CXP owns the remaining 25%). CWW accounts for 15.3% of China’s pulp import, with a significant portion in Jiangsu region. The port’s underlying demand is also well supported by the major paper making companies in the area – five of the top seven paper-making companies in Jiangsu are CXP’s clients.

CXP was able to penetrate into the log business thanks to the management’s foresight of rising log imports due to China’s strict policy on deforestation and availability of space in the port. The commercial team touched base with several buyers and sellers of logs then and found matching interests in Pacific Forest Products’ (PFP) New Zealand Wood. Consequently, CXP began importing PFP’s wood and volume began to jump. The latter accounted for 73.7% of CXP’s FY10 log business.

Future Proposals and Challenges: CXP is not resting on its laurels. It intends to improve revenue by 1) penetrating into the North America log market, 2) leasing out more yard space and garnering more assembling jobs and 3) contracting more resource jobs from Rio Tinto and other players. On the other hand, CXP is experiencing significant wage increment owing to China’s rising inflation and tight labour market. Management commented that they are trying to resolve these issues via outsourcing and restructuring. We believe higher port utilization rates over the next few years will also help to relief wage pressure on margins.

Outlook and Valuation: We believe CXP has room to grow owing to 1) the port is not fully utilized, 2) there are growth opportunities across all cargo types and 3) management is enthusiastically exploring new segments to match customers’ need. We believe EBITDA will grow 12% to S$33.9m over the next three years.

Showing What is Out of The Box!
Confirming the To-Be-Confirmed (TBC): TBC offers a comprehensive suite of multimedia services such as media, broadband and voice services in Taiwan. We like the company for its strong presence (third largest Cable TV - CATV - operator) and ability to provide innovative features to end users.

Operating Profile: TBC is the sole licensed CATV service provider for five areas in Taiwan namely South Taoyuan, Hsinchu, North Miaoli, South Miaoli and Taichung City. As of end March 2011, TBC has about 740,000 CATV customers, 157,000 broadband subscribers and 65,000 digital users. The company is also well equipped with high quality infrastructure, consisting of 13,493km of coaxial cable and 1,956km of fibre cable. This network allows them to be capable of providing sophisticated Digital TV services and up to 120Mbps broadband speed to customers. MIIF has an effective 47.5% interest in TBC. Macquarie Korea Opportunities Fund owns the other 52.5% interest.

Out of the Box Features: CATV formed the bulk of TBC’s revenue thanks to the high CATV penetration rate and National TV Rate Cap of NT$600/mth for more than 100 popular channels. Leveraging on the large CATV crowd, TBC re-launched its digital services, an upscale product with premium and HD channels, in March 09. We were further impressed by its integrated multi-features such as 1) scheduled recording capability, 2) control live-TV function, 3) user friendly electronic program guide. The telco is also capable of providing the standard 1080i HDTV quality. As of March 2011, about 8.74% of the CATV subscribers signed up for the digital package and we project growth to be robust over the next three years. The impact on TBC’s topline will not be insignificant.

The broadband division (and VoIP) attempts to position itself as the ideal service provider via competitive pricing of approximately 10% discount to market leader Chunghwa Telecom’s equivalent package and promoting high speed products coupled with active advertising campaign. TBC also places a strong emphasis on customer service and quality communication. The company prides itself to have excellent customer service 1) 24hr service hotline, 2) convenient customer contact point, 3) pro-active network monitoring and 4) dedicated engineering team.

Outlook and Valuation: TBC’s business model is generally stable. Although its cable license, system operation and network circuit leases for all five areas will end between 2017 and 2020, we believe that they are likely to be renewed owing to its excellent operation and high CAPEX needed for a new operator to come in. We expect TBC’s revenue and EBITDA to grow by 8% annually with an expected EBITDA of S$223.7m.

MIIF’s Valuation: Having visited and attained a better understanding of MIIF’s three main assets, we are revising our growth forecast for MIIF’s assets upwards. Consequently, our DDM model suggests a revised intrinsic value of S$0.680. Maintain Invest.

Source/转贴/Extract/Excerpts: SIAS Research
Publish date:03/08/11

First Ship Lease Trust: Aiming to be a leader in the bareboat charter space (CIMB)

First Ship Lease Trust
Aiming to be a leader in the bareboat charter space
Price @02/08/11: S$0.345
52-week range (SGD): 0.325 – 0.485
Market cap: S$ 225.86m

Key takeaways
• Technical BUY on weakness suggested by its chart pattern. Downside is likely limited as the selling momentum is waning. Bullish divergence seen on its MACD and RSI set the stage for a possible breakout at S$0.36. Accumulate on weakness with a stop placed below S$0.30. Resistance is seen at S$0.41, its 200-day SMA and S$0.45.

• Strong turnout. We met up with FSL Trust’s management yesterday at our weekly corporate focus lunch where they shared with us the company’s recent financial performance, recent developments and key business strategies.

• Recent default. Much of the concern during the discussion centred on the default on the 2 ships owned by the trust last year. The management has clarified that this has not been a lapse in due-diligence in the risk assessment of their lessee (Daxin Petroleum Pte Ltd), but a case of fraud. This case is still under litigation and management will provide updates accordingly.

• Exchange rate risk. The functional currency for FSL Trust is the US dollar. This is because transactions in the industry are typically conducted in US dollars. The stronger Singapore dollar against the US dollar does not impact FSL Trust but does pose an additional risk to Singapore dollar based investors as further weakening of the US dollar will mean a lower Singapore dollar equivalent dividend.

• Gearing and interest cover. The gearing for the trust is high, at approximately 1.3x, but relatively low, when compared to its peers, as seen in the chart below. Interest cover depicts a similar scenario. Having these ratios will probably make obtaining credit facilities (currently focusing on refinancing) easier for FSL Trust.

What the company does?
• First Ship Lease Trust (FSL Trust) is a Singapore business trust that provides lease financing solutions to the international maritime industry.

• They principally obtain financing to buy and lease back ships from shipping companies.

• FSL trust has a diversified portfolio of 25 fairly new and modern ships consisting of 16 tankers, 7 containerships and 2 dry bulk carriers.

• Of the 25 vessels, 23 are currently chartered out on long-term bareboat leasing contracts with 8 reputable shipping companies with an average weighted lease term of 6.7 years*.

• The remaining 2 vessels are currently deployed in the product tanker spot market.

• FSL Trust mitigates its risk by purchasing only ships that are modern and diversifying its portfolio across the various shipping sub-segments

• FSL Trust has so far, paid 17 consecutive quarters of distributions since its IPO in March 2007.

• What is the safety margin for operating profits? The trust typically enjoys an operating margin of approximately 6-8% on an un-levered basis. Interest costs have effectively been swapped and fixed at around 5%, leaving a margin of safety of 1-3%. As interest costs have been fixed, this is a ‘theoretical margin of safety’.

• Were there any lessons learnt from the default case last year? The management clarified that it was not the lack of due-diligence done in their credit risk assessment process that allowed the default event to happen. The CFO, Mr. Cheong Chee Tham explained that it was a case of fraud but was unable to go into the details of the case as litigation is currently in progress. He however, assured investors that the remaining 23 ships that are chartered out are secured by corporate guarantees. In the event of a default, the holding company of the lessee company will bear the remaining lease payments

Technical BUY
• Prices are still in a downtrend from the S$0.485 high in October. However, we think that the downside is likely limited from here as the selling momentum is waning.

• The bullish divergence seen on its MACD and RSI suggests that the bulls are getting ready for an assault. A breakout above its moving averages at S$0.36 would likely be the first signal that a new uptrend has begun.

• Hence, we think that the stock is a buy on weakness. Accumulate on weakness with a stop placed below S$0.30. Resistance is seen at S$0.41, its 200-day SMA and S$0.45.

Source/转贴/Extract/Excerpts: CIMB Research
Publish date:03/08/11

HPHTrust: deep value at these levels (DBSV)

Hutchison Port Holdings Trust
DPU in line; deep value at these levels
BUY US$0.735
Price Target : US$ 1.05 (Prev US$ 1.15)
At a Glance
• DPU of 14.3HKcts (1.84UScts) for first period in FY11 in line with our estimates and above IPO guidance
• Lower-than-expected revenues offset by lower operating and interest expenses
• FY11 DPU estimate unchanged; Lower FY12 DPU by 3% to reflect economic concerns
• Maintain BUY; TP adjusted lower to US$1.05

Comment on Results
No surprises in DPU. Revenues of HK$3400m for the 3-and-half month period (16 Mar to 30 Jun 2011) was lower than expected on account of disappointing throughput growth at both ports, but net profit and distributable cash was boosted by cost and interest savings. Staff costs and Trust expenses were well contained, and depreciation and amortisation were also lower than expected, though these were offset by higher tax recognition (deferred tax credits). Interest costs came in significantly below estimates as floating interest rates remained much lower than our conservative assumptions. Income from associates and JVs was boosted by better performance at COSCO-HIT, where throughput growth outperformed assumptions.

Slightly lower growth trajectory but combination of yield and growth still attractive. For the period under consideration, throughput growth disappointed, with HIT and Yantian Port registering 4.6% and 2.1% y-o-y growth, respectively, lower than our 6-8% initial estimates. And there is no evidence of a strong peak season as yet, owing to economic uncertainties in the US and EU. As our economist cuts US GDP growth to 1.6% in 2011 and 2.5% in 2012, we revised down our volume growth assumptions in FY11/12 to 4-5%. However, ASP trends remain intact and since cost savings will largely offset volume weakness in FY11. We keep our 2H11 DPU estimate of 2.9Uscts unchanged but cut our FY12 DPU estimate by 3% to 6.4UScts.

Maintain BUY with revised DCF-based TP of US$1.05 (lower DPU CAGR of 7% over FY11-15). Management re-iterated their commitment to pay out 100% of distributable income. Current valuations – ~8% dividend yield is even higher than what some infrastructure and shipping trusts are trading at – look unjustifiably low given HPH Trust’s superior asset profile, earnings quality, balance sheet strength and organic growth potential.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:04/08/11

Eyes on US this week

Eyes on US this week
All eyes will be on the ability of US lawmakers to raise the USD14.3 trillion debt ceiling by tomorrow or risk a temporary default and credit ratings downgrade. In addition to this, attention will quickly swing to the various economic data releases this week. The week starts off with ISM manufacturing data for the month of June and ends with the important July employment data. A recap of the previous nonfarm payrolls for the month of June came in weaker-than-expected at 18k and the unemployment rate edged higher to 9.2%. Consensus calls for non-farm payrolls to improve to 95k with the unemployment staying at 9.2%. Ahead of Friday’s employment data, the private sector ADP employment change (consensus +100k) will be released on Wednesday.

