ALLGREEN, cimb upgrade to OUTPERFORM with target price $1.20($1.35)
- Below. 1H08 EPS of 2.2cts accounts for only 24% of our full-year
forecast
and 25% of consensus, due to a lack of new project launches, which we
had
expected in 2Q08.
- Lacking new home sales. 1H08 revenue declined 47% yoy largely due to
lower contributions from development properties. In 1Q08, AG released
the
remaining units of Pavilion Park and sold over 20 units in the quarter.
A
check with URA records indicated that fewer than five units were sold
at
ASPs of S$780psf in 2Q08. Our ground checks also suggest that sales of
D’Lotus have been slow.
- Earnings forecasts reduced; but does not lack land bank. We have
reduced
our FY08-10 EPS estimates by 15-33% as we push back our recognition
schedule to later years and factor in an additional 8-10% decline in
ASPs
from current levels. We believe our estimates now reflect a 25-30% fall
in
residential selling prices for AG’s new stock from current levels
achieved
by similar projects. AG has over 1.6msf of GFA of attributable land
bank
ready for release. As such, any earlier-thanexpected launches/new home
sales could potentially shore up its FY08 earnings.
- Valuations compelling again; upgrade from Underperform to Outperform.
Factoring in an additional 8-10% decline in residential prices from
current
levels and higher cap rates of 5.5% for its commercial properties (vs.
5%
previously; cap values for Great World City and Tanglin Mall are now
about
S$1,200-1,650psf), our new end-CY08 RNAV estimate falls to S$1.60 from
S$1.69. But with a substantial land bank ready for deployment, our new
target price is set at a 25% discount (vs. 20% previously) to RNAV, or
S$1.20 (from S$1.35). The share price has fallen 37% YTD vs. an 18%
fall
for the STI. Given the strong potential upside to our new target price,
we
upgrade the stock from Underperform to Outperform.
ALLGREEN, cl maintain SELL with target price $0.96($1.15)
-1H08 results was disappointing with revenue down 46.5% YoY at 32% of
our
estimates while earnings was down 54.8% YoY contributing to 31% of our
FY08
forecast and only 25% of consensus. Commercial and hospitality segment
held
up well due to higher room rates and rentals but revenue recognition
from
development projects have been slower than expectations. We are further
deferring launch and construction schedules by two quarters to reflect
current challenging environment and have lower our earnings estimates
by
5.2% and 19.2% for FY08/09. Our target price has been lowered from
S$1.15
to S$0.96 but maintain SELL.
- Revenue of S$162m for 1H08 fell 15.7% QoQ and 46.5% YoY was weak and
came
in below our estimates at 32% and consensus due to slower recognition
on
development projects.
- Gross margins improved YoY from 39% in 1H07 to 57% in 1H08 suggests
that
construction costs have been contained for the time being while net
margins
fell from 25% to 21% in 1H08 clearly reflected higher financing costs
and
rising operating expenses in current environment.
- Net income for 1H08 of S$34.6m was disappointing falling by 1.5% QoQ
54.8% YoY coming in at only 31% of our full year forecast and 25% of
consensus due to higher financing cost (+57% YoY), higher operating
cost
(+67% YoY), unrealised forex loss, higher depreciation (+41% YoY),
higher
effective tax rate and partially offset by write back in provision for
development properties. No dividends were announced.
- Selling expenses was higher in the relevant period also reflected
higher
commissions amid the sluggish primary take up trend for FY08. This has
been
a similar trend faced by other developers who have announced results so
far.
- Investment properties and hospitality segment performed well due to
higher room rates and rentals although no breakdown has been provided.
- As launches have been delayed longer than we had initially expected,
we
have deferred our launch schedules by an additional two quarters
similarly
for construction progress to reflect the slower than expected revenue
recognition. We have assumed no new launches for FY08.
- The result is a 5.2% and 19.2% cut to our earnings forecast for FY08
and
FY09 respectively. Impact to FY08 NAV is a decline of 11.8% and 16.4%
in
FY09 which in turn led us to lower our target price from S$1.15 to
S$0.96
but maintaining our SELL rec.
ALLGREEN, csfb maintain NEUTRAL with target price $1.01($1.46)
- Allgreen disappointed yet again on 2Q08 net profit of S$17.2 mn
(-37%
YoY, -2% qoq). This brings 1H08 earnings to S$34.6 mn, 30% of our
lowest-on-the-street full year earnings of S$116 mn.
- Revenue plunged 39% YoY to S$74 mn due to fewer home sales (sold
only 8
units in D.Lotus), delays in construction affecting its progressive
recognition of its various projects e.g., Cairnhill Residences and
Cascadia, as well as higher operating expenses, partially offset by
higher
investment property income.
- Gearing has risen to 0.45x from 0.38x a quarter ago. Its proxy
status to
Singapore is diminishing with its recent 9th investment in China,
bringing
its overseas commitments to over S$2 bn.
- We expect construction progress on sold projects to pick up in 2H,
so we
maintain our 2008 forecasts but cut 2009-10e earnings by 8-24% and RNAV
to
S$1.44 from S$1.83 on higher construction costs and 20% lower overseas
selling prices. With the market preference for more liquid big caps and
no
near-term catalysts, TP is cut to S$1.01, on 30% (from 20%) discount to
RNAV.
ALLGREEN, db maintain HOLD with target price $1.40
-2Q08 PATMI of S$17.2m (-36.5% YoY, -1.5% QoQ) came in below our
expectations due to slow profit recognition from pre-sales on key
projects
such as Cascadia and Cairnhill Residences. Due to the subdued market,
there
were minimal sales from ongoing launches with only an estimated 9 units
sold in the quarter from mass market projects D’Lotus and Pavilion
Park.
Income from investment properties improved on the back of higher
rentals
and room rates. Gearing rose from 0.38x to 0.45x due to overseas
investments and landbank acquisitions.
-There was no forward looking commentary on the timing of launches and
business plans. With profit recognition from pre-sales tapering off,
Alllgreen’s earnings are highly dependent on upcoming launches.
Management
has earlier planned to launch Viva, Holland Residences and One
Devonshire
in 1H08, but these projects have been deferred due to market
conditions.
Management is however guiding for lower profits from development
properties
for 2H08, suggesting that profit recognition for Cascadia and Cairnhill
Residences could be lower than our existing expectations and risks to
our
projection of flat earnings this year. For context, Allgreen has around
2.4m sf GFA of unlaunched landbank and relatively limited pre-sales as
a
buffer.
-We are maintaining our Hold rating on the stock and our forecast
numbers
for now, despite the stock’s apparent discount to our TP, until we meet
management next week to clarify its business plans (especially its
recent
JV investments in China) and the timing of its launches following its
land
acquisitions last year.
ALLGREEN, dbs maintain BUY with target price $1.25($1.66)
-Story: Allgreen’s 2Q08 topline fell 39% yoy to $74.1m while net profit
declined 36.5% to $17.2m. This was due to lower revenue from its
development properties as well as higher finance costs from an increase
in
borrowings for its overseas investments in China and Vietnam and for
land
purchases in Singapore. The drop in revenue was partially offset by
improved returns from its investment portfolio properties at Great
World
City, Tanglin Mall and Traders Hotel ? which saw higher rental or room
rates. Overall, its net gearing increased to 0.45x as at end Jun 08
against
0.3x at FYE07 due to downpayments with respect to its projects in
Chengdu
(25% stake), Qinhuangdao (10% stake) and Shenyang (30% stake), all of
which
are JVs with HK-listed Kerry Properties; as well as the completion of
purchase for its leasehold project at Enggor Street and the enbloc
purchase
of Regent Garden.
-Point: Allgreen has indicated that it believes the poor sentiment in
the
physical market will linger for the rest of the year and 2H08 earnings
will
thus be lower than 2H07 earnings. Given this, we do not expect the
company
to be launching any of its new development projects in 2H08. As such,
we
have lowered our FY08 earnings to reflect a further delay in launches
and
construction.
-Relevance: Valuations continue to be undemanding for Allgreen, which
is
the key premise for our buy call. It is currently trading at a 33%
discount
to its 1H08 book value of $1.38 and at an even steeper 48% discount to
its
revised RNAV of $1.78. Taking its investment and development properties
at
book value and netting off its borrowings, Allgreen’s current price
level
is ascribing a 30% writedown in the value of its development landbank.
We
maintain our BUY call at a revised target price of $1.25, based on a
30%
discount to its RNAV.
ALLGREEN, gs maintain NEUTRAL with target price $1.12($1.16)
-What’s changed. Allgreen Properties posted PATMI of S$17.2 mn for
2Q08,
down 37% yoy. For 1H08, PATMI came in well below expectations at S$34.6
mn,
down 55% yoy, just 21% of our full year estimate. Revenue from
development
properties fell 47% in 1H amidst slowdown in number of units sold.
