CAPLAND, cl maintain BUY with target price $4( from $3.65)
-Recent checks suggest that efforts are on to replenish residential land
bank in China, as CapitaLand’s China strategy gets more aggressive. New
acquisitions will be NAV accretive, but expect the accretion to be lower
than that in the past, given rising land cost. Overall, CapitaLand’s
Chinese strategy will center on developing mixed usage properties and
residential units. Retail property pipeline is being streamlined, though it
remains a focus area. We retain our BUY recommendation, with a new target
price of S$4.00, presenting 13%+ upside. We would be more aggressive buyers
on dips.
-China ? Delving deeper. With target asset allocation for China raised to
45% of total assets, we expect CapitaLand to get more aggressive on asset
acquisition. 1Q09 bottom for asset acquisition prices has been missed, but
China remains a better market to access growth, than Singapore. Focus will
now be on developing the Raffles City” brand, and the residential business.
Checks also suggest that 31 of CapitaLand’s 58 retail asset pipeline have
already become operational. Furthermore, the company has emerged as one of
the most recognisable foreign property brand inthe areas where it is
active.
-Immediate focus is towards residential land-banking. We believe CapitaLand
will first replenish its residential land bank in China, as residential
assets now account for only 25% of total Chinese assets (40% target).
Expect the focus to be on Shanghai, Hangzhuo and Ningbo, as land bank
exists in other targeted locations. However, with land costs running high,
we expect incremental land-banking to be done at hurdle rates that are
lower than previously disclosed. Based on our conservative analysis, every
S$1bn spent on land acquisition can add ~1.5% to our CapitaLand RNAV.
-Singapore ? The momentum will wane. Singapore home prices have gained
15-20% from the March bottom. While strong affordability factors are likely
to keep home price stable in the medium term, we do not expect a sustained
up-tick in prices as Singapore home rents are falling, and new home supply
is adequate.
-Prefer CapitaLand, within the sector. Buyer on dips. Our RNAV estimate for
CapitaLand is raised by 3.8% to S$3.82, to factor changes in residential
prices and investment values. In getting to our new target price of S$4.0
(5% higher than RNAV), we now factor the potential upside from new
residential land bank acquisition. We will be more aggressive buyers on any
stock price correction resulting from weak 2Q09 results.
CHINA XLX, cimb maintain NEUTRAL with target price $0.34
- Lack of substantial urea service contracts to bolster sales in 2Q09.
CXLX’s urea sales contract had expired at the start of 2Q09 (contract ran
from Nov 08 to Apr 09) with only a mere Rmb12.6m for booking in 2Q09.
- Oversupply of urea. Our chats with management recently revealed that
CXLX’s urea ASP stays low at Rmb1,735/tonne, as overcapacity in the Chinese
market limits the group’s ability to increase sales volume and ASPs.
Management is also uncertain when the oversupply will end. In fact, it has
guided that urea prices could remain weak for a period of time.
- Net cash only in FY11, at the earliest. While management says that debt
will be pared down to a reasonable level, a slight negative is that net
cash would only be generated in FY11, at the earliest.
- Maintain Neutral. We are not expecting a turnaround in 2Q09, but the
above factors have been captured in our forecasts, which we are sticking to
for now. Our target price has been kept at S$0.34, still pegged at 6.2x
CY09 P/E. The outlook remains uncertain as Chinese urea exports remain
uncompetitive at the current export tax rate. CXLX’s tax holiday has
expired and the company will attract a 17.5% tax rate in FY09-11. That
said, lower anthracite coal prices (Rmb880/tonne) are a positive. Maintain
Neutral.
F & N, nom maintain REDUCE with target price $2.67
-At NAEF in Singapore today, F&N’s management indicated that the group will
look to grow its F&B business organically, while continuing to build its
property business. It also noted that there is no need to raise capital
unless major M&A opportunities arise, given its healthy cashflow is
sufficient to meet its current capex needs.
-In F&B, the group intends to enhance its soft drink business following the
cessation of its bottling arrangement with Coca-Cola. The dairy business is
a potential area for the group to grow in the region. At APB, the group
will maintain its strategy to grow in new markets, while nurturing its
existing franchises in the core markets of ASEAN, Australasia and
Indochina.
-For property, F&N will continue to build out its regional property
development activities and expand its service apartment franchise. The
group will also look to nurture its REITs investments.
-Showing resilience in property downturn, looking to grow F&B. Management
expects the successful launch of projects in Singapore to enhance the
group’s cashflow and strengthen its balance sheet position. F&N said it
will look to expand its F&B activities organically, while evaluating M&A
opportunities.
- Restructuring at FCOT. Management explained that the rights issue and the
Alexandra Technopark transaction were meant to improve FCOT’s balance sheet
to help secure refinancing of its debt. F&N said there is no need to raise
capital at the holding company, given strong cashflow and available funding
to meet its FCOT rights entitlement.
- Food and beverage to focus on organic growth. The priority in the F&B
segment is to look at ways to capture new opportunities following the
cessation of the bottling arrangement with Coca-Cola. F&N believes it can
enhance its brand presence in Singapore and at the same time grow its 100
plus isotonic drink regionally. Elsewhere, there is scope to grow its dairy
business organically, while APB continues to invest in new markets in Asia.
