GENTING SP, dbs reinitial coverage BUY with target price $0.98
-Proxy to Singapore casino market. Genting Singapore (GENS) has the largest
exposure to Singapore’s US$3b gaming market (89% of SOP, virtually 100% of
2011 EBIT). Resorts World at Sentosa (RWS) can tap on Singapore’s existing
domestic gaming market, rising regional tourism and leverage on Singapore’s
transformation into a global city.
-Synergistic partnership Genting+Universal Studios. We expect gaming
revenue to come mainly from the more resilient and higher-margin grind
segment (6040 grind-VIP distribution, almost similar to Genting’ 7030).
Universal Studios should help draw in the mass-market to RWS -
differentiating it from Marina Bay Sands’ MICE/business visitors focus as
well as help diversify revenue base (non-gaming 25-30% of revenue).
-Potential first mover advantage. RWS could open earlier than expected,
possibly in Dec 09/ Jan 10 to coincide with the Chinese New Year peak
season. It could overtake Marina Bay Sands (launch postponed to 1Q10 from
end-09) - an advantage in locking in local market share (S$2,000 annual
pass in lieu of S$100/entry to be paid by Singaporean residents is
exclusive to one casino). RWS’ construction is on-track 71% of project cost
has been awarded to date with testing/ commissioning of ride equipments
scheduled for Nov 09.
-Potential catalysts a) Award of casino licence in 4Q09 (already fulfilled
requirement of >50% commitment spending and GFA construction), b)
announcement of exact soft opening date, c) encouraging response for hotel
bookings, and d) recovery in UK casino operations.
-Sum-of-parts of S$0.98, valuing RWS at S$0.87/share (based on DCF assuming
7.8% WACC, 1.5% long-term growth). We expect RWS to be profitable in the
first year of operation and earnings to grow at a 5-year CAGR of 37%
(assuming no. of tables increase progressively from 500 to 1,000).
MAPLETREE LOGISTICS TRUST, ubs maintain BUY with target price $0.87($0.67)
- Focused on tenant retention, not growth via acquisition. The manager of
MLT has emphasised in the recent results briefing that it does not intend
to acquire assets in the next 12 months, or raise equity at a cost which is
dilutive to DPU and NAV. We think investors prefer this focus on organic
growth and tenant retention, rather than growth via acquisition.
- Q209 DPU of 1.48c flat against Q109 in line with forecast. MLT’s rental
revenue decreased 2.4% QoQ mainly due to depreciation of JPY and HKD vs SGD
but overall NPI was flat. DPU of 1.48c was flat vs 1.47c achieved in Q109.
65% of the leases expiring in 2009 have been renewed. Tenant retention rate
was 80% and occupancy was maintained at 98.3% (similar to98.5% in Q109)
- Maintain Buy. We adjust our EPU/DPU estimates by 1-2% to account for the
good H109 results We believe the 9.1% yield, diversified, stable portfolio
and 5.5 weighted average lease duration make MLT one of the more attractive
SREITs.
- Valuation. We adjust our DCF valuation to S$0.87 from S$0.84, mainly due
to a lower discount rate of 8.4% from 8.7%.This assumes 2.6% risk free
rate, 0% 5-10yr growth, 2.5% pa terminal growth and a beta of 1.15. Our
previous PT of S$0.67/unit was based on our RNAV estimate. The latter was
akin to the concept liquidation value which we believed was appropriate for
small cap REITS at a time of extreme dislocation in the credit markets. Now
that the credit markets have largely normalised, we are reverting to our
usual DCF-valuations for PT.
OCBC, rbs downgrade to HOLD from BUY with target price $8
-The 46.3% ytd rise in OCBC’s stock price has brought it to within 10% of
our target. OCBC is fairly valued, on our estimates, at a 19% premium to
its long-term average P/E. We like the bank’s strong capital position and
secure dividend, but outperformance from here seems unlikely. Downgrade to
Hold.
-Key investment considerations. OCBC is close to our S$8.00 target price.
Given we see no short-term catalysts to propel the share higher, we cut our
rating to Hold. Looking forward, we expect the following investment
considerations to dominate 1) We believe that OCBC is fairly valued at
15.1x our one-year forward earnings forecast, which is at a 19.0% premium
to its historical average PE (12.1x) and a 4.3% premium to its historical
average (11.6x), excluding the asset reflation years of 2007 and 2008. With
net interest margins (NIMs) flattening out, loan growth remaining anaemic
and bad debts expected to remain at an elevated level, we fail to identify
a clear catalyst to continue to propel the share higher. 2) We consider
OCBC to be relatively defensive given its strong capital position (15.1%
tier 1 ratio and 11% core tier 1 ratio on our estimates) and secure-looking
dividend yield (4.0% FY10F).
-We expect 2Q09 to match strong 1Q09 ?the period thereafter is less
certain. OCBC reports results on 3 August. We expect net profit of S$368m,
down 13.4% yoy and down a more modest 3.9% qoq. Key issues the market is
likely to focus on include whether the bank can maintain its NIM at a high
level (we forecast a 1bp qoq rise to a still very high 243bp); the level of
bad debt charges (we forecast 100bp of bad debt charges for loans, up from
only 44bp at 1Q09); and the level of profit contribution from the insurance
operation (we expect profits to remain stable qoq at S$65m).
