Dreary 4Q08 results. Gallant Venture Ltd (Gallant) posted a disappointing
set of 4Q08 results. Revenue met our estimate with a 2.3% YoY
improvement to S$56.3m, but PATMI slipped into a S$2.0m loss from a
S$6.4m profit a year ago. For the full year, Gallant's revenue retreated
3.9% to S$225.2m while PATMI slumped 96.2% to S$0.6m.
Brought down by taxes. High taxes led to Gallant's downfall in FY08.
Taxes, at S$18.9m, more than wiped out its S$17.9m profit before tax.
The group swung into losses as a result. The exorbitant taxes were the
result of losses that could not be offset against the group's profits. Losses
from its property development and resort operations amounted to S$6.3m
and S$9.5m, respectively, but these could not be offset against earnings
from its industrial park and utilities segments. As a result, taxes incurred
from the profitable segments exceeded the group's overall earnings.
Property development at risk… We have highlighted the drought in land
sales as our key concern in previous reports. This continues to plague the
group, with its S$67m order book at a standstill since July 08. In addition,
we foresee heightened risk of order cancellations and deferments in light
of the sickly investment climate and credit crunch. So far, Gallant has not
experienced any order cancellations but has seen requests to defer
payments. We do not rule out the possibility of outright cancellations as
the global economic recession bites deeper. Order cancellations are a
key risk, in our view, as these would deprive Gallant of the cash flow needed
to sustain its ongoing development projects.
…And so are its industrial parks. The group's industrial parks, previously
thought to be its cash cows, are similarly likely to face challenges as
businesses scale down their operations in response to the global economic
crisis. We expect occupancy levels and rental rates to come under pressure
as demand for industrial parks weaken.
Bleak outlook. Gallant faces a bleak outlook in FY09. A revival of credit
markets, capital investments and tourism are essential to Gallant's
sustainability. In the absence of near-term price catalysts, we are
suspending our coverage on the stock.
Saturday, February 28, 2009
Banyan Tree-CIMB
• Below expectations. Despite our below-consensus earnings estimates, Banyan
Tree’s 4Q08 earnings still came in 41% below our expectation because of higherthan-
expected costs. Net loss was S$7.0m in 4Q08 on a 40% drop in revenue to
S$90.9m. EBITDA fell by 79% yoy to S$10.9m on lower contributions from hotel
investments and property sales, slightly offset by higher EBITDA from hotel
management and design fees. Full-year revenue slipped 2% yoy to S$412.6m while
earnings fell 91.4% yoy to S$7.0m.
• Weak hotel investment and property revenue. The revenue decline in 4Q08
could be blamed on hotel investment revenue and property sales, which were
victims of Thailand’s political uncertainties, including the 8-day Bangkok airport
closure. Hotel investment revenue decreased 16% yoy to S$52.6m, largely led by
hotels in Thailand while EBITDA fell 60% yoy to S$7.4.m on the lower revenue and
higher overhead costs. Thailand hotels’ overall occupancy fell by 25% pts to 52%,
beating our expectation of 45%. Hotels in the Maldives continued to perform well,
with occupancy rate rising by 20% pts to 66%. Branded residence sales fell by 64%
yoy to S$13.0m in 4Q08 on slower sales and progressive revenue recognition of
villas at some locations. EBITDA fell by 55% yoy to S$7.6m on the lower revenue.
Unbranded residence sales also fell by 86% yoy to S$4.8m.
• 2009 outlook. Given the global recession, we believe that revenue will remain weak
in 2009 though there could be upside should Thailand’s political situation improve.
Based on hotel owners’ projected dates, Banyan Tree expects to open six resorts in
Mexico, Indonesia, UAE and China within the next 12 months.
• Maintain Underperform and sum-of-the-parts target price of S$0.40. While the
hotel business has improved in Jan 09 thanks to promotions and marketing efforts
by the Thai Authority of Thailand, we believe that the environment remains
challenging for luxury hoteliers, as people continue to scale back discretionary
spending. We have introduced FY11 estimates.
Tree’s 4Q08 earnings still came in 41% below our expectation because of higherthan-
expected costs. Net loss was S$7.0m in 4Q08 on a 40% drop in revenue to
S$90.9m. EBITDA fell by 79% yoy to S$10.9m on lower contributions from hotel
investments and property sales, slightly offset by higher EBITDA from hotel
management and design fees. Full-year revenue slipped 2% yoy to S$412.6m while
earnings fell 91.4% yoy to S$7.0m.