- Selectively launching projects. The group appears to have done well, with
strong responses to its property projects, including Caspian, St Martin’s
Place, 8@Woodleigh and Waterfront Waves. In Australia and China, the group
is selectively launching projects and has shelved projects in the UK.
FIRST RESOURCES, dbs maintain BUY with target price $0.8($0.7)
-More Indian consumption for world’s cheapest oil. Despite the global
recession, Indian consumers are enjoying world market prices for palm and
soybean oil, the first time in a long while as they had long been subject
to hefty import duties to protect domestic soybean farmers. Indian palm oil
consumption is forecast to rise by almost 1 kg /capita this year from 4
kg/capita last year, after which, it may be hard to reduce from the new
level.
-Time to accumulate. With over 170,000 ha of land bank to fill, the group
targets to achieve 10,000 ha of new planting p.a. Given this target, we now
extend the group’s new planting from 2009F until 2013F. Longterm
incremental earnings from these expansions translate to higher valuation
for the stock to S$0.80 from S$0.70. We see current price weakness as a
good entry point to accumulate FR, which is the cheapest in our universe.
-”Normalized” production pattern in 2H09. FR management pointed to a
potential supply disruption between late August and late September, given a
month of fasting in Indonesia and Malaysia, followed by 1-2 weeks of Eid
holidays. At the same time, demand should seasonally pick up through
October for Deepavali and mid-Autumn festival.
-Stronger 2Q09 earnings. We expect the group’s profits to rebound in 2Q09,
mainly on the back of stronger IDR, which should work to reverse last
quarter’s FX losses. The group had locked in prices between US$450 and
US$500 in 2Q09 ? up from US$450 in 1Q09. Around 15% of its 2H09 volume had
been locked in at US$600 (all FOB).
FRASERS COMMERCIAL TRUST, dbs maintain HOLD with target price $0.23($0.18)
(POST-RIGHT $0.12)
-All in one. FCOT is proposing a recapitalization package involving a
S$213.9m 3-for-1 rights issue to largely pare debt, refinancing up to
S$675m loans and acquisition of Alexandra Technopark to be funded using
convertible perpetual preferred units and backed by a 5-year master lease
agreement. The end result of a much lower gearing of 38.5% and an improved
interest cover of 2.7x, both which are well within covenant limits, would
put the reit on a much stronger financial footing.
-Purchase of ATP a stabilizing factor. Furthermore, the acquisition of
Alexandra Technopark is earnings accretive and will result in greater
income stability and lower forex exposure for FCOT. The reit’s portfolio
will be more Singapore-centric with 59% of assets situated locally while
strong underlying master leases will mean that 74% and 65% of gross rental
income at the start of FY11 and FY12 are secured, leading to better income
visibility.
-Near term DPU dilution but stock valuations already pricing in implied
distressed prices. We estimate FCOT’s FY09-10F DPU to be diluted by 35- 64%
to 2.2cts and 1.2cts and book NAV lowered 60% to $0.26. We believe
investors should look beyond the near term DPU dilution to the underlying
value of the reit. The TERP of $0.131, calculated based on the last closing
price on the date of announcement, is at 0.50x P/adjusted book NAV and
implies distressed valuation pricing to the underlying asset value. Our TP
of $0.12 is based on discounting income from existing properties, which are
supported by inbuilt organic rental growth structures and adjusted for the
rights issue but before CPPU conversion. In the longer run, potential
rationalization of the Japanese properties and value enhancement
possibilities of the Singapore assets due to their proximity to new MRT
stations of the upcoming Circle Line would create further value within the
portfolio.
GP INDUSTRIES, dbs maintain FULLY VALUED with target price $0.24($0.22)
-Margins hold up despite weaker sales. Overall gross profit margin held up
at 26.6% for FY09 compared to 27.0% in FY08, despite a 13% y-o-y
contraction in sales, owing to rigorous cost control measures implemented.
For FY09, sales of the electronics & components division fell 20% to S$101m
and sales of the acoustics business fell 8% to S$119m, on the back of
weaker consumer demand worldwide.
-Associates continue to falter. Associate income dipped 40% y-o-y to
S$14.6m in FY09 owing to lower profitability at 47%-owned cable associate
Linkz and lower contributions from the wire harness associates. This,
combined with the S$10.6m allowance for impairment on its 19% stake in
Gerard Corporation, resulted in a 75% dip in Group PBT for FY09. Elsewhere,
key associate GP Batteries (?PB? recorded a 12% y-oy decline in revenue but
margin improved and net profit of S$0.7m was better than the S$4.6m loss in
FY08.
-GP Batteries casts a pall of doubt. While we cut our FY10 EPS forecast by
about 25% on the back of lower associate profits, our target price is
revised up slightly to S$0.24 (0.4x P/B). Key risks stem from concerns
regarding associate GP Batteries?ability to function as a going concern
?arising from GPB? high working capital requirements coupled with
challenges in negotiating additional banking facilities. The value of GP
Industries 49% stake in GPB works out to about S$0.07 per share. Maintain
Fully Valued in view of above concerns.