Strong June industrial production and higher inflation as well
Singapore’s industrial production for June rose a strongerthan- expected 10.5% y-o-y (consensus +8.6%) that reverses May’s 16.2% decline. The reversal was a result of the 41.5% y-o-y surge in pharmaceutical output that offset a 15.3% decrease in electronics production. Production in the pharmaceutical industry ramped higher in June after 2 consecutive down-cycle months (Apr-May). Meanwhile, electronics manufacturers stayed cautious and held back their production. This was reflected in June’s SEMI book-tobill ratio of 0.94. Still, our economist thinks that with the impending introduction of new smart-phone and other electronic gadgets in 2H11, the recent round of destocking by manufacturers and retailers can reverse back into a strong restocking cycle ahead.

Industrial production is not the only economic figure that moved higher in June, unfortunately. Inflation is back on the radar screen with CPI for June rising 5.2% y-o-y. Higher COE premiums and housing rental as well as risks of food price and wage increase are expected to keep inflation elevated in the months ahead. Our Singapore economist raises his 2011 inflation forecast to 4.6% from 4.2%. Against the backdrop of global uncertainties and sticky inflation, he expects MAS to maintain its current stance of a gradual appreciation in the Sing NEER in the upcoming October meeting in order to balance the risks between growth and inflation.

2Q reporting season picks up pace
Corporate results and valuations have played an important role in underpinning equity markets amid the debt worries out of Europe and US. The 2Q report season got off to a
good start both here and abroad. According to Bloomberg, 83% of S&P 500 companies in the US that released quarterly results so far have beaten the average analyst’s
earnings estimate. Between July 20 and July 22 alone, CY4Q11 earnings estimates for S&P 500 companies were raised by 2.3%.

The 2Q earnings season will be the focus for the 1st half of August. The impact on STI’s 12-mth forward PE level due to the corporate results released so far has been minimal. Among the index linked stocks, Keppel Corp reported better-than-expected results as the offshore and marine segment shines and infrastructure earnings more than
doubled. FY11F/12F net earnings have been adjusted up 5% and 1% respectively.

However, SIA disappointed as FY1Q12 net profit declined 82% y-o-y to SGD45mil because of higher jet fuel price and weak Japan routes. Our analyst believes that FY1Q12 is the worst quarter in terms of earnings and the outlook should improve going forward. We will review our earnings after the analysts’ briefing today but should still maintain our BUY call.

Among the STI component stocks, we expect banks’ loan growth to be strong in the upcoming results season. The latest loan growth figure for June continued to grow
strongly at 3.0% mo-m, 9.0% q-o-q and 26.2% y-o-y (May- 11: 3.5% m-o-m, 8.7% q-o-q and 24.2% y-o-y). Our banking analyst expects 2Q11 earnings for banks to contract by 5% q-o-q on the back of weaker non-interest income but grow 7% y-o-y on higher revenues. UOB’s loan growth should outperform peers with 2Q11 momentum closely matching 1Q11’s 6.7% q-o-q rise largely stemming from corporate loans. Meanwhile, a more modest loan growth of around 5-6% q-o-q is expected for OCBC with earnings supported by regional growth and build up of wealth management/BoS. UOB reports quarterly results on 12 August while OCBC reports on 4 August.

For small-mid cap stocks, we prefer companies with either good earnings and/or revenue visibility going forward as the quarterly report season picks up pace over the next 2 weeks:
1. Ezio n’s valuation is attractive at 9.6x and 6.4x FY11F and FY12F earnings respectively against a solid FY10-12 core EPS 47% CAGR. The recent award for a jack-up
project in June worth USD73mil is expected to contribute USD5.4mil/year to associate contributions from FY12. Ezion reports on 12 August.

2. STX OSV recently secured repeat orders from customer Island Offshore for the construction of 2 PSVs worth c. NOK750m. We just conservatively include the 1st unit to our FY11 YTD order wins that lifts the figure to c. NOK3.1bn (approx US$575m) or 24% of our FY11 order wins assumption. Order book stands at an estimated NOK16.9bn (US$3.1bn). If we add the second PSV and 8 Transpetro LPG carriers that are yet to be effective, FY11 order wins rise to NOK6.5bn (US$1.2bn) and backlog to NOK20.4bn. STX OSV reports on 13 August.

3. Sound Global is expected to see a pickup in revenue recognition. Our analyst sees visible growth outlook backed by RMB2.3b order backlog of which 60% would be completed in FY11. There is also a likelihood of more PRC contracts and a couple of overseas wins based on current bidding pipeline. We expect sequential improvement in quarterly results for the rest of this year. Sound Global reports on 8 August.

4. Conscience Food has the potential to deliver better sales volume and margin expectations in 2H. ASP had risen 8% at the end of 1Q11 and the commencement of cup noodles sales in 2H should also lift sales volume. At the same time, our analyst thinks Russia’s lifting of wheat exports starting 2H11 should ease Conscience Food’s margin pressure as global wheat supply increases. Conscience Food reports on 12 August.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:01/08/11

HI-P: 2Q 2011 result (limtan)

􀁺 As warned by management in early July ’11, 2Q 2011’s net profit fell 9.4% yoy and 39% qoq to $11.23mln due to inferior product mix, intense price pressures, higher labor & raw material costs, higher depreciation charges & tax rate as well as project delays resulting in dis-economies of scale.

􀁺 Looking ahead, management said that the business environment is expected to remain competitive and similar factors that negatively impacted 2Q 2011 performance such as pricing pressures, higher operating costs from higher labor and expenditures due to consolidation of production facilities will continue to negatively impact 2H 2011 performance.

􀁺 Due to the increasing use of metals in smart phones, tablet computers and other consumer electronic products, management has targeted to spend $100mln on additional capex in 2H 2011 and expects the new equipment to contribute more significantly next year. The capex plan is expected to take place in phases.

􀁺 With its net cash position of just under $200mln, it would not have a problem financing the capex plan internally.

􀁺 Management expects 3Q 2011 profit to be lower than last year’s $33.2mln but higher than 2Q 2011’s $11.2mln and for full year 2011 profit to be higher than last year’s $67.3mln.

􀁺 If we assume the industry’s usual 40/60 split between 1H and 2H, Hi-P’s full year 2011 profit is likely to come in around $70-80mln, below current consensus estimate of close to $100mln.

􀁺 Since its profit warning in early July 2011, Hi-P has declined 8+%, similar to Venture and Hon Hai, but underperforming the STI ’s 2+% gain.

􀁺 Pending an update from management later this morning, we are maintaining our SELL recommendation on Hi-P.

Source/转贴/Extract/Excerpts: limtan
Publish date:02/08/02

CitySpring:Results Review (S&P)

CitySpring Infrastructure Trust
Price: SGD0.48

Results Review
 Income dampened by fuel cost pass through timing. CitySpring 1QFY12 net loss of SGD14.6 mln widened from 4QFY11’s SGD7.0 mln, due mainly to the lagged timing on the pass through of higher fuel costs at City Gas. In addition, a one-off maintenance expense at Basslink of AUD1.9 mln added to increased costs over the period. On a year-over-year basis, the loss is lesser than 1QFY11 level.

 Cash earnings fell to SGD3.6 mln. Cash earnings contributions from City Gas and Basslink fell sharply. In addition to the above mentioned fuel costs pass through lag and maintenance expense, Basslink was also impacted by a negative CRSM (Commercial Risk Sharing Mechanism) payment to Hydro Tasmania. CitySpring also paid debt refinancing related fees of SGD3.8 mln.

 No change in distribution to unitholders. Due to ample cash reserves of SGD142.8 mln (as of Jun. 30, 2011), CitySpring’s DPU of SGD1.05 is unchanged despite the cash earnings shortfall of SGD10.3 mln in 1QFY12.

 Increased tariff to alleviate shortfall. Looking ahead, City Gas has received approval to raise the tariff by 9% effective August. This should help alleviate some of the recent rise in fuel costs. However, we suspect that another tariff hike may be needed if fuel oil prices stay at current levels.

 New income from CityNet adds to cash earnings. The appointment to be the trustee manager of NetLink Trust and manage SingTel’s infrastructure assets should add SGD2.1 mln to cash earnings.

Earnings Outlook / Estimates Revision
 Profit estimate and cash earnings lowered but no change in DPU. We reduce our FY12 profit forecast to a net loss of SGD48.2 mln from a net loss of SGD32.9 mln. Similarly, our cash earnings estimate is reduced to SGD70.6 mln from SGD83.7 mln. We factor in City Gas’ August tariff hike but assume no further tariff increase in FY12. We also expect a reversion to mean on the Basslink CRSM payments. In total, this leaves cash earnings positive and similar to FY11 level. As a result we see little risk to our assumed DPU of SGD4.20.

 FY13 estimate little changed. We see cash earnings improving to SGD83.4 mln in FY13, a slight change from our original SGD88.0 mln projection. This assumes more benign raw material costs pressure that is matched by increased revenue.

 Rights issue may dilute DPU. At the moment, CitySpring is trading on an attractive yield of 8.7%. The 11:20 rights may dilute DPU given the increased unit base and yield may decline to 6.0% assuming the quantum of distribution remains at SGD41.2 mln. The theoretical exrights price is SGD0.451 based on the last close price of SGD0.485.

Investment Risks
 As income is based on capacity availability, any unexpected plant outages raise the risk of not fulfilling the minimal availability requirement leading to an earnings shortfall. Deteriorating credit environment may raise refinancing costs leaving the possibility of equity raising that may be dilutive or increased debt servicing costs.

Source/转贴/Extract/Excerpts: Standard & Poor’s Equity Research
Publish date:03/08/11

US debt deal removes key macro event risk “off” the table. But focus could now be on soft econ data (phillip)

2 Aug 2011
US debt deal removes key macro event risk “off” the table. But focus could now be on soft econ data

− A deal to raise the US debt ceiling by at least US$2.1tr, and cut spending by at least the same amount looks pretty much in the bag, but market focus is likely now to shift back to weak economic data – alarmingly, US ISM Mfg PMI new orders contracted in July. Although we would still bet on continued global recovery, and the bull market regaining footing, we do advocate some near term conservatism given that this global economic soft patch is looking harder to shake off. Our key risk as highlighted in Strategy 31st May and 6th July – globally higher than expected inflation and lower growth, may be starting to bite.

• After months of wrangling, a deal to raise the US debt ceiling has been reached and looks likely to receive bipartisan support tonight: The debt ceiling would be raised by at least US$2.1tr in two installments (US$900b initially), sufficient to take the government into 2013. There would be US$917b in spending cuts over 10yrs, and a special committee would have to come up with an additional US$1.5tr in savings via further cuts or tax increases by Nov11, which, if successful would allow the debt ceiling be raised by an equivalent US$1.5tr. If this special committee fails to come up with US$1.5tr in savings, then the fall-back automatic position is this: the second installment of raising the debt ceiling would only be US$1.2tr to meet the minimum raise as previously agreed.