• Weak hotel investment and property revenue. The revenue decline in 4Q08
could be blamed on hotel investment revenue and property sales, which were
victims of Thailand’s political uncertainties, including the 8-day Bangkok airport
closure. Hotel investment revenue decreased 16% yoy to S$52.6m, largely led by
hotels in Thailand while EBITDA fell 60% yoy to S$7.4.m on the lower revenue and
higher overhead costs. Thailand hotels’ overall occupancy fell by 25% pts to 52%,
beating our expectation of 45%. Hotels in the Maldives continued to perform well,
with occupancy rate rising by 20% pts to 66%. Branded residence sales fell by 64%
yoy to S$13.0m in 4Q08 on slower sales and progressive revenue recognition of
villas at some locations. EBITDA fell by 55% yoy to S$7.6m on the lower revenue.
Unbranded residence sales also fell by 86% yoy to S$4.8m.
• 2009 outlook. Given the global recession, we believe that revenue will remain weak
in 2009 though there could be upside should Thailand’s political situation improve.
Based on hotel owners’ projected dates, Banyan Tree expects to open six resorts in
Mexico, Indonesia, UAE and China within the next 12 months.
• Maintain Underperform and sum-of-the-parts target price of S$0.40. While the
hotel business has improved in Jan 09 thanks to promotions and marketing efforts
by the Thai Authority of Thailand, we believe that the environment remains
challenging for luxury hoteliers, as people continue to scale back discretionary
spending. We have introduced FY11 estimates.
Ascendas Reits-CLSA
CLSA’s forecast of a 10% contraction in Singapore’s 2009 GDP suggests a weak outlook for manufacturing/ services sector. This will lower demand
for industrial space. We estimate a peak to trough fall of 50% in all
segments and a 60% for light industrial space. As a result, we cut our
earnings estimate on A-REIT by 8%. The impact of falling rentals on AREIT
revenue line has been mitigated by the new capacity coming on line
in FY10 as well as property tax waiver, and the fact that only 12% of AREIT’s
rentals are coming for renewal in FY10. Our new TP, of S$1.55,
still leaves 25% upside. Maintain BUY
Impact from GDP forecast cut
Weaker outlook on GDP (10% contraction) will result in higher job losses in
the economy, including the manufacturing sector. This sector employs 21% of
Singapore’s total workforce, and could see retrenchments of up to 4,300 jobs
in 1Q09 or 43k jobs in 2009 (a 7.2% contraction). We expect electronics,
machinery and equipment, chemical/petroleum and pharmaceutical subsectors
to see the highest impact with estimated 7-8% contraction in jobs.
Better dynamics in business parks and warehousing
Rentals typically accounts for 10-20% of opex for tenants with most
overheads from staff salary. As demand for exports slows, tenants will reduce
shifts, cut back on staff overheads and capacity before giving up space. The
demand and supply dynamics looks more favourable in the Business parks
and warehousing segment as compared to the factory space where more than
29.5m of space is slated to come onstream over the next three years.
Impact to earnings mitigated by earlier acquisitions
Matching the supply onstream provided by URA together with consultant’s
estimates of precommitted space so far and assuming no further take ups, we
estimate a peak to trough fall of 50% for all industrial segments over the next
three years with the exception of factory space where demand supply
dynamics is weaker at 60% peak to trough. Applying these assumptions, we
expect revenue to see 2% YoY decline mitigated by earlier acquisitions
revenue from development projects costing S$233.6m over the next 2 years.
Maintain BUY
Even after factoring in our fall of 50% peak to trough estimates in spot
rentals, AREIT still throws up 25% upside to our target price. While
manufacturing and trade sector is likely to see more headwinds, we find
comfort in its diversified tenant base and relatively better fundamentals in the industrial space vis-à-vis office and retail. Maintain BUY
for industrial space. We estimate a peak to trough fall of 50% in all
segments and a 60% for light industrial space. As a result, we cut our
earnings estimate on A-REIT by 8%. The impact of falling rentals on AREIT
revenue line has been mitigated by the new capacity coming on line
in FY10 as well as property tax waiver, and the fact that only 12% of AREIT’s
rentals are coming for renewal in FY10. Our new TP, of S$1.55,
still leaves 25% upside. Maintain BUY
Impact from GDP forecast cut
Weaker outlook on GDP (10% contraction) will result in higher job losses in
the economy, including the manufacturing sector. This sector employs 21% of
Singapore’s total workforce, and could see retrenchments of up to 4,300 jobs
in 1Q09 or 43k jobs in 2009 (a 7.2% contraction). We expect electronics,
machinery and equipment, chemical/petroleum and pharmaceutical subsectors
to see the highest impact with estimated 7-8% contraction in jobs.