INDOFOOD AGRI, dbs maintain BUY with target price $1.35
-Adding growth from sugar plantations. Indofood Agri Resources (IndoAgri)
expects to have a meaningful profit contribution from sugar plantations and
milling from the end of 2011F. The group expects to have planted 18,600
hectares of sugar cane by then, preceded by commercial operation of its new
8,000 MT/day sugar mill in South Sumatra by mid-2010F. We expect IndoAgri’s
sugar revenues to top Rp1tn by 2012F ? the second largest revenue item
after palm oil ? contributing roughly 9% of total EBITDA.
-Price weakness presents buying opportunity. Notwithstanding an anticipated
rise in palm oil inventory over the next few months, we believe seasonal
weakness in CPO price is temporary. IndoAgri is now attractively priced and
yields 17.4% upside given our TP of S$1.35. We reiterate our Buy call on
the stock.
-Raising prices. IndoAgri strives to maintain profitability and ? in line
with rising CPO prices ? has recently raised its cooking oil selling
prices. The group may have a second price increase this month, which will
maintain EBITDA margin of between 5 and 10%.
-Raising yields. The group has put in place better control on its
operations in South Sumatra and replaced Lonsum management. This
strengthens our view that further yield improvements are on the way.
MOBILE ONE, dbs maintain BUY with target price $1.80
-Three signs of better execution. (i) Management has renegotiated lower
network maintenance fee for FY09F, which is expected to save over S$10m.
(ii) M1’s market share at 25.4% may have hit its bottom in 1Q09, as
management has started to focus on high-end post-paid plans - its
traditional weak spot. Through its “Take 3″ plan, M1 would provide
attractive handset subsidy to high-end users, as it would be able to
amortize the handset subsidy over 21 months instead of having to expense
off immediately. (iii) M1 has also launched very competitive data plans in
June 09, as its own backhaul capacity starts to kick in, implying stable
leasing costs despite traffic increase.
-Market under estimates the magnitude of cost savings. In 4Q08 and 1Q09, M1
saved S$5m each quarter in staff costs through head count freeze, job
credit scheme and lower bonuses, which may possibly continue till top line
growth enters into the positive territory. In addition, M1 saved about S$3m
in facilities expenses in 1Q09, mainly due to lower network maintenance fee
for FY09F. With S$8m cost savings every quarter, we estimate that M1 can
easily save S$30m in FY09F.
-Maintain BUY with target price of S$1.80. We apply a 10% discount to our
StarHub’s target PER of 12x, to drive 11x FY09F PER, which is also close to
M1’s average historical PER of 11.6x.
NOL, jpm maintain NEUTRAL with target price $1.10
- Maintain Neutral Although the container shipping firms are facing one of
their toughest years in history and the timing and quality of the recovery
remains uncertain, we still see this as a good opportunity to pick up the
stronger players ahead of the cyclical demand recovery where valuations
remain attractive. We see limited downside to NOL as we are less concerned
about its balance sheet risks following its recent rights issue. However,
we still prefer OOIL to NOL given the former’s cheaper valuations and
longer term upside from its property development business in China.
- Long-term prospects NOL is the seventh-largest carrier in the world in
terms of volume. It has a strong brand associated with quality service and
IT innovation. NOL is widely viewed as having the best logistics capability
among its peers, which helps it to secure a huge market share of a large
group of top customers, such as Target Store and Nike. NOL also has a
strong intra-Asia market share based on its original business before the
APL acquisition.
- Price target, valuation, key risks Our Jun-10 PT of S$1.10 is based on
0.9x P/BV, 1 standard deviation below NOL’s average valuation since 1990 to
factor in losses in 2009-10E. Key risks 1) further weakening of container
volumes and freight rates leading to continued losses and further book
value erosion in 2010. 2) Substantial increase in bunker fuel prices and
limited pass-through. 3) Value-destructive M&A.
PARKWAY, nom maintain BUY with target price $2.14
-At NAEF in Singapore today, Dr Lim Cheok Peng, executive vice-chairman of
Parkway, reiterated the positive long-term prospects for Parkway, including
growth in demand for high-end healthcare in Singapore and the region.
Improved property sentiment should augur well for the sale of its Novena
medical suites.
-Continued demand for private healthcare in the region will likely support
the longterm prospects for Singapore healthcare services operators, which
enjoy strong operating margins, brand equity and high entry barriers.
-Medical travel is a recurring sector theme, driven by globalisation and
escalating healthcare costs in developed countries. Singapore is the
premier regional centre for high-end care and the private operators are
well-positioned to ride the growth, in our view.
-Positive outlook in medium to longer term. Parkway will likely continue to
position its Singapore hospitals to attract foreign patients while seeking
growth in other Asian markets. The group is well positioned regionally,
with a footprint in Malaysia, Brunei, India, China and Vietnam.
- ParkwayShenton awarded screening contract for H1N1. Management said that
its healthcare services subsidiary, ParkwayShenton (unlisted), was awarded
the border H1N1-screening contract, with a potential top-line contribution
of S$2-3mn/month. The group also has seen minimal impact on patient volume
despite the H1N1 situation. Management guided its patient volume has
recovered in June, with flat revenue growth y-y. Revenue intensity,
however, has not improved.