-Downgrade to Hold as S$8 target price is in range. We downgrade OCBC to
Hold with less than 10% upside to our target price. We marginally lower our
FY09-FY11 earnings estimates, driven by a 10bp cut in our loan spread
assumptions to reflect our view that loan spreads are flattening out.
RAFFLES MEDICAL, cimb maintain OUTPERFORM with target price $1.19($1.04)
- Another stellar quarter. 2Q09 PATMI was up 14% yoy to S$8.8m, within
Street and our expectations. 2Q09 EPS accounts for 25% of our FY09
estimate.
- 2Q09 revenue grew 6.5% yoy to S$54m. Underpinning this growth was revenue
from Healthcare Services and Hospital Services, which grew 12.3% and 4.8%
yoy respectively. Hospital volume was up 5% yoy, driven by a 13% yoy
increase in foreign patients, partially offset by a 7% yoy decline in local
patient volume. Raffles Hospital’s average occupancy was stable, at 50-60%.
- No stalling of operating efficiencies. RFMD has always been disciplined
on the cost side. The group managed to limit operating cost increases to
5.2% yoy, below the topline increase. 2Q09 EBITDA margins expanded 0.9% pt
yoy and 3.4% pts qoq to 23.5%. Staff costs rose only 3.4% yoy. Group EBIT
grew 12% yoy to S$10.9m, suggesting intact operating efficiencies.
- Balance sheet beefed up. The group continued to generate strong operating
cash flow, up 33% yoy to S$13.9m in 2Q09. It also had net cash of S$27.5m
(S$21.8m in 1Q09), despite the opening of three new clinics recently.
- Possible capital-management surprises. Management plans to open five new
clinics every year. At the same time, it is in the planning stage of
decanting space within its flagship hospital to make room for more beds. We
believe there are ample organic growth opportunities in Singapore, which
are not taxing for the group’s balance sheet, and possibly paving the way
for capital-management surprises.
- Maintain Outperform; target price raised to S$1.19 (from S$1.04). With
its defensive business that delivers consistent earnings, RFMD is on track
to meet our 11% earnings growth forecast for FY09. No changes to our
estimates. However, our target price has been raised to S$1.19, now based
on 16x CY10 P/E (from S$1.04, 14x CY10 P/E) to reflect a recovery in sector
multiples led by Singapore peers. On the back of its sound fundamentals,
healthy operating cash flows, and strong balance sheet, maintain
Outperform.
RAFFLES MEDICAL, csfb maintain OUTPERFORM with target price $1.65
- Raffles Medical delivered results for its June quarter, which arrived in
line with our estimates. Revenues were up 7% YoY, while earnings jumped 14%
YoY to S$8.8 mn. Management declared a S1 ct interim dividend, similar to
the previous year.
- 12% YoY revenue growth in the healthcare segment, and a 5% YoY
improvement in its hospital operations, suggests underlying demand across
the sector remains relatively resilient to macro uncertainties, including
the H1N1 pandemic. Operating margins were at 20% during the quarter, up
from 19% in 1Q09 and a year ago, due to some extent of operational
efficiency gains.
- The results did not yield surprises, and with the first six months
having met 49% and 47% of our full-year revenue and earnings estimates,
respectively, we have kept our forecasts largely intact.
- Resilient margins, strong free cash flows and a growing cash hoard
(S$27.5 mn net cash at end-June 2009) continue to reinforce our positive
view on the stock, which currently trades at about one standard deviation
below its five-year mean. We see 56% upside to our DCF-based S$1.65 target
price, and maintain OUTPERFORM.
RAFFLES MEDICAL, db maintain HOLD with target price $0.68
-2Q09 results were above expectations. RFMD reported better than expected
2Q09 results with revenue increasing by 6.5% YoY to S$53.9m on the back of
a strong growth in healthcare services (+12.3% YoY) and stable growth in
hospital services (+4.8% YoY). As a result of improved operating leverage,
earnings grew by 13.8% YoY to S$8.8m in 2Q09. 1H09 earnings grew by 19.9%
YoY to S$16.6m, or around 53% of our FY09 earnings forecasts.
-H1N1 pandemic is increasing the demand for healthcare services. The strong
growth in healthcare services in the 2Q09 was due to an increase in patient
visits at its Raffles Medical’s GP clinics for flu vaccinations and
antiviral drug Tamiflu. We believe that this trend could continue and
increase the demand for healthcare services in the healthcare sector. The
company can benefit from this trend as it has one of the largest clinic
networks in Singapore and its clinics are all prepared to pandemic cases.
-Hospital services continues to see efficiencies despite increased costs
due to H1N1. Despite the increased costs due to temperature screening and
other measures as a result of the H1N1 pandemic, operating expenses
decreased by 10% YoY to S$5.1m as a result of cost cutting measures.
Overall patient volumes at the hospital grew by 5% with pricing staying
relatively flat. Local patient volumes showed a decline in the 2Q09 but
were helped by the continued growth in foreign patient volumes.
-Strong cash position and stable dividend. The company has increased its
cash position to S$27.5m from S$17.9m in 2008 and has declared a dividend
of SGD0.01/share in 2Q09. Mgmt continues to see a stable growth in hospital
services and strong demand for its healthcare services.
RAFFLES MEDICAL, dbs maintain HOLD with target price $1.06($0.91)
-2Q09 slightly ahead. 2Q09 net profit grew by 13.8% yoy to S$8.8m on the
back of a 6.5% growth in revenue to S$53.9m. The better than expected
earnings were a result of better operating efficiencies, particularly staff
costs, which grew by only 3.4% vis-àvis topline growth. Operating margins
rose 1.5ppt from 18.8% in 2Q08 to 20.3% on the back of cost and operating
efficiencies.
-Resilient healthcare division. Topline growth from the Healthcare division
was at 12.3%, higher than the 4.8% growth reported by the Hospital
division. 3 new clinics were opened in 2Q, on track towards the Group’s
target of a total 5 clinics this year. Management shared that patient
volumes were up 5%, helped by foreign patients (+13%) offset by dip in
local patients (-7%).
-Net cash of S$27.5m. Operating cashflow remained healthy at S$13.9m in
2Q09. This contributed to the Group’s net cash position of S$27.5m. We
expect net cash position to further strengthen to S$47m by Dec 09, based on
our forecast. An interim dividend of 1cent per share was declared, similar
to 1H08. Book closure would be on 20 Aug, while the dividend would be paid
on 4 Sep 09.
-Maintain Hold, TP S$1.06. We raised our forecasts by 2% - 5% to factor in
the lower than expected operating expenses. We maintain our Hold
recommendation, but adjust our TP up to S$1.06 as we pegged it to 16x on
FY09F earnings, in line with regional peers and 1 standard deviation from
its trading average.
RAFFLES MEDICAL, kim eng maintain BUY with target price $1.38
-Yet another record quarter. RMG posted a solid set of results for 2Q09,
with revenue increasing 6.5% yoy to a record $53.9m and net profit
increasing 13.8% yoy to $8.8m. Revenue from Healthcare Services (clinics)
and Hospital Services grew 12.3% and 4.8% respectively during this period.
-Effects of recession/ H1N1. For its hospital, a 7% decline in local
patients was offset by a 13% increase in foreign patients. While the
recession could have played a role in this decline, management believes the
H1N1 pandemic was the major reason, noting that the public hospitals are
seeing the same trend of people staying away from hospitals where possible.
There were also minor exceptional costs involved in public and infection
control measures.
-Operating leverage continues to work. Management continues to keep a tight
lid on operating efficiencies. Staff cost, the major cost component,
continues its steady decline from 49% of revenue in FY08 to 48% in 1H09,
resulting in increased profits. 1H09 net profit of $16.6m now forms 45% of
our FY09 forecast. With the effects of H1N1 now gradually subsiding, we
expect stronger performance in 2H09.
-Breaking the piggy bank? With the full ownership of its Raffles Hospital
since 2007, RMG has been generating stronger cash flow than ever. With a
net cash position of $27.5m, management continues to be on a lookout for
opportunities. However, since management prefers greenfield projects which
do not require as much outlay, we deem that a cash distribution could be
likely.
-Keeping our above consensus forecasts, reiterate Buy. With this stellar
set of results achieved against the backdrop of the global recession and
the H1N1 pandemic, it is another testament to RMG’s brand of consistent
incremental growth. We keep our forecasts intact and expect RMG to
comfortably surpass the FY09 consensus NP of $33.5m. Our FCFE target price
of $1.38 implies 20X FY09 estimated earnings.
RAFFLES MEDICAL, nom maintain BUY with target price $1.30
-Raffles Medical (RMG) delivered good 2Q09 results, with 13.8% net profit
growth, in line with our above-consensus forecasts. While its operations
were affected slightly by the H1N1 virus ? with increased operating costs
and a 7% decline in local patient volumes at its hospital, we believe its
primary care network continues to show resilience with 12% top-line growth.
Foreign patient volumes also increased 13% y-y, across a diversified
market. We reiterate our BUY rating.
- RMG posted 2Q09 net profit growth of 13.8% (1H09 20%), largely in line
with our full-year forecast of 14.0% and above consensus forecast of 6.0%.
Revenues grew 6.5% y-y, on the back of strong 12.3% growth in its
healthcare services segment (which comprises its primary care network and
insurance arm). Hospital services revenue growth remains muted at 4.8% y-y.
- According to management, patient load at Raffles Hospital increased 5%
y-y, driven by 13% growth in foreign patient volumes across a diversified
market. On the other hand, local patient volumes declined 7% likely due to
fears of the H1N1 pandemic. Management highlighted that the decline is
probably not due to locals switching to subsidised care, as public
hospitals too witnessed a similar decline in volumes. Management also
guided that patient flows have since recovered this month.
- Having opened three clinics this year, management believes the group will
continue to expand its primary care network, with a target of five clinics
per year on average. While management is aware of the intensifying
competition in this space, it continues to be positive on increasing its
patient base in this fragmented market through its integrated approach to
healthcare.
- Management also highlighted that its hospital has the potential to
increase its capacity by adding two additional floors to its existing
building. In the near term, it could relocate its corporate offices to
increase bed capacity, if demand rises. We note that it is currently
operating 200 beds of the 380 registered beds.
- We reiterate our BUY rating on the stock, with a price target of S$1.30,
which implies 23% potential upside. We peg our price target to 16.4x FY10E
P/E, which is within the mean of RMG’s historical trading range.
SATS, cimb maintain UNDERPERFORM with target price $1.37
- In line. 1Q10 net profit of S$40.4m (+17.1% yoy) was in line with our
expectations, forming 22% of our FY10 forecast and 23% of consensus. The
results were boosted by the consolidation of SFI, benefits from the
government’s Jobs Credit scheme, and higher contributions from overseas
associates.
- Revenue jumped 44% yoy to S$352m on the consolidation of SFI, which
contributed S$132.9m, more than offsetting a 12% decline in aviation
revenue. SFI’s revenue dropped almost 20% yoy due primarily to a weak £.
SFI’s operating margin, however, rose to 8% from 5%. Overall operating
margins slipped to 12.4% from 15.7% due partly to SFI’s slimmer margins vs.
the aviation-related sector, in spite of a S$6.1m boost from the Jobs
Credit scheme. Net margins dropped to 11.5% from 14.1% despite a S$4.7m
jump in associate profits to S$9.1m.
- Aviation outlook remains soft. Management cautioned against expecting a
strong recovery in the aviation sector despite signs of stabilisation.
While SATS has announced some new service contract wins, their impact is
likely to be insignificant.
- FY10-12 EPS estimates trimmed, as we adjust for lower interest, higher
capital expenditure and higher associate earnings assumptions. FY10 capex
is expected to be S$60m-70m, higher than prior years, due to the
consolidation of SFI and the building of a perishables handling centre.
- Maintain Underperform and target price of S$1.37. We continue to expect a
weak aviation industry in FY10. At 1.7x P/BV, SATS is trading at a
significant premium to the peer average of 0.9x, while forecast yield of
4.4% is unattractive. Our target price is unchanged at S$1.37, still based
on 1x P/BV. Maintain Underperform.
SIA, cl maintain UNDERPERFORM with target price $12.02 EPS for FY09/10
lowered by 46.5% and 53.2%
-SIA’s soon to be divested subsidiary SATS increased earnings by 17%
following the acquisition of SFI. However, we believe not withstanding this
and the govt job scheme benefit, that SIA will again post a small operating
loss from its core operations in 1Q10. While SIA avoided the pressure on
the P&L last year from taking hedging losses to the equity reserves, the
same treatment will this time reduce the upside that other airlines will
see from mark to market valuations. We expect SIA to continue to U-PF.
-SATS was satisfactory. Stable results in a tough market are what
characterised SATS, with its inevitable 17% net profit growth following the
SFI acquisition. While the top line for SATS core business remained under
pressure falling 10% YoY, we estimate that the core operating profit only
fell 9% as the cost reductions took effect. There is no need to change our
SATS forecast at this stage with our 14% full year forecast inline with
initial trend performance. SIAEC’s net profit declined by 23% YoY due to
increased subcontract costs and lower contributions from associates.
-SIA revenue and yields to feel the heat. With passengers travelling
declining by 20% YoY and a number of passengers trading down from premium
to economy, we expect to see the passenger yield fall 18.5% YoY. On the
cargo side volumes fell 20.4% and we expect the yield to be down 26% YoY.
Overall we expect to see the group suffer a 29.8% fall in revenue, with
only SATS providing the bright spot through SFI.
-Cost reductions to steady the ship. We are forecasting that the 2 key
expenses will contract and provide some relief to SIA’s operating profit,
but not enough to keep it in the black. Fuel cost is expected to plummet
53% YoY as the oil price fell earlier in the year and volumes have declined
17% yoY, while staff costs will ease by 12.5% thanks to lower bonus
provisioning and government job incentive payments received.
-Struggle for profits. We expect SIA to stayed in the black on a reported
basis thanks to affiliate group earnings and net cash on the balance sheet.
However, we are looking for a second sequential loss at the OP level as
both the parent and air cargo operations fail to produce, but fortunately
SIEC and SATS should save the day for the group.
SIA, ssb maintain SELL with target price $13.35
-Core profit S$45m -23% YoY, 31% QoQ ? SIA Eng, c. 81% owned by SIA
reported 1Q FY10 net profit of S$45m or 22% of consensus FY10 estimates of
S$209m.
- Operating performance ? Operating profit fell 25% YoY and 54% QoQ to
S$12m while EBIT margin fell to 5% (4QFY09 10.9%, 1QFY09 6.6%). Top line
revenue fell 2% YoY (-1% QoQ) to S$255m on lower airframe maintenance and
component overhaul work, while operating expenses was flat YoY at S$232m
(+6% QoQ), as lower staff costs was offset by higher material costs and an
unrealized FX loss of S$6.1m due to weaker US$.
- Associates/JVs S$36m ? Contributions from AJVs also reflected weaker
economic conditions, falling 18% YoY and 26% QoQ to S$36m, and accounted
for 68% of the group’s profit before tax (4QFY09 62%, 1QFY09 66%).
- Net cash S$431m ? The group’s net cash position rose by 16% or S$59m
during the quarter to S$431m as of end June 2009, or c. S$0.40 per share.
- Outlook ? Management added that uncertainties in global economic
conditions and the impact of H1N1 will continue to affect the group’s
operations until travel demand show signs of sustained recovery.
SIA, ubs downgrade to SELL from NEUTRAL with target price $13
- The worst may be over but the best is a long way off. The impact of Swine
flu appears to be receding and we expect the global economy to start
improving from the current quarter. However, we expect a slow and shallow
recovery for the airline industry because pricing is likely to remain under
pressure due to latent capacity (which is likely to return to service as
volumes recover) and lower fuel surcharges (year-on-year).
- Structural concerns in the context of a cyclical recovery. We remain
concerned about the SIA’s fleet configuration. The generous seat pitch SIA
has provided customers’ increases unit costs and we aren’t convinced the
group will be able to achieve a large enough yield premium to return to
historic margins. Also, in FY10 hedging losses are likely to artificially
depress margins.
- Fuel hedging losses likely to magnify difficult Q1 trading. SIA is
scheduled to report Q1FY10 results on July 30th. We expect an operating
loss of $S28m and a net loss of $S27m (consensus -$40m). This is
traditionally the weakest quarter of the year and we expect both a seasonal
and cyclical recovery. However, we see downside risk to our full year
estimates and consensus given recent moves in the jet fuel price (our
estimates assume $60/bbl jet fuel).
- Valuation Maintain $13 price target but downgrading rating to Sell. We
don’t think SIA is very expensive but given our structural concerns we now
think it has reached fairly valued. In conjunction with the recent rally in
the share price, this leads us to downgrade our rating from Neutral to
Sell. Our 12-month price target is DCF based, explicitly forecasting key
valuation drivers using the UBS VCAM tool.
SIA ENGINEERING, cimb downgrade to NEUTRAL from OUTPERFORM with target
price $2.97
-Below expectations. 1Q09 net profit of S$45m (-23% yoy) was 11% below our
expectation and consensus, forming 22% of our full-year forecast. This was
largely due to higher-than-expected operating expenses. JVs and associates
continued to drive earnings, contributing 68% to group PBT.
- Dip in sales not as bad as expected. Sales dipped 2% yoy to S$244m but
exceeded our S$219m forecast, thanks to more rectification and cabin
maintenance work as well as higher revenue from material usage.
- But margins slipped. EBITDA margins slipped 2% pts yoy to 9%, due to
higher material and subcontract costs (+12% yoy). Other operating expenses
were also up by 23% yoy to S$26m because of a S$6m exchange loss from a
weaker US$.
- Better cash flow. Despite the drop in earnings, net cash flow improved by
52% yoy to S$60m, thanks to S$23m of dividends received from JVs and
associates. Cash balance remained stable at about S$430m (-8% yoy).
- Outlook challenged. We expect aviation sentiment to remain weak because
of SIA’s capacity cuts, worsened by the impact of the H1N1 flu, leading to
lower utilisation of SIAE’s facilities. Management guides that group
performance could be affected until there is a sustained recovery in
demand.
- Downgrade from Outperform to Neutral; target price remains S$2.97, still
based on blended CY10 P/E and DCF valuations. We keep our earnings
estimates intact. SIAE’s share price has risen 39% YTD to trade at 15x CY10
P/E, in line with its peers, ST Engineering and HAECO. Given the
uncertainties in the aviation sector and limited share-price upside, we
downgrade it to Neutral.
SIA ENGINEERING, dbs downgrade to HOLD from BUY with target price $3($3.20)
EPS for FY 10/11 lowered by 7% and 5.6%
-Revenue stays firm but profits disappoint. 1Q10 revenue tracked better
than our expectations, down only 2% y-o-y and 1% q-o-q ?as lower base
maintenance revenue was compensated by higher aircraft modification/ cabin
retrofit works in the line maintenance division. Net profit of S$45m,
though, came in lower than our expectation of c. S$52m ?owing to lower than
expected operating margin as well as lower associate/ JV profits.
1Q10-operating margin of 5% (vs. 6.6% in 1Q09) was affected by higher
subcontract costs and forex losses. Associate/ JV contribution also
surprised on the downside - at S$37.6m - down 18% y-o-y and 26% q-o-q.
-Lower profits may translate into lower dividends. While management has
taken steps to cut staff costs, non-staff operating expenses remain high
and we assume lower operating margins for the rest of FY10. Of greater
concern, however, is the sharp profit decline at associates/ JVs (which add
up to ~70% of PBT), signaling the full extent of a broad based MRO
downturn. As such, we lower our FY10 EPS forecast by 7%, and concurrently
cut our FY10 DPS projection to 14Scts, pegged to a payout ratio of about
70-75%.
-Time for a breather? Having gained 77% since our upgrade in March (vs. the
STI? 55%), the stock is currently trading at 15x FY10 EPS ?which is close
to the higher end of its recovery cycle PE band. Hence, we believe upside
is limited at this point and downgrade the stock to HOLD with a revised TP
of S$3.00.
SIA ENGINEERING, jpm maintain NEUTRAL with target price $3.20($3)
- Results in line 1QFY10 net profit fell 23% y/y and 31% q/q to S$45MM, in
line with expectations and on track to meet consensus full year forecast.
We expect SIE to outperform peers in this downturn, helped by SIA’s use of
this downtime to service and retrofit part of its fleet, Airbus’ A330
contract and lower customer default risks. However, although our
longer-term DCF-based fair value for SIE is S$4.20, the stock will unlikely
reach this level until the MRO industry (which typically lags air traffic
recovery by 6-9 months) shows signs of stabilization. In the longer term,
we believe SIE remains wellpositioned to benefit from the Asian airlines’
fleet expansion and increased MRO outsourcing globally. SIA’s potential
restructuring of its 81% stake in SIE, new JV forays and potential M&A are
other catalysts.
- Rolls-Royce JVs saved the day; while associates disappointed 50%-owned
JVs, SAESL and IECO, bucked the industry trend with earnings up 7% y/y (and
unchanged stripping out the FX impact), contributing 32% of Group pre-tax
profit. In contrast, its 13 associates’ profits fell 32% y/y (and -40%
stripping out the FX impact as the SGD weakened 7%). Collectively, these
contributed nearly 70% of Group PBT compared to 66% a year ago.
- Core business weak; costs need to come down further to mitigate the
earnings slide Revenue fell 2% y/y despite higher line maintenance revenue
from rectification, cabin maintenance and higher materials revenue. These
were more than offset by the slowdown in SIE’s main revenue driver -
airframe maintenance and component overhaul which constituted 50+% of top
line. We believe 12% staff cost reduction is commendable and should trend
lower in future quarters as the full impact of pay cuts, no-pay leave are
felt. Operating costs fell <1% due to higher subcontract costs (+12%) and a
S$6.1MM FX loss. Consequently, op profit fell 25% y/y; margins declined
1.5ppts to 5%.
- PT, key risks We have raised our ex-div Jun-10 PT slightly to S$3.20 as
we roll over to 2010. This is based on 16x P/E, SIE’s historical average
valuation in the past three years and represents a 25% discount to our
DCF-based fair value of S$4.2, which we view justified as MRO demand lags
air traffic recovery and has yet to stabilize. Key risks 1) more airline
capacity cuts; 2) pressure on MRO rates; 3) work deferrals.
SIA ENGINEERING, nom maintain BUY with target price $3.28($2.18) EPS for
FY10-11 raised by 17.9% and 28.5%
-SIE posted a 23% y-y decline in 1Q FY10 net profit to S$45.1mn, which
would have been in-line but for a S$6mn forex loss. We believe weak FY10F
earnings are largely priced in, and expect a brighter FY11-12F as its
airframe MRO, and JV and associates with leading OEMs move into a recovery
mode. BUY maintained.
-During the SARS crisis in 2003/2004, SIE swiftly cut costs and stayed
highly profitable despite a sharp decline in revenue as both line and
airframe MRO sales dropped sharply. We believe management remains equally
agile and pro-active.
-SIE ranks as one of the leading aircraft MRO groups in Asia (top-10
worldwide and Asia-Pacific), and its strong brand name as well as strategic
tie-ups with OEMs give it a technological edge over non-airline affiliated
rivals. With its robust balance sheet, and positive cashflow, we expect
dividends and yields to remain attractive.
-1Q FY10 down, but usually the weakest quarter. SIE Engineering posted a
23% y-y decline in 1Q FY10 net profits to S$45.1mn, reflecting the downturn
in airline travel and cargo demand. The group’s first quarter earnings
would be in-line with our estimate of S$53mn if we excluded an unrealised
S$6mn forex loss incurred in the quarter. We note that the first quarter
has also traditionally been the weakest quarter for SIE, as borne out in
its past three year performances.
-Strong 1Q FY10 cashflow, robust financials intact. During the quarter, the
group saw net cash inflow of S$59.7mn, as compared with S$28.6mn in 1Q09.
As at 30 June, 2009, the group had net cash holdings of S$431mn. We believe
that the robust cashflow should help ensure that SIA Engineering continues
to pay a relatively generous dividend. Our estimate is that the group will
pay an unchanged interim dividend of S$0.05 per share, and S$0.10 per share
at the finals (S$0.11 last year), giving a generous dividend yield of 5.2%,
despite our FY10F 17% earnings decline. In FY04 (A), despite an earnings
decline of 32% y-y, to S$140mn, following the impact of SARS, the group
still paid total dividends of S$0.245 that year, including a S$0.20 special
dividend.
-Maintain BUY rating, price target raised to S$3.28. We have raised our
FY10-11F earnings by 17.9% and 28.5% to account for a better than expected
performance by the group’s associates and JVs as well as better than
expected operating margins, reflecting the 1Q FY10 performance (excluding
the S$6m forex loss). We have raised our FY10-11F operating margins to
11.3% and 12.1% from 9.1% and 9.9% previously, reflecting a recovery in
margins toward 2H FY10F and into FY11F. We also introduce FY12F earnings
forecasts.
SIA ENGINEERING, ocbc maintain HOLD with target price $2.95
-Cracks starting to show. SIA Engineering Company (SIAEC) posted 1QFY10
revenue of S$244.2m (-2% YoY, -1% QoQ) and net profit of S$45.1m (-23% YoY,
-31% QoQ). The quarter’s topline and bottomline fulfilled 27% and 21% of
our FY10F forecasts, respectively. The results are inline with our views
that most facets of MRO activity would be negatively impacted by capacity
cuts worldwide.
-Cost cutting measures in place. SIAEC has reached agreement with its three
unions, for staff to take half or two days no-pay leave each month from
July 09. To further manage the surplus manning capacity, staff will be sent
for training under government subsidised initiatives. The total savings
from the no-pay leave, wage cut and government subsidised training is
expected to be about S$1m/month from July 09. 1Q10 showed some cost
management in its staff costs but we are hoping that more will be evident
post-Jul 09.
-Associates and JVs also buckle. A key component to SIAEC consists of
contributions from its associates and JVs (currently 23) that derive about
70% of its revenues outside of the SIA family. Services range from
component repair to line maintenance and span across nine countries. This
quarter, contribution fell 26% QoQ, implying deteriorating broad-based and
regional MRO business.
-SIA flights heavily affected. SIA cut its capacity in Feb 09 and we had
expected the knock-on effect to reverberate through SIAEC until a sustained
recovery in air travel is seen. Traffic numbers for SIA in June indicated
cuts in capacity amounting to 14.4% YoY. The capacity cuts will affect
SIAEC’s main Airframe Maintenance business.
-Guides for weak business. Management presented a dire picture of business
outlook “until there is sustained recovery of demand”. We are iterating
that recovery to previous year’s record performance could occur only in
2012 or 2011 if demand experiences a V-shaped recovery.
-Unsubstantiated price run, Maintain HOLD. We believe the group can perform
in the rest of the year with its cost cutting initiatives. Maintain HOLD
rating with a fair value of S$2.95 based on a DDM and P/E blend to factor
in expectation of good yields along with an attention to earnings that
drives its share price. The stock is currently trading significantly above
SARS-level valuations and we are mindful that today’s economy is in a more
difficult and prolonged economic downturn than 2003-2004. Accumulating
around S$2.60 translates to 5.6% FY10F yield.
SINGTEL, db maintain HOLD with target price $3.24
-STel gained 15 cents today to close at S$3.44, a 4.6% one day gain (vs
1.7% for the STI). This strength was despite the absence of any specific
justifying event or catalyst and took STel’s total three month price gain
to 39% (making it one of the best performing Asian telcos over this
period). STel is up 97 cents over the last three months (42% for the STI)
but nearly all through a re-rating of the Sing/Australia business. For
example, while the per share value of STel’s listed Associates has risen
just 15 cents over this period to S$1.22, the estimated per share value of
the Sing/Australia business has increased by 73 cents to S$1.82 (the other
non-listed Associates account for the rest of the increase). This has
resulted in the Sing/Australia fwd PE expanding from six month low of 9.2x
on 27 April 09 to a recent high of 15.4x today.
-Sing/Australia has traded at a high implied multiple in the past (e.g.
>18x in March 2008), but as previously highlighted, there is a strong and
inverse correlation between the implied fwd PE of the Sing/Australia
business and STel’s subsequent three month price performance (r2 = -0.64).
And the fact that STel’s price has increased 39% since the Sing/Australia
fwd PE touched its 27 April 09 low, demonstrates this relationship.
-Now at the top of its trading range?We believe the near-term risks for
STel’s price are skewed to the downside as STel is now trading at an NAV
premium and the implied Sing/Australia valuation is 15.4x fwd PE. We
consequently view current price levels as indicating the upper end of the
trading range we now expect STel to enter and subsequently expect some
near-term price weakness. Over the medium term, however, we expect STel to
trade around our target price and therefore, continue to recommend Hold.
SMRT, uob maintain BUY with target price $2
-We expect a stronger 1QFY10 for SMRT on maiden contributions from the
Circle Line, as well as lower energy- and wage-related expenses.
-SMRT Corporation (SMRT) will be announcing results for the first quarter
of FY10 after market closes on 31 Jul 09. A teleconference facilitated by
the company will take place after the results announcement.
-We are expecting SMRT to post stronger 1QFY10 results on a yoy basis, on
maiden contributions from the Circle Line (CCL), as well as lower energy-
and wage-related costs. For a more comprehensive operational update, please
refer to our report “Still Worth Paying For” issued 8 July 09.
-Maiden contribution from CCL. 1QFY10 will see the CCL contribute for the
first time, as the first section of the line (CCL3) started operations in
May 09. Ridership for CCL3 is at about 40,000/day at present. We expect
ridership for the section to normalise at about 45,000/day, adding 14m to
ridership in FY10.
-Lower energy expenses. Electricity costs for usage spanning Apr-Sep 09
were contracted in Nov 08, when HSFO prices were significantly lower. We
are expecting energy expenses to be 11% lower for the full year.
-Benefitting from the Jobs Credit Scheme. In spite of higher operational
overheads related to the CCL on greater staff strength, we expect
wagerelated expenses to be under control due to the Jobs Credit Scheme.
-Earnings Revision. We have made no changes to our estimates.
-Valuation/Recommendation. We have a BUY call on the stock with a
DCF-derived target price of S$2.00 (cost of equity 6.9%; terminal growth
1%).
UOB, rbs maintain BUY with target price $18.50($17)
-We reiterate our Buy rating on UOB with a new S$18.50 target price. We
expect the bank’s negative AFS mark-to-market reserve to be erased by the
year-end and view this is as a potential key catalyst to close UOB’s ytd
relative underperformance versus its peers.
-Key investment considerations. We reiterate Buy on UOB with a new Gordon
growth model-based target price of S$18.50 based on the following themes.
1) We believe UOB? tangible common equity (TCE) per share will rise rapidly
through 2H09 as negative Available for sale (AFS) mark-to-market
adjustments (S$2.1bn or S$1.33 per share at 1Q09) reduce and, with the
change in accounting rules that we expect, the loss is totally erased by
year-end 2009. 2) Although UOB has performed in line with its peers on
one-month and three-month views, the stock has lagged significantly ytd,
rising just 25.7% vs 49.6% for DBS, 46.3% for OCBC and 43.8% for the STI.
We think this lag reflects lingering concerns about the robustness of the
bank? TCE and the asset quality of its small and medium sized enterprise
(SME) exposure. We think these concerns have significantly receded. 3) We
believe UOB will outperform its peers in FY10F on a number of fronts,
including achieving the highest net profit growth (15.6%, vs 7.8% for DBS
and 6.2% for OCBC, driven by lower provisions); cash ROE (16.8%, vs 10.6%
for DBS and 13.0% for OCBC) and return on assets (0.96%, vs 0.79% for DBS
and 0.84% for OCBC).
-We expect 2Q09 net profit to jump from an already strong 1Q09. UOB is due
to report 2Q09 results on 5 August 2009. We expect net profit to come in at
S$439m, down 26.9% yoy, but up 7.4% qoq on a 2.1% qoq rise in revenue and a
modest 2.3% qoq decline in provisions. We will be looking for a further
rise in the bank? TCE per share on lower negative AFS mark-to-market
reserves.
-We reiterate Buy with a new S$18.50 target price. We make minor downgrades
to our estimates on a lower loan-spread assumption. We raise our target
price to S$18.50 (from S$17.00) to reflect a S$1.33 rise in FY10F TCE, as
we are now more comfortable erasing a S$2.1bn AFS mark-to-market loss that
has been weighing on the shares. We reiterate our Buy rating.
WILMAR, gs maintain BUY with target price $6.50
-What we expect. We expect 2Q09 results on 14 Aug 2009. Our 2009E net
profit estimate implies about US$330 mn for 2Q09 (2H is seasonally
stronger), while we believe that Bloomberg consensus of US$1.39 bn implies
a 2Q09 net profit of US$250- US$320 mn (depending on the degree of 2H
seasonality).
-What could surprise us. Our full-year 2009E net profit estimate is 15%
ahead of Bloomberg consensus, we believe mainly due to higher downstream
margin assumptions, but there may be potential upside risks if margins
perform stronger than expected. Our 2009E assumption of US$35/ton for Palm
and Laurics and Oilseeds and Grains segments compares to US$55/ton and
US$46/ton achieved in 1Q09 (which is a seasonally weak quarter).
-At the analyst briefing, investors may look for management guidance on
downstream margins. While the market still sees Wilmar’s strong margins as
being driven by directional trading, we continue to believe that Wilmar’s
margins are backed by its strong market position and extensive supply chain
infrastructure, which indicates that its downstream margins may be
sustainable.
-No change to our forecasts or 12-mo TP. We believe 2Q09 results may be a
positive catalyst for the stock and we reiterate Buy (on Conviction List).
WILMAR, uob maintain BUY with target price $6.50($4.80)
-The continuous strength in China’s consumer spending would drive Wilmar
International’s (Wilmar) growth and increase our optimism towards its
prospects in China, leading us to upgrade its earnings forecasts and target
price. We raise our target price from S$4.80 to S$6.50, based on a PE of
15x 2010 revised EPS of S$0.43. Maintain BUY.
-Earnings revision. We raise our earnings forecasts for 2009-11 by an
average of 33% to factor in higher sales volume and better margins for its
soybean crushing and consumer pack in China.
-Higher profit margin sustainable. Wilmar enjoys a higher and sustainable
profit margin than its competitor due to its proximity to retailers and
customers (transportation cost savings) and control on logistics to
minimise leakages to a third party as well as business integration to
maximise profit from its extensive marketing network. All these factors are
likely to lead to at least US$40/tonne of cost savings for its downstream
processing business.
-Value creation from downstream listing. Unlocking value from the listing
of its China operation in Hong Kong could potentially reap a special
dividend of S$0.24/ share, assuming a 40% payout from the proceeds of the
initial public offering (IPO). A listing in Hong Kong will pave the way for
a China listing, which would further open up the domestic market for
Wilmar, being a locally incorporated company.
-Maintain BUY with a target price of S$6.50. Our new 12-month target price
of S$6.50 is based on 15x 2010 PE and in line with Malaysia’s big-cap
plantation stocks.
[ SECTOR ]
PROPERTY by csfb
- Official URA and HDB 2Q09 data showed slowing QoQ declines across
private residential, office, retail and industrial prices and rents. HDB
resale prices bucked the trend and recorded a 1.2% increase in 2Q. Vacancy
was flat in the private residential space at 5.9% while vacancy in private
office edged up to 11.5% from 10.2% in 1Q on the back of -430,556 sq ft of
negative net demand (-226,042 sq ft in 1Q).
- Take-up in 2Q (4,654 units) exceeded total take-up for full-year 2008
(4,264). This represents a 79% increase from 2,596 units in 1Q. In the same
period, the number of subsale and resale transactions shot up 168% and
208%, respectively, based on caveats lodged in URA Realis.
- Sentiments and sales momentum on the ground continue to be positive.
With pent-up demand, low interest rates and strong liquidity, we expect
upside risks to the physical prices we have assumed for our stocks. Our top
picks Allgreen (RNAV S$1.52), Wing Tai (RNAV S$1.89) and Capitaland (RNAV
S$4.21). Prefer Developers to REITs as we expect investment properties to
lag.