Revenue
from investment properties and hotel segments saw growth in 1H due to
higher rental/room rates achieved. PATMI decline yoy was mainly due to
lower revenue and lower write back of provision for diminution in value
of
development properties (S$4 mn in 1H 08 vs S$38 mn in 1H 07). Gearing
as at
30 Jun 08 is 0.45 x, up from 0.3 x as at 31 Dec 07.
-Implications. We expect earnings contribution from development
properties
to decline yoy in 2H 08. We have a cautious view on SG residential,
particularly the prime segment. We est 29% of its RNAV comes from SG
resi,
with over 90% in the prime segment. We think slow pace of resi sales
resulting in subdued earnings by developers such as Allgreen will be
viewed
negatively by investors. With incremental negatives on the economic
front,
we see no improvement near term in resi market sentiment.
-Valuation. We reduce our 12-m TP from S$1.16 to S$1.12 (set at 30%
discount to RNAV). Our RNAV is reduced from S$1.65 to S$1.60 as we
apply
higher WACC for Singapore development projs. We push back pace of sales
and
completion for Singapore and China residential projects and therefore
reduce EPS estimate for FY08/09 by 22%/21%. We find valuation support
from
the group? Singapore investment properties ~ 54% of RNAV. We think
negative
property market outlook is captured in Allgreen? share price, which is
at
42% discount to RNAV, but find no positive share price driver over
thenext
few months.
-Key risks. Performance of residential markets in Singapore and China.
ALLGREEN, ms maintain OVERWEIGHT with target price $1.45
-Quick Comment - Results Below On Lower Residential Sales: Allgreen
reported a 1H08 net profit that is 30% below our full-year forecasts,
due
to much slower-than-expected residential sales. Allgreen sold a total
of 46
units in 1H08, only 17% of our full-year estimate of 266 units. As the
residential market is weaker than expected, we are currently reviewing
our
sector assumptions. Despite the argument that developers’ strong
balance
sheet enables them to hold back from cutting prices to entice buying
activity, in our opinion, in order to ensure continuity in earnings
particularly after FY2010F, despite a weak residential market,
developers
may be left with no choice but to cut selling prices. We believe this
is
particularly true for developers like Allgreen who are heavily reliant
on a
single market. We believe this could happen in 2Q09.
-Change in Tone, Less Optimistic: Management now expects the current
poor
sentiment to continue for the rest of the year, reversing their
previous
optimistic view that activity would pick up in 2H08. Illustrating this,
the
pace of sales take-ups continue to decline from 57 units sold in 4Q07
to 38
units sold in 1Q08 to a mere 8 units sold in 2Q08. The trend of selling
prices was mixed, potentially skewed by the unit type (facing or floor
level) and timing of lodging the caveats. Exhibit 3 shows that 2Q08
selling
prices were lower by 1-3% QoQ versus 1-24% QoQ increases in 1Q08.
However,
it appears that that the low-end segment has weakened, suggesting
potential
downside risk to our base case assumption that low-end prices will rise
10%YoY in FY08.
-2Q08 data was weaker than expected, particularly in the low-end
residential market and office absorption data. In addition, we see
anecdotal evidence of rising office cap rates in the sector. We
reiterate
our preference for S-REITs over developers ? a relative rather than a
compelling call given the lack of near-term catalysts for a re-rating
of
both sectors. We rate City Developments (CTDM.SI; S$11.40) UW on
valuation.
Our S-REIT top pick, Ascott Residence Trust (ASRT.SI, S$1.06, OW),
offers a
FY08F DPU yield of 8.3%.
ALLGREEN, ssb remains a BUY with target price $1.16
- Results below market expectations: 2QFY08 net profit of S$17.2m was
down
36.5% yoy and flat qoq. Net profit for 1H08 came in at $34.6m, only 30%
of
our estimates and 25% of consensus. The bulk of the fallout from our
estimates was due largely to our under provision for tax.
- Lower contribution from development properties: The number of units
sold in 1H08 was significantly slower than 1H07 and contributed largely
to
the 47% yoy fall in revenue. Investment and hotel properties performed
well
due to higher rentals and room rates.
- Gearing increased to 0.45x: Gearing rose as net borrowings were
higher,
mainly due to overseas investments and purchase of development sites in
Singapore. Downpayments were made for its China investments for
projects in
Chengdu, Qinhuangdao and Shenyang, resulting in an increase in deposits
and
prepayments to S$235.6m, from S$54.1m in Dec-07.
- Lower earnings estimates: Wehave lowered our net earnings for FY08-10
by
6-18% due purely to our under provision for tax. We are already
assuming
minimal new sales for the rest of the year.
- Maintain Buy (1L), TP S$1.16: We maintain Buy for valuation reasons.
Allgreen is trading at a discount of 33% below its last published NAV
of
S$1.38. It is also trading 50% below our 08E RNAV of $1.83. At current
price, Allgreen also offers a fairly attractive FY08E yield of 6%.
CAPITALAND, ubs maintain BUY with target price $7($8.20)
- Event: H108 PATMI was 53% of our full-year estimate. CapitaLand
reported
H108 EBIT of S$1,286.6m (-37.1% YoY) and PATMI of S$762.7m (-49.8% YoY;
UBSe S$502.9m); the latter includes S$417m of revaluation gains and
S$145m.
PATMI was 53% of our full-year estimate. The market has been expecting
a
drop in profit this year (UBS current estimates assume -47% decline in
PATMI CY’08 YoY), hence these headline results are probably slightly
better
than expectations. We remain comfortable with our full year estimates.
- Well-capitalised and well-managed but lacking near-term catalysts.
Despite the H108 PATMI being higher than expectations, we continue to
get
the impression that CL management is bearish on the 6-12mth outlook for
the
macro and credit environment and asset markets, and has set the short
term
strategy and capital management in such a way as to weather a downturn.
The
result is a wellcapitalised and well-managed group but one that could
be
lacking in near-term positive catalysts.
- Action ?Reduce PT to S$7.00. Reiterate Buy.. With the collapse in the
Australand (ALZ) stock price ($2.00+ to $0.59) and the persistent price
weakness in ART and CCT, we have elected to set our NAV to a realisable
price instead of look-through book value for these holdings. As a
result we
reduce our $8.20 end 08 RNAV to $7.80.
- Valuation. Our S$7.00 PT is set at a 10% discount to 08E RNAV of
S$7.80.
CHINA MERCHANT, dbs maintain BUY with target price $1.10
-Excluding higher forex gains of c. HK$16m and a tax write-back, CMHP’s
1H08 results were slightly above expectations, due to a strong
performance
from the Group’s core toll road operations. PBT contribution from the
Group’s toll road operations rose by 10% yoy to HKS$157.5m, making up
87%
of total Group PBT whilst PBT contribution from the Property
Development
business in New Zealand rose by 157% to HKS$23.9m.
-The firm performance of the Group’s toll road operations was primarily
driven by a) both traffic volume growth and rate hike at Guiliu
Expressway
and b) higher contribution from Guihuang Highway due to a 30% rate
hike.
-Net earnings as at 1H08 rose by 26% yoy to HKS$179.2m. CMHP maintained
its
interim dividend of S 2.75cts net.
-Looking ahead, we expect earnings growth from the Group’s toll road
business to flatten out as the 8% and 30% rate hikes for Gui Liu and
Gui
Huang highways respectively occurred in 2Q last year. Management
re-iterated that progress on the acquisitions of Zhengshao and Denggao
Expressways remain on track and that it is optimistic of signing
definitive
agreements within the next few months.
-We maintain our BUY call and S$1.10 target price, which is based on a
target forward net yield of 5%. For the stock to re-rate, management
needs
to deliver on value accretive toll road acquisitions.
DAIRY FARM, jpm maintain NEUTRAL with target price $5.36($4.72)
- Strong results: Dairy Farm announced strong results for 1H08 with a
40%
increase in recurring earnings, 20% better than our estimate. This was
partly driven by healthy sales growth of 19% and partly by margin
expansion
achieved across the region. The company stated in its results
announcement
that the prospects for 2H remain positive as well.
- Sales up strongly particularly in South Asia: Consolidated sales were
up
by 19%y/y. This was driven by store expansion in growth countries such
as
Malaysia and Indonesia and partly by store expansion and SSS growth in
more
mature countries like Hong Kong and Singapore. Sales in South Asia was
especially strong, up 24% y/y, as Singapore supermarket results have
improved and the 7- Eleven chain benefited from the re-branding of
former
Shell stores.
- Notable margin improvement: All regions saw very healthy margin
improvement with consolidated EBIT margin at 5.2% in 1H08 vs. 4.0% in
1H07.
East Asia posted marked improvement in EBIT margin up to 6.3% in 1H08
from
4.8% in 1H07 driven by improvements both in Indonesia and Malaysia.
- Neutral: Following the results we lift our FY08 earnings estimate by
17%.
