It was another day for the shortists as the STI ended up in the red
again despite having witnessed some sparks during early morning. While
the index had opened up almost flat from the previous day, the effects
from the positive closing on Wall Street on Tuesday seemed to gradually
filter into our local market as the STI was pushed up to 3,072 (or a
0.75% gain) within the first hour of trading. The script that had been
seen for the week so far then repeated itself as the STI was then bashed
to an intraday low of
2,984 before recovering some 16 points during the last hour of trading.
For Wednesday, the STI lost 49.87 points or 1.64% to 3,000.03 as
investors remained jittery over the size of the potential rate cut by
the Fed. Losers outnumbered gainers to 453 to 249 while market breadth
improved slightly as 1.42bn shares that were worth some $1.75bn changed
hands. Defensive plays were the flavour of the day as StarHub increased
2.3% to $3.05 (with only three other STI-component counters registering
gains) while SMRT jumped 7 cents or 4.3% to $1.69. Look for the non-farm
payrolls report on Friday to be the major market mover for the week
after the announcement of the Fed decision.
Media Highlights
- SPC net profit soars 78.6% to record $508m in 2007
- CDLHT Q4 distributable income up 83.4%
- SingPost: New players will squeeze margins
- GuocoLand posts 26% drop in Q2 earnings
- MMP Reit posts 15.7% rise in distributable income for Q4
- Wee Hur's strong debut
- New China printing deals to double Xpress' revenue
- Citi sees good returns from global equities
Economic Highlights
- US House clears US$146b aid package
- Record drop in US 10-city home prices
Singapore Petroleum Cheapest valuations - highest dividend yield
Story: SPC share price has tumbled 23% YTD, sharply underperforming the
FSSTI's 12% decline. The falling share price was partly due to the broad
market selldown but mainly reflecting investors' concern about the current
soft refining margin.
Point: We remain positive on the refining industry outlook. Although
current refining margin (Reuters' Singapore complex refining margin) of
US$4-5/bbl is significantly below US$7.6/bbl averaged in 2007, this is just
the volatile nature of the industry. We expect the margin to resume to
US$6-8/bbl over the next few months as oil traders start to build up
inventory for the summer driving season. We expect refining margin to
average US$7.2/bbl in 2008, softening slightly from US$7.6/bbl in 2007.
Relevance: At current price, SPC's 6.1x 2008 PE is the cheapest among
regional peers and its 8.2% dividend yield for 2008 is the highest. The
counter is at 34% below last year's peak. Although it has recovered 9%
during the past few days, SPC share still offers 24% upside to our revised
target price of S$7.27 (sum-of-parts). We upgrade our recommendation from
Fully Valued to Buy.
FSSTI's 12% decline. The falling share price was partly due to the broad
market selldown but mainly reflecting investors' concern about the current
soft refining margin.
Point: We remain positive on the refining industry outlook. Although
current refining margin (Reuters' Singapore complex refining margin) of
US$4-5/bbl is significantly below US$7.6/bbl averaged in 2007, this is just
the volatile nature of the industry. We expect the margin to resume to
US$6-8/bbl over the next few months as oil traders start to build up
inventory for the summer driving season. We expect refining margin to
average US$7.2/bbl in 2008, softening slightly from US$7.6/bbl in 2007.
Relevance: At current price, SPC's 6.1x 2008 PE is the cheapest among
regional peers and its 8.2% dividend yield for 2008 is the highest. The
counter is at 34% below last year's peak. Although it has recovered 9%
during the past few days, SPC share still offers 24% upside to our revised
target price of S$7.27 (sum-of-parts). We upgrade our recommendation from
Fully Valued to Buy.
China Sports International Ltd- Capitalising on fragmentation
Summary: China Sports International (Csports) posted good FY07 results yesterday, with topline growing 74.9% YoY to RMB1.2b and net profit accelerating 111% YoY to RMB155.1m. Csports stuck to its strategy on addressing the mid-tier markets through increased advertising and stayed out of the competitive high- and low-end markets. Although selling & distribution costs and admin expenses rose much faster than we forecasted, this secured better brand equity which in turn produced better ASPs and margins. Though a relatively new entrant in the market, it continues to be able to command exclusivity with its distributors, sell products on a non-consignment basis and strictly regulate product prices by the distributors. Our adjusted numbers factor the better sales in the future but are mitigated by the faster-than-expected rise in marketing expenses. Along with volatile market conditions, peer valuations have also been lowered. We now peg Csports at 18x FY08 PER (prev. 20x) with a fair value of S$2.04 (prev. S$2.48). Csports still trades at a 37% discount to its Asian sports peers' FY08 PER. Maintain BUY with 56% upside.
Rotary Engineering: In the running for more contracts
Summary: We met Rotary Engineering (Rotary) for an update. The S$535m UT project has been fully completed on schedule and budget. While order flow had not been as visible in recent months, we understand that Rotary is currently in the running for several sizeable local and Middle East projects, notably ExxonMobil's Singapore Parallel Train cracker project, Nexsol's biodiesel process plants, Jubail refineries, and Saudi Aramco's projects. Given the updated status on the completion of UT project, we expect Rotary to recognize the remaining UT contract value. As such, we are raising our earnings forecasts to S$61.2m and S$69.7m for FY07 and FY08, respectively. We are also expecting dividend yield of 6.3% (or a total dividend payout of 5.4 Scents per share). However, in view of the present market weakness, we are trimming our fair value to S$1.48 (from previously S$1.60) based on 12x FY08 PER (prev: 18x). Maintain BUY. (Serene Lim)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Macquarie MEAG Prime REIT: Update on FY07 results
Summary: Macquarie MEAG Prime REIT (MMP) reported 4Q results that enjoyed a nice boost from MMP's acquisition spree in Japan and China last year. For FY07, revenue grew 14.6% YoY to S$103m, with net property income (NPI) lagging at 10.9% YoY growth to S$76.8m. DPU for the year was 6.19 cents, + 6.9% YoY. NPI was hit by higher operating expenses, including higher property taxes and higher commission paid to renew leases at higher rates. For 4Q07, revenue grew 32.1% YoY and 14.2% QoQ to S$29.8m, with NPI growing 29.1% YoY and 14.4% QoQ to S$22.2m. DPU came in at 1.68 cents, +14.3% YoY and +9.1% QoQ. 4Q also saw a S$339m fair value gain, taking MMP's total asset portfolio to S$2.2b. MMP plans to enhance its earnings through: 1) the first S-REIT unit buy-back scheme, which allows MMP to redeem 10% of all units in issue, 2) significant rental reversions expected in 2008 and beyond, with office space up for renewal in 2008 radically under-rented at around S$5psf versus market rates in the mid teens and 3) various asset enhancement programs. MMP, which has recently set up new debt facilities, is geared at 29%, with a lot of room to grow and fund programs including its buy-back scheme, which can be launched at any time now. MMP is currently trading at a P/B of about 0.64x and yield of 6.5% based on annualized 4Q DPU. Due to a change in analyst, we are currently reviewing our rating on MMP. (Meenal Kumar)
Suntec REIT: 1Q08 results saw maiden contribution from ORQ
Summery: Maiden contributions from One Raffles Quay (ORQ) and positive rental renewals drove Suntec REIT's (Suntec) 1Q08 results with revenue up 18.3% YoY and 6.5% QoQ to S$54.3m. The impact was dampened by NPI margin falling from 71% to 69% due to higher property taxes. Distributable income was S$33.5m, +24% YoY and +10.2% QoQ. DPU for the quarter was 2.279 cents, +16.1% YoY and +7.5% QoQ. With the acquisition completed on 31 Oct, 1Q reflected only about 2 months of earnings from ORQ, and the full impact should be seen in 2Q. Because of its fixed-lease structure, ORQ will see considerable upside potential only in the medium term. Suntec has recently acquired an additional 28,000 sqft of Suntec City strata-titled office space, and plans to continue on this buy-back path to growth. Its retail space will also benefit from further asset enhancements. Opportunities for organic growth stem from the 49% of Suntec's office leases that are expiring in FY08-09. Note that the existing rents are below S$5psf, with recent leases secured at much higher levels of S$11-14 psf. Suntec is trading at a yield of 6.2% based on annualized 1Q DPU. Due to a change in analyst, we are currently reviewing our rating on Suntec REIT. (Meenal Kumar)
NEWS HEADLINES
- India's Bharti Airtel, 31%-owned by SingTel, posted a better than generally expected 42% increase in quarterly net profit as it won new users.
- CDL Hospitality Trusts saw 4Q distributable income rose 83.4% YoY to S$22.7m. It is hoping to acquire Copthorne Orchid in the Bukit Timah area from its parent this year.
- The Singapore Land Authority said it expects to release another 32.3k sqft of space for potential office use in the current quarter, earmarking properties such as the former Siglap-Changi Community Centre.
- Singapore Petroleum's FY07 net profit surged to a record S$508.3m, +78.6% YoY, helped by high oil refining margins that it sees staying healthy in 2008.
- Singapore Post posted a 3Q net profit of S$36.8m, up almost 8% YoY. It warned that Singapore's liberalization of basic mail services and the entry of new players will squeeze its margins.
- GuocoLand saw a 26% YoY slide in 2Q net profit to S$32.9m, because of a non-recurring profit of S$19.3m in the previous corresponding period. Gross profit rose 145% to S$40.2m.
- SIA will start A380 flights to London on March 18, its second A380 destination after Sydney.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Macquarie MEAG Prime REIT: Update on FY07 results
Summary: Macquarie MEAG Prime REIT (MMP) reported 4Q results that enjoyed a nice boost from MMP's acquisition spree in Japan and China last year. For FY07, revenue grew 14.6% YoY to S$103m, with net property income (NPI) lagging at 10.9% YoY growth to S$76.8m. DPU for the year was 6.19 cents, + 6.9% YoY. NPI was hit by higher operating expenses, including higher property taxes and higher commission paid to renew leases at higher rates. For 4Q07, revenue grew 32.1% YoY and 14.2% QoQ to S$29.8m, with NPI growing 29.1% YoY and 14.4% QoQ to S$22.2m. DPU came in at 1.68 cents, +14.3% YoY and +9.1% QoQ. 4Q also saw a S$339m fair value gain, taking MMP's total asset portfolio to S$2.2b. MMP plans to enhance its earnings through: 1) the first S-REIT unit buy-back scheme, which allows MMP to redeem 10% of all units in issue, 2) significant rental reversions expected in 2008 and beyond, with office space up for renewal in 2008 radically under-rented at around S$5psf versus market rates in the mid teens and 3) various asset enhancement programs. MMP, which has recently set up new debt facilities, is geared at 29%, with a lot of room to grow and fund programs including its buy-back scheme, which can be launched at any time now. MMP is currently trading at a P/B of about 0.64x and yield of 6.5% based on annualized 4Q DPU. Due to a change in analyst, we are currently reviewing our rating on MMP. (Meenal Kumar)
Suntec REIT: 1Q08 results saw maiden contribution from ORQ
Summery: Maiden contributions from One Raffles Quay (ORQ) and positive rental renewals drove Suntec REIT's (Suntec) 1Q08 results with revenue up 18.3% YoY and 6.5% QoQ to S$54.3m. The impact was dampened by NPI margin falling from 71% to 69% due to higher property taxes. Distributable income was S$33.5m, +24% YoY and +10.2% QoQ. DPU for the quarter was 2.279 cents, +16.1% YoY and +7.5% QoQ. With the acquisition completed on 31 Oct, 1Q reflected only about 2 months of earnings from ORQ, and the full impact should be seen in 2Q. Because of its fixed-lease structure, ORQ will see considerable upside potential only in the medium term. Suntec has recently acquired an additional 28,000 sqft of Suntec City strata-titled office space, and plans to continue on this buy-back path to growth. Its retail space will also benefit from further asset enhancements. Opportunities for organic growth stem from the 49% of Suntec's office leases that are expiring in FY08-09. Note that the existing rents are below S$5psf, with recent leases secured at much higher levels of S$11-14 psf. Suntec is trading at a yield of 6.2% based on annualized 1Q DPU. Due to a change in analyst, we are currently reviewing our rating on Suntec REIT. (Meenal Kumar)
NEWS HEADLINES
- India's Bharti Airtel, 31%-owned by SingTel, posted a better than generally expected 42% increase in quarterly net profit as it won new users.
- CDL Hospitality Trusts saw 4Q distributable income rose 83.4% YoY to S$22.7m. It is hoping to acquire Copthorne Orchid in the Bukit Timah area from its parent this year.
- The Singapore Land Authority said it expects to release another 32.3k sqft of space for potential office use in the current quarter, earmarking properties such as the former Siglap-Changi Community Centre.
- Singapore Petroleum's FY07 net profit surged to a record S$508.3m, +78.6% YoY, helped by high oil refining margins that it sees staying healthy in 2008.
- Singapore Post posted a 3Q net profit of S$36.8m, up almost 8% YoY. It warned that Singapore's liberalization of basic mail services and the entry of new players will squeeze its margins.
- GuocoLand saw a 26% YoY slide in 2Q net profit to S$32.9m, because of a non-recurring profit of S$19.3m in the previous corresponding period. Gross profit rose 145% to S$40.2m.
- SIA will start A380 flights to London on March 18, its second A380 destination after Sydney.
Transport Sector Land Transport Review
Land Transport Review. Over the last 2 weeks and over three speeches, Mr.
Raymond Lim, Minister for Transport and second Minister for Foreign
Affairs, reviewed Singapore's Land transport development over the last 10
years and also outlined a new roadmap for the next 10 to 15 years.
The main aim is to increase public transport usage. In a nutshell, the
Government aims to increase and promote public transport usage to ease
congestion to support future growth, by a) improving the quantity and
quality of bus services available to the public, b) improving the standards
and doubling of the rail network by 2020 and last but not least, c)
ensuring smooth flowing roads by adjusting ERP rate structures and lowering
vehicle growth rates.
This should benefit land transport operators in the long-term. Whilst the
new roadmap also involves the potential introduction of new operators, we
are of the view that the current incumbents, given their high level of
efficiency and scale, should continue to dominate their existing spheres of
influence for some time to come. In the long run, higher public transport
usage should be positive for both although immediate impact from this piece
of news is immaterial. We prefer ComfortDelgro (BUY, TP S$2.33) over SMRT
(HOLD, TP S$1.78), as the former offers a more attractive yield at 6.1%.
Raymond Lim, Minister for Transport and second Minister for Foreign
Affairs, reviewed Singapore's Land transport development over the last 10
years and also outlined a new roadmap for the next 10 to 15 years.
The main aim is to increase public transport usage. In a nutshell, the
Government aims to increase and promote public transport usage to ease
congestion to support future growth, by a) improving the quantity and
quality of bus services available to the public, b) improving the standards
and doubling of the rail network by 2020 and last but not least, c)
ensuring smooth flowing roads by adjusting ERP rate structures and lowering
vehicle growth rates.
This should benefit land transport operators in the long-term. Whilst the
new roadmap also involves the potential introduction of new operators, we
are of the view that the current incumbents, given their high level of
efficiency and scale, should continue to dominate their existing spheres of
influence for some time to come. In the long run, higher public transport
usage should be positive for both although immediate impact from this piece
of news is immaterial. We prefer ComfortDelgro (BUY, TP S$2.33) over SMRT
(HOLD, TP S$1.78), as the former offers a more attractive yield at 6.1%.
Singapore market – Remain Volatile
• Market Preview: Straits Times Index (STI) dropped 49.87 points to close at 3,000.03, barely holding the psychological 3,000 support point. In fact the index saw an intraday low of 2,984.69 and a high of 3,072.90 points. Volatility resulted from nervous investor's sell-off ahead of the US Federal Reserve's expected interest rate cut later in the day. Trading volume went up to 1.42 billion shares valued at S$1.75 billion. Decliners led rising issues 453 to 249.
• As expected, the Fed cut its Fed fund rate by half a percentage point. Unexpected, the US economy grew at a lower rate of 0.6% in 4Q2007, half of what market is expecting. Concerns over the US economy remain. The US economy was dragged down by the retraction in gross private domestic investments (see Chart), due mainly to the housing problem. The housing problem is likely to drag the private investments down in this and the next few quarters. What the Bush's administration and the Fed is try to do now is to prevent a slowdown or even a contraction in private consumption. Even if they succeed, the effect will only be felt in the second half of this year. There is still very high possibility that we may witness negative GDP number in this or next quarter or both.
• The Singapore economy is at a better shape now compared to the US recession in 2001. There is no excess supply in the residential properties, office space and industrial buildings. Contracts awarded for the construction sectors are likely to achieve a record this year. And the banking sectors are likely to be supported by domestic demand and not being affected by the US subprime problem. Thus, we are likely to see positive Singapore GDP number even the US is entering a recession. While Singapore fundamental remain strong, market is likely to remain volatile due to concerns over the health of the US economy. Buy and hold may not be a preferred strategy now. We advise investor to buy on weakness and sell into strength.
• Wall Street: US shares fell after comments that the two biggest bond insurers will lose their top credit rating, Ambac Financial Group Inc. and MBIA Inc. Both insurers finished down more than 10%. The remark came in the last hour of trading, collapsing the nearly 1.5% gain wracked up earlier from the aggressively interest rate cut by the US Federal Reserves. Dow was down 0.3% or 37.47 points to 12,442.83 while Nasdaq dropped 0.38% or 9.06 points to close at 2,349.00 points.
• Crude Oil rose US$0.11 to close at US$91.75 per barrel on NYMEX.
Company Highlights
Singapore Petroleum Company Ltd. – FY07 net profit hit record high of S$508 million
• Singapore Petroleum Company Ltd. ("SPC"), an international oil refiner and trader, posted all-time record net profit of S$508 million for its FY07 results, a 78.6% jump from FY06.