Simultaneously, a US$1.2tr spending cut offset would automatically trigger in 2013, comprising mainly defense cuts (precious to republicans) and medicare cuts to reimbursements, not benefits (precious to democrats). By end 2012, the Bush tax cuts would also expire, which would re-introduce US$3.5tr in revenue.

• With all these spending cuts, which minimally would amount to US$2.1tr over 10yrs, some worry that US consumption would take a hit and that would affect Asia. Firstly, although we would not want US consumption to collapse, we should not expect it to be an Asian growth driver anymore. Consumption on the margin is now powered by Asia and the Emerging World, not the US, so our focus for consumption growth should be there. Secondly, a drop in Consumption in the US usually sees a corresponding drop in Imports, thus the offset effect would be that trade would add to the US economy. So it’s not likely to be a direct cause of a second dip either (see below for other risks). Overall our take is that this is a positive for the world. Debt stability is a key macro risk and it would be good to take this “off” the table. Key thing to note is that in the event the Special Committee decides on nothing, the automatic cuts would kick in and coincide with the expiration of the Bush era tax cuts, combine the two and the US would have nonetheless taken a significant step, though not completely safe step, toward fiscal sustainability.

• But we are not out of the woods yet. Just when you think the roadblock removed means that equities can resume a sustained uptrend on earnings and continued recovery, our key worry arises: perennially higher than expected inflation is starting to choke global demand (see Strategy 31st May and 6th July). This soft patch in economic data is not over. US Mfg PMI decelerated in July to 50.9 from 55.3, and worse, new orders actually contracted slightly to 49.2 from 51.6. China’s Mfg PMI moderated slightly from 50.9 to 50.7 but new orders quickened from 50.8 to 51.1. Data is still too mixed to declare victory and the contraction in new orders in the US particularly worrying. One more month of contraction and we would seriously go back to the drawing board for our outlook. On balance, although we would still bet on recovery continuing, and recognize that the STI has already broken out of its year-long consolidation triangle, we do advocate some near term caution as markets can quickly shift focus from the debt ceiling back to the economic outlook, which in the near term has elements of doubt as economies report higher than expected inflation and lower growth.

Source/转贴/Extract/Excerpts: Phillip Securities Research
Publish date:02/08/11

CDL Hospitality Trust: Poised to grow on three fronts (phillip)

2 August 2011
CDL Hospitality Trust –
Hold (Maintained)
Closing Price S$2.10
Target Price S$2.10 (0.0%)
Poised to grow on three fronts

• 2Q11 revenue $34.6m, NPI $35.6m, distributable income $28.5m
• 2Q11 DPU of 2.96 cents
• Increase revenue by 1.7-1.8% for the period between 2012 and 2015
• Raise target price to S$2.10 but maintain Hold

1H11 DPU was in line with our estimates
Better hospitality performance and contribution from Studio M Hotel boosted gross revenue by 12.6% y-y to $34.6m. NPI was $35.6m, up 24.0% from a year before and exceeded the gross revenue for the reporting quarter. This was attributed to the one-off property tax refund of about $3.3 million and improved top-line. Distributable income after deducting the income retained for working capital was $28.5m (+31.3% y-y) and translated to a DPU of 2.96 cents. Adding together 1Q11 DPU of 2.38 cents, the aggregate dividend payout for 1H11 was 5.34 cents forming 49% of our full year DPU estimate. Average occupancy rate (AOR) for Singapore Hotel was 88.1% in 2Q11, a dip of 0.4%-pt compared with the preceding year. Nevertheless, average daily rate (ADR) edged up 5.5% y-y to $232 and made up for the dip in AOR, and thus lifted the revenue per available room (RevPAR) to $205. AOR for Orchard Hotel Shopping Arcade stayed above 96.5% level with an average monthly rental rate of $7.05 per sq ft. CDL HT’s Australia Hotels continued to perform well supported by the commodity-rich sector and static supply of hotel rooms.

Fueled by three growth engines
1. Organic growth: Singapore tends to receive more visitors in second half of the year due to seasonal factors. Increased demand in hotel rooms may exert upward pressure to ADR. ADR, a laggard, will also play catch up with AOR. Therefore, ADR for Singapore hotels is anticipated to gain traction over the next few quarters. 2. Enhancement growth: Phased refurbishments at Orchard Hotel and Novotel Clarke Quay will give rise to higher ADR when remaining rooms are slated for completion. Enhanced product offerings will raise their standards to remain competitive with other hoteliers along Orchard shopping belt and those in the vicinity of River Valley precinct. 3. Acquisition growth: Ample debt headroom also leaves CDL HT well-positioned for further acquisition trail in the Asian hospitality sector in 2011.

Hospitality market performance is highly susceptible to the health of tourism market and external economies, and a change in tide may overshadow the optimism on tourism growth story. Despite 2Q11 result was largely on track to meet our full year estimates, we are mindful to raise our revenue forecast between 2012 and 2015 by 1.7-1.8% as our earlier projection was slightly conservative. Coupled with the property tax refund, we revised our target price to $2.10 but maintain Hold as the valuation is not attractive relative to other REITs which are more resilient and command a lower NAV premium. We opine that the CDL HT’s current price is fairly value.

Source/转贴/Extract/Excerpts: Phillip Securities Research
Publish date:02/08/11

Cosco: 2Q11 Results (phillip)

2 August 2011
Cosco Corporation (S) Ltd-2Q11 Results
Hold (Maintained)
Closing Price S$1.695
Target Price S$1.635(-3.54%)
• Weak margins from dry bulk shipping and marine engineering drag down earnings.
• Little respite in sight with a weak shipping market and unabated cost pressures.
• We lower eFY11 EPS and eFY12 EPS from 11.3 and 12.1 cents to 9.7 and 10.9 cents respectively.
• Maintain hold recommendation with revised target price of $1.635.

2Q11 Results
Cosco Corp reported 2Q11 revenue of $996 mil. (+3.5% Y-o-Y) and PATMI of $32 mil. (-53.4 % Y-o-Y) respectively. Revenue increased slightly but PATMI fell sharply mainly due to 1) lower profits from dry bulk shipping 2) lower margins from marine engineering projects and 3) higher tax expenses due to lower deferred tax benefit recognized.

Margins remain weak
Cosco Corp reported gross and PATMI profit margins of 7.5% and 3.2% for 2Q11 respectively. This was much lower compared to 2Q10 when Cosco reported gross and
PATMI margins of 12.6% and 7.1% respectively.

The weaker year-on-year margins can be largely explained by lower profits from a weak dry bulk-shipping segment. The Baltic Dry Index averaged 1410 in 2Q11, which is a 58% decrease from the corresponding period (2Q10) last year. As a result revenue from dry bulk shipping fell a whopping 60.1% (See Fig. 4) versus the corresponding period last year.

Another reason for the weak margins is due to cost overruns for some of Cosco’s construction projects. While expected losses recognized on construction contracts were lower at S$7.9 million this quarter versus S$14.8 million in the corresponding quarter last year, it played a part in keeping margins lower (See fig 5.).

While a weaker contribution from dry bulk shipping resulted in weaker margins on a year-on year basis, this does not explain a fall in margins on a quarter-on-quarter basis. We note that gross margins in 2Q11 was 7.5% versus 11.1% in 1Q11.This sharp fall cannot be due to dry bulk shipping (as dry bulk shipping revenue only fell S$3.1 million which was more than offset by lower expected losses on construction contracts on a q-o-q basis) and we attribute it to lower margins on its marine engineering projects. Indeed, management expects to incur higher costs in future as it scales the “learning curve” in its offshore marine engineering projects on new product types (e.g. drill ships).

Valuation: We had initially ascribe Cosco a PER of 18x FY12E as we took into account its low earnings base and the possibility of it winning further offshore projects. However, it seems that any potential offshore wins will be overshadowed by margin compression from scaling the “learning curve” for at least the next two years. Therefore, we feel that it will be more appropriate to ascribe a lower PER of 15x FY12E for Cosco.

We also lower FY2012e EPS from 12.1 cents to 10.9 cents in light of 1) a persistently weak shipping market 2) unabated cost pressures (high steel and wages costs) and 3) lower margins expected for dry bulk carrier construction in 2011 and 2012. We maintain our HOLD recommendation with a revised target price of S$1.635.

Source/转贴/Extract/Excerpts: Phillip Securities Research
Publish date:02/08/11

SIA: Profits missed on weaker than expected yields (phillip)

2 August 2011
Singapore Airlines Ltd –
Hold (Maintained)
Closing Price S$14.32
Target Price S$13.45 (-6.1%)
Profits missed on weaker than expected yields

• 1QFY12 PATMI declined 82%y-y to S$44.7mn
• Poor showing attributed to weaker yields & one off events in the quarter
• EBIT losses for SIA & SIA Cargo
• Revised earnings down by 20.5%/3.7% for FY12E & FY13E
• Maintain Hold recommendation with a revised target price of S$13.45.

1QFY12 results missed on weaker than expected yields
SIA reported a lower than expected PATMI of S$44.7mn for the quarter (PSR est. S$179mn). The key variance from our estimates was from a weaker than expected passenger yield, which we attribute to a combination of weaker forex translations and discount fare offerings to stimulate demands to Japan post-Earthquake. On the cargo front, global supply chain disruptions contributed to the poor showing by SIA Cargo.

Parent Airline & SIA Cargo were in the red for the quarter
The Group reported weak operating profits of only S$11mn, which included operating losses from the Parent Airline and SIA Cargo. This is the first time that these two entities reported operating losses since 2QFY10. Going forward, we expect marginal profits as yields are likely to remain flattish, due to weak forward bookings and possible discount fare offerings to stimulate demand (particularly to Japan).

Fuel Cost remains the biggest drag on earnings
On the cost side, there was little surprise that the higher fuel bill continued to impact the profitability of the Group. We had expected that the four rounds of fuel surcharge increase, since the end of 2010, would provide better relief to the higher Jetfuel prices. However, yields disappointed and headed south instead. SIA remains hedged to the lower end of its forecasted requirement at an average price of US$130/bbl. Hence, we expect minimal hedging gains or losses for the year ahead, based on our assumption of US$125/bbl for FY12-13E.

Operating Statistics revealed the performance of SilkAir for the first time
The operating statistics for the quarter was within our expectations. SIA also revealed the operating data for its regional carrier, SilkAir, for the first time. Contrary to the flattish yield improvements by the parent airline, SilkAir recorded an 8%y-y improvement in yields. We believe that this is an exemplification of the issues faced by the industry in the quarter, as carriers with a global presence experienced weaker demand and suffered from one off disruptions, while regional carriers with an Intra-Asia focus continued to perform well from relatively healthy demand. SIA also reduced their passenger capacity guidance to 5%y-y (vs previous guidance of 6%) to better match its capacity to expected demand.