We maintain our Neutral rating as we do not find valuations compelling
at
18x FY08E and 16x FY09E P/E. We believe Jardine Matheson which trades
at
11x FY09E P/E offers a more attractive alternative. We raise our
DCF-based,
Dec-08 PT to US$5.36 (from US$4.72). A key risk to our PT and rating is
a
slowdown in store expansion.
DEL MONTE, db maintain BUY with target price $0.90
-Del Monte Pacific posted a 1H08 revenue growth of 41.1% YoY to US
$160.3m
with a net profit rising by 10.1% YoY to US$11.6m, inline with our
expectations and consensus. The slower growth in earnings was
attributed to
the US$1.7m losses from its associate, Bharti Del Monte India, higher
interest expenses and increases in A&P and corporate overheads. The
company
has declared an interim dividend of US$0.008 per share or 75% of its
1H08
earnings, inline with our dividend forecasts.
-Sales from S&W rose by more than three-fold to US$1.9m in the 2Q08
with
1H08 sales of US$2.5m, helped by the sales of S&W Sweet 16 pineapples
and
the introduction of its tropical fruit range. While profitability for
the
S&W division remains insignificant, the company has taken steps to
build
its organization structure and also taken direct control over sourcing
and
is looking to broaden its distribution in Asia to grow its sales.
-Del Monte Pacific’s 40% stake in Bharti Del Monte India continues to
post
its share of losses of US$0.8m in the 2Q08 and US$1.7m in the 1H08.
Management has a target to achieve profitability in FY10E as the
division
is refocusing its fresh division to export corn and move into food
service
as well as prepare its retail launch of the Del Monte brand into India.
-The company has expanded its store coverage of 74,000 stores in June
2008
from 41,000 stores in June 2007 and is on track to meet our 80,000
store
coverage in FY08E. Maintain our Buy recommendation on the stock.
GOLDEN AGRI, ubs initial coverage SELL with target price $0.67
- Margin pressure from higher fertiliser cost. Golden Agri-Resources’
high
oil yield of 5.5t/ha is second only to that of IOI, and it should
mitigate
some of the negative effects of higher fertiliser cost. Still, we
believe
margins will be under pressure in 2009 as the potential increase in
palm
oil prices and higher oil yield will not be sufficient to offset the
higher
fertiliser cost. Golden Agri is also trading at a premium to its
five-year
average PE of 8.4x
- Owns the largest unplanted landbank in the sector. Golden Agri has
one of
the largest unplanted landbanks in the sector. It has more than 200,000
ha
of unplanted land in Kalimantan, and it is in the process of acquiring
a
further 1.1m ha, also in Kalimantan and Papua. This will enable the
company
to increase its current planted landbank of 277,629 ha by five to six
times, although only over many years.
- Has seed production facility, expansion plans. Golden Agri’s 20m
seeds-a-year facility is a key competitive advantage because there is a
shortage of seeds in the industry. In common with other big plantation
companies, Golden Agri has ambitious plans to develop new oil palm
plantations. Its ownership of a seed factory not only ensures supply,
but
also quality, which we think is one of the reasons Golden Agri is able
to
deliver high oil yields.
- Valuation: initiate coverage with a Sell rating and a S$0.67 price
target. Our price target is based on a sum-of-the-parts valuation,
where
the plantation division is valued using DCF methodology, assuming 15.6%
WACC, a long-term palm oil price of US$900/t, and long-term growth of
5%.
Our price target is equivalent to 8.2x our 2009 EPS estimate.
HONG KONG LAND, csfb downgrade to NEUTRAL with target price
$4.20($4.80)
- HKL.s 1H08 result was 28% higher than our expectation on booking of
profit from Central Park in Beijing during the period versus our
expectation of in 2H08. Rental revenue grew 27% YoY, in-line with our
expectation and office vacancy remains tight at 1.7%.
- The pace the rental and capital value growth is slowing down.
Capital
value increase 10% in 1H08 vs 12 % 2H07. We raised our cap yield
assumption
on HKL and revised down NAV by 12%.
- Based on an average discount of 20%, our price target was down by
12%
from US$4.8 to US$4.2. We downgraded the stock to NEUTRAL from
Outperform.
- Despite our downgrade, we believe the potential downside of the
stock is
limited as supported by its strong earnings momentum coming from the
strong
revenue reversion and the stream of property earnings in Macau, Hong
Kong,
China and Singapore. For exposure to the decentralized office space, we
prefer Swire Pacific, which is the key landlord in Quarry Bay.
SINGAPORE POST, ubs upgrade to BUY with target price $1.17($1.15)
- Impact of liberalisation likely muted. Singapore Post’s (SingPost)
share
price has been affected by concerns of increased competition. On recent
events, we believe the impact on SingPost is unlikely to be as
significant
as feared: 1) Masterdoor keys remain with SingPost; and 2) RAO, which
details network delivery prices to competitors, looks benign. We have
referenced an in-depth analysis of Swedish liberalisation as a case
study,
which suggests the impact of market share loss will likely be minimal.
- Margin pressures proved manageable. SingPost’s Q1 FY09 results showed
it
ability to contain costs. Operating expenses grew just 4.0% YoY,
compared
with +11.6% and +13.0% YoY in Q3 FY08 and Q4 FY08, respectively.
Exposure
to rising fuel costs is marginal; our sensitivity analysis suggests 30%
growth in fuel costs would reduce net profit only 3%.
- Property portfolio (ex SPC) provides potential upside. The company
continues to optimise rental revenue from its post offices, which we
estimate to be located on approximately S$150m worth of land. We
believe
SingPost could have 15 properties available for sale. We have not
included
potential rental income or possible capital gains from the sales in our
numbers.
- Valuation: upgrade from Neutral to Buy; price target S$1.17. We
change
our price target derivation from required yield to a sum-of-the-parts
valuation. We also raise our price target from S$1.15 to S$1.17. We
value
the core business at S$1.05 using DCF analysis, assuming 9.1% COE and
3%
terminal growth. We then add S$0.12 for Singapore Post Centre to arrive
at
our price target of S$1.17. SingPost is trading near its IPO level of
forward yield (6.4% based on 85% payout), and at a minimum yield of
4.9%,
based on the low end of dividend guidance.
SUNTEC REIT, daiwa maintain OUTPERFORM with target price $1.91($1.82)
-We maintain our 2 (Outperform) rating for Suntec REIT (Suntec) after
the
announcement on 30 July of its 3Q08 (year-end September) results. We
believe Suntec is one of the best plays in the Singapore office sector
(please see our sector report, Optimistic on offices, published on 22
July
2008), which, in our opinion, has not disappointed in the latest
reporting
season. We have raised our six-month target price, based on our RNG
valuation method, to S$1.91 (from S$1.82), with the increase in our
core
operating distribution forecast (for FY09).
- Suntec’s 3Q08 (fully-diluted) DPU of 2.47¢, up 34% YoY, was 8.5%
higher
than our forecast. Roughly half of Suntec’s outperformance came from
the
net-property income (NPI) from its core properties, 2.9% above our
forecast, and lower-than-expected fees and borrowing costs accounted
for
the remainder of the positive variance.
- Robust 5.8% QoQ growth in gross revenue at its core properties
probably
came from all segments, in our view. Committed occupancy of its offices
remained high at 99.5% at the end of June. The manager disclosed that
recent leases were secured at monthly rents of S$12-15 psf, up from
S$11.5-13.5 psf for the previous quarter. Meanwhile, the committed
passing
rent at Suntec City Mall continued its appreciation, up 3.1% QoQ, to
S$11.09 psf (per month). Retail leases were renewed, on average, at 15%
above the preceding rental rates during the quarter. The manager also
highlighted the improvement in advertising and promotional income, up
13.7%
YoY for 3Q08 to S$1.75m. We believe this item is still minor, but could
perk up for 4Q08 when Singapore hosts its first Formula One Grand Prix,
located right next to Suntec City, in late September.
- We have revised up our (fully-diluted) DPU forecasts by 5.4% for
FY08,
1.6% for FY09, and 1.5% for FY10. We have raised our six-month target
price, based on our RNG valuation method, to S$1.91 (from S$1.82), with
the
increase in our core operating distribution forecast (for FY09). With
about
43% of its office leases (excluding One Raffles Quay) up for renewal in
FY09, and 26% in FY10, we expect the highly positive rental reversions
to
continue.
WILMAR, gs maintain BUY with target price $6.20
-We raise our FY2008E-FY2010E net profit estimates by 11%-12% to
reflect
higher CPO refining margins based on: (1) sustainability of Wilmar?
US$/ton
CPO refining margins at higher levels, in our view, due to high CPO
prices;
(2) a demand-driven CPO price dynamic, and (3) high working capital
costs
curbing smaller competitors. Over the long term, we see upside
potential
for Wilmar? margins in China, as they are much lower than comparable
businesses worldwide. We reiterate our Buy rating on the stock and
recommend it as a core holding for long-term investors.