• Oil refining/retailing activities contributed about 90% of its operating profit but the group sees an increasing growth in its exploration and production business. Refining margin rebounded to US$7 in 4Q07. 3Q07 margin was US$5 as margins took a hit from reduced product demand. Average refining margin for FY07 is about US$7. SPC expects refining margin to remain relatively healthy this year.
• Earnings per share up 78.5% to 98.78 cents and the group is paying a final ordinary dividend of 40 cents per share. Including the interim dividend of 20 cents at mid-year, payout ratio for FY07 is 60.7%. Based on last traded price of $6.10, dividend yield works out to 9.8%.
CDL Hospitality Trusts – registers 65.2% revenue increase
• CDLTH registered gross revenue of S$27.96 million for fourth quarter of FY07, representing a 65.2% increase over the same period last year.
• Full year gross revenue performance improved 61.1% over projections because of a 26.4% growth in H-REIT's IPO portfolio and 34.7% growth from H-REIT's acquisitions of Rendezvous Hotel Auckland in New Zealand and Novotel Clarke Quay in Singapore after its IPO in July 2006.
• Income available for distribution increased 83.4% to S$22.8 million.
• As expected, the Fed cut its Fed fund rate by half a percentage point. Unexpected, the US economy grew at a lower rate of 0.6% in 4Q2007, half of what market is expecting. Concerns over the US economy remain. The US economy was dragged down by the retraction in gross private domestic investments (see Chart), due mainly to the housing problem. The housing problem is likely to drag the private investments down in this and the next few quarters. What the Bush's administration and the Fed is try to do now is to prevent a slowdown or even a contraction in private consumption. Even if they succeed, the effect will only be felt in the second half of this year. There is still very high possibility that we may witness negative GDP number in this or next quarter or both.
• The Singapore economy is at a better shape now compared to the US recession in 2001. There is no excess supply in the residential properties, office space and industrial buildings. Contracts awarded for the construction sectors are likely to achieve a record this year. And the banking sectors are likely to be supported by domestic demand and not being affected by the US subprime problem. Thus, we are likely to see positive Singapore GDP number even the US is entering a recession. While Singapore fundamental remain strong, market is likely to remain volatile due to concerns over the health of the US economy. Buy and hold may not be a preferred strategy now. We advise investor to buy on weakness and sell into strength.
• Wall Street: US shares fell after comments that the two biggest bond insurers will lose their top credit rating, Ambac Financial Group Inc. and MBIA Inc. Both insurers finished down more than 10%. The remark came in the last hour of trading, collapsing the nearly 1.5% gain wracked up earlier from the aggressively interest rate cut by the US Federal Reserves. Dow was down 0.3% or 37.47 points to 12,442.83 while Nasdaq dropped 0.38% or 9.06 points to close at 2,349.00 points.
• Crude Oil rose US$0.11 to close at US$91.75 per barrel on NYMEX.
Company Highlights
Singapore Petroleum Company Ltd. – FY07 net profit hit record high of S$508 million
• Singapore Petroleum Company Ltd. ("SPC"), an international oil refiner and trader, posted all-time record net profit of S$508 million for its FY07 results, a 78.6% jump from FY06.
• Oil refining/retailing activities contributed about 90% of its operating profit but the group sees an increasing growth in its exploration and production business. Refining margin rebounded to US$7 in 4Q07. 3Q07 margin was US$5 as margins took a hit from reduced product demand. Average refining margin for FY07 is about US$7. SPC expects refining margin to remain relatively healthy this year.
• Earnings per share up 78.5% to 98.78 cents and the group is paying a final ordinary dividend of 40 cents per share. Including the interim dividend of 20 cents at mid-year, payout ratio for FY07 is 60.7%. Based on last traded price of $6.10, dividend yield works out to 9.8%.
CDL Hospitality Trusts – registers 65.2% revenue increase
• CDLTH registered gross revenue of S$27.96 million for fourth quarter of FY07, representing a 65.2% increase over the same period last year.
• Full year gross revenue performance improved 61.1% over projections because of a 26.4% growth in H-REIT's IPO portfolio and 34.7% growth from H-REIT's acquisitions of Rendezvous Hotel Auckland in New Zealand and Novotel Clarke Quay in Singapore after its IPO in July 2006.
• Income available for distribution increased 83.4% to S$22.8 million.
Keppel Corp: Hong Bao surprises? : Kim Eng
Keppel Corp will be releasing its FY07 results this evening. Kelive
expects the group to turn in pre-exceptional net profit of S$1,030m
(4Q:
S$272m), which is slightly below market consensus estimates of
S$1,050m.
Including exceptional gains from revaluation of investment properties
will lift earnings to a whopping S$1.22bn.
Capital structure remains sub-optimal given its low net debt/capital
ratio of 0.08x, down from 0.24x in FY06. With a record profit already
in
the bag, we believe Keppel can well afford to give out bumper
dividends
without contraining its funding requirements. If we assume Keppel
increase
its payout ratio from 53% to 85% this year, we think it will have
no problems paying out final dividends of $0.56 per share versus
consensus
of $0.11-0.43 per share - net of the declared interim dividend of
$0.09/share
in 1H07.
SM Goh is currently in Doha, Qatar from 28-31 Jan to officiate the
groundbreaking of Keppel's $1.5bn Doha North Sewerage Treatment Works
and we note that he will be be leaving after Keppel Corp unveils its
full-year results on Thurs. Keppel spearheads Singapore's interests
in
Qatar and we do not discount the possibility of the group announcing
a
major deal or JV in the presence of SM.
On technicals, there is a gap following Keppel Corp sharp fall on 16
Jan. We
expect Keppel Corp to cover this gap in near term, suggesting a
possible
upmove toward $11.94 in near term.
expects the group to turn in pre-exceptional net profit of S$1,030m
(4Q:
S$272m), which is slightly below market consensus estimates of
S$1,050m.
Including exceptional gains from revaluation of investment properties
will lift earnings to a whopping S$1.22bn.
Capital structure remains sub-optimal given its low net debt/capital
ratio of 0.08x, down from 0.24x in FY06. With a record profit already
in
the bag, we believe Keppel can well afford to give out bumper
dividends
without contraining its funding requirements. If we assume Keppel
increase
its payout ratio from 53% to 85% this year, we think it will have
no problems paying out final dividends of $0.56 per share versus
consensus
of $0.11-0.43 per share - net of the declared interim dividend of
$0.09/share
in 1H07.
SM Goh is currently in Doha, Qatar from 28-31 Jan to officiate the
groundbreaking of Keppel's $1.5bn Doha North Sewerage Treatment Works
and we note that he will be be leaving after Keppel Corp unveils its
full-year results on Thurs. Keppel spearheads Singapore's interests
in
Qatar and we do not discount the possibility of the group announcing
a
major deal or JV in the presence of SM.
On technicals, there is a gap following Keppel Corp sharp fall on 16
Jan. We
expect Keppel Corp to cover this gap in near term, suggesting a
possible
upmove toward $11.94 in near term.
DJ MARKET TALK: DBS Likely To "Clear Decks" With 4Q Results - DB
0752 GMT [Dow Jones] STOCK CALL: DBS (D05.SG) set to use 4Q07 as a
quarter to "clear the decks" for new CEO, Deutsche Bank says in report.
Expects S$150 million in CDO-related provisions (vs S$200 net
exposure), S$57 million writedown of its TMB (TMB.TH) investment. "With
Jackson Tai already having left the bank, and a new CEO yet to be
announced, we believe DBS has every reason to be as conservative as
possible in valuing its ABS CDO portfolio." Says unlike pre-3Q07
results, no guidance from bank that CDO losses would not be material to
earnings, suggesting larger writedowns more likely than not. Notes,
however, forecasted S$150 million ABS CDO writedown equates to only 5%
of FY07E earnings, 0.6% of FY07E book value. "While sentiment could be
adversely impacted in the near term, this may present an opportunity
for long-term investors to accumulate DBS given cheap valuations and
strong loan growth." Keeps at Buy with S$28.20 target price. Share down
1.9% at S$17.72; STI down 1.9%. (LES)
quarter to "clear the decks" for new CEO, Deutsche Bank says in report.
Expects S$150 million in CDO-related provisions (vs S$200 net
exposure), S$57 million writedown of its TMB (TMB.TH) investment. "With
Jackson Tai already having left the bank, and a new CEO yet to be
announced, we believe DBS has every reason to be as conservative as
possible in valuing its ABS CDO portfolio." Says unlike pre-3Q07
results, no guidance from bank that CDO losses would not be material to
earnings, suggesting larger writedowns more likely than not. Notes,
however, forecasted S$150 million ABS CDO writedown equates to only 5%
of FY07E earnings, 0.6% of FY07E book value. "While sentiment could be
adversely impacted in the near term, this may present an opportunity
for long-term investors to accumulate DBS given cheap valuations and
strong loan growth." Keeps at Buy with S$28.20 target price. Share down
1.9% at S$17.72; STI down 1.9%. (LES)
Cambridge Industrial Trust - Still Attractive
CIT reported its FY07 results that were largely in-line with our projections, backed by properties acquired during the past year. Gross revenue came in at S$53 million and net property income is S$45.8 million. CIT achieved a full year DPU of 6.262 cents. Net asset value increased from $0.67 to $0.76.
WesTech Electronics Limited: Expecting A Good Show From Display Solutions
Summary: We met with WesTech Electronics Limited's (WesTech) management recently for a brief update on its developments. WesTech is also slated to announce its FY07 results in the last week of Feb 08. We expect WesTech to attain a 45.8% YoY jump in FY07 net profit to S$8.8m on the back of a 18.2% gain in turnover to S$390.2m, with its Display Technology (DT) division contributing a significant portion. Aside from the upcoming Beijing Olympics in Aug 08, management believes that another positive trend for its DT business is the official switch from analog to digital broadcasting in the United States as of 17 Feb 09. However, we are a bit more cautious about the outlook of its electronic components distribution and system & equipment division, given the concerns of a possible recession in the US. Nonetheless, we remain optimistic about its growing DT business. With an expected 6.4% dividend yield for FY08 on the cards, we retain our BUY rating and maintain our fair value of S$0.40, based on 1x FY08F NTA. (Brandon Lee)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Lion Teck Chiang Ltd: Update on profit warning
Summary: Lion Teck Chiang Ltd (LTC) issued a profit warning for its 1H08 results recently. We met with management yesterday to obtain clarification on the matter. LTC is making a provision pertaining to its steel division in accordance to accounting standards. LTC is impacted by the volatility and upward trend of steel prices and hence provided for all "unrealized losses" - the difference between the average cost per ton of stocks and committed purchases of steel and the selling price per ton, for each outstanding sales contract. Steel prices have risen from approximately US$440/ton in Jan to US$585/ton by Dec 07 and US$690/ton by Jan 08. Noteworthy is that this provision is the worst-case scenario as at 1H08 since any "unrealized profits" are excluded. In addition, this provision is a non-cash item that does not impact cashflow. LTC's cash balance as at 30 Jun 07 was a healthy $12.3m, of which there was an increase in cash of S$7.2m for FY07. As LTC is releasing its 1H08 results on 4 Feb, it is currently in the blackout period and we were not able to assess the financial impact of the provisioning. Once the amount is known next week, we would review our earnings estimates. Till then, we are suspending our rating on the stock. (Selena Leong)
NEWS HEADLINES
- Keppel Land posted a 7-fold rise in 4Q net profit to S$572.3m, driven by strong home sales and property divestment gains. Revenue hit a record S$1.4b or a 48.5% YoY gain. It also announced that it would delay the launch of Marina Bay Suites, citing "market conditions".
- China Sky Chemical Fibre will acquire Qingdao ZhongDa Chemical Fibre for RMB450m.
- SIA Engineering reported a 3.1% drop YoY in 3Q net profit to S$53.6m, with revenue growing 1.1% to S$248.6m.
- Singapore has signed open sky agreements with Denmark, Norway and Sweden that allow their respective airlines, including SIA, unlimited access to each other's markets.
- Fortune REIT announced distribution income of HK$284.8m for 2007, up 3% from a year ago, with DPU for the year rising 2.5% to HK$0.3512.
- SGX has cleared US$4.7b worth of trades in the oil derivates market in 2007 – a 12-fold increase in value – through SGX AsiaClear.
- Pan-United Corp has been awarded 2 contracts worth a combined S$30m to supply ready-mixed concrete for Singapore's new MRT downtown line Stage 1.
- Rokko Hldgs reported FY07 revenue at S$33.3m, up 11.1% YoY; while net profits gained 18.3% to S$5.1m.
- Wee Hur Hldgs will debut on the SGX Mainboard today. It IPO was 1.4x subscribed
For more information on the above, visit www.ocbcresearch.com for detailed report.
Lion Teck Chiang Ltd: Update on profit warning
Summary: Lion Teck Chiang Ltd (LTC) issued a profit warning for its 1H08 results recently. We met with management yesterday to obtain clarification on the matter. LTC is making a provision pertaining to its steel division in accordance to accounting standards. LTC is impacted by the volatility and upward trend of steel prices and hence provided for all "unrealized losses" - the difference between the average cost per ton of stocks and committed purchases of steel and the selling price per ton, for each outstanding sales contract. Steel prices have risen from approximately US$440/ton in Jan to US$585/ton by Dec 07 and US$690/ton by Jan 08. Noteworthy is that this provision is the worst-case scenario as at 1H08 since any "unrealized profits" are excluded. In addition, this provision is a non-cash item that does not impact cashflow. LTC's cash balance as at 30 Jun 07 was a healthy $12.3m, of which there was an increase in cash of S$7.2m for FY07. As LTC is releasing its 1H08 results on 4 Feb, it is currently in the blackout period and we were not able to assess the financial impact of the provisioning. Once the amount is known next week, we would review our earnings estimates. Till then, we are suspending our rating on the stock. (Selena Leong)
NEWS HEADLINES
- Keppel Land posted a 7-fold rise in 4Q net profit to S$572.3m, driven by strong home sales and property divestment gains. Revenue hit a record S$1.4b or a 48.5% YoY gain. It also announced that it would delay the launch of Marina Bay Suites, citing "market conditions".
- China Sky Chemical Fibre will acquire Qingdao ZhongDa Chemical Fibre for RMB450m.
- SIA Engineering reported a 3.1% drop YoY in 3Q net profit to S$53.6m, with revenue growing 1.1% to S$248.6m.
- Singapore has signed open sky agreements with Denmark, Norway and Sweden that allow their respective airlines, including SIA, unlimited access to each other's markets.
- Fortune REIT announced distribution income of HK$284.8m for 2007, up 3% from a year ago, with DPU for the year rising 2.5% to HK$0.3512.
- SGX has cleared US$4.7b worth of trades in the oil derivates market in 2007 – a 12-fold increase in value – through SGX AsiaClear.
- Pan-United Corp has been awarded 2 contracts worth a combined S$30m to supply ready-mixed concrete for Singapore's new MRT downtown line Stage 1.
- Rokko Hldgs reported FY07 revenue at S$33.3m, up 11.1% YoY; while net profits gained 18.3% to S$5.1m.
- Wee Hur Hldgs will debut on the SGX Mainboard today. It IPO was 1.4x subscribed
China Sky Closing a good deal
Story: China Sky ("CSCF") announced that it has entered into an agreement
to acquire Qingdao Zhongda Chemical Fibre ("Zhongda"), a leading producer
of nylon DTY, for RMB450m.
Point: CSCF's horizontal expansion put the Group on the fast growth track
as the move would: (I) give an immediate boost to the Group's earnings;
(II) open up the market in Northern China and Europe by leveraging on
Zhongda's strong branding; and (III) provide the Group with additional land
space for further expansion into DTY and SR nylon.
Relevance: We have raised FY08 and FY09 earnings by 8% and 12% respectively
to account for new contributions from the acquired plant, which will come
onstream from Mar08. Nonetheless, in view of the recent textile sector
de-rating amid US's sub-par growth and high oil price environment, we have
lowered our PE multiple to 12x as opposed to 15x previously. Consequently,
our target price is reduced to S$2.85, still pegged to blended FY08/09
diluted EPS (factored in maximum new share issued based on price of S$1.70
for the acquisition). Maintain Buy.
to acquire Qingdao Zhongda Chemical Fibre ("Zhongda"), a leading producer
of nylon DTY, for RMB450m.
Point: CSCF's horizontal expansion put the Group on the fast growth track
as the move would: (I) give an immediate boost to the Group's earnings;
(II) open up the market in Northern China and Europe by leveraging on
Zhongda's strong branding; and (III) provide the Group with additional land
space for further expansion into DTY and SR nylon.
Relevance: We have raised FY08 and FY09 earnings by 8% and 12% respectively
to account for new contributions from the acquired plant, which will come
onstream from Mar08. Nonetheless, in view of the recent textile sector
de-rating amid US's sub-par growth and high oil price environment, we have
lowered our PE multiple to 12x as opposed to 15x previously. Consequently,
our target price is reduced to S$2.85, still pegged to blended FY08/09
diluted EPS (factored in maximum new share issued based on price of S$1.70
for the acquisition). Maintain Buy.
Keppel Land (KPLD SP) - Asset recycling in transition
Kepland's FY07 results were in line with expectations. Revenue grew by
48.5% from S$948m to S$1,407.9m and net profit rose by 289.2% y-o-y to
S$779.7m for FY07. Dividend of 20 cents was declared for FY07.
Healthy revenue and bottomline growth were mainly attributed to
contributions from newly launched projects in FY07 including Six Avenue
Residences and China projects Villa Riviera and The Arcadia, as well as
existing projects. Associates income rose on maiden sales of Reflections
at Keppel Bay and Marina Bay Residences. Net profit was further boosted by
S$235m surplus from ORQ transaction and S$334m revaluation gains of the
office portfolio.