Better dynamics in business parks and warehousing
Rentals typically accounts for 10-20% of opex for tenants with most
overheads from staff salary. As demand for exports slows, tenants will reduce
shifts, cut back on staff overheads and capacity before giving up space. The
demand and supply dynamics looks more favourable in the Business parks
and warehousing segment as compared to the factory space where more than
29.5m of space is slated to come onstream over the next three years.
Impact to earnings mitigated by earlier acquisitions
Matching the supply onstream provided by URA together with consultant’s
estimates of precommitted space so far and assuming no further take ups, we
estimate a peak to trough fall of 50% for all industrial segments over the next
three years with the exception of factory space where demand supply
dynamics is weaker at 60% peak to trough. Applying these assumptions, we
expect revenue to see 2% YoY decline mitigated by earlier acquisitions
revenue from development projects costing S$233.6m over the next 2 years.
Maintain BUY
Even after factoring in our fall of 50% peak to trough estimates in spot
rentals, AREIT still throws up 25% upside to our target price. While
manufacturing and trade sector is likely to see more headwinds, we find
comfort in its diversified tenant base and relatively better fundamentals in the industrial space vis-à-vis office and retail. Maintain BUY
Friday, February 27, 2009
Singpost-GS
What's changed
Amidst the current market uncertainty, we believe there is low risk to
SingPost’s attractive dividend and free cash flow story on account of its
stable margins and sustained low capex spending. We think SingPost is
likely to remain committed to its dividend policy of a minimum 5 cents per
share over the medium term; we forecast SingPost to pay 6.25 cents/share
(consistent with the last two years), representing 74%-79% of its simple
FCF (operating FCF plus rental income) in FY2009E-FY2010E. In addition,
we believe that the general decline in interest rates vis-à-vis the
sustainable yield of the stock could help rerate the stock.
Implications
We believe that SingPost’s revenue trend is likely to track the Singapore
broader economy; however, a key positive we note from the past few
results has been management’s rigorous focus on cash flow. We note that
SingPost’s EBITDA margin and capex-to-sales ratio have remained stable
at 37%-38% and 2%-3% respectively over the last three years. We expect
SingPost to continue generating steady cash flows and dividend streams,
offering a simple FCF and dividend yield of 11% and 8% in FY2009EFY2010E.
Another key positive for SingPost is its strong balance sheet; we
expect its net gearing ratio to fall to 0.5X-0.3X by FY2009E-FY2010E.
Valuation
We believe that SingPost is attractively priced relative to its local peers,
trading at a CY2009E PE and dividend yield of 10.2X and 7.9% vs. the
broader Singapore market’s 10X and 5.4%. We have lowered our FY2011E
forecasts by 12.5% due to lower revenue expectations. We maintain our
Buy rating and reduce our 12-month DCF-based price target by 11% to
S$1.07 from S$1.20 on the back of our lower earnings adjustment.
Key risks
Worse-than-expected macro slowdown; effects of postal liberalization,
which should remain muted over the near to medium term, in our view.
Amidst the current market uncertainty, we believe there is low risk to
SingPost’s attractive dividend and free cash flow story on account of its
stable margins and sustained low capex spending. We think SingPost is
likely to remain committed to its dividend policy of a minimum 5 cents per
share over the medium term; we forecast SingPost to pay 6.25 cents/share
(consistent with the last two years), representing 74%-79% of its simple
FCF (operating FCF plus rental income) in FY2009E-FY2010E. In addition,
we believe that the general decline in interest rates vis-à-vis the
sustainable yield of the stock could help rerate the stock.
Implications
We believe that SingPost’s revenue trend is likely to track the Singapore
broader economy; however, a key positive we note from the past few
results has been management’s rigorous focus on cash flow. We note that
SingPost’s EBITDA margin and capex-to-sales ratio have remained stable
at 37%-38% and 2%-3% respectively over the last three years. We expect
SingPost to continue generating steady cash flows and dividend streams,
offering a simple FCF and dividend yield of 11% and 8% in FY2009EFY2010E.