-1) Potential consensus earnings upgrades post 2Q08 results (Aug 14)
?The
market appears to expect a sharp decline in 2Q2008 earnings on
seasonally
lower refining margins, but we believe earnings could surprise on the
upside. Our new 2008E-2009E net profit estimates are 7%-8% ahead of
Bloomberg consensus estimates.
-2) Rising CPO prices: Despite the recent sell-down, we remain positive
on
the outlook for CPO prices on the back of rising oil prices, increased
biodiesel utilization rates, and higher soybean prices.
-Valuation. We raise our SOTP-based 12-month target price upwards to
S$6.20
(from S$6.00), as our higher margin assumptions are partially offset by
higher WACC assumptions. Our target price implies 23X 2009E P/E, at the
upper end of the stock? historical 6X-24X trading range (since its
listing
in August 2006).
-Key risks. (1) Higher P/E multiples relative to sector peers, which
could
draw shortselling interest over the short term; (2) sharp decline in
CPO or
oil price and (3) the Chinese government introducing further food price
controls.
[ SECTOR ]
BANK by citi
- Domestic system loans +12% ytd ? Latest monetary data for Jun-08
released
by the MAS indicate lending remains strong (+25% yoy, +11.9% ytd). With
the
loan book having expanded by almost 12% in the first half of this year
alone, we view that this should underpin a good set of 1H08 results
(reporting 5-7 Aug). Top pick DBS; OCBC is also a buy. Sell UOB on
relative
valuation.
- Construction lending continues to drive business loans ? Business
lending
grew by 18.4% in the first six months of this year, benefiting from
broad-based growth, particularly construction loans (+3.7% mom, +55.1%
yoy), manufacturing (+4.1% mom, +15.7% yoy) and general commerce (+2.9%
mom, +29.9% yoy).
- Slower pace for consumer as mortgage growth moderates ? Consumer
lending
grew by 1.5% in June month-on-month, or 4.2% year-to-date. Mortgages,
which
have been showing moderating growth in recent months, grew by S$0.9bn
in
June (+1.2% mom, +14.5% yoy), and ended 1H08 with year-to-date growth
of
3.8%.
- Volatile yield curve movements ? While short-term rates remain
depressed
by flush liquidity, 10yr govt. yields which rose to almost 4% in
mid-June
have now slipped back to 3.2%. Our economist is expecting 3m S$SIBOR to
edge up in 2H08 to 1.6%, on tightening measures by regional central
banks,
and S$NEER coming off strong side of band.
- Weaker stock market turnover ? June-quarter securities avg. daily
turnover (ADT) fell to S$1.67bn (March-quarter: S$1.96bn), a velocity
of
65% (1Q08: 77%). Julymonth ADT weakened further to c.S$1.23bn/day
(velocity: 52%), suggesting weaker near-term earnings for SGX.
BANK by csfb
- Singapore system S$ loans grew 25.0% YoY/ 4.7% QoQ/ 1.7% MoM in
June,
driven by construction, commerce and housing loans. YoY loan growth has
likely peaked at 26.1% in May and QoQ growth slowed to 4.7% QoQ from
6.9%
in 1Q08.
- Housing+consumer loans (45% of loans) grew 13.5% YoY/ 3.0% QoQ, and
continued to lag business loans (55% of loans) which expanded 34.9%/
6.1%.
- Housing loan growth remained steady at 14.5%/ 2.3% helped by units
sold
over the past few years. Consumer loans accelerated to 11.3%/ 4.4%,
partly
on credit card roll-overs (+13.2% YoY).
-Construction loans continued to show good momentum (55.1%/ 8.4%)
setting
yet another record high. Financial institution loans shrank in June
(19.5%/-1.6%).
- We expect loan growth to decelerate towards mid-teens by the
year-end,
still pretty healthy by any standards. 2009 is more uncertain and we
still
expect low-teens growth as of now.
REIT by ml
-Key takeaways: Slowing rental and acquisition growth. Post 1H08
results
for the S-REIT sector we summarize the key takeaways from analyst
briefings. Notably management teams were more downbeat on the sector
outlook than previous quarters, highlighting issues which included i)
inability of REITs to make new acquisitions until equity market
conditions
improve ii) moderating future rental growth in line with cooling
regional
property markets and iii) increasing debt costs.
-No surprises - strongest growth from hotel & office. On a same store
basis
the strongest rental growth was achieved from exposure to the Singapore
hotel and office exposure. This should come as no surprise given the
jump
in rental rates in the respective sectors over the past 12 months and
the
significant under-renting of many of the S-REIT portfolios. More
challenging times however are clearly likely still to come with hotel
occupancy slipping in the 2Q08 & office rentals likely to be nearing a
peak.
-YoY DPU growth 17.2%, QoQ 2.7%. On average the S-REIT sector delivered
YoY
DPU growth of 17.2% and QoQ DPU growth of 2.7%. Organic rental uplift
together with acquisitions completed over the past 12 months were the
key
drivers of growth, while those experiencing decline were REITs that
have
recently completed equity raisings. For the SREITs under ML coverage we
are
forecasting DPU growth of 3.5% in FY09E.
-Sector valuations: FY09E yield 7.5%, 12% discount to NAV. The S-REIT
sector is now trading on a 7.5% FY09E yield, some 400bpts over the
Singapore 10-year government bond. While yields are, for the most part,
at
historical highs we are forecasting declining DPU for one third of the
S-REITs under ML coverage. On a price to NAV basis the sector is now
trading at a 12% discount to NAV; however, this is skewed to the large
cap
names which are still trading at large premiums to revalued book. We
expect
rising cap rates will put pressure on current NAV valuations over the
next
12 months.
-Maintain underweight stance on S-REIT. We maintain our underweight
stance
on the S-REIT sector relative to the Singapore market. While income
streams
from REITs are arguably more defensive than other sectors we remain
concerned over rising debt costs, moderating rental growth and future
cap
rate expansion. We prefer S-REITs with organic growth potential given
the
muted outlook for acquisition growth in the medium term. Our preferred
exposures remain CMT, CCT and CDLH.
KEPPEL CORP, csfb maintain UNDERPERFORM with target price $9.80($10.30)
- Keppel.s 1H08 earnings came in at 51% of our already belowconsensus
08E
estimate, with lower operating income across all divisions, except for
O&M
(and associates), on both sequential and YoY bases (Figure 1).
- O&M.s sustained operating margin of 10.1% was the highlight of the
results but slow O&M revenue growth (6% YoY) and cautious guidance
(flat
YoY revenue for FY08) offset the potential gain.
- Property was weak as expected, with management guiding for no growth
in
FY08. Infrastructure disappointed again, delivering just S$1 mn of
operating income on S$597 mn of revenues in 2Q08. Investment income was
also subdued. Associates, including M1 and SPC, accounted for 39% of
Keppel.s 2Q PBT.
- We raised our O&M margin and infrastructure revenue estimates but
also
revised down O&M revenues and profits for property and infrastructure.
We
lowered our earnings estimates by 1% for 2008E and 8% for 2009E. Our
SOTP-based TP is revised down to S$9.80 (S$10.30 previously). Maintain
UNDERPERFORM.
KEPPEL CORP, dbs maintain HOLD with target price $12.30($12.56)
-Story: 2Q08 net profit of S$299m (+15% y-o-y, +14% qo- q), a record
quarter, was slightly better than the Bloomberg consensus of S$282m due
largely to investment gains reported at K1 Ventures. 1H08 net profit
was up
10% to S$561m. An interim dividend of 14 Scts was also declared.
-Point: For the O&M division, 2Q08 revenue grew 30% qoq (off a low base
in
1Q where revenue declined 9%) and 6% yoy to S$1,819m. O&M margins rose
1ppt
yoy to 8.6% (1Q08:9.4%). Coming from a low base, infrastructure
earnings
are improving sequentially, rising 8% qoq to S$13m. Net margins
continue to
exhibit volatility. Property earnings fell 49% yoy to S$29m reflecting
the
completion of projects in Singapore and overseas markets and lack of
new
launches during the period.
-Given the spate of negative news on two O&M projects, management
assured
that all other projects are on track. Specifically, the P-51 is on
track
for completion by end Oct 08 and is expected to breakeven. The Fred
Olsen
and MPU contracts have yet to be resolved. Order backlog is at a record
high of S$13bn. However, we were surprised that guidance for O&M
revenue
for the year still remains conservative; and is only likely to match
2007’s
S$7.3bn. Contract order flow did pick up in 2Q with S$3bn worth of new
projects vs 1Q08’s S$0.6bn. YTD new orders stand at S$4.4bn, making up
72%
of our new order wins assumption of S$6bn. KepLand’s growth has been
trimmed as we have factored in a push back in launches.