Post asset divestment and revaluation, net gearing improved to 0.41x,
enabling KepLand to undertake large-scale developments in the future.
48.5% from S$948m to S$1,407.9m and net profit rose by 289.2% y-o-y to
S$779.7m for FY07. Dividend of 20 cents was declared for FY07.
Healthy revenue and bottomline growth were mainly attributed to
contributions from newly launched projects in FY07 including Six Avenue
Residences and China projects Villa Riviera and The Arcadia, as well as
existing projects. Associates income rose on maiden sales of Reflections
at Keppel Bay and Marina Bay Residences. Net profit was further boosted by
S$235m surplus from ORQ transaction and S$334m revaluation gains of the
office portfolio.
Post asset divestment and revaluation, net gearing improved to 0.41x,
enabling KepLand to undertake large-scale developments in the future.
Keppel Land (KPLD SP) - Asset recycling in transition
Kepland's FY07 results were in line with expectations. Revenue grew by
48.5% from S$948m to S$1,407.9m and net profit rose by 289.2% y-o-y to
S$779.7m for FY07. Dividend of 20 cents was declared for FY07.
Healthy revenue and bottomline growth were mainly attributed to
contributions from newly launched projects in FY07 including Six Avenue
Residences and China projects Villa Riviera and The Arcadia, as well as
existing projects. Associates income rose on maiden sales of Reflections
at Keppel Bay and Marina Bay Residences. Net profit was further boosted by
S$235m surplus from ORQ transaction and S$334m revaluation gains of the
office portfolio.
Post asset divestment and revaluation, net gearing improved to 0.41x,
enabling KepLand to undertake large-scale developments in the future.
48.5% from S$948m to S$1,407.9m and net profit rose by 289.2% y-o-y to
S$779.7m for FY07. Dividend of 20 cents was declared for FY07.
Healthy revenue and bottomline growth were mainly attributed to
contributions from newly launched projects in FY07 including Six Avenue
Residences and China projects Villa Riviera and The Arcadia, as well as
existing projects. Associates income rose on maiden sales of Reflections
at Keppel Bay and Marina Bay Residences. Net profit was further boosted by
S$235m surplus from ORQ transaction and S$334m revaluation gains of the
office portfolio.
Post asset divestment and revaluation, net gearing improved to 0.41x,
enabling KepLand to undertake large-scale developments in the future.
China Sky Chemical Fibre (S$1.35) - M&A finally
China Sky announced its M&A finally. As expected, the first acquisition
is another premium nylon producer based in
Shandong. The key positive of the purchase is that is enarlges China
Sky's client base to the north-east, the
auxilliary positive is that it provides lots of space for China Sky to
expand in futre. Consolidating Zhongda
contributions for 9M in 2008, we raise our CY08 and CY09 EPS by 37-38%.
Our target price also goes up from S$3.29 to
S$3.41, despite more conservative COE assumptions. Our new target price
implies 9x CY09 P/E, not expensive by any
means. Unlike the other fibre companies, we see no reason for China
Sky's share price to be as weak as peers
recently. Maintain Outperform.
Quick Takes
* SP Chemicals (S$0.75) - Squeezed from both ends
* Keppel Land (S$6.45) - 4QFY07 results - Expect greater
regional contributions
* SIA Engineering (S$3.82) -3QFY08 results- Strong
contributions by associates
Corporate News
* Inter-Roller secures in-flight system contract worth S$17m
* CIT distributable income for Q4 surges 59%
* SGX AsiaClear's trade values top US$4.7bn
* New business line from Creative in March
* Fortune Reit distribution income up 3% in 2007
* Chinese shipbuilder mulls Singapore listing
* Ascendas REIT acquires Acer Building and Sim Siang Choon
Building
Trading Ideas
* Ascott Residence Trust
Link to full report including important disclosures [ Click here ]
is another premium nylon producer based in
Shandong. The key positive of the purchase is that is enarlges China
Sky's client base to the north-east, the
auxilliary positive is that it provides lots of space for China Sky to
expand in futre. Consolidating Zhongda
contributions for 9M in 2008, we raise our CY08 and CY09 EPS by 37-38%.
Our target price also goes up from S$3.29 to
S$3.41, despite more conservative COE assumptions. Our new target price
implies 9x CY09 P/E, not expensive by any
means. Unlike the other fibre companies, we see no reason for China
Sky's share price to be as weak as peers
recently. Maintain Outperform.
Quick Takes
* SP Chemicals (S$0.75) - Squeezed from both ends
* Keppel Land (S$6.45) - 4QFY07 results - Expect greater
regional contributions
* SIA Engineering (S$3.82) -3QFY08 results- Strong
contributions by associates
Corporate News
* Inter-Roller secures in-flight system contract worth S$17m
* CIT distributable income for Q4 surges 59%
* SGX AsiaClear's trade values top US$4.7bn
* New business line from Creative in March
* Fortune Reit distribution income up 3% in 2007
* Chinese shipbuilder mulls Singapore listing
* Ascendas REIT acquires Acer Building and Sim Siang Choon
Building
Trading Ideas
* Ascott Residence Trust
Link to full report including important disclosures [ Click here ]
S-REITs Head for safer ground
Amid heightened market volatility stemming from the global fallout
from
the US sub-prime mortgage crisis and looming recesionary fears,
we
advocate investors to switch from the developers to Reits, which
offer
both property exposure and yield security. In view of the
current
difficulty in equity fund raising, we favour Reits with room for
upward
rent reversions, good quality asset portfolio, prudent
capital
management, low gearing and trading below NAV. In particular, we
like
Cambridge Industrial Trust (industrial segment), Ascott Residence
Trust
(hospitality) and Suntec Reit (office/retail).
from
the US sub-prime mortgage crisis and looming recesionary fears,
we
advocate investors to switch from the developers to Reits, which
offer
both property exposure and yield security. In view of the
current
difficulty in equity fund raising, we favour Reits with room for
upward
rent reversions, good quality asset portfolio, prudent
capital
management, low gearing and trading below NAV. In particular, we
like
Cambridge Industrial Trust (industrial segment), Ascott Residence
Trust
(hospitality) and Suntec Reit (office/retail).
Market Outlook
The STI was one of the worst performers in the region as not even a
1.45% rise in the DOW overnight could prop up sentiment. The day,
however, had started off on a positive note as it opened up at 3,092
which reflected a 1.7% gain from the day before. Unfortunately, that was
to be almost the intraday high for the whole trading session as
shortists began selling into the market thereafter, not too dissimilar
to the trading pattern seen on Monday save for the smaller trading
range. By the end of the day, not even a positive lead given from the
Hong Kong market could inspire the local traders as the STI finished
essentially flat at 3,049.90 that was near its intraday low. Losers
almost matched gainers 314 to 355 on the scoreboard with 1.3bn shares
that were worth some $1.41bn changing hands. All eyes are now on the
Federal Reserve meeting that ends on 30 Jan with the market expecting
anything from a 25 to 75 basis point cut while the Fed futures signal
for a 50 basis point reduction.
Media Highlights
- Singapore's SWFs make global inroads
- KepLand revenue, profit hit record
- CIT distributable income for Q4 surges 59%
- Less rosy outlook for Asian airlines
- SIAEC Q3 net profit dips 3.1% to $53.6m
- SGX AsiaClear's trade values top US$4.7b
- New business line from Creative in March
- Fireworks and magic at OCBC bash
Economic Highlights
- U.S. Economy: Durable Orders Gain, Home Prices Fall
- Fed May Cut Rate to Below Inflation, Risking New Asset Bubbles
1.45% rise in the DOW overnight could prop up sentiment. The day,
however, had started off on a positive note as it opened up at 3,092
which reflected a 1.7% gain from the day before. Unfortunately, that was
to be almost the intraday high for the whole trading session as
shortists began selling into the market thereafter, not too dissimilar
to the trading pattern seen on Monday save for the smaller trading
range. By the end of the day, not even a positive lead given from the
Hong Kong market could inspire the local traders as the STI finished
essentially flat at 3,049.90 that was near its intraday low. Losers
almost matched gainers 314 to 355 on the scoreboard with 1.3bn shares
that were worth some $1.41bn changing hands. All eyes are now on the
Federal Reserve meeting that ends on 30 Jan with the market expecting
anything from a 25 to 75 basis point cut while the Fed futures signal
for a 50 basis point reduction.
Media Highlights
- Singapore's SWFs make global inroads
- KepLand revenue, profit hit record
- CIT distributable income for Q4 surges 59%
- Less rosy outlook for Asian airlines
- SIAEC Q3 net profit dips 3.1% to $53.6m
- SGX AsiaClear's trade values top US$4.7b
- New business line from Creative in March
- Fireworks and magic at OCBC bash
Economic Highlights
- U.S. Economy: Durable Orders Gain, Home Prices Fall
- Fed May Cut Rate to Below Inflation, Risking New Asset Bubbles
OIL : Oil Tops $92, Eyes on Fed, Steady OPEC : Reuters
SINGAPORE, Jan 30 (Reuters) - Oil climbed to a two-week high above $92 a barrel on Wednesday, as investors anticipate that a second U.S. interest rate cut this week will overshadow news of a a build in U.S. crude stockpiles.
Expectations OPEC will leave production levels unchanged when it meets in Vienna this week also bolstered prices.
U.S. crude rose 75 cents to $92.39 a barrel by 0208 GMT, extending gains of 65 cents a day ago. London Brent crude were up 57 cents to $92.57 a barrel.
The U.S. Federal Reserve began a two-day meeting on Tuesday that was expected to end with the second interest rate cut in just over a week.
Following the cut on Jan. 22, investors have widely bet the Fed would keep slashing to head off a recession, given the worsening financial market conditions. [nN29609260]
"There are expectations for a rate cut, which will give an incentive to the U.S. economy," said Tetsu Emori, a fund manager at Japan's Astmax Co Ltd.
U.S. economic data released Tuesday was mixed, with stronger-than-expected orders for U.S.-made durable goods in December countering a record fall in house prices in November.
With the potential for a Fed cut looming, investors put a forecast for a rise in crude supply in the United States on the backburner.
A Reuters poll of analysts ahead of weekly U.S. government inventory data forecast a 2.4 million barrel rise in crude stocks, a 1.9-million-barrel build in gasoline stockpiles and a 1.7-million-barrel distillate draw. [EIA/S]
Expectations OPEC will leave production levels unchanged when it meets this week in Vienna, despite calls from the U.S. and other consumers for the cartel to open the taps to bring down prices, added to the bullish sentiment.
Ecuador's oil minister said on Tuesday oil supplies to global markets were adequate and there was no need for OPEC to change output at its upcoming meeting.
U.S. Energy Secretary Sam Bodman reiterated calls for OPEC to increase output to help rebuild global inventories.
Iran Oil Minister Gholamhossein Nozari told an Iranian newspaper "there was no need to supply more oil as the market was supplied sufficiently and its conditions were stable."
Prices nudged up on news that output from the giant Cantarell oil field in Mexico, one of the top suppliers to the U.S., was expected to fall this year by 200,000 barrels per day (bpd). Production at the field was running at around 1.26 million bpd in December.
Expectations OPEC will leave production levels unchanged when it meets in Vienna this week also bolstered prices.
U.S. crude
The U.S. Federal Reserve began a two-day meeting on Tuesday that was expected to end with the second interest rate cut in just over a week.
Following the cut on Jan. 22, investors have widely bet the Fed would keep slashing to head off a recession, given the worsening financial market conditions. [nN29609260]
"There are expectations for a rate cut, which will give an incentive to the U.S. economy," said Tetsu Emori, a fund manager at Japan's Astmax Co Ltd.
U.S. economic data released Tuesday was mixed, with stronger-than-expected orders for U.S.-made durable goods in December countering a record fall in house prices in November.
With the potential for a Fed cut looming, investors put a forecast for a rise in crude supply in the United States on the backburner.
A Reuters poll of analysts ahead of weekly U.S. government inventory data forecast a 2.4 million barrel rise in crude stocks, a 1.9-million-barrel build in gasoline stockpiles and a 1.7-million-barrel distillate draw. [EIA/S]
Expectations OPEC will leave production levels unchanged when it meets this week in Vienna, despite calls from the U.S. and other consumers for the cartel to open the taps to bring down prices, added to the bullish sentiment.
Ecuador's oil minister said on Tuesday oil supplies to global markets were adequate and there was no need for OPEC to change output at its upcoming meeting.
U.S. Energy Secretary Sam Bodman reiterated calls for OPEC to increase output to help rebuild global inventories.
Iran Oil Minister Gholamhossein Nozari told an Iranian newspaper "there was no need to supply more oil as the market was supplied sufficiently and its conditions were stable."
Prices nudged up on news that output from the giant Cantarell oil field in Mexico, one of the top suppliers to the U.S., was expected to fall this year by 200,000 barrels per day (bpd). Production at the field was running at around 1.26 million bpd in December.
Singapore market – Sell into strength
• Market Preview: Singapore shares ended negatively, tracking Wall Street's loss on Friday and investors prefer not holding position ahead of today's Federal Reserve meeting. STI closed down 118.42 points or 3.7% at 3,041.06. The trading volume declined to 1.4 billion valued at S$1.6 billion. The losers outnumbered gainers 593 to 190. Among the hot stocks, Straits Asia Resource rose 7.4% to S$3.35 on the back of soaring coal price and Straits Trading rose 10.9% to S$6.53 as Tecity Group has raised its buyout offer to S$6.50.
• Market is likely to rebound from yesterday sell-down as hopes of another round of Fed fund rate cut increases. During the US 2001 recession, there were three unscheduled cuts in the Fed funds rate by 50 basis points each and all were followed by another round of similar cuts on the immediate scheduled meeting (see Table below). We expect the Fed to cut the Fed funds rate by 50 basis points during this coming Federal Open Market Committee meeting on 29/30 January. Further cut in the Fed fund rate could indicate that the US economy is going down at a more rapid rate or at lease what the Fed thinks the economy would be. If the US and Singapore markets continue to rise on the hope of further rate cut, we are likely to witness selling off after the Fed action.
2001
January February March April May June
3 20 11 15 26/27
Unscheduled -0.50% Unscheduled -0.50% -0.25%
-0.50% 5.00% 4.00% 3.75%
6.00%
30/31 18
-0.50% Unscheduled
5.50% -0.50%
4.50%
July August September October November December
21 13 2 6 11
-0.25% Unscheduled -0.50% -0.50% -0.25%
3.50% 2.50% 2.00% 1.75%
17
Unscheduled
-0.50%
3.00%
Source: US Federal Reserve
• Wall Street: US shares rose after odds increased that the Federal Reserve will cut its benchmark lending rate by half a percentage point this week to prop up the economy. Dow was up 176.72 points or 1.4% while Nasdaq climbed 23.71 points or 1.0% to 2,349.91. According to Fed funds futures, traders see a 86% chance the central bank will cut its benchmark lending rate to 3% from 3.5% on Jan. 30.
• Crude Oil rose US$0.28 to close at US$90.99 per barrel on NYMEX.
Company Highlights
Creative Technology Ltd – Remains profitable with 2Q FY08 net profit of US$7.63m
• Creative Technology Ltd ("Creative"), a computer soundcard and MP3 device manufacturer, posted net profit of US$7.63 million for its 2Q FY08 results, its second profitable quarter in FY08.
• Excluding the 2Q FY07 US$82 million Apple Inc payout, 2Q FY08 net profit saw a YoY decline of 24.5% on falling revenue. Revenue for 2Q FY08 dropped 19.1% to US$262.54 million compared to previous corresponding quarter.
• Creative recently launched a new product in an entirely new category called inPerson. inPerson brings video conferencing to a different level, outside of the boardroom.
• The group targets to further improve their gross margins and achieve overall profitability for its coming third fiscal quarter.
Keppel Telecommunications and Transportation – FY07 profit up 18.8%
• Keppel Telecommunications and Transportation ("Keppel T&T"), an investment and management company, finished its 2007 race with an increase in net profit of 18.8% to S$51.45 million YoY.
• Revenue registered a 10.9% growth to $103.1 million attributed mainly to improved performance in its logistics business segment. Earnings per share rose 17.7% to 9.3 cents.
• The group expects domestic logistics market to grow moderately this year but is optimistic that China's domestic growth outlook will remain strong to provide good backdrop for its logistics operations.
• Keppel T&T recommended a first and final dividend of 6 cents per share tax exempt one-tier, a payout ratio of 64.5%.
• Market is likely to rebound from yesterday sell-down as hopes of another round of Fed fund rate cut increases. During the US 2001 recession, there were three unscheduled cuts in the Fed funds rate by 50 basis points each and all were followed by another round of similar cuts on the immediate scheduled meeting (see Table below). We expect the Fed to cut the Fed funds rate by 50 basis points during this coming Federal Open Market Committee meeting on 29/30 January. Further cut in the Fed fund rate could indicate that the US economy is going down at a more rapid rate or at lease what the Fed thinks the economy would be. If the US and Singapore markets continue to rise on the hope of further rate cut, we are likely to witness selling off after the Fed action.
2001
January February March April May June
3 20 11 15 26/27
Unscheduled -0.50% Unscheduled -0.50% -0.25%
-0.50% 5.00% 4.00% 3.75%
6.00%
30/31 18
-0.50% Unscheduled
5.50% -0.50%
4.50%
July August September October November December
21 13 2 6 11
-0.25% Unscheduled -0.50% -0.50% -0.25%
3.50% 2.50% 2.00% 1.75%
17
Unscheduled
-0.50%
3.00%
Source: US Federal Reserve
• Wall Street: US shares rose after odds increased that the Federal Reserve will cut its benchmark lending rate by half a percentage point this week to prop up the economy. Dow was up 176.72 points or 1.4% while Nasdaq climbed 23.71 points or 1.0% to 2,349.91. According to Fed funds futures, traders see a 86% chance the central bank will cut its benchmark lending rate to 3% from 3.5% on Jan. 30.