Valuations & Conclusion
We continue to value SIA based on 1.20X FY12E BVPS (S$11.21) and expect total returns of 3.0% after incorporating forecasted dividends of S$1.30 (DPS of S$1.20, XD: 2Aug11). While the outlook for the industry remains challenging, we see limited downside to SIA’s share price with its relatively strong balance sheet. The key downside risk to our Hold call would likely be from the macro front, as SIA will not be spared from a weaker global economy.

Source/转贴/Extract/Excerpts: Phillip Securities Research
Publish date:02/08/11

Wilmar: Raising cooking oil prices in China (dbsv)

Wilmar International
BUY S$5.85
Price Target : 12 months S$ 6.25

Raising cooking oil prices in China
Bloomberg yesterday reported that Wilmar was raising its cooking oil prices in China by an average of 5%. This was confirmed by the company which had informed their dealers yesterday of the c.5% price (average) increase across their range of cooking oil products and that the price increase is effective from yesterday.

In July 2011, we estimated that the removal of the price cap were to restore Wilmar's Consumer segment margin back to c.US$40/MT (i.e. to levels before price controls were imposed in Nov 2010, vis-a-vis US$33 in 1Q11), Wilmar's FY11F and FY12F net profit would increase by 1.1% and 2.3%, respectively.

However, raw material prices have since increased, and in our view a 5% increase this time may no longer restore its margin back to US$40/MT. Therefore, assuming that net ASP is the same as the raw material cost, a 5% increase would raise Wilmar's FY11F and FY12F net profit by 0.7% and 1.1%, respectively. In our estimates, Wilmar's Consumer segment contributes approximately 31% and 6% of Wilmar's FY11F Revenue and EBIT, respectively. Hence, while we see this development as positive for Wilmar, the impact is insignificant, in our estimation.

Wilmar will announce its 2Q11 results on Friday, 12 Aug11 and we will be reviewing our numbers then. For now, our Buy rating and S$6.25 TP are unchanged.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:03/08/11

Unisem :Tough byte (cimb)

Unisem (M) Berhad
NEUTRAL Maintained
RM1.39 Target: RM1.40
Tough byte

2Q11 analyst briefing
Management’s downbeat tone during Unisem’s 2Q11 results briefing and the slight delay in the loading of its tier-1 customer surprised us though there had been hints in its 2Q announcement. The positive takeaway was the greater push towards copper wire bonding, its goal of being a world-class supplier, which would help bring in more tier-1 customers and its relook at its processes to cut cost. Taking our cue from the subdued guidance, we cut our FY11 EPS forecast by 16% but maintain our FY12-13 numbers as earnings should normalise then. The earnings adjustment has no impact to our RM1.40 target price as we continue to value the stock at a 10% discount to its 5-year P/BV of 1.0x. As there are no re-rating catalysts in sight and near-term prospects are weak, we maintain our NEUTRAL rating.

Briefing highlights
Unisem’s 2Q11 briefing drew a crowd of about 40 fund managers and analysts. Consistent with past quarters, ED CH Ang led the briefing and took questions, along with MD/CEO John Chia. The negative surprise was the very subdued guidance for 3Q although there had been hints of modest growth for 3Q and 4Q. Another negative surprise was the slight delay in the loading from its tier-1 customer to Oct. On the flip side, Unisem’s attempt to secure more tier-1 customers is positive though it will take time. Other positives are its relook at all its processes to save cost and its bigger push on copper wire bonding.

Roundup of 2Q. Unisem’s revenue in US$ terms rose by 7% qoq vs. 5% growth in RM terms. Revenue was driven by volume growth as ASPs remained stable. Revenue was up for all of its operations (Ipoh rose 3% qoq, Chengdu up 20% qoq and Batam up by 2% qoq) except for UAT which fell 32% qoq. Unisem recorded a forex gain of RM2.8m in 2Q. Losses for Batam and UAT worsened, Europe turned around and other operations remained in positive territory. Disappointingly, utilisation rates remained in the low 60s for 2Q as the uncertain and volatile economic environment in Europe and the US, the earthquake in Japan and China’s attempt to cool its economy also dampened demand.

Very subdued 3Q guidance. Unisem expects flat to slight growth for 3Q as sentiment remains weak. Growth is being driven by the smartphone and tablet segments. Unisem is taking a broader strategic relook in order to secure more tier-1 customers. However, this will take time. The company is also reviewing its processes for cost savings. It has also taken a more aggressive approach to copper wire bonding in its bid for more market share while maintaining its focus on cost reduction and capex discipline.

Contingent on external forces. Unisem believes that the worse is behind it and that 2H11 should be better than the first two quarters of this year. Earnings should normalise although the company could not give a definitive outlook. Unisem revealed that inventory positions at its customers were at healthy levels. In addition, it believed that any positive change in sentiment in the US would help fill up Unisem’s capacity. Slight delay to loading by new tier-1 customer. The company finally confirmed that its tier-1 customer will begin loading in Oct 2011, later than its earlier timeframe of June/July. The reason for the delay is that the product under which Unisem would be qualified was reaching the end of life and the end-customer had dragged out the qualification. As a result, Unisem is now qualified under new projects for the tier-1 customer. The financial impact will not be significant this year but will be prominent in 2012. The tier-1 customer could become the largest customer by 2013. We take a positive view on business from this tier-1 customer as i) it would help Unisem to run on high volumes and assure better production and cost efficiency, ii) establishes a beachhead among tier-1 customers, and iii) allows Unisem to expand with the tier-1 customer, especially under this new project.

Other updates. The supply disruption from the Japan earthquake has largely been resolved. For cost savings, there will also be greater emphasis on copper wire bonding. This is also in line with industry trends where its larger competitors have been forcing customers to switch to copper wire. Due to lower ASP, copper wire bonding will lead to lower revenue. However, margins are better. Its Chinese customers have been more accepting and quicker to adopt copper wire bonding as they are more price-sensitive.

Valuation and recommendation
FY11 forecast downgrade. The briefing left us feeling slightly more negative as the guidance is subdued since sentiment remains weak and the near-term outlook does not look inspiring. Taking into account the more subdued guidance, we lower our FY11 estimate by 16% but make no alterations to FY12-13 as we expect earnings to normalise then and Unisem to benefit from volume loading from its tier-1 customer. The earnings adjustment has no impact on our target price of RM1.40, which remains pegged to a 10% discount to its 5-year historical P/BV average. We reiterate our NEUTRAL call on Unisem as there is a distinct lack of re-rating catalysts and the nearterm sentiment and outlook remain weak.

Source/转贴/Extract/Excerpts: CIMB Research
Publish date:01/08/11

Hi-P: Growth decelerating (dbsv)

Hi-P International
HOLD S$0.925
Price Target : 12-month S$ 0.86 (Prev S$ 1.28)

Growth decelerating
• 2Q11 below house & market expectations
• Margin pressure to continue to impact 2H; FY11/12F cut by 23-26%
• Maintain HOLD, TP lowered to S$0.86 based on 9x

FY11/12F (from 11x); underperformance to persist 2Q margin came in significantly lower. Net profit of S$11.2m was down 9% y-o-y despite 27% higher revenue. Sequentially, sales and profit fell 5% and 37% respectively. Excluding S$2.8m forex losses and one-off charges, operating profit of S$13.6m was in line with our lowered estimates but way below our previous forecast of S$17m. Revenue and gross margins fell short by 27% and 3ppt respectively. EBIT margin fell to 6.4% from 8.2% in 2Q10, due to larger portion of assembly work and higher costs arising from wage hikes and increased headcount ahead of the expected ramp up for new RIM programmes, which unfortunately, was pushed back to 2H.

3Q11 profit to fall y-o-y. Although new projects would lead to higher sales in 3Q, net profit is expected to decline yo- y due to pricing pressure and higher labour costs. We
believe lower value sales mix coupled with low yield of new products would continue to pressure the bottomline. Hence, we have cut FY11F and FY12F sales by 17% and GP margin by 2ppt each. As such, FY11/12F earnings have been lowered by 26%/23%.

TP revised down to S$0.86, maintain HOLD. Apart from earnings revision, we have also dropped target PE valuation peg to 9x (historical mean) from 11x (+1SD) previously due to weakened earnings growth outlook. Accordingly, our TP based on 9x FY11/12 EPS is revised down to S$0.86. Hi-P has corrected 27% from the peak of S$1.26 in Feb, we believe market has anticipated and largely factored in the slower growth. Although the worst is over for this year, we expect share price to recover soon unless sales or margin rebound way ahead of expectations. Maintain Hold.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:02/08/11

Cosco: Constant struggle (cimb)

Cosco Corporation (S) Ltd
S$1.70 Target: S$1.40
Constant struggle

• Below; downgrade to Underperform from Neutral. 2Q11 net profit of S$32m (- 53% yoy) was 59% below our estimate and 57% below consensus. 1H11 net profit of S$69m (-31% yoy) forms only 25% of our FY11 forecast. Weaker-than-expected margins from offshore and provisions for contract losses were the main culprits. Our worst fear of Cosco’s unproven offshore track record could come true as more new projects await execution, potentially suppressing margins. This could provide derating catalysts and explains our downgrade of the stock to Underperform. We cut our earnings by 13-18% for FY11-13, incorporating lower margins and weaker shipping revenue. Accordingly, our target price drops from S$2.30 to S$1.40, still based on 15x CY12 P/E, a 15% discount to Singapore rig-builders.

• Offshore barely profitable. Offshore projects’ gross margins dropped from their historical double digits (10-15%) to single digits (we estimate 6-8%) in 2Q11. This was due to higher-than-expected design and labour costs, which could have stemmed from Cosco’s aggressive bids for offshore projects just to penetrate the market. Given its lack of experience in turnkey offshore projects (including deepwater drillships, tender rigs and jack-up rigs), we expect margins to remain low as more ‘new’ projects are executed. We fear that a history of provisions for lossmaking contracts in shipbuilding could repeat themselves in offshore as these provisions typically surface after projects have reached substantial completion.

• Perpetual provisions. Cosco booked S$7.9m of provisions for contract losses for heavy-lift vessels and special purpose carriers. This followed a S$20m sum booked in 1Q11 and S$66m for the whole of 2010 as higher-than-expected costs (steel, materials and labour) were incurred which resulted losses for some contracts.

• US$1.8bn order wins; order book of US$7bn. Cosco is in negotiations for jack-up rigs, semi-subs and FPSO conversions but we believe bids for these projects could be aggressive just to replenish its yard capacity beyond 2013.

Source/转贴/Extract/Excerpts: CIMB Research
Publish date:02/08/11

Cache Logistics Trust: Upside from Acquisitions (dbsv)

Cache Logistics Trust
Upside from Acquisitions
BUY S$0.975
Price Target : S$ 1.11

At a Glance
• In line with expectation and on track to meet our full year forecasts
• Acquisitions and asset enhancement activities to drive earnings growth.
• Maintain Buy, S$1.11

DPU of 2.1ct is inline with expectation. Cache Logistics Trust (“Cache”) reported S$15.5m net property income (“NPI”), 6.1% above IPO forecasts. 2Q sequential performance was relatively robust with gross revenue and NPI rising 9.2% and 7.2% to S$16.2m and S$15.5m respectively, lifting distributable income to about S$13.2m (+7.1% qoq). The robust performance was largely due to an enlarged portfolio and the group’s continuous asset enhancement efforts. As a result, DPU rose by about 6.8% qoq to 2.09cts. The first 2 quarters’ DPU forms 50% of FY11 forecast.