Another key positive for SingPost is its strong balance sheet; we
expect its net gearing ratio to fall to 0.5X-0.3X by FY2009E-FY2010E.
Valuation
We believe that SingPost is attractively priced relative to its local peers,
trading at a CY2009E PE and dividend yield of 10.2X and 7.9% vs. the
broader Singapore market’s 10X and 5.4%. We have lowered our FY2011E
forecasts by 12.5% due to lower revenue expectations. We maintain our
Buy rating and reduce our 12-month DCF-based price target by 11% to
S$1.07 from S$1.20 on the back of our lower earnings adjustment.
Key risks
Worse-than-expected macro slowdown; effects of postal liberalization,
which should remain muted over the near to medium term, in our view.
Straits Asia-OCBC
Record earnings in FY08. Straits Asia Resources Ltd's (SAR) FY08 results
were ahead of the street's as well as our expectations. Revenue accelerated
by 133.2% to US$585.2m on strong coal prices and higher production
volumes, leading to a 335.6% surge in net profit to US$124.4m. Average
selling price (ASP) of thermal coal rose 66% to US$70/ton in FY08 on
robust demand for energy, while production volume more than doubled to
8.6Mt from 3.5Mt, thanks partly to contributions from Jembayan mine which
was acquired in Dec 07. In terms of its interim performance, 4Q08 revenue
grew 147.2% YoY to US$151.8m, while net profit for the quarter soared
316.4% YoY to US$39.7m. A final dividend of 2.18 US cents has been
declared, bringing total dividends for the year to 6.83 US cents (yield:
12%), in line with the group's 60% dividend payout policy.
Profit margins are looking good. Gross profit margin for FY08 ballooned
by 16.6ppt to 39.4% on sky-high coal prices, while net profit margin
expanded by 9.9ppt to 21.3%. We are anticipating further improvements
in profit margins in FY09 as SAR has contracted higher coal prices for its
output this year. 73% of its FY09 output has been priced at US$114/ton,
representing a 63% surge from the US$70/ton ASP achieved in FY08.
Nevertheless, we have conservatively assumed a lower blended ASP for
FY09, implying an additional 18.8ppt improvement in gross profit margin
to 58.2%.
Vast improvement in cash flows. Operating cash flow improved to
US$191.5m from US$33.0m a year ago thanks to strong coal prices and
higher output. This led to a significant improvement in net cash flow to
US$141.4m vs. US$6.8m a year ago. We believe that SAR will continue to
deliver strong operating cash flows in FY09 given its strong order book,
and this will support its ability to repay borrowings and sustain dividend
payouts. Nevertheless, we have assumed a more conservative dividend
payout ratio of 40% to allow for cash conservation in the event of a protracted
credit crunch.
Still deserves a BUY. Management did not have any updates on its parent
company's divestment exercise, except that talks were still in progress.
We have raised our WACC assumptions to take into account higher
borrowing costs and have eased our thermal coal price assumptions beyond
FY10 in view of the weaker demand for energy. As a result, our DCF-based
fair value estimate eases to S$1.15 (from S$1.35). We maintain our BUY
rating on the stock.
were ahead of the street's as well as our expectations. Revenue accelerated
by 133.2% to US$585.2m on strong coal prices and higher production
volumes, leading to a 335.6% surge in net profit to US$124.4m. Average
selling price (ASP) of thermal coal rose 66% to US$70/ton in FY08 on
robust demand for energy, while production volume more than doubled to
8.6Mt from 3.5Mt, thanks partly to contributions from Jembayan mine which
was acquired in Dec 07. In terms of its interim performance, 4Q08 revenue
grew 147.2% YoY to US$151.8m, while net profit for the quarter soared
316.4% YoY to US$39.7m. A final dividend of 2.18 US cents has been
declared, bringing total dividends for the year to 6.83 US cents (yield:
12%), in line with the group's 60% dividend payout policy.
Profit margins are looking good. Gross profit margin for FY08 ballooned
by 16.6ppt to 39.4% on sky-high coal prices, while net profit margin
expanded by 9.9ppt to 21.3%. We are anticipating further improvements
in profit margins in FY09 as SAR has contracted higher coal prices for its
output this year. 73% of its FY09 output has been priced at US$114/ton,
representing a 63% surge from the US$70/ton ASP achieved in FY08.