• Crude Oil rose US$0.28 to close at US$90.99 per barrel on NYMEX.
Company Highlights
Creative Technology Ltd – Remains profitable with 2Q FY08 net profit of US$7.63m
• Creative Technology Ltd ("Creative"), a computer soundcard and MP3 device manufacturer, posted net profit of US$7.63 million for its 2Q FY08 results, its second profitable quarter in FY08.
• Excluding the 2Q FY07 US$82 million Apple Inc payout, 2Q FY08 net profit saw a YoY decline of 24.5% on falling revenue. Revenue for 2Q FY08 dropped 19.1% to US$262.54 million compared to previous corresponding quarter.
• Creative recently launched a new product in an entirely new category called inPerson. inPerson brings video conferencing to a different level, outside of the boardroom.
• The group targets to further improve their gross margins and achieve overall profitability for its coming third fiscal quarter.
Keppel Telecommunications and Transportation – FY07 profit up 18.8%
• Keppel Telecommunications and Transportation ("Keppel T&T"), an investment and management company, finished its 2007 race with an increase in net profit of 18.8% to S$51.45 million YoY.
• Revenue registered a 10.9% growth to $103.1 million attributed mainly to improved performance in its logistics business segment. Earnings per share rose 17.7% to 9.3 cents.
• The group expects domestic logistics market to grow moderately this year but is optimistic that China's domestic growth outlook will remain strong to provide good backdrop for its logistics operations.
• Keppel T&T recommended a first and final dividend of 6 cents per share tax exempt one-tier, a payout ratio of 64.5%.
China Retail Market Outlook – Our top market pick
The PRC government policy today aims to rebalance the contribution, which is to encourage more domestic consumption instead of continue to rely heavily on exports. Under the growing emphasis of domestic consumption together with the growing affluent especially not only in the coastal cities but also in a good progress to extend to the second and third tier cities, we are very optimistic towards the consumer sector in the year of 2008.
Retail Sales in China, reflecting a strong domestic consumption
With the continuous strong increase of consumer goods spending, we expect the consumer sector will be directly benefited from such rising trend. According to the National Bureau of Statistics of China, total sales of consumer goods reached 826.3 billion yuan, representing 18.1% yoy increase. In the urban area, total retail sales of consumer goods were 559.8 billion yuan, increased by 18.6% compared to the same period last year. In addition, the retail sales for clothing, shoes, hats and textiles increased by 32.6 % yoy. According to the National Bureau of Statistics of China, for the first ten months of 2007, cumulative total retail sales of consumer goods reached 7,209 billion yuan, representing a yoy increase of 16.1%.
Olympic Game- We expect a strong spending effect
The long-waiting Beijing Olympic Game will be held in August 2008, we expect the whole country will be overwhelmed by the game. We believe that June to August will be the peak season for retail sales especially in those provinces with Olympic arenas. Among all the consumer shares, our first top pick is sportswear share with direct relationship with the Olympic Game. In addition, department stores with the benefit from strong surge of tourists during, and the beverage sectors are also our favorites
Investment Recommendations
Given the expected Olympic spending effect, accelerating RMB appreciation, and government policies to boost domestic consumption in the nation, consumer sector is one of our most favorable sectors in 2008. We expect that big retail name will be benefited the most because of their stronger bargaining power to pass increasing costs to customers. And we also expect the consolidation in this industry will go further in 2008, which implies that there will be growing M&A activities in the consumer sector. Our stock pick for this year are those with strong brand name and market leadership position in China. It includes Li Ning (2331.HK), China Mengniu (2319.HK), Tingyi (322.HK), and Parkson (3368.HK).
Retail Sales in China, reflecting a strong domestic consumption
With the continuous strong increase of consumer goods spending, we expect the consumer sector will be directly benefited from such rising trend. According to the National Bureau of Statistics of China, total sales of consumer goods reached 826.3 billion yuan, representing 18.1% yoy increase. In the urban area, total retail sales of consumer goods were 559.8 billion yuan, increased by 18.6% compared to the same period last year. In addition, the retail sales for clothing, shoes, hats and textiles increased by 32.6 % yoy. According to the National Bureau of Statistics of China, for the first ten months of 2007, cumulative total retail sales of consumer goods reached 7,209 billion yuan, representing a yoy increase of 16.1%.
Olympic Game- We expect a strong spending effect
The long-waiting Beijing Olympic Game will be held in August 2008, we expect the whole country will be overwhelmed by the game. We believe that June to August will be the peak season for retail sales especially in those provinces with Olympic arenas. Among all the consumer shares, our first top pick is sportswear share with direct relationship with the Olympic Game. In addition, department stores with the benefit from strong surge of tourists during, and the beverage sectors are also our favorites
Investment Recommendations
Given the expected Olympic spending effect, accelerating RMB appreciation, and government policies to boost domestic consumption in the nation, consumer sector is one of our most favorable sectors in 2008. We expect that big retail name will be benefited the most because of their stronger bargaining power to pass increasing costs to customers. And we also expect the consolidation in this industry will go further in 2008, which implies that there will be growing M&A activities in the consumer sector. Our stock pick for this year are those with strong brand name and market leadership position in China. It includes Li Ning (2331.HK), China Mengniu (2319.HK), Tingyi (322.HK), and Parkson (3368.HK).
DMG Daily 29 Jan 08 - SATS, Keppel T&T, Creative, TSMC, Ascott, BBR, SPH
Market Outlook
The 1.38% fall in the DOW over the weekend was clearly not welcomed by
local investors as the STI opened at 3,109 on Monday which equated to a
1.6% loss, although traders who short-sold the market during the start
of the day got the trend correct as the opening turned out to be the
intraday high of the whole trading session. Shortists were further
encouraged when the Hong Kong market opened and started diving that
eventually pushed the STI to its intraday low of 3,004 that reflected a
4.9% deficit. Short covering then ensued during the mid-afternoon
session as the index eventually ended the day at 3,041.06, equivalent to
a 118.42 point or 3.75% loss. Some respite was offered in the form of
volume and value traded that saw 1.35bn shares that were worth some
$1.64bn change hands, a substantial decline as compared to Friday. On
the scoreboard, losers trashed gainers
593 to 190 while all STI-component counters were in the red. Looking
ahead, expect such wild swings that have been prevalent in these recent
days to continue.
Media Highlights
- SATS Q3 profit flat at $50m
- Keppel T&T full-year profit up 18.8%
- Creative posts second profitable quarter in a row
- TSMC set to post record profits for Q4
- Ascott secures deal to manage Shenzhen property
- BBR wins $95.3m Ascendas contract
- SPH MBO, SPC in digital ad tie-up
Economic Highlights
- Goldman says 60% chance of Japan sliding into recession
- Goldman tells investors to sell S'pore banks
- HK economy will slow this year after 6% growth
The 1.38% fall in the DOW over the weekend was clearly not welcomed by
local investors as the STI opened at 3,109 on Monday which equated to a
1.6% loss, although traders who short-sold the market during the start
of the day got the trend correct as the opening turned out to be the
intraday high of the whole trading session. Shortists were further
encouraged when the Hong Kong market opened and started diving that
eventually pushed the STI to its intraday low of 3,004 that reflected a
4.9% deficit. Short covering then ensued during the mid-afternoon
session as the index eventually ended the day at 3,041.06, equivalent to
a 118.42 point or 3.75% loss. Some respite was offered in the form of
volume and value traded that saw 1.35bn shares that were worth some
$1.64bn change hands, a substantial decline as compared to Friday. On
the scoreboard, losers trashed gainers
593 to 190 while all STI-component counters were in the red. Looking
ahead, expect such wild swings that have been prevalent in these recent
days to continue.
Media Highlights
- SATS Q3 profit flat at $50m
- Keppel T&T full-year profit up 18.8%
- Creative posts second profitable quarter in a row
- TSMC set to post record profits for Q4
- Ascott secures deal to manage Shenzhen property
- BBR wins $95.3m Ascendas contract
- SPH MBO, SPC in digital ad tie-up
Economic Highlights
- Goldman says 60% chance of Japan sliding into recession
- Goldman tells investors to sell S'pore banks
- HK economy will slow this year after 6% growth
The worst market crisis in 60 years
The worst market crisis in 60 years
By George Soros --- Published: January 23 2008
The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.
Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.
Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks' commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of i! nstitutions than ever befor e. That made the crisis more severe than any since the second world war.
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate! the economy comes to an en d.
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
The writer is chairman of Soros Fund Management
The Financial Times Article
By George Soros --- Published: January 23 2008
The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.
Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.
Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks' commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of i! nstitutions than ever befor e. That made the crisis more severe than any since the second world war.
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate! the economy comes to an en d.
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
The writer is chairman of Soros Fund Management
The Financial Times Article
Man Wah Holdings Ltd: More reasons to cheer
Summary: Man Wah Holdings Ltd (MWH) recently revealed its 3Q08 performance. Top-line grew 60.4% to HK$403.4m, bringing its 9M08 revenue to HK$1.1b, largely in line with our forecasts. MWH opened 25 new Cheers stores in 3Q08, bringing the total tally to 195 stores as at December 2007. This puts it on track to meet its target of opening 220 stores by FY08. Its increased retail penetration, together with improvement in same store sales, will continue to drive revenue growth. MWH posted notable improvements in sales across all its geographical segments. While the PRC segment posted the most impressive performance with a 128.6% surge in sales, the North America, Europe and Hong Kong segments shone with sales growth of 52.5%, 27.3% and 70.5%, respectively. Having seen a steep correction in line with the recent market volatility, MWH is trading at a mere 5.1x FY08 PER, which is undemanding given its strong growth prospects. We maintain our BUY rating and fair value estimate of S$0.99. (Lee Wen Ching)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Micro-Mechanics: Good growth continues in 2Q08
Summary: Micro-Mechanics Holdings (MMH) posted a good set of 2Q08 results over the weekend, extending its bright start to FY08, with revenue up 10.4% YoY (+1.4% QoQ) at S$9.7m, while net profit jumped by a larger 19.6% YoY (+1.1% QoQ) to S$2.5m. For the first half, revenue rose 8.7% to S$19.2m and earnings increased 13.9% to S$5.0m, both meeting 48.1% of our FY08 estimates. MMH also declared an interim dividend of S$0.02/share, versus S$0.015 for 1H07. Going forward, the semicon industry outlook remains cautiously optimistic, with industry watchers looking at 6-11% growth, versus just 3% in 2007, but there is a risk that this growth can be derailed by a recession in the US. We will be meeting with management later to find out more about its growth strategies and measures it will take to combat any hiccups. Our fair value remains at $0.78, based on an undemanding 10x FY08 PER, and we see room for further upgrade if the semicon industry recovers strongly as expected. We also retain our BUY rating. (Carey Wong)
NEWS HEADLINES
- SMRT Corp's 3Q net profit fell 5.3% YoY to S$38.3m, largely because the previous corresponding period's profits included exceptional items.
- Wing Tai Holdings reported a 19% YoY drop in 2Q net profit to S$43.6m, with revenue falling a whopping 59% to S$110.7m.
- Singapore's monthly factory output unexpectedly fell a seasonally adjusted 4.7% in December. This has taken 2007 manufacturing growth to 5.8%, half the pace of 11.5% in 2006.
- Youcan Foods International has launched a new range of 23 ice cream products in China, extending its reach to new cities in line with its nationwide expansion plans.
- The Ascott Group's 4Q net profits more than tripled on the back of divestment gains to S$45.4m from S$13.6m a year ago. 4Q revenue rose 14% YoY to S$116.5m.
- Approximately 136m new units in CapitaRetail China Trust were fully subscribed, under a private placement at an issue price of S$1.36 per unit.
- Beng Kuang Marine said it has secured orders worth S$4.4m from key customers.
- According to Reuters, China-based crane manufacturer Yongmao Holdings has priced its Singapore IPO at S$0.35, below its indicative price range of S$0.36-0.40. Yongmao, a unit of crane operator Tat Hong Holdings, seeks to raise about S$39m from the IPO.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Micro-Mechanics: Good growth continues in 2Q08
Summary: Micro-Mechanics Holdings (MMH) posted a good set of 2Q08 results over the weekend, extending its bright start to FY08, with revenue up 10.4% YoY (+1.4% QoQ) at S$9.7m, while net profit jumped by a larger 19.6% YoY (+1.1% QoQ) to S$2.5m. For the first half, revenue rose 8.7% to S$19.2m and earnings increased 13.9% to S$5.0m, both meeting 48.1% of our FY08 estimates. MMH also declared an interim dividend of S$0.02/share, versus S$0.015 for 1H07. Going forward, the semicon industry outlook remains cautiously optimistic, with industry watchers looking at 6-11% growth, versus just 3% in 2007, but there is a risk that this growth can be derailed by a recession in the US. We will be meeting with management later to find out more about its growth strategies and measures it will take to combat any hiccups. Our fair value remains at $0.78, based on an undemanding 10x FY08 PER, and we see room for further upgrade if the semicon industry recovers strongly as expected. We also retain our BUY rating. (Carey Wong)
NEWS HEADLINES
- SMRT Corp's 3Q net profit fell 5.3% YoY to S$38.3m, largely because the previous corresponding period's profits included exceptional items.
- Wing Tai Holdings reported a 19% YoY drop in 2Q net profit to S$43.6m, with revenue falling a whopping 59% to S$110.7m.
- Singapore's monthly factory output unexpectedly fell a seasonally adjusted 4.7% in December. This has taken 2007 manufacturing growth to 5.8%, half the pace of 11.5% in 2006.
- Youcan Foods International has launched a new range of 23 ice cream products in China, extending its reach to new cities in line with its nationwide expansion plans.
- The Ascott Group's 4Q net profits more than tripled on the back of divestment gains to S$45.4m from S$13.6m a year ago. 4Q revenue rose 14% YoY to S$116.5m.
- Approximately 136m new units in CapitaRetail China Trust were fully subscribed, under a private placement at an issue price of S$1.36 per unit.
- Beng Kuang Marine said it has secured orders worth S$4.4m from key customers.
- According to Reuters, China-based crane manufacturer Yongmao Holdings has priced its Singapore IPO at S$0.35, below its indicative price range of S$0.36-0.40. Yongmao, a unit of crane operator Tat Hong Holdings, seeks to raise about S$39m from the IPO.
SMRT Steadily on Track
Story: 3Q08 results were within expectations as SMRT's bottom line fell by
5.3% to S$38.3m even as operating revenue rose by 7.3% yoy to S$202m. YTD,
9M08 earnings were up by 17% yoy to S$115.8m on top line growth of 6.7% to
S$594m.
Point: We remain sanguine about SMRT's prospects, as it continues to
benefit from Singapore's strong economy. Ridership should continue to
increase modestly whilst fares remain relatively stable and we believe that
the Group can register high single digit earnings growth over the next few
years.
Relevance: We maintain our HOLD call for SMRT as we believe it is fairly
valued, offering a prospective yield of less than 5%. Our S$1.78 target
price is based on target 4.5% net yield for FY09.
5.3% to S$38.3m even as operating revenue rose by 7.3% yoy to S$202m. YTD,
9M08 earnings were up by 17% yoy to S$115.8m on top line growth of 6.7% to
S$594m.
Point: We remain sanguine about SMRT's prospects, as it continues to
benefit from Singapore's strong economy. Ridership should continue to
increase modestly whilst fares remain relatively stable and we believe that
the Group can register high single digit earnings growth over the next few
years.
Relevance: We maintain our HOLD call for SMRT as we believe it is fairly
valued, offering a prospective yield of less than 5%. Our S$1.78 target
price is based on target 4.5% net yield for FY09.
MobileOne Ltd- Steady State in 2008
Summary: Although MobileOne's (M1) 4Q07 revenue of S$206.9m (+2.9% YoY, +3.3% QoQ) came in 16.5% ahead of our forecast of S$177.6m, net profit of S$37.9m (- 4.8% YoY, -13.1% QoQ) fell about 9.4% from our S$41.9m estimate, damped by higher cost of sales. For the full year, M1 posted a 3.9% YoY rise in revenue to S$803.3m and a 4.4% increase in net profit to S$171.8m. M1 also declared a final dividend of S$0.083, bringing the total dividend to S$0.108. Going forward, M1 believes its operations should enter a "steady state", where it should be able to maintain its EBITDA margin at 45-46% as well as a payout ratio of at least 80%. Thanks to its fairly resilient business and high payout ratio, we continue to like M1 as a defensive stock, especially in the current volatile market. We maintain our S$2.33 fair value and BUY rating.
China Oilfield Technology- Stock battered but fundamentals unshaken
Summary: We visited China Oilfield Technology (COT) recently and believe the potential for enhanced oil recovery and COT's core business remains more than intact because of the mismatch between China's strong and growing demand for oil and its peaking domestic supply. COT has successfully delivered its RMB 100m order book for 4Q07, which is in line with our projection. We also expect to see more order visibility for FY08 as the year progresses. With its expertise in its core business and a strong asset base, we believe COT can sustain growth by 1) expanding its portfolio of services or 2) entering into a strategic alliance. We believe COT's fundamental story remains compelling, which is why we are maintaining our fair value estimate of S$1.01. COT is currently trading at S$0.49 or 52% below our fair value estimate. We reiterate our BUY rating.