-Relevance: Estimates are fine-tuned with FY08 numbers adjusted
marginally
down by 1%. Target price adjusted downwards marginally to S$12.30 based
on
a 10% discount to RNAV of S$13.66. Maintain Hold.
KEPPEL CORP, gs remains a BUY with target price $13.20
- Keppel reported 2QFY2008 net profit of S$299m, up 16% yoy/14% qoq.
1HFY2008 net profit S$561m was up 10% yoy, though representing only 43%
of
our full-year forecast, it was inline. 2Q growth was largely driven by
both
offshore & marine (+19% yoy), and the investment unit (+55% yoy). On a
quarterly basis, while the weakness in property earnings did not
surprise
us (we attribute it to timing in profit recognition), it was positive
to
see increased strength in offshore & marine margins, which expanded
marginally to 10.1%, probably surprising the market on the upside,
though
inline with our expectation. This boosted the bottom line, and with the
balance sheet very strong, Keppel announced a higher 14cent dividend,
up
56% yoy.
- Implications. We believe 2QFY2008 results were solid, notwithstanding
the
weak property earnings. We believe this should regain investors¡¯
confidence in Keppel¡¯s execution in the offshore & marine business,
which
has lately been de-rated. We think the de-rating is overdone, net
orderbook
remains strong at S$13bn, extending up until 2012, and margins are
intact.
We remain buyers of the stock, and recommend Keppel for its attractive
riskreward, offering exposure to the booming offshore & marine
industry.
- Valuation . No change to our 12-m NAV-based price target of S$13.20.
Keppel currently trades at a 16% discount to NAV, larger than its
historical 5% average. On Keppel offshore & marine stub, we estimate it
is
currently trading at 11X FY2009 P/E, 3-year CAGR 18%, vs Sembcorp
Marine¡¯s
15X, 3-year CAGR 21%.
KEPPEL CORP, jpm maintain OVERWEIGHT with target price $16
- O&M earnings momentum catching up: 1H08 PATMI came in at S$561MM
(+10%
Y/Y) with 2Q08 PATMI of S$299MM (+16% Y/Y and +14% Q/Q) largely driven
by a
larger number of O&M projects reaching the revenue recognition
threshold of
20% completion as well as an O&M EBIT margin improvement to 10% from
9.4%
in 1Q08. Notably, this margin is achieved having booked most of the
costs
associated with the P-51 semi-sub (for 4Q08 delivery) with this project
achieving slight profitability as confirmed by management while
allaying
fears of potential losses.
- Weak contribution from property: The completion of several
residential
projects in Singapore and overseas, coupled with the holding back of
new
launches contributed to a 40% Y/Y decrease in 1H08 PATMI for the
segment.
- Changes to earnings estimate: We are reducing our earnings estimates
for
Reflections at Keppel Bay, factoring in slower launches for Phase II of
Reflections for FY08. On the back of this, our Group PATMI estimate
decreased by 4.5%.
- Maintain OW with a Jun-09 SOTP PT of S$16: We reiterate our OW call
given
the strong orderbook gain in 1H08 and we remain confident that
orderbook
momentum will remain robust given the current buoyant offshore
environment.
Keppel O&M currently trades at 12x FY09E and 11.5x FY10E. Key risks
include
(1) project cost overruns, and (2) a slowdown in contract momentum. We
extend our PT timeframe to June 2009.
KEPPEL CORP, ms maintain EQUAL-WEIGHT with target price $12.50
-Conclusion: We maintain our Equal-weight rating and PT and tweak our
earnings estimates higher for 09/10 owing to higher order book and
margin
expectation for O&M sector. Keppel trades at 15x 08e EPS and 13x 09e,
and
looks inexpensive relative to its peers. Our price target implies a
mid-cycle P/E of 15x 2009e EPS.
-What’s new: Keppel reported Q208 earnings of S$299 million (+16% YoY,
+14%
QoQ), in line with our expectation of S$294 million. Bright spots were
O&M
margin and SPC contribution (helped by higher refining margin and oil
price). This was somewhat negated by property (delay in launches and
completion of projects) and infrastructure (due to not reaching 20%
completion for Doha project).
-Upside surprise could come from: 1) consensus revising up margin
expectation for O&M and SPC earnings. 2) 2008 orders could be higher
than
earlier expected, due to deepwater rig shortage 3) Dividend payout
could be
higher, as interim was up 56%.
-We remain concerned about: 1) Keppel O&M’s inability to grow its
revenue
significantly despite record order backlog and higher-priced rigs. 2)
We
are 4% below consensus estimates for 2008; 3) Slower launches/take-up
of
Singapore residential property are likely in the near term; 4)
Infrastructure, though improving, is ramping up too slow and might not
contribute meaningfully this year.
KEPPEL CORP, nom maintain BUY with target price $13.78
-Keppel posted a 10% y-y rise in 1H08 net profits to S$561mn, ahead of
our
estimate of S$512mn, with earnings growth led by offshore & marine,
infrastructure and investment gains. The group declared an interim
dividend
of 14 cents. The orderbook grew to S$13bn at end-June, with new
contracts
secured year to date at S$4.4bn. While we maintain our BUY rating and
forecasts, our fair value is likely to be cut on our reduced fair value
for
KepLand (KPLD SP, S$4.88, NEUTRAL).
- For 1H08, the group’s offshore & marine EBIT grew 4% y-y to S$322mn,
with
the EBIT margin at 10%, up 2pps from 1H07. In 2Q08, the O&M EBIT margin
rose to 10.1%, from 9.8% in 1Q08, with EBIT up 21.6% y-y to S$184mn.
This
was despite the group having already made provisions in the quarter (no
details) for the Fred Olsen Energy project delay/dispute.
- In 2Q08, the group completed four jack-up new-builds, one semi
upgrade,
one semi-heavy lift upgrade and one FPSO conversion. Keppel O&M secured
a
total of S$2.9bn in new orders in 2Q08, including three semi-subs, one
semi-drill tender and two jack-ups, bringing the total orders secured
to
date to S$4.4bn. Management said enquiry levels remain healthy, with
good
orderflows likely for both jack-ups and semi-subs. The group’s O&M
orderbook grew to S$13bn at the end of June, from S$11.8bn in 1Q08.
- Property EBIT in 1H08 stood at S$173.8mn, held up by progressive
bookings
of sold units like the group’s Reflections at Keppel Bay in Singapore.
But
EBIT in 2Q08 dropped 30% y-y to S$74mn, with revenue down 60% y-y to
S$211.4mn. For the half year, property revenue fell 40% y-y to S$511mn,
again reflecting the absence of significant project launches in the
current
year.
- The infrastructure division’s 2Q08 EBIT saw a y-y turnaround to
S$1.4mn
(from a loss of S$1.5mn in 1Q07) but was actually lower than the
S$13.4mn
EBIT made in 1Q08. Infrastructure revenue tripled to S$597mn on
contributions from the Keppel cogeneration power plant and the Qatar
EPC
(engineering, procurement and construction) contract.
- The group declared an interim dividend of 14 Singapore cents, 56%
higher
than the 9 Singapore cents declared in 1H07.
KEPPEL CORP by ocbc
-Record half year results. Keppel Corporation (Keppel) yesterday posted
unprecedented half-year PATMI of S$561m (+10% YoY), buoyed primarily by
a
surge in associates’ contributions to S$272.6m (+16.6% YoY) for 1H08.
With
the exception of Infrastructure, all business divisions registered
lower
revenues YoY. However, at the PATMI level, Investments rose 42% YoY,
Infrastructure leapt 86% YoY, while the group’s biggest bottomline
contributor, Offshore & Marine (O&M), managed a flat performance.
Keppel’s
Property division was the ill performer, recording 16% YoY lower PATMI
in
view of lower recognition from Keppel Land and its property
developments.
-Earnings visibility with net order book at S$13b. The contracts
secured by
Keppel O&M division came up to S$3.6b, growing its net order book S$13b
(vs. S$11.8b in Mar 08). Its O&M division continues its market
dominance
with 25% of the world’s semi-subs on its build schedule. Although its
order
book gives some extended earnings visibility into 2011, we continue to
be
pensive in the next few years with regards to its margins in view of
the
cost escalations in raw material, equipment supply crunch and labour.
-Cogen-erating revenue. Keppel’s cogen power plant in Singapore buffed
up
the group’s topline by contributing S$1.1b, up 218% YoY. However, its
net
margin continues to be razor thin at 2.4%. With management indicating a
freeze in construction material costs in Qatar, we are enthusiastic
that
Keppel’s Qatar projects will be delivered on schedule and within
budget.
With global concerns about dwindling water supplies, this division
warrants
watching for positive developments.
-Rating under review. With sustained demand for Jackups and Semisubs in
its
O&M division, better performance by SPC, steadfast execution of
regional
property developments and clear opportunities in its Infrastructure
division, management remains optimistic on the group’s future
performance.
Keppel has also proposed an interim dividend of 14c/share, a 56% YoY
increase from 1H07. Our rating is currently under review.
KEPPEL CORP, ubs maintain BUY with target price $14($15)
- Good results: H108 net profit of S$561m was 48% of our 08 estimate.
Offshore margins expanded on a YOY and QOQ basis. Singapore Petroleum’s
record net profit (thanks to upstream income) also boosted earnings.
Property was however expectedly weak because of launch delays and
sluggish
sales across all mkts. Keppel announced a S$0.14 interim DPS, +56% YOY.
- Offshore earnings were strong, P-51 impact not as bad as feared. We
believe revenue recognition of the P-51 contract may not be as dilutive
to
margins as the market fears. Keppel revealed that revenue yet to be
recognised on P-51 is a small fraction (~1%) of 2008E offshore revenue.
Given H108 operating margin (10%) was firm despite cost pressure, we
believe there is upside risk to our offshore earnings forecasts, which
we
have left unchanged to be conservative. To meet our forecasts, Keppel
needs
to achieve only 8% operating margins in H208.
- More cautious on property. We have assumed less bullish forecasts on
Keppel’s flagship Reflections project: cut average selling price to
S$1800psf (vs ~S$1950psf already achieved so far on 53% of the
project),
assumedslower sales and construction rates.
- Valuation: reiterate Buy rating, price target lowered to S$14 from
S$15.
We lower 2008-2010E net profit ests by 7%, 8% and 7% respectively, and
accordingly, the sum-of-parts-based price target. We use DCF to value
offshore (assuming normalised earnings in 2015), and market prices for
the
listed entities.
KEPPEL CORP, uob maintain BUY with target price $12.30
-Keppel Corp (Keppel) has reported a net profit of S$299m (+16% yoy)
for
2QFY08, 14% higher than 1QFY08’s S$262m. Net profit for 1HFY08 was
S$546m
(+10% yoy) or 50% of our FY08 forecast. Results were within our
expectation. 2Q08’s strong net profit growth was due to robust growth
in
O&M, infrastructure and investments earnings. The property segment
disappointed with earnings halved. The O&M, property, infrastructure
and
investments segments contributed 52%, 9%, 5% and 34% of Keppel’s 2QFY08
group net profit. Keppel has declared an interim dividend of 14 S cents
(1HFY07 9.0 S cents).
-O&M earnings rebounded sharply. 2QFY08’s O&M turnover was S$1.8b was
sharply higher than 1QFY08’s S$1.4b while O&M net profit was S$156m in
2QFY08 compared with S$131m in 1QFY08. EBITDA margin in 2QFY08 was
11.3%
comparable to 11.4% in 1QFY08. The recovery in EBITDA margin from a
very
poor level of 6.2% in 4QFY07 was maintained. 1H08’s O&M net profit grew
marginally by 1% yoy. Keppel secured S$2.9b worth of new O&M contracts
bringing 1H08’s orders to S$3.6b (1H07: S$3.3b). Net orderbook rose to
S$13.0b at end-Jun 08, from S$11.8b at end-Mar 08.
-Property. 2Q08’s property net profit was S$28m, 44% lower than 1Q08’s
or
half of 2Q07’s. Subsidiary Keppel Land has reported a 16% yoy net
profit
decline to S$52.7m in 2QFY08. Keppel Land’s results were marginally
below
our expectation and represented 18% of our full-year forecast of
S$293.5m.
The differences arise mainly from the slower-than-expected earnings
recognition of the Reflections at Keppel Bay and Marina Bay Residences
projects. Net profit from property trading declined 46% to S$30m in
2QFY08
(2QFY07: S$55.1m) mainly due to completion of several projects in
Singapore
(Urbana, The Belvedere, Park Infinia at Wee Nam), China (The
Waterfront,
The Seasons) and Vietnam (Villa Riviera), as well as lower
contributions
from the Reflections at Keppel Bay and Marina Bay Residences. Net
profit
from property investment declined 21% to S$7.6m in 2QFY08 mainly due to
cessation of profit contribution from One Raffles Quay whose ownership
was
restructured in Dec-07. The share of earnings from Singapore increased
to
82% of net profit in 2QFY08 compared with 52% ayear ago. The 13%
increase
in Singapore net profit to S$37.2m was mainly due to stronger
performances
from Alpha and K-REIT Asia.
-Investments. 2QFY08’s net profit of S$102m was 50% higher than
1QFY08’s
S$68m and 55% higher than a year ago. Associate SPC’s 2QFY08’s net
profit
of S$180m was 83% sequentially higher (+0.5% yoy). The record earnings
were
driven by stronger refining margin of US$13/bbl (2QFY07: US$9/bbl),
1QFY08:
US$7/bbl) and surging crude oil prices than boosted E&P profit.
However,
the strong refining margin was offset by a) lower refinery utilization
rate
of about 90% due to scheduled maintenance, b) higher processing and
hedging
costs, c) a weaker US dollar vs the Singapore dollar, d) higher finance
cost (+59% yoy), e) higher depreciation (+153% yoy) and f) a higher
effective tax rate of 20% vs 13% previously due to a larger earnings
contribution from the E&P business.
-Maintain BUY. We tweak our earnings forecasts only marginally, but cut
our
target price by 7% to S$12.30. This is based on a reduced
sum-of-the-parts
valuation of S$12.32 on a lower target price of S$6.95 for Keppel Land
compared with S$8.86 previously, but offset by a higher valuation for
Keppel’s direct stake in K-REIT following the latter’s recent rights
issue.
We continue to like Keppel given its solid management with a long track
record of good performances. This is especially important in view of
current global economic uncertainties. While oil price corrected
recently,
at US$125/bbl, it is conducive for oil & gas exploration activities.
Keppel, being the largest rig building and floating production system
conversion shipyard group in the world, will benefit. Keppel Land will
focus on overseas property launches to ride out the weak sentiment in
Singapore. Maintain BUY.
MACQUARIE MEAG PRIME REIT, daiwa maintain OUTPERFORM with target price
$1.23($1.27)
-We maintain our 2 (Outperform) rating for Macquarie MEAG Prime REIT
(MMP)
after the announcement of its 2Q08 results on 30 July. MMP’s results
were
the worst of the lot (among the 12 S-REITs under our coverage), in our
view, but we expect some strong DPU growth for 2H08. Besides, trading
at a
33% discount to NAV for its prime Orchard Road retail (with some
offices)
is extremely attractive, in our view, especially when MMP’s sponsor and
the
manager are undergoing a strategic review. We have lowered our
six-month
target price, based on our RNG valuation method, by a modest 3% to
S$1.23
(from S$1.27) because we have rolled forward our base to FY09 (from
FY08),
from which to capitalise the corresponding core operating distribution
forecast at the estimated weighted average cost of capital.
- MMP’s 2Q08 DPU of 1.78¢, was up by 18.5% YoY, but 23.7% below our
pro-rated 2008 forecast. The slight quarterly decline in gross revenue
was
disturbing, in our opinion, considering that the Singapore office
segment
(slightly less than 17% of 2Q08 gross revenue) should have seen robust
growth from its rental reversions. We believe the top-line weakness
must
have come from the Singapore retail segment. We do not believe the
temporary earthquake-related disruption at its Renhe Spring Zongbei
department store (enjoying full occupancy by the end of June) in
Chengdu,
China, was solely responsible for the group’s sluggish operating
performance for the quarter.
- With the worse-than-expected performance and relatively opaque
disclosure
(of revenue and net-property income (NPI) performance by major
property),
we have revised down our DPU forecasts by 10.2% for 2008, 7.7% for
2009,
and 4.7% for 2010. We still forecast MMP to deliver DPU growth of 27%
YoY
for 2008.
- We have lowered our six-month target price, based on our RNG
valuation
method, by a modest 3% to S$1.23 (from S$1.27) because we have rolled
forward our base to FY09 (from FY08), from which to capitalise the
corresponding core operating distribution forecast at the estimated
weighted average cost of capital. We think 2009 could be a watershed
year
for MMP with the full-year effect of the asset enhancements completed
during 2008 and the 19.75% increase in rent from the Toshin master
lease,
and the reopening of the Orchard MRT linkway and groundlevel
integration
with ION Orchard.
-We believe the biggest risk to our rating and target price is if MMP’s
NPI
and distribution do not improve significantly for subsequent quarters
due
to propertyspecific issues.
MACQUARIE MEAG PRIME REIT, mac maintain BUY with target price $1.47
-MMP’s results were in line with our expectations, with DPU of
S¢3.54/unit
for 1H08, representing 51.3% of our full-year forecast. We expect MMP
to
continue to benefit from strong rental reversion in the Orchard Road
office
district, where Jones Lang LaSalle reported rental growth of 50.0% y-y
to
S$12.3psf pm at 2Q08. As at 30 June, MMP is trading at a 35.6% discount
to
BVPU of S$1.60/unit (adjusted for distributions) and a 26.5% discount
to
our FY08 NAV of S$1.47/share. BUY.
- Macquarie Prime MEAG REIT (MMP) reported distributable income for
2Q08 of
S$17.2mn, up 20.2% y-y (from S$14.3mn in 2Q07). Distributable income
for
1H08 amounted to S$34.2mn (1H07: S$28.3mn), with a DPU of S¢3.54/unit
for
the six months, representing 51.3% of our full-year forecast. DPU for
2Q08
rose 18.7% y-y to S¢1.78/unit, from S¢1.50/unit for 2Q07.
- Revenue grew 27.8% y-y to S$30.2mn for 2Q08, with MMP’s 1H08 top-line
number (S$60.6mn) amounting to 51.8% of our full-year estimate.
Approximately 83% of MMP’s gross earnings are derived from retail
premises,
with 17% attributable to office space (Note: 85% of revenue is derived
from
Singapore). With 122,482sf (representing 18.25% of MMP’s portfolio ex
Chendu) expected to come up for renewal over the remainder of FY08 and
FY09, we expect MMP to benefit from the strong reversionary cycle in
Orchard Road office rentals. Jones Lang LaSalle reported a 50.0% y-y
increase in Orchard Road office rentals to S$12.3psf pm in 2Q08 (from
S$8.2psf pm at 2Q07).
- Net property income grew 29.2% y-y to S$23.2mn in 2Q08, from S$17.9mn
in
2Q07. Reported net property income (S$46.3mn) for 1H08 came in at 52.6%
of
our full-year forecast of S$88.0mn.
- MMP is geared at 0.289x at 2Q08 (FY07: 0.297x), with the weighted
average
cost of funds currently at 2.76% (including an interest rate derivative
and
a Japanese loan). About 22.6% of MMP’s outstanding debt expires over
the
remainder of FY08 (S$160mn in bridging loans and S$60mn via a revolving
credit facility); MMP highlighted that it has received a commitment
from
three banks to refinance the S$220mn at “competitive rates”. As at 30
June,
MMP is trading at a 35.6% discount to adjusted BVPU of S$1.60/unit
(FY07:
S$1.61/unit), and a 26.5% discount to our FY08 NAV of S$1.47/unit.
MACQUARIE MEAG PRIME REIT, ml maintain BUY with target price $1.37
-2Q08 results. Macquarie Prime REIT (MP REIT) has reported 2Q08 results
with DPU of 1.78cps, up 1% QoQ and 19% YoY. The QoQ DPU growth was
affected
by some disruption in their Chengdu operations. DPU for 1H08 is above
ML
estimates, accounting for 52%of our FY08 forecasts.
-Toshin lease renewed at Ngee Ann City. The Toshin lease in Ngee Ann
City
was renewed during 2Q08 at a rate 19.75% higher than the preceding
rental.
The Toshin space represents approximately 30% of portfolio NLA with the
full benefit of the rental uplift still to be realized in the 2H08. The
office component of the portfolio is also doing well, with leases
transacted at 159% above preceding rentals in 1H08.
-Uplift from Wisma Atria expected in FY09. MP REIT is expected to enjoy
automatic rent escalations amounting to S$0.6mn per annum from January
2009
when the MRT linkway to Wisma Atria reopens. The ground level
integration
with ION Orchard is also expected to increase traffic flow and gross
turnover for the mall and adjoining units should be able to command
higher
rentals.
-Maintain Buy. We maintain our Buy on MP REIT and our PO of
S$1.37/share.
Our PO is based 50% on our DCF valuation and 50% on reported NAV given
our
assumption of a 50% probability of takeout. Offering a FY09E yield of
6.4%
we expect the Singapore portfolio to drive growth in the second half.
MANDARIN ORIENTAL, lehman maintain EQUAL-WEIGHT with target price $2.07
($1.92)
-1H08 results showed that room rates were strong, but softening demand
led
to lower occupancy. This, combined with cost pressure, probably
explains
the lower-than-expected margins (down 1.4% at EBITDA level). Recent
industry data continued to exhibit a weakening trend, but the decline
is in
line with our expectation. Based on 10x 2009 attributable EV/EBITDA
estimate (same), we are lowering our TP to US$1.92 (from US$2.07) after
our
EPS revisions. We maintain our 2-EW on what we consider a reasonable
valuation and an improving business model.
- Recurring net profits of US$36m (+5% YoY) were below our expectation
of
US$45m, most likely due to lower-than-expected margins on lower
occupancy
and rising costs. Interim DPS was a positive surprise, though, doubling
to
US$0.02.
- Strong locations: Hong Kong, Singapore, London, Munich, and New York.
- Weak locations: Macau, Tokyo, and Washington.
- We cut EPS forecasts by 9%/9%/8% for 2008E- 10E on (1) lower margins
at
weak locations; (2) delay in openings of all upcoming new projects by
six
months to reflect the increasing difficulty of developers to access
financing.
PACIFIC ANDES, ocbc maintain BUY with target price $0.8
-Catch is higher this year. We met with management recently for an
update
and the outlook is intact despite recent turmoil in the market. The
Total
Allowable Catch (TAC) in the North Pacific has increased from about
1.3m
tons to 1.4m tons. This will flow through to better catch quota for
China
Fishery Group (CFG), which should reach about 280,000 tons for this
year.
In addition, management guided that the average selling price for fish
has
improved 10% YoY. Stronger volume and high prices will mean another
year of
good organic growth.
-Re-deploying capacity to South Pacific. Management has commenced the
re-deployment of two fishing vessels to the South Pacific starting this
month. This pace will accelerate in the coming months with up to six
vessels fishing in that region by March 2009. These vessels were
previously
fishing in the North Pacific, and after the completion of conversion
works,
these vessels are now ready to move south to catch Chilean Mackerel ?
creating another source of revenue for the group. More importantly,
this
ensures that the group is well-placed to fish there in the event of a
future quota system.
- Fuel adding to its operating costs. This has a dual impact of hurting
both its fishing and trading operations. Fuel cost now accounts for
about
19% of total sales versus 15% last year. However, with the above move
to
increase its catch volume, this should mitigate the impact on its
bottomline and help overall profitability.
-Strategic moves to strengthen its positions in Peru and South Pacific.
We
view the move to the South Pacific, ahead of any future quota system as
a
key long-term strategic move to ensure it has ample fishing grounds. In
Peru, it has rapidly grown its operations which now gives it a 5% share
of
the total market (see Exhibit 1), and any further acquisitions will be
at a
more gradual pace. As Peru moves to the quota system from early 2009,
the
next phase is step up on the efficient use of its fishing vessels and
assets there. This could result in cost savings as quotas are attached
to
the vessels and fewer vessels are now required. Outlook is intact and
we
reiterate our BUY rating with fair value estimate of 80 S cents (down
from
82.5 cents as we roll our estimates into FY09/10 and using 8x
earnings).
SINGAPORE POST, ubs upgrade to BUY with target price $1.17($1.15)
- Impact of liberalisation likely muted. Singapore Post’s (SingPost)
share
price has been affected by concerns of increased competition. On recent
events, we believe the impact on SingPost is unlikely to be as
significant
as feared: 1) Masterdoor keys remain with SingPost; and 2) RAO, which
details network delivery prices to competitors, looks benign. We have
referenced an in-depth analysis of Swedish liberalisation as a case
study,
which suggests the impact of market share loss will likely be minimal.
- Margin pressures proved manageable. SingPost’s Q1 FY09 results showed
it
ability to contain costs. Operating expenses grew just 4.0% YoY,
compared
with +11.6% and +13.0% YoY in Q3 FY08 and Q4 FY08, respectively.
Exposure
to rising fuel costs is marginal; our sensitivity analysis suggests 30%
growth in fuel costs would reduce net profit only 3%.
- Property portfolio (ex SPC) provides potential upside. The company
continues to optimise rental revenue from its post offices, which we
estimate to be located on approximately S$150m worth of land. We
believe
SingPost could have 15 properties available for sale. We have not
included
potential rental income or possible capital gains from the sales in our
numbers.
- Valuation: upgrade from Neutral to Buy; price target S$1.17. We
change
our price target derivation from required yield to a sum-of-the-parts
valuation. We also raise our price target from S$1.15 to S$1.17. We
value
the core business at S$1.05 using DCF analysis, assuming 9.1% COE and
3%
terminal growth. We then add S$0.12 for Singapore Post Centre to arrive
at
our price target of S$1.17. SingPost is trading near its IPO level of
forward yield (6.4% based on 85% payout), and at a minimum yield of
4.9%,
based on the low end of dividend guidance.