Nevertheless, we have conservatively assumed a lower blended ASP for
FY09, implying an additional 18.8ppt improvement in gross profit margin
to 58.2%.
Vast improvement in cash flows. Operating cash flow improved to
US$191.5m from US$33.0m a year ago thanks to strong coal prices and
higher output. This led to a significant improvement in net cash flow to
US$141.4m vs. US$6.8m a year ago. We believe that SAR will continue to
deliver strong operating cash flows in FY09 given its strong order book,
and this will support its ability to repay borrowings and sustain dividend
payouts. Nevertheless, we have assumed a more conservative dividend
payout ratio of 40% to allow for cash conservation in the event of a protracted
credit crunch.
Still deserves a BUY. Management did not have any updates on its parent
company's divestment exercise, except that talks were still in progress.
We have raised our WACC assumptions to take into account higher
borrowing costs and have eased our thermal coal price assumptions beyond
FY10 in view of the weaker demand for energy. As a result, our DCF-based
fair value estimate eases to S$1.15 (from S$1.35). We maintain our BUY
rating on the stock.
Thursday, February 26, 2009
Oceanus-Daiwa
What has changed?
• Oceanus Group (Oceanus) reported its 4Q08 results after the market close on 23
Feb 2009. 4Q08 net profits fell 86.4% YoY on 7% lower bio-asset revaluation
recognition.
Impact
• In our opinion, the results contain several items that hide the true strength of
Oceanus’ abalone farming operations. First, we believe Oceanus’ third-party
valuation company used unit-prices 10% below current market value, (whereas
previous prices were close to market value).
• Secondly, the company reported large non-cash tax items, including deferred
taxes and dividend withholding taxes. In our opinion, the deferred tax charge
can be ignored, because it is a non-cash accrual based on the FRS 41 revaluation
(in preparation for potential future cash taxes in 2009). The company has not
declared a dividend, but must accrue a withholding ‘tax’ on dividends that it
may declare in the future (otherwise no dividends can be expatriated out of
China).
• In terms of ‘real’ operational variances, the company also reported significantly
more abalone than we had anticipated, but also higher ‘other operating costs’.
In our view, these two factors essentially cancel each other out. At its
operational level, we believe that Oceanus is progressing nearly exactly as we
predicted.
• At this point, we are not changing our earnings forecasts, but we will provide an
update in due course.
Valuation
• We currently have a six-month DCF-derived target price of $0.535.
Catalysts and action
• We currently have a 1 (Buy) recommendation on Oceanus, which we like for its
fast and relatively secure earnings growth over the next three years and
inexpensive earnings ratios and robust cash flows.
• Oceanus Group (Oceanus) reported its 4Q08 results after the market close on 23
Feb 2009. 4Q08 net profits fell 86.4% YoY on 7% lower bio-asset revaluation
recognition.
Impact
• In our opinion, the results contain several items that hide the true strength of
Oceanus’ abalone farming operations. First, we believe Oceanus’ third-party
valuation company used unit-prices 10% below current market value, (whereas
previous prices were close to market value).
• Secondly, the company reported large non-cash tax items, including deferred
taxes and dividend withholding taxes. In our opinion, the deferred tax charge
can be ignored, because it is a non-cash accrual based on the FRS 41 revaluation
(in preparation for potential future cash taxes in 2009). The company has not
declared a dividend, but must accrue a withholding ‘tax’ on dividends that it
may declare in the future (otherwise no dividends can be expatriated out of
China).
• In terms of ‘real’ operational variances, the company also reported significantly
more abalone than we had anticipated, but also higher ‘other operating costs’.
In our view, these two factors essentially cancel each other out. At its
operational level, we believe that Oceanus is progressing nearly exactly as we
predicted.
• At this point, we are not changing our earnings forecasts, but we will provide an
update in due course.
Valuation
• We currently have a six-month DCF-derived target price of $0.535.
Catalysts and action
• We currently have a 1 (Buy) recommendation on Oceanus, which we like for its
fast and relatively secure earnings growth over the next three years and
inexpensive earnings ratios and robust cash flows.
SingTel-Macquarie
Optus rebound not in the price
Event
Investor sentiment towards Optus remains poor so far, which is perhaps not
surprising considering that mobile margins have plummeted from 40% in
FY3/05 to around 27% YTD. Even so, we view ongoing market consolidation
as a watershed event that should lead to a rebound in Optus’s margins to
30% by FY3/10, and this should drive a re-rating of SingTel, in our view.