RTRS-DIARY - Singapore Q4 2007 corporate earnings
DATE COMPANY NAME RIC PERIOD
----------------------------------------------------------------
Jan 23 K-REIT Asia < KASA.SI> Q4
Jan 24 CapitaCommercial Trust Q4
Jan 24 MobileOne < MONE.SI> Q4
Jan 25 Ascott Group Q4
Jan 25 SMRT Corp < SMRT.SI> Q3
Jan 29 Fortune REIT (HK$) Q4
Jan 29 Keppel Land < KLAN.SI> Q4
Jan 30 Singapore Petroleum Corp Q4
*Jan 30 Singapore Post < SPOS.SI> Q3
Jan 31 Keppel Corp Q4
*Jan 31 Creative Technology < CREA.SI> Q2
*Jan 31 GuocoLand Q2
Feb 1 Chartered Semiconductor Manufacturing < CSMF.SI> Q4
Feb 1 Datacraft Asia (US$) Q1
Feb 1 SIA Engineering < SIAE.SI> Q3
Feb 1 Singapore Airlines Q3
Feb 1 Singapore Airport Terminal Services < SIAT.SI> Q3
Feb 5 Singapore Telecommunications Q3
*Feb 9 Asia Pacific Breweries < APBB.SI> Q1
*Feb 9 Fraser & Neave Q1
*Feb 9 Singapore Food Inds < SFIL.SI> Q4
Feb 12 Neptune Orient Lines (US$) Q4
*Feb 12 Cosco Corp (Singapore) < COSC.SI> Q4
Feb 13 StarHub Q4
*Feb 13 Olam International < OLAM.SI> Q2
*Feb 13 Singapore Technologies Engineering Q4
*Feb 14 CapitaLand < CATL.SI> Q4
Feb 15 ComfortDelgro Q4
Feb 15 DBS Group Holdings < DBSM.SI> Q4
Feb 15 Venture Corp Q4
*Feb 15 Wilmar (US$) < WLIL.SI> Q4
*Feb 15 SembCorp Marine Q4
*Feb 16 SembCorp Industries < SCIL.SI> Q4
Feb 19 Great Eastern Holdings Q4
*Feb 20 Overseas Union Enterprise < OVES.SI> Q4
*Feb 20 United Overseas Land Q4
Feb 21 Oversea-Chinese Banking Corp < OCBC.SI> Q4
*Feb 22 Haw Par Corp Q4
*Feb 23 United Industrial Corp < UICS.SI> Q4
Feb 26 Noble Group Q4
*Feb 26 Allgreen Properties < AGRN.SI> Q4
*Feb 26 Parkway Holdings Q4
*Feb 27 China Aviation Oil (Singapore) < CNAO.SI> Q4
*Feb 27 Thai Beverage (Thai baht) Q4
*Feb 28 City Developments < CTDM.SI> Q4
*Feb 28 Hyflux Q4
*Feb 28 People's Food Holdings < PPFH.SI> Q4
*Feb 28 STX Pan Ocean (US$) Q4
*Feb 28 United Overseas Bank < UOBH.SI> Q4
*Feb 28 Yanlord Land Q4
*Mar 1 Jardine Cycle & Carriage (US$) < JCYC.SI> Q4
* Yangzijiang Shipbuilding Q4
________________________________________
Companies that have released their earnings data so far:
Jan 14 Singapore Press Hldgs Q1
Jan 15 Singapore Exchange < SGXL.SI> Q2
Jan 18 Ascendas REIT Q3
Jan 22 CapitaMall Trust Management < CMLT.SI> Q4
________________________________________
COMPANY NAME DATE PERIOD
---------------------------------------------------------
Allgreen Properties *Feb 26 Q4
Ascendas REIT Jan 18 Q3
Ascott Group Jan 25 Q4
Asia Pacific Breweries *Feb 9 Q1
CapitaCommercial Trust Jan 24 Q4
CapitaLand *Feb 14 Q4
CapitaMall Trust Management Jan 22 Q4
Chartered Semiconductor Mfg Feb 1 Q4
China Aviation Oil (Singapore) *Feb 27 Q4
City Developments *Feb 28 Q4
ComfortDelgro Feb 15 Q4
Cosco Corp (Singapore) *Feb 12 Q4
Creative Technology *Jan 31 Q2
Datacraft Asia (US$) Feb 1 Q1
DBS Group Holdings Feb 15 Q4
Fortune REIT (HK$) Jan 29 Q4
Fraser & Neave *Feb 9 Q1
Great Eastern Holdings Feb 19 Q4
GuocoLand *Jan 31 Q2
Haw Par Corp *Feb 22 Q4
Hyflux *Feb 28 Q4
Jardine Cycle & Carriage (US$) *Mar 1 Q4
K-REIT Jan 23 Q4
Keppel Corp Jan 31 Q4
Keppel Land Jan 29 Q4
MobileOne Jan 24 Q4
Neptune Orient Lines (US$) Feb 12 Q4
Noble Group Feb 26 Q4
Olam International *Feb 13 Q2
Oversea-Chinese Banking Corp Feb 21 Q4
Overseas Union Enterprise *Feb 20 Q4
Parkway Holdings *Feb 26 Q4
People's Food Holdings *Feb 28 Q4
SembCorp Industries *Feb 16 Q4
SembCorp Marine *Feb 15 Q4
SIA Engineering Feb 1 Q3
Singapore Airlines Feb 1 Q3
Singapore Airport Terminal Svcs Feb 1 Q3
Singapore Exchange Jan 15 Q2
Singapore Food Inds *Feb 9 Q4
Singapore Petroleum Corp Jan 30 Q4
Singapore Post *Jan 30 Q3
Singapore Press Hldgs Jan 14 Q1
Singapore Technologies Engg *Feb 13 Q4
Singapore Telecommunications Feb 5 Q3
SMRT Corp Jan 25 Q3
StarHub Feb 13 Q4
STX Pan Ocean (US$) *Feb 28 Q4
Thai Beverage (Thai baht) *Feb 27 Q4
United Industrial Corp *Feb 23 Q4
United Overseas Bank *Feb 28 Q4
United Overseas Land *Feb 20 Q4
Venture Corp Feb 15 Q4
Wilmar (US$) *Feb 15 Q4
Yangzijiang Shipbuilding * Q4
Yanlord Land *Feb 28 Q4
----------------------------------------------------------------
Jan 23 K-REIT Asia < KASA.SI> Q4
Jan 24 CapitaCommercial Trust
Jan 24 MobileOne < MONE.SI> Q4
Jan 25 Ascott Group
Jan 25 SMRT Corp < SMRT.SI> Q3
Jan 29 Fortune REIT (HK$)
Jan 29 Keppel Land < KLAN.SI> Q4
Jan 30 Singapore Petroleum Corp
*Jan 30 Singapore Post < SPOS.SI> Q3
Jan 31 Keppel Corp
*Jan 31 Creative Technology < CREA.SI> Q2
*Jan 31 GuocoLand
Feb 1 Chartered Semiconductor Manufacturing < CSMF.SI> Q4
Feb 1 Datacraft Asia (US$)
Feb 1 SIA Engineering < SIAE.SI> Q3
Feb 1 Singapore Airlines
Feb 1 Singapore Airport Terminal Services < SIAT.SI> Q3
Feb 5 Singapore Telecommunications
*Feb 9 Asia Pacific Breweries < APBB.SI> Q1
*Feb 9 Fraser & Neave
*Feb 9 Singapore Food Inds < SFIL.SI> Q4
Feb 12 Neptune Orient Lines (US$)
*Feb 12 Cosco Corp (Singapore) < COSC.SI> Q4
Feb 13 StarHub
*Feb 13 Olam International < OLAM.SI> Q2
*Feb 13 Singapore Technologies Engineering
*Feb 14 CapitaLand < CATL.SI> Q4
Feb 15 ComfortDelgro
Feb 15 DBS Group Holdings < DBSM.SI> Q4
Feb 15 Venture Corp
*Feb 15 Wilmar (US$) < WLIL.SI> Q4
*Feb 15 SembCorp Marine
*Feb 16 SembCorp Industries < SCIL.SI> Q4
Feb 19 Great Eastern Holdings
*Feb 20 Overseas Union Enterprise < OVES.SI> Q4
*Feb 20 United Overseas Land
Feb 21 Oversea-Chinese Banking Corp < OCBC.SI> Q4
*Feb 22 Haw Par Corp
*Feb 23 United Industrial Corp < UICS.SI> Q4
Feb 26 Noble Group
*Feb 26 Allgreen Properties < AGRN.SI> Q4
*Feb 26 Parkway Holdings
*Feb 27 China Aviation Oil (Singapore) < CNAO.SI> Q4
*Feb 27 Thai Beverage (Thai baht)
*Feb 28 City Developments < CTDM.SI> Q4
*Feb 28 Hyflux
*Feb 28 People's Food Holdings < PPFH.SI> Q4
*Feb 28 STX Pan Ocean (US$)
*Feb 28 United Overseas Bank < UOBH.SI> Q4
*Feb 28 Yanlord Land
*Mar 1 Jardine Cycle & Carriage (US$) < JCYC.SI> Q4
* Yangzijiang Shipbuilding
________________________________________
Companies that have released their earnings data so far:
Jan 14 Singapore Press Hldgs
Jan 15 Singapore Exchange < SGXL.SI> Q2
Jan 18 Ascendas REIT
Jan 22 CapitaMall Trust Management < CMLT.SI> Q4
________________________________________
COMPANY NAME DATE PERIOD
---------------------------------------------------------
Allgreen Properties *Feb 26 Q4
Ascendas REIT Jan 18 Q3
Ascott Group Jan 25 Q4
Asia Pacific Breweries *Feb 9 Q1
CapitaCommercial Trust Jan 24 Q4
CapitaLand *Feb 14 Q4
CapitaMall Trust Management Jan 22 Q4
Chartered Semiconductor Mfg Feb 1 Q4
China Aviation Oil (Singapore) *Feb 27 Q4
City Developments *Feb 28 Q4
ComfortDelgro Feb 15 Q4
Cosco Corp (Singapore) *Feb 12 Q4
Creative Technology *Jan 31 Q2
Datacraft Asia (US$) Feb 1 Q1
DBS Group Holdings Feb 15 Q4
Fortune REIT (HK$) Jan 29 Q4
Fraser & Neave *Feb 9 Q1
Great Eastern Holdings Feb 19 Q4
GuocoLand *Jan 31 Q2
Haw Par Corp *Feb 22 Q4
Hyflux *Feb 28 Q4
Jardine Cycle & Carriage (US$) *Mar 1 Q4
K-REIT Jan 23 Q4
Keppel Corp Jan 31 Q4
Keppel Land Jan 29 Q4
MobileOne Jan 24 Q4
Neptune Orient Lines (US$) Feb 12 Q4
Noble Group Feb 26 Q4
Olam International *Feb 13 Q2
Oversea-Chinese Banking Corp Feb 21 Q4
Overseas Union Enterprise *Feb 20 Q4
Parkway Holdings *Feb 26 Q4
People's Food Holdings *Feb 28 Q4
SembCorp Industries *Feb 16 Q4
SembCorp Marine *Feb 15 Q4
SIA Engineering Feb 1 Q3
Singapore Airlines Feb 1 Q3
Singapore Airport Terminal Svcs Feb 1 Q3
Singapore Exchange Jan 15 Q2
Singapore Food Inds *Feb 9 Q4
Singapore Petroleum Corp Jan 30 Q4
Singapore Post *Jan 30 Q3
Singapore Press Hldgs Jan 14 Q1
Singapore Technologies Engg *Feb 13 Q4
Singapore Telecommunications Feb 5 Q3
SMRT Corp Jan 25 Q3
StarHub Feb 13 Q4
STX Pan Ocean (US$) *Feb 28 Q4
Thai Beverage (Thai baht) *Feb 27 Q4
United Industrial Corp *Feb 23 Q4
United Overseas Bank *Feb 28 Q4
United Overseas Land *Feb 20 Q4
Venture Corp Feb 15 Q4
Wilmar (US$) *Feb 15 Q4
Yangzijiang Shipbuilding * Q4
Yanlord Land *Feb 28 Q4
COSCO Corporation (S)
Secures first new building contracts for shuttle tankers
COSCO Corporation (S) (COS (S)) has announced that it's 51% owned subsidiary COSCO Shipyard Group (CSG) has secured US$422m worth of building and conversion contracts.
First shuttle tanker newbuilding contracts for CSG
CSG's COSCO Nantong will be undertaking the construction of two new shuttle tankers for US$171.6m. These contracts are significant as they are CSG's first tanker new building contracts. In FY07, about 70% of CSG's orderbook was driven by dry bulk new builds. We see this diversification into other shipbuilding projects as a strong positive for COS (S). The two tankers are expected to be delivered in 2010 and 2011 hence we should see significant contributions to COS (S)'s earnings from these contracts only between FY09-11.
The usual conversion contracts
In addition to the new building contracts, CSG has secured US$250m worth of conversion contracts. These are the usual tanker to ore/ FPSO contracts they have been undertaking for the past two years and they are expected to be completed within FY08 and should contribute positively to FY08 earnings.
Maintain BUY. Target price raised to S$8.60. We continue to like COS (S) given its exceptional order flow, aggressive expansion plans and strong earnings momentum. Other potential earnings catalysts we could see are interests by QDII funds, future M&A activities as well as a Shanghai 'A' share listing. We maintain our BUY recommendation on COS (S) with a target price of S$8.60.
COSCO Corporation (S) (COS (S)) has announced that it's 51% owned subsidiary COSCO Shipyard Group (CSG) has secured US$422m worth of building and conversion contracts.
First shuttle tanker newbuilding contracts for CSG
CSG's COSCO Nantong will be undertaking the construction of two new shuttle tankers for US$171.6m. These contracts are significant as they are CSG's first tanker new building contracts. In FY07, about 70% of CSG's orderbook was driven by dry bulk new builds. We see this diversification into other shipbuilding projects as a strong positive for COS (S). The two tankers are expected to be delivered in 2010 and 2011 hence we should see significant contributions to COS (S)'s earnings from these contracts only between FY09-11.
The usual conversion contracts
In addition to the new building contracts, CSG has secured US$250m worth of conversion contracts. These are the usual tanker to ore/ FPSO contracts they have been undertaking for the past two years and they are expected to be completed within FY08 and should contribute positively to FY08 earnings.
Maintain BUY. Target price raised to S$8.60. We continue to like COS (S) given its exceptional order flow, aggressive expansion plans and strong earnings momentum. Other potential earnings catalysts we could see are interests by QDII funds, future M&A activities as well as a Shanghai 'A' share listing. We maintain our BUY recommendation on COS (S) with a target price of S$8.60.
Federal International (2000) Limited: Valuation hit by weak market sentiment
Summary: Federal International (2000) Limited (Federal) announced last week that it would be expanding its geographical focus to the Middle East market in its distribution and trading business division. There has been a shift towards a recurring and sustainable income stream over the past two years. This included the chartering of the FSO contract to PetroChina and the BOO CoGen facility projects both locally and regionally. This strategy towards attaining a recurring income stream was further augmented through the divestment of HP&T Products Inc last November. In view of present lower market and sector valuations, we are adjusting our valuation parameter from 15x to 12x, while keeping our FY07 and FY08 forecasted earnings estimates. Our fair value estimate has been revised to S$0.81 (from S$1.02 previously). Maintain BUY. (Serene Lim)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- K-Reit Asia, which posted a 62.6% YoY gain in 4Q07 distributable income to S$6.9m and annualized DPU of S$0.0882, has proposed a rights issue to raise up to S$700m.
- Mapletree Logistics Trust, which posted a 77.9% YoY jump in FY07 distributable income to S$71.8m and a 29.8% gain in DPU to S$0.0657, has deferred its proposed S$500m rights issue.
- Ascott Residence Trust reported a 54% YoY rise in 4Q07 distributable income to S$12.8m and a 28% gain in DPU to S$0.0212, on the back of new acquisitions and strong operating performance.
- Ascendas India Trust posted 3Q08 distributable income of $11.3m, net property income of S$15.7m (+57% YoY) and a DPU of S$0.015, due to continued high portfolio occupancy of 99%, rising average rental rate and constant focus on cost efficiency.
- Cosco Corporation (S) Ltd has won conversion and tanker building contracts totaling US$422m.
- Sino-Environment Tech has secured two desulphurization contracts in China totaling S$35.9m.
- A unit of Keppel Offshore and Marine has won an S$145m contract for the integration and completion of a 'Bully' rig design drill-ship.
- Parkway Holdings Ltd, which already owns 60% of World Link, has signed a deal to purchase the remaining stake for US$28m.
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- K-Reit Asia, which posted a 62.6% YoY gain in 4Q07 distributable income to S$6.9m and annualized DPU of S$0.0882, has proposed a rights issue to raise up to S$700m.
- Mapletree Logistics Trust, which posted a 77.9% YoY jump in FY07 distributable income to S$71.8m and a 29.8% gain in DPU to S$0.0657, has deferred its proposed S$500m rights issue.
- Ascott Residence Trust reported a 54% YoY rise in 4Q07 distributable income to S$12.8m and a 28% gain in DPU to S$0.0212, on the back of new acquisitions and strong operating performance.
- Ascendas India Trust posted 3Q08 distributable income of $11.3m, net property income of S$15.7m (+57% YoY) and a DPU of S$0.015, due to continued high portfolio occupancy of 99%, rising average rental rate and constant focus on cost efficiency.
- Cosco Corporation (S) Ltd has won conversion and tanker building contracts totaling US$422m.
- Sino-Environment Tech has secured two desulphurization contracts in China totaling S$35.9m.
- A unit of Keppel Offshore and Marine has won an S$145m contract for the integration and completion of a 'Bully' rig design drill-ship.