New acquisitions yet to kick in, more to come. Recent acquisition of Jinshan Chemical warehouse in Shanghai and Air market Logistic Centre in Singapore, as well as the 70,000 sf asset enhancement works at Cold Hub should underpin earnings growth in the coming quarters. Gearing remained healthy at 29.1% and the group is looking to grow portfolio further via acquisitions in Singapore and China. All-in Interest rate has also lowered from 4.37% to 3.92% due to the more attractive rates secured for its recent acquisitions.

BUY Call, TP maintained at S$1.11. Cache remains attractive for its FY11-12F yield 8.2-8.7%, which is 230-270 bps above the peers’ average 5.9% - 6.2%. Re-rating catalysts will be the execution of more acquisitions that the manager is currently reviewing.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:28/07/11

Hyflux: Fire at Magtaa warehouse no material financial impact (dbsv)

BUY S$2.00
Price Target : 12-Month S$ 2.47

Fire at Magtaa warehouse no material financial impact - damages claimable, FY11 earnings pushed back to FY12

Event :
Hyflux announced that a fire broke out on 28 July 2011 at its warehouse at the Magtaa project site. The Project is now more than 80% completed. Building erected and equipment already installed at the construction site are not affected but equipment in the warehouse would have to be repurchased, particularly RO membrane. As a result, the project completion is expected to be delayed till May 2012 instead of August 2011. According to preliminary estimates, all related costs and damages arising from this incident are around U$50m.

Our take :
There could possibly be kneejerk reaction to share price with this news but we do not expect material financial impact because 1) the project is covered by a comprehensive construction all risks insurance policy with internationally reputable insurers, so we believe the project company (which is 47%-owned by Hyflux) would be able to make the claims. Moreover, the project company would be applying for force majeure so that would also free Hyflux's obligation on project delay. At this juncture, our check with management indicated that they will not be making any provision for this incident. Earnings wise, we had expected Hyflux to complete the Magtaa project by this year, but this development would now push back 13% of earnings to FY12 instead. That, however, would not impact TP as we roll over to FY12 earnings in deriving our TP.

Operation wise, business momentum remains on track: 1) Tuas 2 desal project would commence construction in 4Q11, in line with our expectation. 2) We understand Hyflux continues to pursue new projects in China, SEA and India as the MENA region takes a breather. While we have not factored in anymore contract wins for the rest of this year, we believe chances are high for small contract wins out of China.

Hyflux is due to report results on 4 Aug, we expect net profit of S$27m on sales of S$150m. No change to Buy recommendation and TP of S$2.47.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:29/07/11

PARKWAY LIFE REIT: Unique Structure (limtan)

04 August 2011
S$1.90 - PLIFE.SI
• What likely justifies yesterday’s new high for the hospital reit is disclosure that the minimum guaranteed rent from the 3 hospitals (Mt E, Gleneagles and East Shore) will rise 5.3% in the Aug 23’11 - Aug 22’12 period over the previous lease period.

• This is as provided under the arrangement with Parkway Holdings when PLife was first set up (and which we would not rule out Khazanah Nasional which now owns Parkway Holdings, “hoping / wanting” to undo at some point). And this in turn makes PLife an “inflation play”.

• Otherwise, there is little new in the June quarter numbers released this morning: Distributable Income rising 13.4% y-o-y (reflecting contributions from acquisitions in 2010) but 0.1% q-o-q. DPU is 2.37 cents or 9.48 cents annualized. Gearing is 34%, allowing for more acquisitions, last being in Japan, where PLife now has 29 nursing homes and 1 healthcare production facility.

• Based on DPU of 9.37 cents for the 12 months to Jun’11, and annualized DPU of 9.48 cents, yield is 4.9% and 5% respectively.

• Given PLife’s unique structure, a BUY can still be justified.

Source/转贴/Extract/Excerpts: Limtan
Publish date:04/08/11

Golden Agri: Stellar Numbers From PT SMART (OSK)

Golden Agri-Resource
Fair Value: S$0.89
Price: S$0.73
Stellar Numbers From PT SMART

Golden Agri’s Jakarta-listed subsidiary PT SMART reported a IDR1,159.2bn net profit for 1HFY11, more than doubling the IDR523.7bn posted in 1HFY10. For 2Q alone, PT SMART made IDR575.1bn, which was down by 1.5% sequentially.

PT SMART carries out Golden Agri’s downstream business covering refinery, cooking oil and oleochemicals as well as 108,589 ha of its nucleus planted area out of Golden Agri’s total nucleus planted hectarage of 352,124 ha.

Due to the decline in palm oil price in 2Q, earnings from PT SMART’s plantation segment plunged 31.8% q-o-q. This was however mitigated by its downstream earnings, which soared from IDR47.4bn in 1Q to IDR160.1bn in 2Q. As Golden Agri itself is upstream-heavy, PT SMART’s plantation segment earnings suggest that there would be some decline in Golden Agri’s 2Q earnings. We believe this would be mild due to contribution from its China business.

Our net profit forecast for FY11 stands at SGD555.4m. Assuming the worst-case scenario whereby Golden Agri’s 2Q earnings fall by 31.8% q-o-q to mirror PT SMART’s upstream earnings decline, its earnings will come in at SGD145.2m. For 1H, it would have totaled SGD358.1m, which means that the company only needs to make another SGD197.3m in 2H to meet our forecast. Given this scenario, we are likely to raise our forecasts pending the 2Q results in view of our expectation of a counter-trend rally in CPO price in 2H.

Maintain Buy with fair value of SGD0.89. Golden Agri is easily the best stock to own to play the counter-trend rally given its liquidity and leverage to CPO price.

Source/转贴/Extract/Excerpts: OSK RESEARCH
Publish date:01/08/11

Tuan Sing: Good things are worth waiting for (KE)

Tuan Sing Holdings
Price $0.375
Target $0.58

Good things are worth waiting for

 Tuan Sing Holdings (TSH) reported 1H11 revenue of $121.0m (+29% YoY), which met 29% of our full‐year forecast. The bulk of the revenue came from the industrial services division. Management, however, is less optimistic about the residential property markets in Singapore and China. We reduced our FY11F earnings by 53% on slower recognition of sales at Mont Timah and Seletar, and ascribe a higher discount to RNAV of 20%. Maintain BUY with target price of $0.58.

Our View
 Profit before tax jumped almost fourfold in 1H11 to $13.3m. The property segment was the largest contributor followed by Gul Technologies (GulTech), TSH’s 43.3%‐owned associate. GulTech’s capacity expansion and shift towards the production of higher‐margin products will continue to extract a higher value for TSH.  Even though the industrial services division made up the bulk of 1H11 revenue, its 2Q11 earnings were hit by lower margins in commodity trading due to disrupted coal supply as a result of site issues faced by SP Corp’s (80.2%‐owned subsidiary) coal supplier. Management expects the division’s performance to improve in 3Q11 as the issue is being resolved.

Overall, we expect all segments to improve in 2H11.
 The good news from yesterday’s results announcement was that the Strata Titles Board has approved the collective sale of Serene House (including the adjoining state land), and TSH expects to complete the purchase in October. The total breakeven cost for this project is estimated to be $1,962 psf. As a result, our estimate for development profit from this project remains intact.

Action & Recommendation
The redevelopment of Robinson Towers and International Factors Building to yield 218,439 sq ft of office space, expected to be announced by 1H12, remains the key re‐rating catalyst for TSH. The stock is trading at a 24% discount to NAV. Maintain BUY with the target price lowered from $0.64 to $0.58, pegged at a 20% discount to its RNAV of $0.73.

Landbanking in China
Notwithstanding the risks that may result from more property cooling measures being introduced in China, TSH has secured an 80 mu (or 53,333 sq m) residential site adjacent to a reservoir in Jiaozhou, Qingdao city. At about S$3m, the investment cost was, fortunately, not too significant. This acquisition adds to another of the group’s undeveloped land site in Fuzhou, China. We exclude the proposed acquisition of the site in Jiaozhou from our forecasts pending more status updates.

Hotel investment reports temporary losses
Grand Hotel Group, 50%‐owned by TSH, reported an after‐tax loss of A$0.6m for 1H11, against a net profit of A$2.7m in 1H10, inclusive of a fair value gain of A$1.4m on interest rate hedges. The weaker result was due mainly to the cessation of management fee credits from Hyatt, which were present last year, and the additional interest cost and depreciation incurred in 1H11 following room refurbishment programmes.

Both Grand Hyatt Melbourne and Hyatt Regency Perth reported higher revenue per available room (RevPAR). The A$28.0m refurbishment of the two hotels’ guest rooms is progressing well. Hyatt Regency Perth completed the refurbishment work for all of its 367 guest rooms in June, while the work on all 547 rooms in Grand Hyatt Melbourne is expected to wrap up by the end of next month, possibly leading to higher RevPar in the coming quarters.

Source/转贴/Extract/Excerpts: Kim Eng Research
Publish date:02/08/11

Raffles Education: Fruitful trip with management (ke)

Raffles Education Corp
Price $0.620
Target $0.800
Fruitful trip with management

 We hosted a one‐day non‐deal roadshow (NDR) in Kuala Lumpur for Raffles Education Corp (REC) last week. It was group Chairman and CEO Chew Hua Seng’s first overseas roadshow in more than two years. Overall, the trip has helped to extend investor outreach while reinforcing our contrarian view that REC is firmly on the recovery path. Reiterate BUY.

Our View
 The key issues raised during the NDR pertained to dwindling student numbers, Khazanah Nasional’s interest in Oriental University City (OUC) and REC’s China real estate plans. To be sure, these were not new concerns and management’s replies were largely in line with what we had discussed in our earlier reports.

 The near‐term outlook in China remains a challenge but management is optimistic that positive contributions from the new colleges it set up in the past two years should lead to a turnaround in its bottomline. In fact, the main headwind is the strong Singapore dollar, given that it is the group’s reporting currency and that 85% of its revenue currently comes from its regional operations.

 To our surprise, investors were more accepting of the group’s desire to unlock its real estate value. As returns from the education business tends to be slow and over the long haul, management took pains to explain the rationale behind its recent sale of a 50% stake in subsidiary Value Vantage Pte Ltd and potential monetisation of OUC’s landbank. The cash proceeds will eventually be ploughed back into its core activities to build a more sustainable and robust business model.