- Growth overseas progressing. Malaysia. The group’s Pantai Hospital
(unlisted) is looking to grow its top line by 20% to 30% annually and plans
to expand by about 1,000 beds to 3,300 beds in Malaysia. The group is
building a new 300,000-sf block at Pantai Hospital in Bangsar, of which
150,000sf will be medical suites for sale. China. Through Worldlink
(unlisted) (Parkway Health China), Parkway will add two more clinics to its
current six and add three more dental locations in Shanghai.
- Looking to launch Novena in 2H09. The group is looking to market the
Novena medical suites to doctors, who currently do not own their medical
suites. Parkway is looking to sell the first phase with 88 units out of a
total 200 units (200,000sf) when it receives approval, which is slated in
2H09.
RAFFLES EDUCATION, csfb maintain OUTPERFORM with target price $0.75
-RLS? balance sheet has been strengthened by two placements in the last
three months, which in aggregate raised S$130.9 mn in net proceeds, and
reduced gearing from 44% to 7%. With funding issues addressed, RLS looks
set to achieve a debt-free balance sheet ahead of its end-2010 target.
-Management is targeting some S$60-70 mn in revenue contributions from
Oriental University City (OUC) over the next 12 months, more than double
our estimates. With growth primarily driven by education services, we see
upside likely from further acquisition of NES colleges in OUC, and new PES
schools.
-We have lowered interest expenses, in line with reduced borrowings, and
forecast 30% earnings CAGR through FY11E. However, including impact of
dilution from the recent placement, our FY10/11 EPS forecasts are lowered
by 4-7%.
- Given enviable growth and profitability metrics, RLS? valuations remain
compelling at 11x FY June-10 P/E, at a 50% discount to its US-based peer
average of 22x and a 39% discount to its Asianbased peers at 18x P/E.
Maintain OUTPERFORM.
RAFFLES MEDICAL, nom maintain BUY with target price $1.30
-At NAEF in Singapore today, Raffles Medical Group (RMG) management
reiterated its view of the group’s long-term growth prospects ? positive on
Singapore and cautious on pursuing M&A opportunities in the region. The
group is positive on further organic growth in Singapore, given excess
capacity at its flagship hospital.
-Continued demand for private healthcare in the region will support the
long-term prospects for Singapore healthcare service operators, which enjoy
strong operating margins, brand equity and high entry barriers.
-Medical travel is a recurring sector theme driven by globalisation and
escalating healthcare costs in developed countries. Singapore is the
premier regional centre for high-end care and private operators are well
placed to ride the growth.
-Defensive franchise growing during recession. RMG posted strong 1Q09
results, with net profit up 28% y-y on improved cost efficiencies. The
healthcare services segment (including its primary care network and
insurance arm) grew by 10.8% y-y, confirming its defensiveness amid the
downturn. Despite the downturn, RMG is still in growth mode, particularly
in expanding its primary healthcare network. The group is taking the
opportunity to lock in low rental rates and expand its clinic network,
while at the same time focusing on organic growth. It has opened four new
clinics in the year-to-date, including an integrated outpatient centre at
Tampines One offering specialty services such as O&G and paediatric
medicine. In terms of hospital capacity, management highlighted that the
group is only utilising 200 beds currently, and could expand up to 320 beds
if demand arose.
- Conservative regional strategy. Management reiterated its conservative
stance on pursuing M&A opportunities in the region. The group highlighted
China and Southeast Asia (particularly Malaysia) as the key regions of
potential opportunity. Management continues to be wary of the regulatory
environment in China. It is currently evaluating potential projects in
cities like Beijing, with the aim of doing a greenfield project. One
challenge is the selection of a local partner, since Chinese regulations
cap foreign ownership of hospitals at 70%.
- Valuation methodology and risks. Our price target of S$1.30 (unchanged)
is based on a target P/E of 16.4x applied to FY10F earnings, pegged within
the mean of RMG’s historical trading range (method unchanged).
-Key risks to price target 1) escalation of H1N1 virus, which could impede
patient flows as patients may postpone elective procedures to avoid
visiting a hospital; 2) regulatory risks in Singapore; and 3) ability to
attract and retain medical professionals.
SINGTEL by gs
-What’s changed. We hosted investor meetings with SingTel at our GS Telecom
corporate day in Hong Kong. Synthesizing some of what came out of the
meeting with our own thoughts, we have presented updates on three key
topics (1) the impact of Singapore’s National Broadband Network (NBN); (2)
SingTel’s content strategy; and (3) the outlook for Bharti and the Indian
mobile market. We also present severaladditional points that may be of
interest.
-Implications. (1) The value SingTel needs to put at risk for the NBN
project as an equity investment in OpenNet should be limited to
S$36mn-$48mn, which is quite small compared with its FY10E EBITDA from
Singapore of S$2,180mn. Meanwhile, the company is positioned longer term to
extract value from both its investment in OpenNet and disposal of passive
infrastructure via AssetCo. (2) The issue of content exclusivity is being
addressed now by the MDA, which could have implications for SingTel’s IPTV
strategy. Our view is that there will be no imminent change ahead of the
upcoming BPL bid, but as the NBN is built out over the next three years,
the chances of a change in policy to restrict exclusive content is likely
to increase. (3) Finally, the shortterm outlook for Bharti is negative
given the significant increase in competition at the same time organic
growth is slowing. Tata Docomo’s recent introduction of per second billing
and flat nationwide pricing is of particular concern to us. However, when
the consolidation phase begins, Bharti should be in a stronger relative
position given its scale benefits.
-Valuation. We are currently Not Rated on SingTel.
-Key risks. Outside normal operating trends, some key influences on the
underlying value of SingTel are (1) currency fluctuations, especially AUD,
INR, and IDR; and (2) the Indian market valuation and the impact that has
on the value of SingTel’s 30% stake in Bharti.
SMRT, uob maintain BUY with target price $2($1.86)
-We view SMRT as a play on Singapore’s growth, and the rail system as the
biggest beneficiary of the government’s push to budge commuters towards
public transport.
-Still worth paying for. SMRT Corp has, over the last 18 months, been
trading at approximately 23.5% over and above the sector average, based on
the price-to-earnings metric. Even on a price-to-book basis, the stock is
by no means cheap, trading at 3.6x P/B (though this is largely due to its
low fixed asset base). However, we believe that the stock is still worth
paying for, based on strong margins that outshine that of sector peers,
outstanding return on assets, sustainable dividend payouts based on a solid
earnings base, and its ability to leverage on the Singapore growth
narrative.
-Premium is a recent phenomenon. SMRT’s premium to peers is a relatively
recent phenomenon that has been brought about by a collapse in valuations
of its European-listed peers. Up till mid-05, SMRT was trading below the
sector average, and started trading in-line thereafter. The premium over
peers, a relatively recent phenomenon, was brought about by a steep slide
in valuations of European peers from the onset of the financial crisis.
-Growth potential not yet exhausted. We view SMRT as a play on Singapore’s
growth trajectory, and the rail system as the biggest beneficiary of the
government’s push to nudge commuters and peak hour traffic towards public
transport. The rail system is, by far, the best alternative transport
method to avoid congestion on roads.
-Stronger operating performance than peers. We ran comparisons between SMRT
and sector comparables, and found that the company commanded the highest
margins and ROA among listed land transport operators. SMRT also has the
added silver spoon advantage with lower comparative capex, due to strong
governmental support.
-Maintain BUY; target price raised to S$2.00. We have lowered our profit
forecasts for FY10-12 by between 1.9% to 5.1% to account for rising fuel
expenses in the current financial year, and our assumption that the jobs
credit scheme will be halted beyond FY10. We have also changed our
valuation methodology from PE to DCF. Our discounted free cash flow to
equity places SMRT’s value at S$2.00/share (6.9% cost of equity and 1%
terminal growth). Our revised target price (from S$1.85/share) gives a
return of 17% over the last closing price of S$1.71.
ST ENGINEERING by cl
-ST Engineering has put in place a US$1.2bn multi-currency MTN We believe
the note is likely to be of 5-year tenure or longer. While the coupon rate
will depend on which currency the debt is availed in, we do not expect it
to exceed 4.75% for USD debt, and 3.5% for SGD debt. Coupon is likely to be
fixed rate, rather than floating. Morgan Stanley and Deutsche Bank are
joint lead arrangers of the note. ST Engineering is the guarantor, with a
AAA credit rating from S&P for both the issue and the guarantor.
-Debt raising is NOT a surprise to us.Historically, the RoA has only
slightly exceeded the cost of capital, earning a thin spread. The sizeable
cash balance would have dragged down EVA (Economic Value Added), a key
metric for senior management compensation. Therefore, STE has been drawing
down the cash and returning it to shareholders in the form of dividends.?
Over time, the company has gone from a massive net cash position to a
marginal net debt position (8% as of 1Q09). Given acquisitions will be a
part of the company’s growth strategy, a 100% dividend payout is not
sustainable unless leverage is increased. We were expecting a reduction in
the dividend payout ratio in the FY08 results briefing, which was not to
be. It appears the company has chosen to continue with the payout, and has
therefore taken the debt route.
-Valuation is attractive. At ~15x FY10 earnings, the stock is cheap
relative to its history (figure 3). While this is still a premium to the
index multiple of 12x, the premium is considerably lower than the average
premium to the index of 6x. In fact, STE is more defensive than the other 2
stocks considered defensive ? Singapore Press Holdings (SPH SP) and
Singapore Post (SPOST SP) ? as shown by the resilience of the premium to
the index (figure 4).
TOTAL ACCESS COMMUNICATION, dbs maintain BUY with target price BT40.50
-Weak 2Q09 results estimated. We forecast DTAC’s core profit will soften
42% y-o-y and 17% q-o-q to Bt1,231m in 2Q09. The weak 2Q09 results are
expected due to (i) 2Q being a low season, (ii) sharp drop in its IR
income, as a result of lower tourist number, and (iii) higher cost from
moving into its new headquarter.
-Award of 3G licenses as catalyst. Foreign investors, whom DTAC met during
its recent road shows in Hong Kong and Singapore, are excited about the 3G
award but remain skeptical given the many previous delays. However, DTAC
management is relatively confident that the award would take place this
time. We have also seen progress made from the regulatory side.
-Maintain BUY. We believe DTAC would be the prime beneficiary of the 3G
license award (i.e. potential 64% NPV enhancement). Its share price is
still at the low end of its trading range, and its valuations (ex-3G) are
cheap at only 112.2x FY09 PE and 4.4x FY09 EV/EBITDA. Maintain BUY with
DCF-based target price of Bt40.50.
YANLORD, gs maintain BUY with target price $3.10 EPS for FY 09/10 lowered
by 10% and 10%
-What’s changed. Yanlord announced today that the upsize option of its
latest convertible bond issuance (see “Raising funds to expand land bank in
key cities; maintain Buy,” dated June 18) had been exercised. As a result,
we make the following adjustments. (1) We revise up our end-2010E NAV
estimate by 4% to S$3.19 from S$3.08 after factoring in about 3% NAV
dilution from the share placement. This is offset by upward revisions to
our 2009 selling prices of its Tianjin (from down 10% at end-08 to flat)
and Suzhou projects (from down 5% to flat). This is because we now expect a
better response to the new launches of Yanlord’s projects in these cities
in the coming months given strong sales momentum recently (Suzhou) and the
company’s intention to push back the launch of the Tianjin project to early
August (from late June) for a better price. (2) After adding in the
adjusted estimated NAV enhancement from new acquisitions (S$0.25 per
share), our 12-month NAV-based price target is increased by 2% to S$3.10
from S$3.02. (3) We revise up our 2009E/10E/11E core earnings forecasts by
2%/2%/4%. (4) We lower our 2009E/10E/11E fully diluted core EPS by
10%/10%/8%.
-Implications. Despite its strong performance (up 141% in the past 6
months), we think Yanlord’s ability to expand the price premium on its
product compared to peers isn’t fully priced in yet. In addition, we think
any near-term land acquisitions in Shanghai or Chengdu ? deploying the
capital it has raised ? would be a plusin terms of underpinning its
earnings growth outlook.
-Valuation. The stock is trading at a 24% discount to end-2010E NAV, 17.8X
2010E P/E and 2.3X 2009E P/B vs. our offshore coverage averages of 15%,
19.5X and 2.1X, respectively. We think its valuation is undemanding;
reiterate Buy.
-Key risks. Unexpected policy tightening; slower-than-expected recovery of
China’s economy.
[ SECTOR ]
BANK by cimb
-10 financial institutions banned for 6-24 months. Yesterday, the MAS
released findings from its investigations from the fiasco of Lehman-related
structured notes sales. In the report, the sins of the individual FI were
clearly detailed. Not surprisingly, the three local banks and Hong Leong
Finance were all involved in the selling of products. Each had policies,
procedures and controls that were not up to standard with the regulator.
All ten FIs were subsequently handed a 6-24 month bank on selling
structured products. DBS and UOB-Kay Hian had a six-month ban, OCBC
Securities had a one-year ban and HLF had a two-year ban.
-No major impact to earnings. Among the three local banks, the effect of
compensation will not be major. In fact, for DBS which has only settled
S$7.6m for the cases received and decided, whilst the initial guidance of
S$70m provisions dwarfs the actual compensation figure. The ban on wealth
management sales will not affect our forecasts as well. Currently, we have
not built-in any significant recovery from wealth management sales for all
three banks. We use the example of DBS wealth management fees to show how
insignificant this fee stream has become. As shown from DBS’s case, wealth
management fees from structured deposits had already fallen 38% yoy in
2008. As the credit crisis broke out in 4Q08, the whole structured product
market has essentially vanished. 1Q09 wealth management fees for DBS turned
out to be much worse that 1Q08. Fees from structured products fell another
81% yoy. Total wealth management fees, including fees from bancassurance
and unit trusts (products which are still viable), amounted to only S$16m
for DBS in 1Q09, about 1% of total income for the quarter. We believe any
concerns on these fee streams for all three banks, is unwarranted.
-Back-to-basics banking model. The banking model is already going
back-to-basics before this announcement. There is already a greater
dependence on the good, old lending businesses of a bank and
trade-supporting fee streams. There is progressively less dependence on
capital-markets related fees. These trends will further entrench. We see
the move by MAS as merely a slap on the wrist. While sending out a clear
message that it will not condone this and FIs has to clean up their act,
the earnings impact is fairly insignificant in this environment.
-Maintain Overweight on sector. We maintain our Overweight rating for the
Singapore banks. Dearth of wealth management fees is hardly the focus. We
believe that the structural positive for the Singapore banks is the
reinstatement of pricing power as foreign banks retreat. The 6-12 month
positive is the likely earnings upgrade cycle for the banks as credit costs
turn out to be more muted than originally feared. Our CY10-11 estimates are
on average, 23% above consensus. The immediate positive is potential book
value upside surprises when the banks announce 2Q results in the first week
of August. Our top picks are UOB and OCBC. Our target price of UOB is
$16.18, based on 1.8x CY09 P/BV. Our target price of OCBC is S$7.79, based
on 1.65x CY09 P/BV. Our target price of DBS is S$13.20, based on 1.25x CY09
P/BV.
BANK by cl
- MAS has completed their investigation on the Lehman mini-bond saga in
Singapore by handing out 6-24 month bans on selling structured products to
10 financial institutions.
- These include DBS (6-month ban), UOB’s brokerage UOB Kay Hian (6-mnths),
OCBC’s brokerage OCBC Securities (12-mnths), ABN Amro (6-mnths) and Maybank
(6-mnths).
- S$520m of Lehman-linked notes were sold to retail investors between 2006-
2008.
- DBS was responsible for S$104m (in addition to the S$250m sold in HK),
S$51m by OCBC and S$13m by UOB.
- Following Lehman’s bankruptcy in 3Q08, these notes became worthless and
allegations of mis-selling to retail investors started to surface.
- Inadequate training of relationship managers (RMs), inadequate product
due diligence and lax compliance procedures are the key findings on MAS’s
report.
- Of the complaints received and decided 77% of DBS claims, 66% of OCBC and
95% of UOB will receive no refunds. A positive in terms of lower
compensation provisioning.
- We see limited earnings impact from this ban. The three local banks have
had a self imposed moratorium on selling these products since 4Q08.
- During its peak, wealth management (under which structured products are
sold) contributed just 3% of UOB’s total income. This was 3% for DBS and 5%
for OCBC.
- In 1Q09 this has fallen to 1.8% for UOB, 1.2% for DBS and 2.3% for OCBC.
We do not expect any pick-up in the medium term until banks reassess their
strategy.
- We believe any savings in compensation here will be offset as the sector
sees credit charges rising from just 65bps in FY08 to 143bps in FY09 as NPL
classifications come through.
- With the Singapore banks set to see a 29% earnings contraction in FY09 we
remain cautious on the sector. UOB (UOB SP - S$14.16 - BUY) is our top pick
on superior loan book quality.
- OCBC’s (OCBC SP - S$6.60 - SELL) expansion in to SMEs during the
bullyears and low provisioning levels means higher credit charge risks.
SELL
BANK by uob
-DBS and UOB Kay Hian banned from dealing in structured notes for six
months and OCBC Securities for a year. Structured notes were mainly
marketed to sophisticated investors, thus amount compensated is small.
-Monetary Authority of Singapore (MAS) has issued an investigation report
on the sale and marketing of structured notes linked to Lehman Brothers.
-MAS investigated 10 financial institutions that distributed structured
notes linked to Lehman Brothers four banks and six stockbroking firms. The
investigations covered due diligence on the notes and the procedures in
place at the point of sale, including how to ensure the notes were sold to
clients whose investment objectives and risk tolerance matched the risk
profile of the notes, and the training and supervision of sales
representatives and licensed financial advisors.
-DBS Group Holdings (DBS) originated and distributed High Note 5 (HN5),
which was internally classified as a “growth” product targetted at DBS
Treasures and Emerging Affluence clients. Twenty-eight relationship
managers did not attend training on HN5 and another 21 did not take the
test. However, these 49 relationship managers sold HN5 to a total of 303
clients. HN5’s prospectus specifically stated that the product was not
suitable for inexperienced investors but was, nevertheless, sold to 54
clients with no investment experience.
-Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB)
distributed structured notes linked to Lehman Brothers through their
stockbroking arms, wholly-owned OCBC Securities and 40%-owned UOB Kay Hian.
Both OCBC Securities and UOB Kay Hian did not conduct any formal product
due diligence on the notes or take any steps to ensure that sales
representatives were equipped to assess product features and risks. Both
companies had allowed sales representatives who did not attend product
briefing sessions to sell the notes.
HEALTHCARE by nom
-At NAEF in Singapore today, management of key healthcare services players
in SE Asia (Parkway, Raffles Medical and Bumrungrad) discussed the
positives of private healthcare in their markets, and the risks and
opportunities in regional markets. They also highlighted patient
diversification as a key strategy for medical tourism.
-Private healthcare trends in Singapore and Malaysia. Dr Loo Choon Yong of
Raffles Medical highlighted the growth drivers of local demand for private
healthcare in Singapore ? 1) an ageing population; 2) growing affluence,
and; 3) spill-over from government hospitals. While the industry is not
spared during a downturn as some patients may switch to public care, he
believes that the industry has the fundamentals for further growth.
-Dr Lim Cheok Peng of Parkway Holdings believes that private healthcare
demand in Malaysia is driven by the huge middle income population. In
particular, the east coast of Malaysia presents attractive opportunities
for private healthcare players as it is under-serviced. Going forward,
Parkway has plans to build five more hospitals under the Pantai network,
with an additional 1,000 beds.
- Regional markets ? risks and opportunities. China ? Dr Loo believes that
there are limited opportunities arising from the recently announced
healthcare reform in China for foreign healthcare service providers, as
regulatory risks remain the biggest hurdle. Nevertheless, he thinks that
the top 10% income group in China do have the purchasing power for private
healthcare services, but the question lies in execution. In addition, Dr
Lim opines that there is limited scope for growth beyond the expat
population, but believes that eventually they have to target the local
population, as that is where the abundant growth lies. A key success factor
is choosing the right local partner (Chinese regulations restricts foreign
ownership to 70%).
-India ? Dr Lim thinks India is a challenging market as its citizens are
price-sensitive and do not seem willing to pay a premium for high-end
medical care. A case-in-point its 330-bed Kolkatta hospital was running at
near full capacity when it first opened, but did not contribute to the
bottom-line since the group did not have pricing power. However, he sees
the trend changing for the better and thus, Parkway has invested in a
Greenfield hospital in Mumbai to be opened in 2012.
- Medical tourism ? diversification is key. Mr Mack Banner of Bumrungrad
Hospital shared his experience in Thailand’s medical tourism. Contrary to
popular belief, he highlighted that the key procedures that foreign
patients seek in Bumrungrad are not all cosmetic in nature, and thus the
hospital’s capabilities compare well to its Singapore peers. He also shared
his views that the medical tourism growth will not be driven by
international insurance coverage in the near term due to various litigation
issues.
-Dr Lim shared that Middle East patients started coming to Singapore only
after 9/11 when it became difficult to get visas to visit the US ? the
traditional medical tourism destination for them. Since then, Parkway
started focusing on this group of patients by providing them high-end care
such as liver transplants, stem cell therapy and bone marrow transplant.
Going forward, the group plans to infiltrate this segment more deeply by
promoting the more common procedures such as orthopaedic surgery.
PROPERTY by ssb
- Q2 property investment sales triple DTZ ? Investment value for the
quarter up 254% to $662m. Property investment sales more than tripled in Q2
this year as sentiment improved on the back of easing credit and the stock
market rally, says DTZ. DTZ’s data shows that for the first half of 2009,
total investment sales were $849 million. This was still the lowest level
in a decade, since $703 million in H2 1998. Small-quantum deals continued
to dominate, with all deals below $100 million apiece in Q2. Most
investments were by locals. Foreign investors remained cautious.
- Woodlands industrial site draws 8 bids ? A Woodlands industrial site put
up for sale by the government drew healthy interest by the time the tender
closed yesterday. URA received eight bids, with Wee Hur Development placing
the highest bid of $22.9 million, or $34 psf ppr. ‘The healthy response to
the tender could be a reflection of the expected turnaround for the
manufacturing sector,’ said Li Hiaw Ho, executive director at CBRE
Research. ‘After six consecutive months of negative figures, manufacturing
output finally recorded positive figures in April and May 2009.’ At the
same time, the PMI indicated an expanding sector in May and June 2009 after
contracting since September 2008, he added.
- Singapore is 10th most expensive city for expats ? Singapore has become
the 10th most expensive city in the world for expatriates, up three places
from last year, says HR consultancy Mercer. Singapore is also the fifth
most expensive expat location in the Asia-Pacific, according to Mercer’s
2009 cost of living survey. Tokyo overtook Moscow as the most expensive
city for expats, as the Japanese yen strengthened considerably against the
US dollar.
- Best hotel rates for F1 season ? Visitors who book hotel rooms during the
2009 Formula One Grand Prix can now enjoy the best rates. A deal has been
struck with 29 hotels to offer visitors greater assurance through a ‘Best
Rate Guarantee’. Guests who book early with participating hotels will
benefit from any last-minute discounts and drops in room rates during the
race weekend of Sept 25-27. On the other hand, should prices rise nearer
the race period, ‘early bird’ customers will still be charged their
original, lower room rates.
TELECOM by dbs
-Challenges in Singapore, China and Korea are reflected in market
expectations Singapore is confronted with rising content cost and falling
broadband price, China faces 3G burden while Korea saw a spike up in
competition. However, consensus earnings estimates seem to reflect these
challenges adequately, in our view.
-Significant earnings upside from potential 3G launch in Thailand. Telcos
are more confident of 3G award by 1Q10, given progress made on the
regulatory front so far. DTAC would be a prime beneficiary of the 3G award
due to potentially lower license fee of 7% of revenue, down from 25-30%
earlier.
-Market could be disappointed in Malaysia and Indonesia though. Telcos in
Malaysia and Indonesia do not face significant challenges in the near term.
However, consensus earnings expectations may be on the higher side,
expecting too much too soon.
-We prefer free cash flow yield (FCF/EV). Due to the lack of exciting
growth opportunities in the sector, we prefer telcos generating significant
free cash, which could potentially be paid out as dividends or invested in
projects with returns higher than the cost of capital. Our top picks M1,
DTAC and SK Telecom offer FCF yield of over 10% compared to the regional
average of 6%.
-Our top picks trade below regional EV/EBITDA and PER average Regional
FY09F EV/EBITDA average is 5.3x while FY09F PER average is 14.7x. Our top
picks are currently trading below the regional average and may possibly
exceed the regional average, due to their significantly higher free cash
flow generation.
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