SUNTEC REIT, daiwa maintain OUTPERFORM with target price $1.91($1.82)
-We maintain our 2 (Outperform) rating for Suntec REIT (Suntec) after
the
announcement on 30 July of its 3Q08 (year-end September) results. We
believe Suntec is one of the best plays in the Singapore office sector
(please see our sector report, Optimistic on offices, published on 22
July
2008), which, in our opinion, has not disappointed in the latest
reporting
season. We have raised our six-month target price, based on our RNG
valuation method, to S$1.91 (from S$1.82), with the increase in our
core
operating distribution forecast (for FY09).
- Suntec’s 3Q08 (fully-diluted) DPU of 2.47¢, up 34% YoY, was 8.5%
higher
than our forecast. Roughly half of Suntec’s outperformance came from
the
net-property income (NPI) from its core properties, 2.9% above our
forecast, and lower-than-expected fees and borrowing costs accounted
for
the remainder of the positive variance.
- Robust 5.8% QoQ growth in gross revenue at its core properties
probably
came from all segments, in our view. Committed occupancy of its offices
remained high at 99.5% at the end of June. The manager disclosed that
recent leases were secured at monthly rents of S$12-15 psf, up from
S$11.5-13.5 psf for the previous quarter. Meanwhile, the committed
passing
rent at Suntec City Mall continued its appreciation, up 3.1% QoQ, to
S$11.09 psf (per month). Retail leases were renewed, on average, at 15%
above the preceding rental rates during the quarter. The manager also
highlighted the improvement in advertising and promotional income, up
13.7%
YoY for 3Q08 to S$1.75m. We believe this item is still minor, but could
perk up for 4Q08 when Singapore hosts its first Formula One Grand Prix,
located right next to Suntec City, in late September.
- We have revised up our (fully-diluted) DPU forecasts by 5.4% for
FY08,
1.6% for FY09, and 1.5% for FY10. We have raised our six-month target
price, based on our RNG valuation method, to S$1.91 (from S$1.82), with
the
increase in our core operating distribution forecast (for FY09). With
about
43% of its office leases (excluding One Raffles Quay) up for renewal in
FY09, and 26% in FY10, we expect the highly positive rental reversions
to
continue.
WILMAR, gs maintain BUY with target price $6.20
-We raise our FY2008E-FY2010E net profit estimates by 11%-12% to
reflect
higher CPO refining margins based on: (1) sustainability of Wilmar?
US$/ton
CPO refining margins at higher levels, in our view, due to high CPO
prices;
(2) a demand-driven CPO price dynamic, and (3) high working capital
costs
curbing smaller competitors. Over the long term, we see upside
potential
for Wilmar? margins in China, as they are much lower than comparable
businesses worldwide. We reiterate our Buy rating on the stock and
recommend it as a core holding for long-term investors.
-1) Potential consensus earnings upgrades post 2Q08 results (Aug 14)
?The
market appears to expect a sharp decline in 2Q2008 earnings on
seasonally
lower refining margins, but we believe earnings could surprise on the
upside. Our new 2008E-2009E net profit estimates are 7%-8% ahead of
Bloomberg consensus estimates.
-2) Rising CPO prices: Despite the recent sell-down, we remain positive
on
the outlook for CPO prices on the back of rising oil prices, increased
biodiesel utilization rates, and higher soybean prices.
-Valuation. We raise our SOTP-based 12-month target price upwards to
S$6.20
(from S$6.00), as our higher margin assumptions are partially offset by
higher WACC assumptions. Our target price implies 23X 2009E P/E, at the
upper end of the stock? historical 6X-24X trading range (since its
listing
in August 2006).
-Key risks. (1) Higher P/E multiples relative to sector peers, which
could
draw shortselling interest over the short term; (2) sharp decline in
CPO or
oil price and (3) the Chinese government introducing further food price
controls.
[ SECTOR ]
BANK by citi
- Domestic system loans +12% ytd ? Latest monetary data for Jun-08
released
by the MAS indicate lending remains strong (+25% yoy, +11.9% ytd). With
the
loan book having expanded by almost 12% in the first half of this year
alone, we view that this should underpin a good set of 1H08 results
(reporting 5-7 Aug). Top pick DBS; OCBC is also a buy. Sell UOB on
relative
valuation.
- Construction lending continues to drive business loans ? Business
lending
grew by 18.4% in the first six months of this year, benefiting from
broad-based growth, particularly construction loans (+3.7% mom, +55.1%
yoy), manufacturing (+4.1% mom, +15.7% yoy) and general commerce (+2.9%
mom, +29.9% yoy).
- Slower pace for consumer as mortgage growth moderates ? Consumer
lending
grew by 1.5% in June month-on-month, or 4.2% year-to-date. Mortgages,
which
have been showing moderating growth in recent months, grew by S$0.9bn
in
June (+1.2% mom, +14.5% yoy), and ended 1H08 with year-to-date growth
of
3.8%.
- Volatile yield curve movements ? While short-term rates remain
depressed
by flush liquidity, 10yr govt. yields which rose to almost 4% in
mid-June
have now slipped back to 3.2%. Our economist is expecting 3m S$SIBOR to
edge up in 2H08 to 1.6%, on tightening measures by regional central
banks,
and S$NEER coming off strong side of band.
- Weaker stock market turnover ? June-quarter securities avg. daily
turnover (ADT) fell to S$1.67bn (March-quarter: S$1.96bn), a velocity
of
65% (1Q08: 77%). Julymonth ADT weakened further to c.S$1.23bn/day
(velocity: 52%), suggesting weaker near-term earnings for SGX.
BANK by csfb
- Singapore system S$ loans grew 25.0% YoY/ 4.7% QoQ/ 1.7% MoM in
June,
driven by construction, commerce and housing loans. YoY loan growth has
likely peaked at 26.1% in May and QoQ growth slowed to 4.7% QoQ from
6.9%
in 1Q08.
- Housing+consumer loans (45% of loans) grew 13.5% YoY/ 3.0% QoQ, and
continued to lag business loans (55% of loans) which expanded 34.9%/
6.1%.
- Housing loan growth remained steady at 14.5%/ 2.3% helped by units
sold
over the past few years. Consumer loans accelerated to 11.3%/ 4.4%,
partly
on credit card roll-overs (+13.2% YoY).
-Construction loans continued to show good momentum (55.1%/ 8.4%)
setting
yet another record high. Financial institution loans shrank in June
(19.5%/-1.6%).
- We expect loan growth to decelerate towards mid-teens by the
year-end,
still pretty healthy by any standards. 2009 is more uncertain and we
still
expect low-teens growth as of now.
REIT by ml
-Key takeaways: Slowing rental and acquisition growth. Post 1H08
results
for the S-REIT sector we summarize the key takeaways from analyst
briefings. Notably management teams were more downbeat on the sector
outlook than previous quarters, highlighting issues which included i)
inability of REITs to make new acquisitions until equity market
conditions
improve ii) moderating future rental growth in line with cooling
regional
property markets and iii) increasing debt costs.
-No surprises - strongest growth from hotel & office. On a same store
basis
the strongest rental growth was achieved from exposure to the Singapore
hotel and office exposure. This should come as no surprise given the
jump
in rental rates in the respective sectors over the past 12 months and
the
significant under-renting of many of the S-REIT portfolios. More
challenging times however are clearly likely still to come with hotel
occupancy slipping in the 2Q08 & office rentals likely to be nearing a
peak.
-YoY DPU growth 17.2%, QoQ 2.7%. On average the S-REIT sector delivered
YoY
DPU growth of 17.2% and QoQ DPU growth of 2.7%. Organic rental uplift
together with acquisitions completed over the past 12 months were the
key
drivers of growth, while those experiencing decline were REITs that
have
recently completed equity raisings. For the SREITs under ML coverage we
are
forecasting DPU growth of 3.5% in FY09E.
-Sector valuations: FY09E yield 7.5%, 12% discount to NAV. The S-REIT
sector is now trading on a 7.5% FY09E yield, some 400bpts over the
Singapore 10-year government bond. While yields are, for the most part,
at
historical highs we are forecasting declining DPU for one third of the
S-REITs under ML coverage. On a price to NAV basis the sector is now
trading at a 12% discount to NAV; however, this is skewed to the large
cap
names which are still trading at large premiums to revalued book. We
expect
rising cap rates will put pressure on current NAV valuations over the
next
12 months.
-Maintain underweight stance on S-REIT. We maintain our underweight
stance
on the S-REIT sector relative to the Singapore market. While income
streams
from REITs are arguably more defensive than other sectors we remain
concerned over rising debt costs, moderating rental growth and future
cap
rate expansion. We prefer S-REITs with organic growth potential given
the
muted outlook for acquisition growth in the medium term. Our preferred
exposures remain CMT, CCT and CDLH.
Suddenly the spectre of inflation no longer hangs over the world: it’s gone, banished by the reversal in sentiment in commodity and financial markets.