Action & Recommendation
REC’s share price has recovered by almost 28% since our last update on 5 July 2011. Despite the uninspiring results expected of FY Jun11 (likely to release around end‐August), we believe the group will still pay a DPS of 0.45 cents after the 3‐to‐1 share consolidation exercise. Maintain BUY and our SOTP‐based target price of $0.80.

Fruitful trip with management
Accompanied by REC’s Chairman and CEO Chew Hua Seng (his first investor roadshow in more than two‐years), we met up with several major institutional/pension funds on our one‐day NDR in Kuala Lumpur on 25 July 2011. The participants had a fruitful and lively discussion with management as most of them are still relatively new to the group despite having heard of the Raffles brand name.

The key issues raised during the meeting pertained to falling student numbers, Malaysian sovereign wealth fund Khazanah Nasional’s interest in OUC, the group’s China real estate plans as well as the weak free cash flow resulting from the expansion of new regional colleges. To be sure, these were not new concerns and management’s replies were largely in line with what we had discussed in our earlier reports.

Raffles University Iskandar holds great promise
Not surprisingly, a few participants expressed great interest in the Raffles University project in EduCity@Iskandar, close to Medini North. To recap, REC successfully sealed a joint‐venture agreement in May this year with Education@Iskandar Sdn Bhd (EISB) to establish Raffles University Iskandar (RUI). EISB is a member of the Iskandar Investment Group and will have a 20% stake in the JV company. The majority 80% stake will be owned by REC, which will also be responsible for the development and operations of RUI.

According to management, this self‐accrediting university will begin operations in October this year out of leased premises at Kotaraya, Johor Bahru, with an initial intake of 400 students.

Construction of the permanent 65‐acre, multi‐faculty campus in EduCity@Iskandar is on track to complete by 2013 and RUI expects to enroll up to 5,000 students in its first five years of operation. For a start, it will offer undergraduate and postgraduate programmes in Design & Art, Business, and Education & Social Sciences. This will be subsequently expanded to five faculties to include Health Sciences and Technology.

From a longer‐term perspective, the warmer relations between Singapore and Malaysia, as well as enhanced connectivity arising from the proposed rapid transit system (RTS) from Singapore to Johor Bahru by 2018, will likely attract more foreign investments. This should in turn lead to higher demand for tertiary education services in order to meet the manpower needs of multinational companies in the Iskandar Malaysia project.

Funding not a major problem
In April this year, REC set up a $78m, 10‐year financing facility with the International Finance Corporation (IFC). This comprises a $60m loan and an $18m convertible loan. The former is repayable in 15 semi‐annual instalments, beginning January 2015, at 2.75% pa above the six‐month SGD floating swap rate. As for the latter, IFC can choose to convert into ordinary shares at a conversion price of $1.35 anytime within 4.5 years from the disbursement date. The loan proceeds will be primarily used to fund REC’s penetration in the emerging markets, as well as the building of Raffles University Iskandar (note that its share of RM200m total investment will be spread over the next 3‐4 years).

Coupled with less aggressive expansion of new colleges in the region (Figure 1), management has sought to reassure investors that it will continue to manage its cash flow prudently. The group’s net gearing ratio is a comfortable 17% as at March 2011.

Private education system to provide growth
According to management, regulators in China have stipulated that from March 2013, all providers of the National Education curriculum (or NES schools) must own the land on which they operate. We think this policy would benefit REC in the long term as it could force out some marginal players in the sector, enabling the group’s student enrolment in China to stabilise, if not improve.

REC’s student population in Asia Pacific ex‐China continues to grow steadily by 7% YoY from 5,572 students to 5,948 students in June 2010. Looking ahead, the five colleges it established in FY Jun09 and eight in FY Jun10 are expected to contribute positively from FY Jun12 and FY Jun13, respectively. The buoyant demand for industry‐oriented tertiary education has also given REC room to further increase its school fees in mature markets like Singapore. We think there is a good chance the group will be able to wean itself from its dependence on China as a main source of income faster than expected.

Valuation and recommendation
Our SOTP valuation is based on 20x FY Jun12F PER for the education business (in line with the overseas‐listed peers) and estimated RNAV for its investment properties held under OUC. With 29% upside potential, we maintain our BUY recommendation and SOTP‐based target price of $0.80. Near‐term re‐rating catalysts include successful monetisation of OUC and faster‐than‐expected recovery in student numbers.

Source/转贴/Extract/Excerpts: Kim Eng Research
Publish date:01/08/11

Cosco : Two steps forward, one step back (KE)

Cosco Corporation
Price $1.695
Target $1.80
Two steps forward, one step back

 Cosco posted weaker‐than‐expected 2Q11 earnings, with net profit diving 53% YoY to $31.9m. Despite turnover staying firm, earnings were eroded by costs, as well as a $12m tax adjustment. With order outlook and execution looking weak once more, we cut our forecasts and downgrade Cosco to HOLD with target price lowered to $1.80.

Our View
 Sequentially, 2Q11 net profit was even lower than that in the already weak 1Q. Gross margins declined from 11.1% to 7.5%, indicating that the improvement in execution has derailed. The situation was exacerbated by higher costs across the board. The shipyard business saw repair margins drop to single digits. Repair margins were also hurt by price competition, while shipbuilding was most keenly hit by an increase in steel and labour costs. For offshore, margins contracted as a result of cost overruns due to higher R&D costs associated with a steeper learning curve for new vessel types.

 Bulk shipping was hammered by weaker rates, with the business just barely profitable. Finally, income tax rose by 74%, or a tax rate of 33%, above the group’s normal rate of 16‐20%. This was due to the one‐off impact of a $12m deferred tax adjustment. We expect this to revert back to the normal level when consolidated for the full year.

 Management views the overall market as difficult and that Cosco may struggle to secure new shipbuilding orders. Also, the offshore segment is unlikely to be as profitable as other offshore stalwarts such as Keppel and SembMarine, whose margins are in the high teens. At best, Cosco will achieve just single‐digit margins for now, as the group is a relatively new entrant with no competitive niche.

Action & Recommendation
We cut our FY11F earnings by 30% and FY12F earnings by 23% on lower margins, despite Cosco’s turnover remaining healthy on its US$7.0b orderbook. Our target price is lowered to $1.80 from $2.43, based on P/B of 3.5x and FY12 PER of 18x. Downgrade to HOLD.

Source/转贴/Extract/Excerpts: Kim Eng Research
Publish date:02/08/11

Cosco: Hit by lower margins all round (DBSV)

Cosco Corporation
(Downgrade from BUY)
Price Target : 12-month S$ 1.60 (Prev S$ 2.86)

Hit by lower margins all round
• 2Q11 net earnings fell 53%, below expectations.
• Key disappointment came from lower margins across all divisions, and higher effective tax rate.
• Cost overrun in offshore projects, low earnings visibility, weak margins are key concerns.
• Downgrade to Fully Valued; TP cut to S$1.60 as earnings lowered by 28%(FY11F) and 18%(FY12F).

Second round of disappointing earnings. 2Q11’s net earnings fell by 53% y-o-y to S$31.8m, below our and street estimates. While 2Q10 was buoyed by exceptional gain of S$28m from lumpy profit recognition of Super M2, 2Q11 suffered from lower margins across all divisions (gross margin -5ppt y-o-y and -4ppt q-o-q to 7.5%) and higher effective tax rate. If we strip out exceptional gains from last year and adjust for the lower deferred tax benefit, net earnings would be flat yoy.

Déjà vu - execution issues again. Key disappointment came from lower offshore margins, which declined from 13% to 9% due to: a) cost overrun for drillship; and b) higher start up and R&D cost for its offshore turnkey projects. Margins for shipbuilding projects fell to 8% (from > 10%) with recognition of lower priced/ margin shipbuilding contracts kicking in together with rising costs (wages, currency and steel). Shiprepair/conversion margins continued to slide due to intense competition. Shipping revenue fell 31% q-o-q to S$14m as average charter rates fell 20% to US$12.6k/day in 2Q11.

Downgrade to Fully Valued; TP cut to S$1.60. We cut FY11/12F earnings by 28%/18%, assuming lower gross margins of 9-9.5% on its order book. Disappointing results will put pressure on share price performance till visibility improves. Execution risks outweigh potential catalysts. Target price cut to S$1.60 based on average using SOP and P/B on blended FY11/12F earnings.

Results snapshot
2Q11’s net earnings fell a sharp 53% y-o-y to S$31.8m, below our and street estimates. While 2Q10 was buoyed by exceptional gain of S$28m from lumpy profit recognition of Super M2, 2Q11 suffered from lower margins across all divisions – offshore, shipbuilding, shiprepair and shipping. Gross margin fell 5% y-o-y to 7.5%. EBIT margin was flat at 8% vs 1Q11 but down from 9.6% in 2Q10.

In addition, effective tax rate rose to 32%, due to lower tax exempt shipping profits and a deferred tax benefit adjustment on lower deferred tax benefit recognised. As a result, net margin fell to 3.2%. This is a one-off adjustment and effective tax should normalize to 18% and 21% going forward.

Despite a S$20m provision for losses on shipbuilding contracts incurred in 1Q11, the group provided for a further S$7.9m losses this quarter, mainly for heavy lift vessels, special purpose carriers and offshore projects.

Key disappointment came from lower offshore margins – its first disappointment since its foray into offshore engineering. Gross margin declined from 15% in 2Q10 to 9% due to : a) cost overruns on its drillship package; b) higher start up and R&D cost for its offshore turnkey projects. Margins for shipbuilding projects fell to 8% as recognition of lower priced shipbuilding contracts start to kick in together with a rising cost environment - wages + 10%, material cost +3%.

Shiprepair and conversion margins continued to slide due to lower ASP stemming from intense competition and excess shipyard capacity in China. Shipping revenue fell q-o-q to S$14m as average charter rates fell 20% to US$12.6k/day in 2Q11.

Key Risks
Concern over Sevan’s financial stability. This will serve as an overhang on the share price till Sevan Marine restores its financial stability. To recap, the parent company of Cosco’s major customer Sevan Drilling – Sevan Marine - has received a US$36.1m bond loan to support its short-term working capital needs into September 2011, pending a final resolution of the restructuring discussions. To address investors on bankruptcy risk of parent company, Sevan Drilling has provided an update that they are making good progress in discussions with banks over the removal of the cross default provisions towards Sevan Marine. Sevan now accounts for 22% of its order book, with 3 deep water drilling rigs.

We are not overly concerned as Cosco is insured by China Export & Credit Insurance Corporation, which will refund up to 90% of the outstanding contract value in the event of cancellation and bankruptcy. In addition, Cosco has the priority to sell the vessels if the customer enters into chapter 11.

Rising cost and currency pressure. Based on our sensitivity analysis, every 1% increase in steel cost and RMB appreciation could decrease Cosco’s bottomline by 1% and 2.2% respectively. We have assumed a 10% increase in steel cost and 3% RMB appreciation a year in our model for Chinese shipyards.