We raise our target price to S$3.10 (from S$2.95 previously) and reiterate
Outperform rating on the stock. SingTel continues to be a top pick in both our
regional telecom and regional strategy model portfolios.
Impact
Optus to benefit from Voda-Hutch merger: We view the opportunities for
Optus from the Vodafone-Hutch merger as material in the short to medium
term, and this is occurring at a time when Optus has positive momentum in
the industry. We are raising our fair enterprise value estimate for Optus by
12% based on 8–13% upgrades in FY3/10–11 EBITDA.
Singapore – lower tax drives minor upgrade: The lowering of the corporate
tax rate from 18% to 17%, together with the consolidation of the recently
acquired IT services unit, could drive minor valuation and FY3/10–11 revenue
(~12%) and EBITDA (~0–2%). Recessionary conditions, the effect of the
government’s broadband project (NBN) and potential pay-TV price
competition are key issues for the Singapore market. We think new-entrant
risks through the NBN process are low because only an estimated 13% of
retail broadband users are on high-end plans (>10Mbps).
Indonesian recovery thesis on track: Results from Indonesia’s No. 3 player
Excelcomindo (EXCL IJ, Rp1,000, OP, TP: Rp1900) confirm our analyst Ken
Yap’s thesis that smaller players are getting increasingly marginalized in the
market as access to capital is curtailed. Telkomsel’s (unlisted) recovery
appears to be back on track as reflected in 12% sequential QoQ growth in
service revenues (vs -11% QoQ for EXCL).
Earnings revision
We are raising our FY3/10–11 EPS estimates by 1.2–2.4%.
Price catalyst
12-month price target: S$3.10 based on a Sum-of-Parts methodology.
Catalyst: Optus's margin recovering to 30% in FY3/10.
Action and recommendation
The key elements of our bullish thesis – an inexpensive core business, value
accretion for investment holdings as late entrants face financing issues and
safety in the strong balance sheet and cash-backed 4–5% yield – remain
firmly intact, and we reaffirm our Outperform rating.
Our sum-of-the-parts derived target price translates to a FY3/10 PER of
13.5x. SingTel’s valuation appears to be attractive based on our forecast of a
10% FY3/09–12 EPS CAGR.
Event
Investor sentiment towards Optus remains poor so far, which is perhaps not
surprising considering that mobile margins have plummeted from 40% in
FY3/05 to around 27% YTD. Even so, we view ongoing market consolidation
as a watershed event that should lead to a rebound in Optus’s margins to
30% by FY3/10, and this should drive a re-rating of SingTel, in our view.
We raise our target price to S$3.10 (from S$2.95 previously) and reiterate
Outperform rating on the stock. SingTel continues to be a top pick in both our
regional telecom and regional strategy model portfolios.
Impact
Optus to benefit from Voda-Hutch merger: We view the opportunities for
Optus from the Vodafone-Hutch merger as material in the short to medium
term, and this is occurring at a time when Optus has positive momentum in
the industry. We are raising our fair enterprise value estimate for Optus by
12% based on 8–13% upgrades in FY3/10–11 EBITDA.
Singapore – lower tax drives minor upgrade: The lowering of the corporate
tax rate from 18% to 17%, together with the consolidation of the recently
acquired IT services unit, could drive minor valuation and FY3/10–11 revenue
(~12%) and EBITDA (~0–2%). Recessionary conditions, the effect of the
government’s broadband project (NBN) and potential pay-TV price
competition are key issues for the Singapore market. We think new-entrant
risks through the NBN process are low because only an estimated 13% of
retail broadband users are on high-end plans (>10Mbps).
Indonesian recovery thesis on track: Results from Indonesia’s No. 3 player
Excelcomindo (EXCL IJ, Rp1,000, OP, TP: Rp1900) confirm our analyst Ken
Yap’s thesis that smaller players are getting increasingly marginalized in the
market as access to capital is curtailed. Telkomsel’s (unlisted) recovery
appears to be back on track as reflected in 12% sequential QoQ growth in
service revenues (vs -11% QoQ for EXCL).
Earnings revision
We are raising our FY3/10–11 EPS estimates by 1.2–2.4%.
Price catalyst
12-month price target: S$3.10 based on a Sum-of-Parts methodology.
Catalyst: Optus's margin recovering to 30% in FY3/10.
Action and recommendation
The key elements of our bullish thesis – an inexpensive core business, value
accretion for investment holdings as late entrants face financing issues and
safety in the strong balance sheet and cash-backed 4–5% yield – remain
firmly intact, and we reaffirm our Outperform rating.
Our sum-of-the-parts derived target price translates to a FY3/10 PER of
13.5x. SingTel’s valuation appears to be attractive based on our forecast of a
10% FY3/09–12 EPS CAGR.
Sembcorp Marine-GS
Above expectations, but reduced dividend payout, retain Conv. Sell
What surprised us
FY2008 net profit came in at S$430m, vs GS S$392m, largely due to higher
than expected margins. For the full-year, Sembcorp Marine produced
higher operating margins of 9.9% vs GS 8.4% forecast, on higher
operational efficiency mainly rig building, and this largely drove the
overall 79% yoy earnings growth, notwithstanding Cosco Shipyard
Group’s poor performance in 4Q (S$44m losses). Excluding one-offs, this
year it had another S$44m forex-related loss, yoy core growth would be
lowered to a smaller 31%, vs Keppel unit’s 35% core growth. Despite the
solid results, and S$1.8bn net cash, Sembcorp Marine declared a lower-
than-expected final dividend of only 6cents, vs GS 9cents forecast, as the
group cut back its dividend payout to only 53%. The lowest it has ever
been was in 1997 with 57%; historically, payout ranges between 70-90%.
What to do with the stock
We fine-tune our earnings estimates, but retain our P/B-based 12-m TP of
S$1. We were negatively surprised by the lower dividend, and we think the
market may need to adjust expectations down significantly - we are cutting
our dividend payout from previous 75% guidance to 50%, for now. The
emerging trend of shipyard financing, like Seadrill, Petromena recent
delayed payment renegotiations, could put more financing pressure on the
balance sheet, and risk dividends further. Though Sembcorp Marine
attributes recent industry weakness to credit-related issues, we think it is
about to get worse as the drilling industry heads into a downturn. Sharp
deterioration in day rates and rig asset prices could spur cancellations and
contract renegotiations. Retain Sell (Conviction List). Key upside risks:
strong oil price rebound, stronger-than-expected new order momentum.
What surprised us
FY2008 net profit came in at S$430m, vs GS S$392m, largely due to higher
than expected margins. For the full-year, Sembcorp Marine produced
higher operating margins of 9.9% vs GS 8.4% forecast, on higher
operational efficiency mainly rig building, and this largely drove the
overall 79% yoy earnings growth, notwithstanding Cosco Shipyard
Group’s poor performance in 4Q (S$44m losses). Excluding one-offs, this
year it had another S$44m forex-related loss, yoy core growth would be
lowered to a smaller 31%, vs Keppel unit’s 35% core growth. Despite the
solid results, and S$1.8bn net cash, Sembcorp Marine declared a lower-
than-expected final dividend of only 6cents, vs GS 9cents forecast, as the
group cut back its dividend payout to only 53%. The lowest it has ever
been was in 1997 with 57%; historically, payout ranges between 70-90%.
What to do with the stock
We fine-tune our earnings estimates, but retain our P/B-based 12-m TP of
S$1. We were negatively surprised by the lower dividend, and we think the
market may need to adjust expectations down significantly - we are cutting
our dividend payout from previous 75% guidance to 50%, for now. The
emerging trend of shipyard financing, like Seadrill, Petromena recent
delayed payment renegotiations, could put more financing pressure on the
balance sheet, and risk dividends further. Though Sembcorp Marine
attributes recent industry weakness to credit-related issues, we think it is
about to get worse as the drilling industry heads into a downturn. Sharp
deterioration in day rates and rig asset prices could spur cancellations and
contract renegotiations. Retain Sell (Conviction List). Key upside risks:
strong oil price rebound, stronger-than-expected new order momentum.
Yangzijiang-UBS
Good 08 results on solid exectution
2008 profit in line with UBSe and consensus
YZJ reported NPAT of Rmb1,580m (+82%YoY) and revenue of Rmb7,359m
(+91%YoY) for 2008. Both are largely in line with UBS estimates (-5% and 3%
above consensus, respectively). Note YZJ’s GM fell to 18.5% in 08 from 23.0% in
07, mainly due to the margin contraction to 12.7% in Q408 (19.9% in Q407), as it
raised provision for potential cost variation to 8% of contract price from 0.5%.
A certain guidance during the uncertain time YZJ’s mgmt guided the company would stick to its original delivery schedule of 40 vessel in 2009, though it could provide 3-6mo berthing time upon receiving the full payment and if required by ship owners. YZJ has not yet encountered order cancellation, and will proactively co-work with its customers to avoid or reduce such risk down the road.
Benefits from govt support still difficult to quantify. The recently announced industry revitalization plan by China govt would benefit two large state-owned shipbuilding giant, CSSC and CISC, as well as some selected names such as YZJ, one of three private yards in Jiangsu named. With 27 vessels of 850k DWT delivered in 08, YZJ was ranked 6th in China with an orderbook of 155 vessels of US$6.9bn. However, it is difficult to quantify the policy benefits, as most are guideline only as of now.
Valuation: maintain Buy, PTS$1.30
We will review our forecast following the results. We maintain our Buy rating and
12-month price target of S$1.30, based on 2.5x 2009E book value.
Highlights
2008 profit in line with UBSe and consensus
YZJ reported NPAT of Rmb1,580m (+82%YoY) and revenue of Rmb7,359m
(+91%YoY) for 2008. Both are largely in line with UBS estimates (-5% and 3%
above consensus, respectively). Note YZJ’s GM fell to 18.5% in 08 from 23.0% in
07, mainly due to the margin contraction to 12.7% in Q408 (19.9% in Q407), as it
raised provision for potential cost variation to 8% of contract price from 0.5%.
A certain guidance during the uncertain time YZJ’s mgmt guided the company would stick to its original delivery schedule of 40 vessel in 2009, though it could provide 3-6mo berthing time upon receiving the full payment and if required by ship owners. YZJ has not yet encountered order cancellation, and will proactively co-work with its customers to avoid or reduce such risk down the road.
Benefits from govt support still difficult to quantify. The recently announced industry revitalization plan by China govt would benefit two large state-owned shipbuilding giant, CSSC and CISC, as well as some selected names such as YZJ, one of three private yards in Jiangsu named. With 27 vessels of 850k DWT delivered in 08, YZJ was ranked 6th in China with an orderbook of 155 vessels of US$6.9bn. However, it is difficult to quantify the policy benefits, as most are guideline only as of now.
Valuation: maintain Buy, PTS$1.30
We will review our forecast following the results. We maintain our Buy rating and
12-month price target of S$1.30, based on 2.5x 2009E book value.
Highlights
SGX-Nomura
2Q FY09: within expectations ; Maintained Reduce
Average securities daily value traded (DVT) continued to fall in 2Q
FY09 by 19% q-q to S$1bn (versus our FY09F forecast of
S$1.1bn), while clearing fees declined by a more muted 12.7% q-q
as the share of uncapped trades (ie, those paying the full 4bp fee)
rose to 63% (from 58% in 1H FY09). We estimate every 10% drop
in DVT cuts forecast earnings by 6%.
Derivatives revenues (up sequentially since FY07) also fell by
7.2% q-q. While SGX has fared better than peers in resisting the
fall in global derivatives volumes, the Nifty contract saw a 46% q-q
drop in contracts traded as foreign institutional investors’ interest in
India waned. However, as seen in the OTC clearing business via
AsiaClear and the commodities business via SICOM, open interest
continues to grow, boding well for future volume traded.
Stable revenues were hurt by lower listing fees (only four IPOs)
and reduced corporate action activities. But with operating costs
tightly controlled, 2Q operating leverage hit a record 147%.
Average securities daily value traded (DVT) continued to fall in 2Q
FY09 by 19% q-q to S$1bn (versus our FY09F forecast of
S$1.1bn), while clearing fees declined by a more muted 12.7% q-q
as the share of uncapped trades (ie, those paying the full 4bp fee)
rose to 63% (from 58% in 1H FY09). We estimate every 10% drop
in DVT cuts forecast earnings by 6%.
Derivatives revenues (up sequentially since FY07) also fell by
7.2% q-q. While SGX has fared better than peers in resisting the
fall in global derivatives volumes, the Nifty contract saw a 46% q-q
drop in contracts traded as foreign institutional investors’ interest in
India waned. However, as seen in the OTC clearing business via
AsiaClear and the commodities business via SICOM, open interest
continues to grow, boding well for future volume traded.
Stable revenues were hurt by lower listing fees (only four IPOs)
and reduced corporate action activities. But with operating costs
tightly controlled, 2Q operating leverage hit a record 147%.
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