- Parkway Holdings Ltd, which already owns 60% of World Link, has signed a deal to purchase the remaining stake for US$28m.
Societe Generale to Seek EU5.5 Billion After Fraud, W
Jan. 24 (Bloomberg) -- Societe Generale SA said it will seek
5.5 billion euros ($8.1 billion) in new capital after discovering
a case of trading fraud and taking further writedowns linked to
the U.S. subprime mortgage market crash.
The bank discovered last weekend that a trader in Paris had
secretly set up positions that will cost the company 4.9 billion
euros before tax, Societe Generale said in an e-mailed statement
today. The trader, who wasn't identified, went beyond permitted
limits on futures linked to European stock indexes.
Societe Generale will also take 2.05 billion euros in
writedowns related to credit market turbulence. The bank said it
will still make a profit of between 600 million euros and 800
million euros for 2007. An offer by Chairman Daniel Bouton to
resign was rejected by the board, the bank said.
Societe Generale yesterday fell 4.1 percent to 79.08 euros,
its lowest since May 2005, valuing the bank at 36 billion euros.
The shares have fallen 20 percent since the start of the year,
hurt by expectations of further writedowns.
The company said it plans to raise the capital by selling
shares in a rights offer underwritten by JPMorgan Chase & Co. and
Morgan Stanley.
5.5 billion euros ($8.1 billion) in new capital after discovering
a case of trading fraud and taking further writedowns linked to
the U.S. subprime mortgage market crash.
The bank discovered last weekend that a trader in Paris had
secretly set up positions that will cost the company 4.9 billion
euros before tax, Societe Generale said in an e-mailed statement
today. The trader, who wasn't identified, went beyond permitted
limits on futures linked to European stock indexes.
Societe Generale will also take 2.05 billion euros in
writedowns related to credit market turbulence. The bank said it
will still make a profit of between 600 million euros and 800
million euros for 2007. An offer by Chairman Daniel Bouton to
resign was rejected by the board, the bank said.
Societe Generale yesterday fell 4.1 percent to 79.08 euros,
its lowest since May 2005, valuing the bank at 36 billion euros.
The shares have fallen 20 percent since the start of the year,
hurt by expectations of further writedowns.
The company said it plans to raise the capital by selling
shares in a rights offer underwritten by JPMorgan Chase & Co. and
Morgan Stanley.
Oops! The Baltic Dry Index breaks 6000
Last night the Baltic Dry Index (BDI) fell 298 points and broke the crucial 6000 mark to close at 5948. The BDI is a proxy to dry bulk shipping freight rates.
I reiterate my view that investors who are looking to buy dry bulk shipping stocks for 2H08's potential freight rate rebound (after a seasonally low in early part of the year) should wait for the BDI to stabilise before entering the stocks. At this juncture, it is hard to predict where dry bulk shipping rates are going to land.
I continue to hold the view that dry bulk shipping stocks at best are trading stocks in 2008. Investors should look to trim these stocks as 2009 approaches. The current large ship orderbook of 56% of global fleet is indeed a concern and will lead to excess fleet capacity from 2009 onwards.
I reiterate my view that investors who are looking to buy dry bulk shipping stocks for 2H08's potential freight rate rebound (after a seasonally low in early part of the year) should wait for the BDI to stabilise before entering the stocks. At this juncture, it is hard to predict where dry bulk shipping rates are going to land.
I continue to hold the view that dry bulk shipping stocks at best are trading stocks in 2008. Investors should look to trim these stocks as 2009 approaches. The current large ship orderbook of 56% of global fleet is indeed a concern and will lead to excess fleet capacity from 2009 onwards.
Be careful on China XLX.
Jan. 24, 2008 (China Knowledge) - The National Development and Reform
Commission
(NDRC), China's top economic planner, has announced yesterday at a warning
conference on price control of fertilizer, that it will extend a price
control
policy to fertilizer, a move to protect farmers' welfare and China's food
security.
According to the NDRC senior official who made the announcement, fertilizer
makers run by the central government should not raise the ex-factory prices
of
urea while fertilizer manufacturers run by local governments should
strictly
control their ex-factory prices of urea, phosphate fertilizer as well as
compound fertilizer. Private companies are required to seek official
approval
when they intend to raise prices.
The interim price intervention covers the spring plowing period.
Prior to this decision to extend price intervention to fertilizer, it was
predicted to have continuous price rises.
Statistics show the ex-factory prices of urea and compound fertilizer have
risen
to RMB 1,725 (US$238.6) per ton and RMB 2,600 (US$359.6) per ton,
respectively,
both up more than 30% year-on-year.
Analysts attributed these price rises to international price interaction,
cost
increase and China's lack of phosphorus and potassium resources.
Fertilizer is one of the most important means of production for farming, so
farmers may suffer from the rising costs especially since the plowing
season is
coming.
The government thus faces a dilemma of having to curb the agricultural
product
prices to tackle inflation on the one hand, and maintain the farmers'
enthusiasm
on
Commission
(NDRC), China's top economic planner, has announced yesterday at a warning
conference on price control of fertilizer, that it will extend a price
control
policy to fertilizer, a move to protect farmers' welfare and China's food
security.
According to the NDRC senior official who made the announcement, fertilizer
makers run by the central government should not raise the ex-factory prices
of
urea while fertilizer manufacturers run by local governments should
strictly
control their ex-factory prices of urea, phosphate fertilizer as well as
compound fertilizer. Private companies are required to seek official
approval
when they intend to raise prices.
The interim price intervention covers the spring plowing period.
Prior to this decision to extend price intervention to fertilizer, it was
predicted to have continuous price rises.
Statistics show the ex-factory prices of urea and compound fertilizer have
risen
to RMB 1,725 (US$238.6) per ton and RMB 2,600 (US$359.6) per ton,
respectively,
both up more than 30% year-on-year.
Analysts attributed these price rises to international price interaction,
cost
increase and China's lack of phosphorus and potassium resources.
Fertilizer is one of the most important means of production for farming, so
farmers may suffer from the rising costs especially since the plowing
season is
coming.
The government thus faces a dilemma of having to curb the agricultural
product
prices to tackle inflation on the one hand, and maintain the farmers'
enthusiasm
on
Mercator - Initiate coverage by DB
Strong share price gains expected. Initiate with Buy.
Mercator Lines (MLS) distinguishes itself from other dry bulk shipping
companies
we cover due to its significant exposure to the Indian market and its
aggressive
growth targets. We expect a continued strong rate environment in the dry
bulk
sector over the next 18 months and see MLS registering EPS growth of 147%
in
FY09 and 67% in FY10. We think P/Es of 2.6x and 1.6x FYMar09-10 and P/B of
0.8x versus 37% ROE for FY09 look attractive. The market has over-punished
this
stock because of the recent BDI decline, in our view.(See attached file:
Mercator 25 Jan 08 DB.pdf)
Mercator Lines (MLS) distinguishes itself from other dry bulk shipping
companies
we cover due to its significant exposure to the Indian market and its
aggressive
growth targets. We expect a continued strong rate environment in the dry
bulk
sector over the next 18 months and see MLS registering EPS growth of 147%
in
FY09 and 67% in FY10. We think P/Es of 2.6x and 1.6x FYMar09-10 and P/B of
0.8x versus 37% ROE for FY09 look attractive. The market has over-punished
this
stock because of the recent BDI decline, in our view.(See attached file:
Mercator 25 Jan 08 DB.pdf)
Market Outlook
As trading started on Thursday the STI rose 4.33%, continuing from
its
rebound on Wednesday. At midday, the blue chip index was 129.31
points
higher at 3,112.93 after dropping 7.76% during the first two days of
the
week. However, as the afternoon session started the STI came off from
its
early morning surge. The STI closed 66.47 points higher at 3,050.09
with a total volume of 2.4b shares traded worth $3.4b. Gainers beat
losers 594 to
288 respectively. Leading the STI up were SGX, DBS, UOB, and Cosco.
With their efforts they pushed the STI up a total of 41.53 points.
Leading the STI down was Singtel which lowered the index by 6.6
points. SGX closed
$0.91 up at $10.10, DBS gained $0.66 and closed $18.46 higher, UOB
closed
$0.56 higher at $17.58, and Cosco rose $0.48 closing at $4.68.
Singtel lost $0.07 and finished at $3.69. With the strong surge in
the STI on Thursday we expect our local market to remain
volatile, and strongly supported by the blue chips.
Media Highlights
- M1 posts 4.8% fall in Q4 net profit to $37.9m
- CCT posts 14.5% rise in Q4 distributable income
- Winstedt Chong makes offer after raising Vita stake
- SIA proves luckier than smart by losing China Eastern deal
- BH Global rides high on regional demand
- GuocoLeisure net hits US$15.8m
- Evergro hit by lower divestment gain
Economic Highlights
- China economy expands 11.4%
- US$1 US farm subsidy cut could lead to pact: India
its
rebound on Wednesday. At midday, the blue chip index was 129.31
points
higher at 3,112.93 after dropping 7.76% during the first two days of
the
week. However, as the afternoon session started the STI came off from
its
early morning surge. The STI closed 66.47 points higher at 3,050.09
with a total volume of 2.4b shares traded worth $3.4b. Gainers beat
losers 594 to
288 respectively. Leading the STI up were SGX, DBS, UOB, and Cosco.
With their efforts they pushed the STI up a total of 41.53 points.
Leading the STI down was Singtel which lowered the index by 6.6
points. SGX closed
$0.91 up at $10.10, DBS gained $0.66 and closed $18.46 higher, UOB
closed
$0.56 higher at $17.58, and Cosco rose $0.48 closing at $4.68.
Singtel lost $0.07 and finished at $3.69. With the strong surge in
the STI on Thursday we expect our local market to remain
volatile, and strongly supported by the blue chips.
Media Highlights
- M1 posts 4.8% fall in Q4 net profit to $37.9m
- CCT posts 14.5% rise in Q4 distributable income
- Winstedt Chong makes offer after raising Vita stake
- SIA proves luckier than smart by losing China Eastern deal
- BH Global rides high on regional demand
- GuocoLeisure net hits US$15.8m
- Evergro hit by lower divestment gain
Economic Highlights
- China economy expands 11.4%
- US$1 US farm subsidy cut could lead to pact: India
MobileOne Ltd: Steady State in 2008
Summary : Although MobileOne's (M1) 4Q07 revenue of S$206.9m (+2.9% YoY, +3.3% QoQ) came in 16.5% ahead of our forecast of S$177.6m, net profit of S$37.9m (-4.8% YoY, -13.1% QoQ) fell about 9.4% from our S$41.9m estimate, damped by higher cost of sales. For the full year, M1 posted a 3.9% YoY rise in revenue to S$803.3m and a 4.4% increase in net profit to S$171.8m. M1 also declared a final dividend of S$0.083, bringing the total dividend to S$0.108. Going forward, M1 believes its operations should enter a "steady state", where it should be able to maintain its EBITDA margin at 45-46% as well as a payout ratio of at least 80%. Thanks to its fairly resilient business and high payout ratio, we continue to like M1 as a defensive stock, especially in the current volatile market. We maintain our S$2.33 fair value and BUY rating. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
China Oilfield Technology: Stock battered but fundamentals unshaken
Summary : We visited China Oilfield Technology (COT) recently and believe the potential for enhanced oil recovery and COT's core business remains more than intact because of the mismatch between China's strong and growing demand for oil and its peaking domestic supply. COT has successfully delivered its RMB 100m order book for 4Q07, which is in line with our projection. We also expect to see more order visibility for FY08 as the year progresses. With its expertise in its core business and a strong asset base, we believe COT can sustain growth by 1) expanding its portfolio of services or 2) entering into a strategic alliance. We believe COT's fundamental story remains compelling, which is why we are maintaining our fair value estimate of S$1.01. COT is currently trading at S$0.49 or 52% below our fair value estimate. We reiterate our BUY rating. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
S-Shares: Boost from liquidity influx
Summary: China has recently signed a MOU that will allow its banks to invest in Singapore investments including stocks. This long-awaited move frees up an estimated S$23.2b pool of funds that could potentially be pumped into locally listed stocks. We expect this potential influx of liquidity to spark an upward re-rating of S-Shares. In our strategy report dated 14 December 2007, we highlighted our stock picks among the S-Shares universe. We continue to favour the China consumer sector for its ability to leverage on China's strong consumption growth, and the Manufacturing sector for its strategic advantage of having a low cost manufacturing base. Our stock picks remain as: Cacola Furniture International Ltd (BUY, fair value estimate of S$0.75), Man Wah Holdings Ltd (BUY, S$0.99), China Sports International Ltd (BUY, S$2.48), and Pacific Andes Holdings Ltd (BUY, S$0.87) for the consumer sector, and Bright World Precision Machinery Ltd (BUY, S$0.76), Dutech Holdings Ltd (BUY, S$0.535), Midas Holdings Ltd (BUY, S$1.85) and Midsouth Holdings Ltd (BUY, S$0.90) for the manufacturing sector. (Lee Wen Ching)
NEWS HEADLINES
- CapitaCommercial Trust posted a 53% YoY jump in FY07 distributable income to S$120.4m and 19% gain in DPU to S$0.087, due to consolidation of its 60% interest in the Raffles City complex and higher rental, car park & other income from its properties.
- GuocoLeisure posted a 464% YoY surge in 2Q08 net profit to S$15.8m and 31% gain in revenue to US$134.8m, attributable to better occupancy & room rates from its Thistle hotel chain in UK, higher sales of properties in Fiji and the strong British pound.
- BH Global Marine registered a 56% YoY gain in FY07 net profit to S$17.5m and 39% increase in revenue to S$81.9m, helped by regional strong demand for its products & services.
- Dayen Environmental Limited has secured two contracts totaling S$4.1m from the Public Utilities Board.
- Hyflux Ltd has clinched three municipal water treatment plant projects in China totaling some S$41m in investments.
- Bio-Treat Technology is raising funds of up to S$303m in notes, warrants and a loan from Precious Wise Group to fund projects and redeem its convertible bonds. Also, it entered into a securities purchase agreement with Abax Lotus for RMB434m in notes and warrants.
- Vita Holdings Ltd's major shareholder Winstedt Chong Thim Pheng upped his stake from 29.74% to 36.05%, triggering a mandatory conditional cash offer for the remaining shares.
Please refer to the full report for more information and additional disclosures
For more information on the above, visit www.ocbcresearch.com for detailed report.
China Oilfield Technology: Stock battered but fundamentals unshaken
Summary : We visited China Oilfield Technology (COT) recently and believe the potential for enhanced oil recovery and COT's core business remains more than intact because of the mismatch between China's strong and growing demand for oil and its peaking domestic supply. COT has successfully delivered its RMB 100m order book for 4Q07, which is in line with our projection. We also expect to see more order visibility for FY08 as the year progresses. With its expertise in its core business and a strong asset base, we believe COT can sustain growth by 1) expanding its portfolio of services or 2) entering into a strategic alliance. We believe COT's fundamental story remains compelling, which is why we are maintaining our fair value estimate of S$1.01. COT is currently trading at S$0.49 or 52% below our fair value estimate. We reiterate our BUY rating. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
S-Shares: Boost from liquidity influx
Summary: China has recently signed a MOU that will allow its banks to invest in Singapore investments including stocks. This long-awaited move frees up an estimated S$23.2b pool of funds that could potentially be pumped into locally listed stocks. We expect this potential influx of liquidity to spark an upward re-rating of S-Shares. In our strategy report dated 14 December 2007, we highlighted our stock picks among the S-Shares universe. We continue to favour the China consumer sector for its ability to leverage on China's strong consumption growth, and the Manufacturing sector for its strategic advantage of having a low cost manufacturing base. Our stock picks remain as: Cacola Furniture International Ltd (BUY, fair value estimate of S$0.75), Man Wah Holdings Ltd (BUY, S$0.99), China Sports International Ltd (BUY, S$2.48), and Pacific Andes Holdings Ltd (BUY, S$0.87) for the consumer sector, and Bright World Precision Machinery Ltd (BUY, S$0.76), Dutech Holdings Ltd (BUY, S$0.535), Midas Holdings Ltd (BUY, S$1.85) and Midsouth Holdings Ltd (BUY, S$0.90) for the manufacturing sector. (Lee Wen Ching)
NEWS HEADLINES
- CapitaCommercial Trust posted a 53% YoY jump in FY07 distributable income to S$120.4m and 19% gain in DPU to S$0.087, due to consolidation of its 60% interest in the Raffles City complex and higher rental, car park & other income from its properties.
- GuocoLeisure posted a 464% YoY surge in 2Q08 net profit to S$15.8m and 31% gain in revenue to US$134.8m, attributable to better occupancy & room rates from its Thistle hotel chain in UK, higher sales of properties in Fiji and the strong British pound.
- BH Global Marine registered a 56% YoY gain in FY07 net profit to S$17.5m and 39% increase in revenue to S$81.9m, helped by regional strong demand for its products & services.
- Dayen Environmental Limited has secured two contracts totaling S$4.1m from the Public Utilities Board.
- Hyflux Ltd has clinched three municipal water treatment plant projects in China totaling some S$41m in investments.
- Bio-Treat Technology is raising funds of up to S$303m in notes, warrants and a loan from Precious Wise Group to fund projects and redeem its convertible bonds. Also, it entered into a securities purchase agreement with Abax Lotus for RMB434m in notes and warrants.
- Vita Holdings Ltd's major shareholder Winstedt Chong Thim Pheng upped his stake from 29.74% to 36.05%, triggering a mandatory conditional cash offer for the remaining shares.
Please refer to the full report for more information and additional disclosures
The Federal Reserve cut the benchmark interest rate by three quarters of a percentage point
Jan. 22 (Bloomberg) -- The Federal Reserve cut the benchmark interest rate by three quarters of a percentage point, its first emergency reduction since 2001, after stock markets tumbled from Hong Kong to London amid increasing signs of a U.S. recession.
The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.
``Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,'' the Fed said in a statement in Washington. The FOMC took the action ``in view of a weakening of the economic outlook and increasing downside risks to growth.''
Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after retail sales fell, the unemployment rate climbed and global stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more aggressive approach in remarks this month citing a need for ``decisive and timely'' action.
The dollar slid and Treasury securities rallied after the announcement. Stocks retreated as some investors questioned whether the Fed would be able to avert a recession, and then recouped more than half the losses. The Standard & Poor's 500 Index fell 1.1 percent to 1,310.50 in New York, the fifth straight drop, extending its decline to 11 percent this year.
Bear Market
Yesterday, almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.
``The bottom line was that financial conditions were tightening sharply'' and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. ``The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more aggressive approach.''
Economists differed over what the Fed will do when it meets next week. Deutsche Bank forecast a half-point reduction in the benchmark rate, while Morgan Stanley and Lehman Brothers Holdings Inc. predicted a quarter-point cut. Goldman Sachs Group Inc. said the Fed will leave the rate unchanged, then changed its call to a half point. Traders see a half-point reduction as more likely, based on futures prices.
`Smell Blood'
``The markets smell blood right now,'' said Stephen Stanley, chief U.S. economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``I don't think the Fed can afford to disappoint.''
The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. The Bank of England said it has no plans to change the date of its next rate decision. The bank's policy makers are due to begin a two-day meeting in London on Feb. 7.
Treasury Secretary Henry Paulson called the Fed's move ``very constructive'' and a ``confidence builder.'' He also said it was a sign to the rest of the world that the U.S. central bank is ``nimble.''
Negotiating Stimulus
Paulson, charged by President George W. Bush last week with negotiating a fiscal stimulus plan with lawmakers, said a package ``must be enacted quickly.'' White House spokeswoman Dana Perino told reporters that the administration hasn't ruled out a proposal exceeding $150 billion.
The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent. The Chicago and Minneapolis district banks had requested the reduction, the Fed said. In August, the Fed made an emergency half-point cut in the discount rate without lowering the federal funds target.
``Appreciable downside risks to growth remain,'' the Fed statement said. ``The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.''
Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade.
The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting.
Video Conference
Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said.
Poole declined to comment, said his spokesman, Joe Elstner.
Today's so-called inter-meeting rate cut is the first for the federal funds rate since Sept. 17, 2001, when the Fed lowered borrowing costs in the aftermath of the terrorist attacks six days before. That was the third emergency reduction in a year which saw the last U.S. recession.
Bernanke warned in a Jan. 10 speech and again in testimony to Congress Jan. 17 that the 2008 economic outlook had worsened and ``the downside risks to growth have become more pronounced.'' Still, he said the Fed wasn't forecasting a recession this year.
Faltering Economy
Retail sales fell last month, unemployment rose, and housing markets are mired in the worst slump in 16 years. Homebuilders broke ground on the fewest homes since 1991 last month, Commerce Department figures showed Jan. 17. Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen.
Bernanke told legislators at the House Budget Committee that banks were trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result. ``Banks have also evidently become more restrictive in their lending to firms and households,'' he said. The Fed statement reprised the remarks today.
Fed policy makers have warned that housing will continue to be a damper on growth. Richmond Fed President Jeffrey Lacker said Jan. 18 that didn't expect homebuilding to ``bottom out'' in 2008. Bernanke said the day before that housing markets ``may continue to be a drag on growth for a good part of this year.''
The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.
``Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,'' the Fed said in a statement in Washington. The FOMC took the action ``in view of a weakening of the economic outlook and increasing downside risks to growth.''
Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after retail sales fell, the unemployment rate climbed and global stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more aggressive approach in remarks this month citing a need for ``decisive and timely'' action.
The dollar slid and Treasury securities rallied after the announcement. Stocks retreated as some investors questioned whether the Fed would be able to avert a recession, and then recouped more than half the losses. The Standard & Poor's 500 Index fell 1.1 percent to 1,310.50 in New York, the fifth straight drop, extending its decline to 11 percent this year.
Bear Market
Yesterday, almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.
``The bottom line was that financial conditions were tightening sharply'' and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. ``The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more aggressive approach.''
Economists differed over what the Fed will do when it meets next week. Deutsche Bank forecast a half-point reduction in the benchmark rate, while Morgan Stanley and Lehman Brothers Holdings Inc. predicted a quarter-point cut. Goldman Sachs Group Inc. said the Fed will leave the rate unchanged, then changed its call to a half point. Traders see a half-point reduction as more likely, based on futures prices.
`Smell Blood'
``The markets smell blood right now,'' said Stephen Stanley, chief U.S. economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``I don't think the Fed can afford to disappoint.''
The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. The Bank of England said it has no plans to change the date of its next rate decision. The bank's policy makers are due to begin a two-day meeting in London on Feb. 7.
Treasury Secretary Henry Paulson called the Fed's move ``very constructive'' and a ``confidence builder.'' He also said it was a sign to the rest of the world that the U.S. central bank is ``nimble.''
Negotiating Stimulus
Paulson, charged by President George W. Bush last week with negotiating a fiscal stimulus plan with lawmakers, said a package ``must be enacted quickly.'' White House spokeswoman Dana Perino told reporters that the administration hasn't ruled out a proposal exceeding $150 billion.
The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent. The Chicago and Minneapolis district banks had requested the reduction, the Fed said. In August, the Fed made an emergency half-point cut in the discount rate without lowering the federal funds target.
``Appreciable downside risks to growth remain,'' the Fed statement said. ``The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.''
Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade.
The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting.
Video Conference
Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said.
Poole declined to comment, said his spokesman, Joe Elstner.
Today's so-called inter-meeting rate cut is the first for the federal funds rate since Sept. 17, 2001, when the Fed lowered borrowing costs in the aftermath of the terrorist attacks six days before. That was the third emergency reduction in a year which saw the last U.S. recession.
Bernanke warned in a Jan. 10 speech and again in testimony to Congress Jan. 17 that the 2008 economic outlook had worsened and ``the downside risks to growth have become more pronounced.'' Still, he said the Fed wasn't forecasting a recession this year.
Faltering Economy
Retail sales fell last month, unemployment rose, and housing markets are mired in the worst slump in 16 years. Homebuilders broke ground on the fewest homes since 1991 last month, Commerce Department figures showed Jan. 17. Building permits, a sign of future construction, declined by the most in 12 years, suggesting the housing slump will deepen.
Bernanke told legislators at the House Budget Committee that banks were trying to protect asset quality and funding, and tightening credit conditions for the rest of the economy as a result. ``Banks have also evidently become more restrictive in their lending to firms and households,'' he said. The Fed statement reprised the remarks today.
Fed policy makers have warned that housing will continue to be a damper on growth. Richmond Fed President Jeffrey Lacker said Jan. 18 that didn't expect homebuilding to ``bottom out'' in 2008. Bernanke said the day before that housing markets ``may continue to be a drag on growth for a good part of this year.''
Pine Agritech
Continuing high soybean cost lead to short-term pressure
High soybean costs rocketed up in 4Q07. Soybean cost soared over 60%
yoy in 4Q07 and reached a historical high level of around Rmb3.6-4/kg. We
believe the upward trend to continue into 1H08 due to several reasons: 1)
Planting area reduced. Due to the low planting profitability, many farmers
abandoned the low price soybeans and changed to grow corns. According to the
statistics of Ministry of Agriculture, the countrywide planting area of soybeans
decreased 6% yoy in 2007; 2) Soybean output reduced. In general, the soybean
output of Hei Longjiang Province accounts for 40% of overall output. However,
due to the unwonted droughty and weather, the output of soybean in Hei
Longjiang Province in 2007 reduced 30% compared with common annual value;
3) Import soybean price hike. Currently, only 36% of the overall annual demand
of soybean in China is domestically produced. The reduction of international
planting area and the cut-down of export of developed countries result in the
persisting high soybean price.
Expected margin squeezing continued. Continuing pork price hike and
nationwide pig supply shortage in 4Q07 cause the operation environment for
domestic meat processed companies to remain tough. Therefore, we expect
demand for Pine’s soy protein isolates (SPI) products may lower compared with
that in 3Q07. Although Pine raised its ASP for SPI by 5-8% in 4Q07, this can
not fully pass on the cost pressure to customer since soybean cost accounts for
80-90% of COGS in terms of its SPI products. On the other hand, weak demand
from its exclusive distributor, Shenji is expected to continue in 4Q07, revealing
a lower sales of soy oligosaccharide syrup (SOS). With less contribution from
this higher margin product, Pine’s profitability improvement in 4Q07 is still under
pressure. Therefore we lower our gross margin forecast for FY07-09 to 42.6%,
42.9% and 43.2% respectively from 45.1%, 45.8% and 45.7% respectively.
Launch TV commercials to enhance awareness. Pine has started the TV
commercials on local and provincial TV channels to promote its new products,
soybean peptide and Ditiang from the end of Sep FY07. By the end of 2007, TV
commercials had been expanded to other channels with national coverage, such
as CCTV and PhoenixTV. The Group expects to spend approximately
Rmb15m/month in the remaining months of FY07 and Rmb150m in FY08 for TV
commercials. We believe these heavy marketing campaigns will gradually
increase the Group’s brand awareness and promoted the demand for its
products. However, it will erode the Group’s net margin as well.
Key adjustments that lead to potential turnaround. 1) Anticipating that
soybean price will remain high and ever increase in the future, Pine stocked up
soybean inventory around 160,000 tons in Oct 2007. In view of the fact that Pine
needs approximately 200,000 tons of soybean for annual production, the Group
can offset some parts of the cost pressure with these low-cost inventory in FY08.
2) Nationwide pig supply shortage is expected to ease in 2H08, hence the
demand for SPI products would increase onwards. 3) Small soybean
manufacturers are expected to experience a tougher time as they do not have
enough funds to build up inventory. Therefore, Pine Agritech might receive some
High soybean costs rocketed up in 4Q07. Soybean cost soared over 60%
yoy in 4Q07 and reached a historical high level of around Rmb3.6-4/kg. We
believe the upward trend to continue into 1H08 due to several reasons: 1)
Planting area reduced. Due to the low planting profitability, many farmers
abandoned the low price soybeans and changed to grow corns. According to the
statistics of Ministry of Agriculture, the countrywide planting area of soybeans
decreased 6% yoy in 2007; 2) Soybean output reduced. In general, the soybean
output of Hei Longjiang Province accounts for 40% of overall output. However,
due to the unwonted droughty and weather, the output of soybean in Hei
Longjiang Province in 2007 reduced 30% compared with common annual value;
3) Import soybean price hike. Currently, only 36% of the overall annual demand
of soybean in China is domestically produced. The reduction of international
planting area and the cut-down of export of developed countries result in the
persisting high soybean price.
Expected margin squeezing continued. Continuing pork price hike and
nationwide pig supply shortage in 4Q07 cause the operation environment for
domestic meat processed companies to remain tough. Therefore, we expect
demand for Pine’s soy protein isolates (SPI) products may lower compared with
that in 3Q07. Although Pine raised its ASP for SPI by 5-8% in 4Q07, this can
not fully pass on the cost pressure to customer since soybean cost accounts for
80-90% of COGS in terms of its SPI products. On the other hand, weak demand
from its exclusive distributor, Shenji is expected to continue in 4Q07, revealing
a lower sales of soy oligosaccharide syrup (SOS). With less contribution from
this higher margin product, Pine’s profitability improvement in 4Q07 is still under
pressure. Therefore we lower our gross margin forecast for FY07-09 to 42.6%,
42.9% and 43.2% respectively from 45.1%, 45.8% and 45.7% respectively.
Launch TV commercials to enhance awareness. Pine has started the TV
commercials on local and provincial TV channels to promote its new products,
soybean peptide and Ditiang from the end of Sep FY07. By the end of 2007, TV
commercials had been expanded to other channels with national coverage, such
as CCTV and PhoenixTV. The Group expects to spend approximately
Rmb15m/month in the remaining months of FY07 and Rmb150m in FY08 for TV
commercials. We believe these heavy marketing campaigns will gradually
increase the Group’s brand awareness and promoted the demand for its
products. However, it will erode the Group’s net margin as well.
Key adjustments that lead to potential turnaround. 1) Anticipating that
soybean price will remain high and ever increase in the future, Pine stocked up
soybean inventory around 160,000 tons in Oct 2007. In view of the fact that Pine
needs approximately 200,000 tons of soybean for annual production, the Group
can offset some parts of the cost pressure with these low-cost inventory in FY08.
2) Nationwide pig supply shortage is expected to ease in 2H08, hence the
demand for SPI products would increase onwards. 3) Small soybean
manufacturers are expected to experience a tougher time as they do not have
enough funds to build up inventory. Therefore, Pine Agritech might receive some
Market Commentary
After days of aggressive selling, the US Federal Reserve, in an unusual move, cut its benchmark fed funds rate by 0.75% to 3.5% in an effort to fend off a recession. This is its first emergency reduction since 2001 and the biggest single cut since 1990 as global equities plummeted over the past few days. The policy makers will be meeting again next week.
With the deterioration in global markets, this has recently raised more questions of defaults and tighter credit. In the US, retail sales fell last month and unemployment rose in the midst of the US housing slump, and there are increasing worries of a slowdown in consumer demand.
While US stocks managed to par losses from intra-day lows in overnight trading, key indices still closed lower despite the interest rate cut. The Dow Jones Industrial Average gyrated widely intra-day, swinging from -7 points to -465 points before closing down 128 points to 11971.19.
The Singapore market fell in line with the region, down for a massive 12 sessions in the past 15 sessions since the start of the year. According to some reports, the selling pressure of the past few days since the start of 2008 has wiped off close to US$1 trillion from global markets.
With concern over a US recession mounting, the cautious undertone is likely to remain for a while more and this will translate into volatility in the market. In the Fed statement, it mentioned that "appreciable downside risks to growth remain'' and that it will continue to assess the situation and "will act in a timely manner as needed to address those risks.''
With the rate cut, there could be some bargain hunting this morning, but we expect the tone to remain cautious after the past few days of selling and with margin calls, this has taken a toll on retail as well as institutional investors. Corporate earnings will remain in focus, especially with market watchers looking to US MNCs for direction. On this front, analysts are expecting 4Q earnings for the S&P 500 companies to drop an average 17%, dragged down by the financial institutions according to a Bloomberg survey.
But is it time to bottom fish? As volatility remains in the market, there could be more downside as investors stay away from the market. However, for the bargain hunters, we advocate sticking with the blue chips, which are better cushioned to ride out any medium term uncertainty. The 30-stock STI index is down 17.3% for the year (faring better than most of the sub-indices). For the individual stocks within the STI, the decline ranged from -6.4% (for SPH) to -39.5% (for Yangzijiang), with StarHub being the only STI stock that is still up for the year. Banking stocks have taken a big hit from their 52-week highs and look attractive on price weaknesses. We continue to favour the oil & gas stocks (KepCorp, Ezra, etc) and the defensive companies (SPH, ST Engineering, StarHub, MobileOne). (Carmen Lee)
Karin Technology: Expansion of ASEAN footprint
Summary: Karin Technology officially opened its 70%-owned subsidiary, IMI Kabel Pte Limited (IMI Kabel) in Singapore on Monday, which marks yet another milestone for the group, as Karin intends to use it as a launch pad to venture into Singapore and other ASEAN markets. We understand that IMI Kabel has plans to set up sales offices in Malaysia, Indonesia, Korea and Japan this year, where it will not only market control cables but also complementary electronic components from Karin. And as these cable products typically command better gross margins (>20%) versus its present 9.7% gross margin, we expect further sales expansion to give Karin's meaningful bottom line boost. Nevertheless, we have already factored in IMI Kabel's contribution in our forecasts, hence we retain our S$0.44 fair value (based on an undemanding 8x FY08F PER), which still offers >100% upside from here. We also maintain our BUY call. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaMall Trust registered a 24.7% YoY gain in FY07 distributable income to S$211.19m, on the back of a full-year's contribution from its 40% stake in Raffles City and contributions from the three malls in the CapitaRetail Singapore portfolio.
- CapitaLand plans to create a REIT or a listed vehicle holding Indian malls for retail projects that it will develop jointly with two separate Indian partners - Prestige Group and Advance India Projects Ltd. The separate JVs will develop/invest in and manage an initial portfolio of 15 retail or predominantly retail projects worth over S$2.12b.
- First REIT posted a distributable income of S$4.8m and DPU of S$0.0176 for 4Q07, which exceed its forecasts by 9.1% and 9.3% respectively.
- Pacific Shipping Trust will be distributing 1.1 US cents per unit for 4Q07, which is 6% YoY higher. The rise in DPU came on the back of higher income distribution for 4Q07.
- Singapore Press Holdings, which has a mandate to buy back up to 158.46m of its own shares, purchased 1m shares yesterday at an average price of S$4.1942 each.
- Anwell Technologies will install its first Blu-ray Disc (BD) replication system for its California-based customer - CD Video, in 1Q08. Also, the Chinese government had awarded it an additional RMB3m in funding for R&D in BD technology.
- Sarin Technologies is paying US$3.4m to acquire a 23% stake in IDEX Online SA, which operates a business-to-business polished diamond traders' network.
With the deterioration in global markets, this has recently raised more questions of defaults and tighter credit. In the US, retail sales fell last month and unemployment rose in the midst of the US housing slump, and there are increasing worries of a slowdown in consumer demand.
While US stocks managed to par losses from intra-day lows in overnight trading, key indices still closed lower despite the interest rate cut. The Dow Jones Industrial Average gyrated widely intra-day, swinging from -7 points to -465 points before closing down 128 points to 11971.19.
The Singapore market fell in line with the region, down for a massive 12 sessions in the past 15 sessions since the start of the year. According to some reports, the selling pressure of the past few days since the start of 2008 has wiped off close to US$1 trillion from global markets.
With concern over a US recession mounting, the cautious undertone is likely to remain for a while more and this will translate into volatility in the market. In the Fed statement, it mentioned that "appreciable downside risks to growth remain'' and that it will continue to assess the situation and "will act in a timely manner as needed to address those risks.''
With the rate cut, there could be some bargain hunting this morning, but we expect the tone to remain cautious after the past few days of selling and with margin calls, this has taken a toll on retail as well as institutional investors. Corporate earnings will remain in focus, especially with market watchers looking to US MNCs for direction. On this front, analysts are expecting 4Q earnings for the S&P 500 companies to drop an average 17%, dragged down by the financial institutions according to a Bloomberg survey.
But is it time to bottom fish? As volatility remains in the market, there could be more downside as investors stay away from the market. However, for the bargain hunters, we advocate sticking with the blue chips, which are better cushioned to ride out any medium term uncertainty. The 30-stock STI index is down 17.3% for the year (faring better than most of the sub-indices). For the individual stocks within the STI, the decline ranged from -6.4% (for SPH) to -39.5% (for Yangzijiang), with StarHub being the only STI stock that is still up for the year. Banking stocks have taken a big hit from their 52-week highs and look attractive on price weaknesses. We continue to favour the oil & gas stocks (KepCorp, Ezra, etc) and the defensive companies (SPH, ST Engineering, StarHub, MobileOne). (Carmen Lee)
Karin Technology: Expansion of ASEAN footprint
Summary: Karin Technology officially opened its 70%-owned subsidiary, IMI Kabel Pte Limited (IMI Kabel) in Singapore on Monday, which marks yet another milestone for the group, as Karin intends to use it as a launch pad to venture into Singapore and other ASEAN markets. We understand that IMI Kabel has plans to set up sales offices in Malaysia, Indonesia, Korea and Japan this year, where it will not only market control cables but also complementary electronic components from Karin. And as these cable products typically command better gross margins (>20%) versus its present 9.7% gross margin, we expect further sales expansion to give Karin's meaningful bottom line boost. Nevertheless, we have already factored in IMI Kabel's contribution in our forecasts, hence we retain our S$0.44 fair value (based on an undemanding 8x FY08F PER), which still offers >100% upside from here. We also maintain our BUY call. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaMall Trust registered a 24.7% YoY gain in FY07 distributable income to S$211.19m, on the back of a full-year's contribution from its 40% stake in Raffles City and contributions from the three malls in the CapitaRetail Singapore portfolio.
- CapitaLand plans to create a REIT or a listed vehicle holding Indian malls for retail projects that it will develop jointly with two separate Indian partners - Prestige Group and Advance India Projects Ltd. The separate JVs will develop/invest in and manage an initial portfolio of 15 retail or predominantly retail projects worth over S$2.12b.
- First REIT posted a distributable income of S$4.8m and DPU of S$0.0176 for 4Q07, which exceed its forecasts by 9.1% and 9.3% respectively.
- Pacific Shipping Trust will be distributing 1.1 US cents per unit for 4Q07, which is 6% YoY higher. The rise in DPU came on the back of higher income distribution for 4Q07.
- Singapore Press Holdings, which has a mandate to buy back up to 158.46m of its own shares, purchased 1m shares yesterday at an average price of S$4.1942 each.
- Anwell Technologies will install its first Blu-ray Disc (BD) replication system for its California-based customer - CD Video, in 1Q08. Also, the Chinese government had awarded it an additional RMB3m in funding for R&D in BD technology.
- Sarin Technologies is paying US$3.4m to acquire a 23% stake in IDEX Online SA, which operates a business-to-business polished diamond traders' network.
Samudera Shipping Line Ltd: Upgrade to Buy
Summary: We met with Samudera Shipping's management for an update. Management is still bullish about the container and industrial shipping segments in the longer term, with a view that consumption of raw materials like coal and manufactured goods by China, Europe and USA is sustainable in the longer term. Since January, management has acquired 3 more new vessels. The 2 bulk carriers would enable Samudera to gear up for the dry bulk boom, in view of the upsurge in demand for global resources. In addition, owing the vessels would help in providing some stability in approximately 60% to 70% of Samudera's overall vessel operating costs. As Samudera's operating environment has not altered significantly since our last report, we are maintaining our fair value at S$0.40. With the recent correction in the stock market, the stock last traded at S$0.35. Hence, we are upgrading our rating to a BUY (from Hold) from a valuation perspective.
NEWS HEADLINES
- Bright Orient (Holding) Ltd has entered into a conditional agreement to purchase Golden Oriental Pte Ltd in an S$160.5m reverse takeover deal, which would see it acquiring a bulk carrier & port operation business while giving up its clothing manufacturing operation.
- Marco Polo Marine Ltd has inked a binding letter of intent to enter into a 50:50 JV with ST Shipping and Transport to jointly own and operate a fleet of transshipment tugboats and barges.
- Chip Eng Seng Corporation Ltd has been awarded an S$188m contract by the Housing & Development Board for the construction of 1,394 dwelling units in Queenstown.
- Raffles Education intends to seek a Hong Kong mainboard listing for part of its China operations.
- Wee Hur Holdings Ltd is seeking a mainboard listing with an IPO offer of about 83.65m shares at S$0.25 each.
- Sky China Petroleum Services Ltd is considering a proposal to take up exclusive development and operating rights to an oilfield located in Songliao Basin, China.
- Sinobest Technology Holdings has warned of an unaudited consolidated loss for FY07, due mainly to a fall in sales and gross profit amid continuing fierce competition.
NEWS HEADLINES
- Bright Orient (Holding) Ltd has entered into a conditional agreement to purchase Golden Oriental Pte Ltd in an S$160.5m reverse takeover deal, which would see it acquiring a bulk carrier & port operation business while giving up its clothing manufacturing operation.
- Marco Polo Marine Ltd has inked a binding letter of intent to enter into a 50:50 JV with ST Shipping and Transport to jointly own and operate a fleet of transshipment tugboats and barges.
- Chip Eng Seng Corporation Ltd has been awarded an S$188m contract by the Housing & Development Board for the construction of 1,394 dwelling units in Queenstown.
- Raffles Education intends to seek a Hong Kong mainboard listing for part of its China operations.
- Wee Hur Holdings Ltd is seeking a mainboard listing with an IPO offer of about 83.65m shares at S$0.25 each.
- Sky China Petroleum Services Ltd is considering a proposal to take up exclusive development and operating rights to an oilfield located in Songliao Basin, China.
- Sinobest Technology Holdings has warned of an unaudited consolidated loss for FY07, due mainly to a fall in sales and gross profit amid continuing fierce competition.
Ascendas REIT Slowly and steadily
A-REIT reported 15% higher net income available for distribution yoy at
S$47.2, on the back of 13% increase in gross revenues to S$80.2m. This was
mainly due to additional rental income from completed acquisitions and
positive rental reversions from its high-tech industrials and business as
well as science parks. Average occupancy levels rose to 98.7% as at 31 Dec
07 compared to 96.1% a year ago. Leverage at 38.6%. As at end Dec 07,
AREIT had an aggregate gearing of 38.6%, which was 88% fixed at 3.39% and
an average weighted term of 3.92 years. Interest cover ratio was 5.32x.
S$47.2, on the back of 13% increase in gross revenues to S$80.2m. This was
mainly due to additional rental income from completed acquisitions and
positive rental reversions from its high-tech industrials and business as
well as science parks. Average occupancy levels rose to 98.7% as at 31 Dec
07 compared to 96.1% a year ago. Leverage at 38.6%. As at end Dec 07,
AREIT had an aggregate gearing of 38.6%, which was 88% fixed at 3.39% and
an average weighted term of 3.92 years. Interest cover ratio was 5.32x.
Yanlord Land Group - Demand for high-end residences remains strong
Story: We hosted Yanlord at our recent Pulse of Asia Conference. The
management remains confident of the outlook for high-end residences in
China, with their most recent launch of another batch of apartments in
Yanlord Riverside City (Phase 2) over the first two weekends of January
experiencing high take-up rates and healthy ASP growth.
Point: This came on the back of some concern about a perceived softening of
the PRC real estate market. The media had reported lower property
transaction volumes and declining prices for developments towards the end
of 2007, as the mortgage policy on second homes tightens.
Relevance: While we have incorporated the development surplus on their most
recent site acquisitions, our target price has been revised downwards
slightly to S$4.21 (at par to RNAV) as we factor in higher Land Appreciate
Tax (LAT) charges. With an upside of 52% on this stock at current price
levels, we see value emerging. This also translates into PE of around 14x
and 11x on FY08F and FY09F EPS respectively. Maintain BUY.
management remains confident of the outlook for high-end residences in
China, with their most recent launch of another batch of apartments in
Yanlord Riverside City (Phase 2) over the first two weekends of January
experiencing high take-up rates and healthy ASP growth.
Point: This came on the back of some concern about a perceived softening of
the PRC real estate market. The media had reported lower property
transaction volumes and declining prices for developments towards the end
of 2007, as the mortgage policy on second homes tightens.
Relevance: While we have incorporated the development surplus on their most
recent site acquisitions, our target price has been revised downwards
slightly to S$4.21 (at par to RNAV) as we factor in higher Land Appreciate
Tax (LAT) charges. With an upside of 52% on this stock at current price
levels, we see value emerging. This also translates into PE of around 14x
and 11x on FY08F and FY09F EPS respectively. Maintain BUY.
Singapore Strategy
We completed our Singapore Navigator marketing in five cities in Europe. Clients generally agreed with our cautious views on Singapore. Most agreed with our Overweight stance in Transport & Telcos and our Underweight stance in Manfacturing and Property, though significant falls in property stocks triggered queries on entry levels for selected property stocks. Reception to our bullishness on Multi-Industry was mixed, clients generally agreed that the fundamentals of the sector remained bright though concern stemmed from the relative large ownership levels in this sector. Clients also agreed on our views on Financials - that it was cheap but not time yet. With STI having fallen 14% ytd, valuations are starting to look interesting and we suggest that investors should look for entry levels now rather than continue to pile into defensives.
HK : Navigator : Alot of Bargains (19-21 Jan)
past two weeks. The HSI closed Friday at 25,202, down a hefty 1,665 points or 6% for the week. The weekly loss for the HSCEI was 8%.
Our View
The market has shown some signs that genuine investors have returned, given the bargain hunting on banking stocks, which suffered the first attack in the latest global equity market sell-off. The subprime crisis may actually result in a consolidation that should benefit the survivors in the next up-market. We hold our view that the rapid correction in the past two weeks is offering a good opportunity to buy quality stocks at good prices in the local market. We expect a reviving market as lower interest rates and low core inflation are on the backdrop.
Our View
The market has shown some signs that genuine investors have returned, given the bargain hunting on banking stocks, which suffered the first attack in the latest global equity market sell-off. The subprime crisis may actually result in a consolidation that should benefit the survivors in the next up-market. We hold our view that the rapid correction in the past two weeks is offering a good opportunity to buy quality stocks at good prices in the local market. We expect a reviving market as lower interest rates and low core inflation are on the backdrop.
Non-Oil Domestic Trade
seasonally adjusted, the fourth straight month of contraction. Yoy, NODX was below consensus and our expectations, falling 4.5% (Nov 07: -3.4% yoy). Full-year NODX grew 2.3% yoy in 2007, the slowest since 2002. For 2008, the government has projected growth of 4-6% (we are looking for 4.5%), on the assumption of a recovery in tech exports in 2H08. We expect stronger contributions from non-tech exports in 2008: drugs on the back of capacity expansion and more rig deliveries. 2007 NODX growth to the US slowed to +2.7% yoy from +14.4% in 2006 and the US accounted for 0.4% pt of overall NODX. 2008 NODX to the US is expected to decelerate further. We are looking for stronger contributions from China/Hong Kong, Indonesia, the EU and India to bring NODX growth to 4.5%, hopefully with the help of stronger pharma and lumpy items such as rigs/vessels.
Construction demand expected to bulldoze ahead
Construction demand hit S$24.5bn, just marginally ahead of the 1997 peak of
S$24.4 bn. With the ongoing construction of mega-projects like the BFC, two
IRs, and various residential and commercial projects, the outlook for
construction sector remains robust. BCA forecasts construction demand to
hit a new zenith of $23-27bn in 2008. Construction output in terms of
certified progress payment is projected to hit S$19-21 bn in 2008 from
$16.5bn in 2007.
Prices for cement, granite, ready-mixed concrete (RMC) and steel bars have
increased between 25-35% since the beginning of 2007, and are expected to
remain firm in 2008. BCA expects demand for cement and RMC to grow 26% and
38% respectively in 2008. Prices are expected to grow in tandem with
robust demand, posing challenges for certain players.
We are positive on Building Material suppliers like Hong Leong Asia (BUY,
TP S$4.30) and Pan-United Corp (BUY, TP S$1.16), which should benefit from
higher prices and increase in construction activity. High material costs
lead us to be selective on niche subcontractors like KSH (BUY, TP $0.82)
who should be able to pass on the higher building material prices to the
developers. We also like Tat Hong (BUY, TP S$3.32), a company that is
leveraged on the higher construction activity but is not exposed to higher
material prices.
S$24.4 bn. With the ongoing construction of mega-projects like the BFC, two
IRs, and various residential and commercial projects, the outlook for
construction sector remains robust. BCA forecasts construction demand to
hit a new zenith of $23-27bn in 2008. Construction output in terms of
certified progress payment is projected to hit S$19-21 bn in 2008 from
$16.5bn in 2007.
Prices for cement, granite, ready-mixed concrete (RMC) and steel bars have
increased between 25-35% since the beginning of 2007, and are expected to
remain firm in 2008. BCA expects demand for cement and RMC to grow 26% and
38% respectively in 2008. Prices are expected to grow in tandem with
robust demand, posing challenges for certain players.
We are positive on Building Material suppliers like Hong Leong Asia (BUY,
TP S$4.30) and Pan-United Corp (BUY, TP S$1.16), which should benefit from
higher prices and increase in construction activity. High material costs
lead us to be selective on niche subcontractors like KSH (BUY, TP $0.82)
who should be able to pass on the higher building material prices to the
developers. We also like Tat Hong (BUY, TP S$3.32), a company that is
leveraged on the higher construction activity but is not exposed to higher
material prices.
Credit Suisse Keeps Wilmar At Neutral; Tgt S$4.30
0236 GMT [Dow Jones] STOCK CALL: Credit Suisse keeps Wilmar (F34.SG) at Neutral with target price unchanged at S$4.30 after China announces measures to curb inflation on range of food products, including cooking oil; measure requires company to seek approval from government for price increases. Notes uncertainty over whether measure in place for Chinese New Year or until food inflation ceases to be a concern. Estimates 25%-30% of Wilmar's total pretax profit comes from China cooking oil business. "If palm oil prices continue to be on an upward trend, there is a strong possibility that Wilmar will find it more difficult to increase selling prices or there could be a time lag between rising raw material costs and passing the increased cost to the end consumers. This would result in a margin squeeze for Wilmar." Says believes palm oil's upward price momentum intact, leading to downside risk to FY08-09 earnings projections; says if FY08-09 cooking oil division profit is half of forecasts, Wilmar's forecasts may be cut 15%-16%. Share down 8% at S$4.13; STI down 3.1%. (LES)
Man Wah Holdings Furnishing a positive update on business outlook
Story: Man Wah announced last evening that group sales grew 60% y-o-y to
HK$403.4m in 3Q08, and group gross margin has remained above 30%. This is
in line with our expectation, and we believe Man Wah is on target to meet
our 95% y-o-y net profit growth estimate in FY08 (financial year ended
March).
Point: Man Wah's share price has declined in line with the general equity
market weakness, and now trades at 4.7x FYMar08 PE and 3.4x FY09 PE. We
believe that the low valuation is unjustified, due to Man Wah's outlook as
a premier domestic sofa brand in China, and its gain of about 40-50% in new
customers among Top 30 US retailers during the furniture trade fair in
North Carolina, USA, in October 2007.
Relevance: We are retaining our above-market-consensus net profit estimates
at HK$176.7m in FY08 and HK$243.6m in FY09. Our fair value remains at
S$1.18, using 10x blended FY08/09 PE (financial year ended March). There is
also potential for fair value re-rating, as we may roll over to FY09 PE
upon further evidence of good earnings visibility. Maintain BUY.
HK$403.4m in 3Q08, and group gross margin has remained above 30%. This is
in line with our expectation, and we believe Man Wah is on target to meet
our 95% y-o-y net profit growth estimate in FY08 (financial year ended
March).
Point: Man Wah's share price has declined in line with the general equity
market weakness, and now trades at 4.7x FYMar08 PE and 3.4x FY09 PE. We
believe that the low valuation is unjustified, due to Man Wah's outlook as
a premier domestic sofa brand in China, and its gain of about 40-50% in new
customers among Top 30 US retailers during the furniture trade fair in
North Carolina, USA, in October 2007.
Relevance: We are retaining our above-market-consensus net profit estimates
at HK$176.7m in FY08 and HK$243.6m in FY09. Our fair value remains at
S$1.18, using 10x blended FY08/09 PE (financial year ended March). There is
also potential for fair value re-rating, as we may roll over to FY09 PE
upon further evidence of good earnings visibility. Maintain BUY.
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