FY11/12F earnings cut by 28%/18% on cost overruns for offshore turnkey projects while low contracted newbuild prices will lead to thin margins in a rising cost environment. We have cut our FY11/12F net profit by 28%/18% adjusting for: 1) lower revenue from shipping and shiprepair/conversion, affecting 6-7% of total revenue; 2) reduced gross margins for shipbuilding (-0.5ppt) and offshore (-3.5ppt); and 3) higher effective tax rate of 4ppt/2ppt in FY11/12F.

Lower valuation multiples. In addition, we have lowered our target PE multiple for shipbuilding to 14x (vs 16x previously) to reflect the higher earnings risks and target P/BV to 2.7x (in line with peers and 30% discount to historical mean vs high of 5.5x) given the slower earnings recovery projected. As a result, our TP is cut to S$1.60.

Re-rating catalysts
Earnings recovery. Cosco has to demonstrate sequential earnings rebound to regain investors’ confidence in its execution and earnings recovery. 3Q11 results will be a key inflexion point to watch for Cosco. Offshore contract wins. Cosco's YTD order wins stand at US1.829bn, representing 73% of our new order win assumption of US$2.5bn. We remain optimistic on Cosco’s contract wins in months ahead with potential US$2.8bn of new orders in the pipeline. This could provide some catalysts to the share price.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:02/08/11

GMG: Rain affected 2Q11 results (DBSV)

GMG Global
(Downgrade from Hold)
Price Target : 12-Month S$ 0.22

Rain affected 2Q11 results
• 2Q11 core profit of S$14.2m marginally below expectations
• Volumes impacted by heavy rains in Cameroon and Ivory Coast port closure
• Downgrade to Fully Valued, TP maintained at S$0.22

Core profit of S$14.2m slightly below expectations.
GMG reported core profit of S$14.2m, up 50% y-o-y (-8% q-o-q) after adjusting for exceptional gain of S$12.4m (waiver of loan owed by Teck Bee Hang (TBH) and compensation from government of Cameroon for costs of social programs) and loss of S$10m (we estimate S$8.7m after tax) from closing out of loss making rubber forward contracts – marginally below expectations.

Sales impacted by port closure and weather.
2Q11 sales volume was up 4.3% q-o-q (+149% y-o-y) to 47,409 MT. However, this was below management expectations due to prolonged heavy rainfall at Hevecam plantation and closure of ports in Ivory Coast. These events resulted in c.S$6m in lost earnings.

FY11-13F EPS reduced by 0.4% to 1.0%.
Due to slower than expected recovery in volumes from TBH and higher than expected distribution costs, offset by smaller assumed discount for ASP relative to benchmark rubber prices (5.9% from 8% in FY11), we revise FY11-13F EPS down by 0.4% to 1.0%.

Downgrade to Fully Valued.
With minor changes to our earnings, we maintain our S$0.22 TP. Despite our favourable view on GMG’s blend of plantations and processing plant assets and strategy of acquiring working capital constrained processors such as TBH, there is 17% downside to the share price from current level. Hence, downgrade GMG to Fully Valued.

2Q11 core profit of S$14.2m slightly below expectations
GMG Global reported 2Q11 core profit of S$14.2m (+ 50% y-o-y and -8% q-o-q) after accounting for gain of S$5.8m from waiver of loan owed by Teck Bee Hang to minority shareholders (net gain after tax and MI of S$3.2m), gain of S$15m arising from agreement with the State of Cameroon for compensation of costs for social programs at the Hevecam operations (net gain after tax and MI of S$9.2m) and pretax loss of S$10m from closure of loss making rubber forward contract entered into in the prior year (we estimate S$8.7m after tax impact). GMG also expects pre-tax loss of between S$3-4m to be incurred in 2H11 from reversal of the forward contract.

$6m in lost earnings from wetter weather and port closure
2Q11 sales volume was up 4.3% q-o-q (+149% y-o-y) to 47,409 MT. Management believes volumes could have been higher if not for prolonged heavy rainfall at Hevecam plantation (volumes for plantations were down by 1,060MT in 1H11 compared to 1H10) and closure of ports in Ivory Coast in April. Resultant impact was estimated to be $6m in lost earnings. We also understand volumes for GMG’s Indonesian operations were flat q-o-q.

Slight revision to sales volume forecasts
Despite the 2Q11 weather problems experienced in Cameroon, we are not making any changes to our Hevecam volume estimates as we had already assumed slow growth of
2% for FY11. For TRCI, we had already accounted for port closure in our numbers hence no change. However, as Teck Bee Hang only recorded sales volume growth of 3.3% q-o-q to 22,427MT in 2Q11 (44,153MT for 1H11), which was below our expectations, we reduce our TBH volume assumptions to 125k MT, 150k MT and 180k MT for FY11F, FY12F and FY13F respectively. This compares to our earlier forecast of 135k MT, 162k MT and 190k MT.

No change in gross margin assumptions
After accounting for one off losses due to reversal of a rubber forward contract entered into in the prior year, core gross margins (14.5%) were close to our expectations. Accordingly, we have not made any changes to our gross margin assumptions. We also note that TBH recorded gross margin of 5.3% in 1H11 which was in line with our FY11 forecast of 5.5%. Further with core margins remaining resilient we believe GMG’s 2Q11 results is consistent with our thesis of robust gross margins for processors due to consolidation of the processing industry vis-à-vis fragmentation of their end customers (tyre manufacturers).

FY11-13F EPS reduced by 0.4% to 1.0%.
Following changes to our volume assumptions and increase in distribution costs (higher than expected to date due to additional replanting fee in Thailand) offset by smaller
assumed discount for ASP relative to benchmark rubber prices (now 5.9% for FY11versus previous assumption of 8.0%) we reduce FY11-13F core EPS by 0.4% to 1.0%.

Downgrade to Fully Valued on account of 17% downside to share price
With marginal changes to our earnings, we maintain our TP of S$0.22. Despite our favourable view on GMG’s blend of plantations and processing plants assets and strategy of acquiring working capital constrained processors such as TBH, we downgrade GMG to Fully Valued given 17% downside from the current share price to S$0.22 TP.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:29/07/11

SIA: Barely avoids the red ink (KE)

Singapore Airlines Ltd
Price $14.71
Target $14.40

Barely avoids the red ink

 Singapore Airlines (SIA) posted dismal 1QFY Mar12 net earnings of just $44.7m, down 82% YoY. Earnings were decimated by a surge in fuel costs, which increased by more than $300m from a year ago. This is also despite the fact that revenues remained strong, up 3% YoY to $3.6b. We are reducing our earnings forecasts substantially, but retain our HOLD rating and target price of $14.40 in view of SIA’s robust balance sheet.

Our View
 Passenger yields moderated slightly to 11.8cts/pkm from 12.1cts/pkm in the previous quarter, but were otherwise firm. We also estimate that cargo saw flat revenue from weaker yields, despite an increase in loads. 

On the cost side, the variance in fuel costs implies that SIA has not pursued a more aggressive hedging policy. It only achieved some $12m in hedging gains for the quarter. We raise our assumption for average cost of fuel from US$120/barrel to US$130/barrel, which implies minimal hedging. We also assume oil prices to stay at the current levels for the next nine months. All other costs were kept broadly in check.

 Going forward, we expect some improvement in yields, as SIA has so far resisted raising ticket prices and fuel surcharges further. We believe an increase is inevitable but the firm loads suggest that the market will be able to bear this.

 We slash our earnings forecasts by 45% for FY Mar12 and 18% for FY Mar13 to $798.0m and $1,100.7m, respectively. This reduction is solely due to our higher fuel cost assumption and will be partially offset by higher yield assumptions.

Action & Recommendation
We maintain our fundamental HOLD rating on SIA, based on a P/B of 1.2x. While earnings in the short term are at risk, the airline’s balance sheet will enable it to weather the storm, as it has done several times before. Reminder: book closure for SIA’s bumper final and special dividend totaling $1.20 is next Thursday.

Source/转贴/Extract/Excerpts: Kim Eng Research
Publish date:29/07/11

SIA: Cloudy skies are behind (DBSV)

Singapore Airlines Ltd
BUY S$12.24
Price Target : 12-Month S$ 15.00 (Prev S$ 16.20 Ex-Div)

Cloudy skies are behind
• Expect stronger quarters ahead
• Still in net cash of S$4bn ex-div, with potential for more value enhancing moves
• Pro-active moves to regain market share
• Maintain BUY, our TP is adjusted to S$15 (1.3x FY12/13 P/BV) from S$16.20 previously

1Q earnings weak but expect better ahead. 1QFY12 PATMI of S$45m came in below our forecast of S$150m, as yield improvement was slower than expected amid the
strong S$. Still, 1Q is seasonally the weakest for SIA and we are expecting stronger quarters ahead on sequentially higher load factors and yields. Adjusting for weak 1Q
numbers and lower capacity growth for FY12, we cut our FY12 and 13 forecasts by 23% and 16% to S$934m and S$1,070m respectively.

Firm balance sheet and growth initiatives are also positives. We like SIA’s moves to gain more market share in both its traditional network carrier segment as well as a fresh venture in the LCC market. This includes a tie-up with Virgin Australia (VA) to allow SIA access to VA’s 30+ destinations in Oceania as well as the setting up of an independently branded and managed mid-to-long haul low cost carrier within a year.

With c.S$3.30 net cash per share after paying out the final dividend of S$1.20, SIA remains in a strong financial position to further enhance shareholder value, by a) returning excess cash, b) paying out a consistently high level of dividends or c) making value accretive acquisitions.

Maintain BUY. Our 12-month target price for SIA is adjusted to S$15 as we lower our P/BV multiple from 1.4x to 1.3x to account for the lower ROE (on lower earnings projections), based on blended FY12/13 estimates. Key risks would include a double-dip in the US economy or further softness in Europe or a sudden spike in fuel price.

Weak Q1 results…
To recap, 1QFY12 (FYE Mar) earnings for SIA declined by 82% yoy to S$45m despite 3% yoy growth in revenue to S$3.58bn. This was due to operating costs rising at a faster pace of 11% yoy, as fuel costs per ATK rose by 15% yoy (non-fuel costs per ATK declined 7%). Furthermore, passenger load factor for the quarter declined by 2.7ppt, largely due to much softer loads for East Asia routes, as they were affected by the Japan nuclear crisis. This was below our forecast of S$150m profit as passenger yield did not improve as much as we expected (+1% yoy to 11.9 Scts per p-km), with the S$ appreciating against the US$, Euro and GBP and eroding most of the gains from higher fuel surcharges in S$ terms. During the quarter, the S$ appreciated against the US$/GBP/Euro by 2.6%/2.9%/0.7% respectively.

… but future quarters should get better
We are more sanguine about the coming quarters for SIA as Q1 is traditionally the weakest for the Group in terms of load factors, yields and hence, earnings. Gradually improving demand on Japan routes coupled with more modest capacity growth (target 5% ASK growth for FY12 versus 6% guidance 3 months ago and 7.2% in 1QFY12) should also arrest the passenger load factor decline (-4.4ppt in 4QFY11 and -2.7ppt in 1QFY12) that we saw in the last six months.

Firm balance sheet
Even after paying out c. S$1.4bn in total final dividends (S$1.20 per share), SIA still has about S$4bn in net cash, or c. S$3.30 per share. Together with more cash generated from operations, we project SIA to end FY12 with a strong net cash of over S$4.4bn or c. S$3.70 per share. Hence, SIA remains in a strong position to further enhance shareholder value, by a) returning excess cash, b) paying out a consistently high level of dividends or c) making value accretive acquisitions.

Whilst the timing of which is uncertain, SIA has made it clear that they are open to offers for their 49% stake in Virgin Atlantic (already substantially written down on SIA’s books from its GBP600m cost in 2000), which could further unlock more value and cash for SIA and shareholders.

Bold moves and initiatives
1) Setting up a mid and long haul LCC
In May 2011, SIA announced its intention to establish a new no-frills, low-fare airline operating wide-body aircraft on medium and long-haul routes. Operations are expected to begin within one year. The airline will be wholly owned by Singapore Airlines, but will be operated independently and managed separately from SIA. More details on the new airline’s branding, products and services and route networks will be announced soon. According to its announcement, SIA hopes to serve 'a largely untapped new market and cater to growing demand among consumers for low-fare travel' and expects that low fare airlines could help stimulate demand for longer flights, as it did with short haul routes.

We see this as a positive step by SIA to grow its business. It already has a presence in the premium network airtravel space (parent company SIA), regional routes
(SilkAir) and short-haul low-fare air travel (Tiger Airways) and will now complete its suite of services by establishing a low fare, medium to long haul airline business. A direct comparable for this new venture would be AirAsia X, which currently operates 11 widebody aircraft (with 26 on order) and flies to various destinations in Asia, Europe and Oceania.

On 18 July, SIA announced it was appointing Campbell Wilson, who has been with the SIA Group for over 15 years, as the founding CEO of this new venture.

Risk: We don't expect this new venture to significantly cannibalize demand for SIA's own routes directly, given the expected pricing differential, but more capacity on any oute would always put downward pressure on ticket prices.

2) Tie-up with Virgin Australia
In June 2011, SIA signed a code-share alliance agreement with Virgin Australia group of airlines to provide access to each other's networks, coordinating schedules and pricing, engaging in joint marketing & distribution, and offering frequent flyer benefits and lounge access to each other's customers. This agreement will need to be approved by the Australian regulators. For SIA, the code-share opens up connections to over 30 additional cities in Australia and the Pacific. SIA currently has a presence in Australia with services to Adelaide, Brisbane, Melbourne, Perth and Sydney but no access to the rest of Australia, including important business destinations for Australia's fast-growing mining industry. According to CEO Mr Goh, the tie-up will boost SIA's corporate product in Australia and open up new options

for SIA's frequent flyer members in Australia. Later on, SIA may also start to code-share on Virgin Australia's flights to the US, which may be easier to secure from the regulators than its own Australia-US flights, which the Australian regulators have thus far refused to hand out to SIA. SIA currently has more than 50% market share in Singapore-Australia routes, followed by Qantas at 26% and Emirates at 9% and this move should further consolidate its position in this market when coupled with its more aggressive expansion plan on these routes.

We see this as a positive development for SIA as it will enhance its service offerings further into Australia and also serve to raise its competitiveness versus Qantas in the Asia-Australia market. Together with the announced low fare, mid and long haul airline, these are proactive steps taken by SIA to get back on the growth path and also fend off competition.

3) A more active role in Tiger Airways
Following the suspension of domestic flights for Tiger Australia on 1st July, SIA quickly parachuted a senior manager from its own team, a former SilkAir CEO, Mr. Chin Yau Seng, to be Tiger Airways’ acting CEO to try and turn things around. In addition, two other SIA or ex- SIA senior figures have been appointed to Tiger’s board. Despite being Tiger’s largest shareholder at 33%, SIA had previously been passive in its role at Tiger Airways. However, things have obviously changed and we believe SIA will take on a more pro-active role in managing its investment in Tiger. We opine that this could include aligning Tiger’s operations and strategies with SIA’s new mid to long haul LCC venture for synergies and expansion.

Changes in forecasts and assumptions
Factoring in lower capacity growth of 5% vs 6% previously for FY12 and lower S$ yields, we cut our FY12 and FY13 earnings forecasts by 23% and 16% to S$931m and S$1,067m respectively.

Source/转贴/Extract/Excerpts: DBS Vickers Research
Publish date:04/08/11

SIA: Wealth creation stalls for SIA (CIMB)

Singapore Airlines Ltd
S$14.32 Target: S$11.80
Wealth creation stalls for SIA

Uncertainties beyond the seasonal lift
A plethora of troubles. SIA explained the multiple reasons for its weak passenger and cargo yields in the past three months during its briefing yesterday. Seasonally better performances are expected for the next six months, but this is not a reason to buy the stock, in our opinion, as the cyclical headwinds hurting SIA’s performance will remain concerns. We believe SIA will remain beset by an inability to pass through fuelcost increases fully via substantive yield increases due to weaker load factors, competition in air freight from the availability of container shipping space, and weaker economic dynamics affecting cargo demand. Potential de-rating catalysts include continued weaker-than-expected performances relative to consensus expectations. Hence, we maintain UNDERPERFORM, but reduce our target price to S$11.80 (from S$13), still based on 1.1x P/BV as SIA trades ex-dividend from today.

Analysts’ meeting highlights
Weak yield environment for passenger business. The weak revenue environment had been reflected in the sequential qoq drop in passenger yields from 12.10 Scts to 11.80 Scts per revenue passenger kilometre (RPK). This was caused by the following, in order of importance:

• The appreciation of the S$ against revenue currencies like US$, € and ₤, which affected S$-equivalent revenues from the US, Eurozone and the UK; and

• The impact of the Japanese earthquake, tsunami and nuclear crisis on air travel demand and loads to North Asia, which remained below year-ago levels.

This was partially offset by:
• Higher fuel surcharges, as SIA had raised surcharges four times from December 2010 by 55-70%; and

• A better passenger mix, with more front-end passengers.

Despite working hard throughout 2010 to push yields higher, SIA could not escape the weaker macro-economic environment in 2011. Nevertheless, the South-East Asian region was doing comparatively better, as reflected in SilkAir’s good performance. Long-haul routes to Europe and the US are suffering disproportionately more than short-haul routes in an environment of high fuel prices, because longer-haul routes tend to burn more fuel. European and US routes are also doing less well in terms of
demand, in view of their weaker economic growth.

As a consequence of the difficulties, SIA has trimmed its passenger ASK capacity growth projection for FY12 from 6% to 5%. Nevertheless, with advance bookings over the next three months flat against the same period last year, passenger load factors should remain lower than year-ago levels.

Cargo business affected by weak demand. The cargo business was also affected by weak demand for all geographies.
• China was a major culprit, with tighter financing and monetary conditions in China affecting the ability of factories to obtain working-capital financing. Secular factors also contributed to the weakness in air freight demand, such as the tightness of labour availability and higher costs of labour affecting the financial performances of various companies.

• The Japanese earthquake and accompanying supply-chain disruptions also had a big impact on outbound cargoes from Japan. There was broad weakness in outbound cargoes from the US and Europe across various product exports. As a result, cargo AFTK capacity growth has been cut from 11% (as guided three months ago) to 8.9% for FY12. However, AFTK capacity growth could be reduced even further if demand fails to materialise as expected; conversely, capacity growth can be revised up to match demand quickly. Response time for SIA Cargo is almost immediate, although passenger capacity could require a minimum of one month to a maximum of three months to adjust, given the presence of forward bookings. The cargo peak season is supposed to start in September, and SIA Cargo expects (or hopes) that there would be a big increase in air freight demand from September onwards. Some recovery in outbound Japanese air freight is already visible from this quarter onwards.

Expect sequentially better performance, but still significantly weaker yoy. SIA is moving into its seasonal peak for both the passenger and cargo businesses. With the northern summer in full swing and year-end school holidays in the next 4-5 months, the passenger business should see sequentially higher yields, more demand and higher seat factors than in the preceding three months (April-June), typically the weakest quarter in the year. Meanwhile, the cargo business should also benefit from higher demand from expected pre-Christmas restocking. Nevertheless, there is no doubt that the rest of FY12 would remain weaker than a year ago.

Passenger load factor to be lower this year. We expect PLF to average just 76% this year, from 78.5% last year, due to industry-wide overcapacity. However, cargo load factor may still rise slightly, as SIA Cargo appears very responsive and has been matching demand with capacity very well.

Based on operating statistics up until June, we see no evidence of a recovery in passenger travel demand to Japan apart from seasonal variations.

Availability of container shipping space may blunt impact of peak season for air freight. The air freight business globally has lost market share to container shipping this year because of the greater availability of container shipping space. Our analysis of container shipping dynamics suggests that space is not likely to be a constraint even in the upcoming peak season, and that a large portion of cargoes will still likely be carried via container ships rather than airplanes. While we believe that air freight demand will be stronger seasonally over the next three months, we believe the intensity, duration and quantum of the improvements may disappoint airlines.

Yields not compensatory despite high fuel prices. In an environment where the average jet fuel price is expected to rise 24% to US$129.30/barrel in FY12, passenger and cargo yields need to rise to counter the effect of higher costs, but we expect passenger yields to rise only 0.4% yoy to 11.97 Scts, and cargo yields to stay flat. This would have a negative impact on the bottom line, with net profit expected to fall from S$1,092m in FY11 (EPS: 91.4 Scts) to just S$362m in FY12 (EPS: 30.2 Scts).

Valuation and recommendation
Maintain UNDERPERFORM. We lower our target price from S$13 cum-dividend to S$11.80, still based on 1.1x P/BV, as SIA trades ex-dividend from today. The P/BV multiple of 1.1x is based on SIA’s average historical multiple over the past 10 years. We previously added S$1.20/share in final and special dividends to our ex-dividend target price to obtain our cum-dividend target.

We retain our EPS forecasts and Underperform rating. We believe that SIA will remain beset by high fuel prices, an inability to pass through cost increases fully via substantive yield increases due to weaker load factors, competition for air freight from container shipping space availability, and the weaker economic dynamics affecting cargo demand from China, Japan, the US and Europe. Seasonally better performances are not a reason to buy the stock, in our opinion, as the cyclical headwinds hurting SIA’s performance will remain concerns in the months to come. Potential de-rating catalysts include continued weaker-than-expected performances relative to consensus expectations.

Source/转贴/Extract/Excerpts: CIMB Research
Publish date:29/07/11
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,
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock