LottVision LottVisionStock remains highly speculative
3Q results. LottVision reported 3Q turnover of HK$1.2m (+1% yoy) and net profit of HK$24.4m. The net profit was due mainly to other net income of HK$45.4m. This included realised investment gain of HK$76.2m on disposal of 20% of PAL Development Ltd (PAL), which was offset by HK$32.0m goodwill impairment in the surveillance business arising from the shift of business focus of LottVision
SembCorp Marine Ltd (SMM SP/ SCMN.SI, OUTPERFORM- Upgraded, S$3.28 - Target: S$4.58)
Quick takes - The coast is clear SembMarine has reached a settlement for US$208.7m with nine out of 11 banks involved in its earlier unauthorised forex transactions. This will be expensed in 4Q07. Our FY07 core earnings estimate has been cut by 45%. We believe the forex overhang should be lifted given that 80% of the amount has been expensed off. A strong net order book of S$6bn and positive order flow should continue to drive earnings till 2010. Our target price, still based on blended valuations, has been reduced from S$5.00 to S$4.58 as we lower our P/E target from 22x to 18x to reflect a mid-cycle valuation for the O&M industry and lower investor risk appetite. However, with the settlement of the forex debacle and restoration of investors' confidence, as well as upside potential of 39%, we upgrade the stock from Neutral to Outperform.
Swiber Holdings Yet another contract extension
Story: Swiber repays our faith in its ability to win new orders with a new
Letter of Intent (LOI) to transport and instal three pipelines off the
coast of Indonesia. This project is worth US$35m. Swiber will start work on
the new contract in the second quarter and expected to be completed by end
2008.
Point: This is yet another contract extension in the past two months and we
think there are three points worth noting. First, Swiber has now firmly
gotten two oil majors as its recurring customer base, including Brunei
Shell, which we believe is crucial in ensuring a steady stream of larger
contracts to feed its enlarged capability. Indeed, this latest LOI is an
extension of an earlier order won in November 2007 from the same unnamed
oil major, and the combined orders won to-date from this customer is about
US$66m.
Secondly, we reckon that Swiber's execution risk with regard to successful
bids for new orders and execution of contracts is now lower as compared to
mid-2007. Swiber's record US$320m new orders win in 2007, and the two
recent contract extensions from the unnamed oil major and Brunei Shell -
who are known to have strict safety and technical requirements - support
this point.
Thirdly, we continue to believe that with two oil majors as its new
customers, it may result in a snowballing effect in attracting other oil
majors to come on board as Swiber's clients in Asia Pacific. As such, we
believe our new orders win assumption of US$400m in 2008 is achievable.
Relevance: Our fair value stays at S$3.49, using 15x FY08 PE. We expect the
contracts flow momentum to be strong through the rest of 1Q 2008, providing
price catalysts to the counter. Maintain BUY.
Letter of Intent (LOI) to transport and instal three pipelines off the
coast of Indonesia. This project is worth US$35m. Swiber will start work on
the new contract in the second quarter and expected to be completed by end
2008.
Point: This is yet another contract extension in the past two months and we
think there are three points worth noting. First, Swiber has now firmly
gotten two oil majors as its recurring customer base, including Brunei
Shell, which we believe is crucial in ensuring a steady stream of larger
contracts to feed its enlarged capability. Indeed, this latest LOI is an
extension of an earlier order won in November 2007 from the same unnamed
oil major, and the combined orders won to-date from this customer is about
US$66m.
Secondly, we reckon that Swiber's execution risk with regard to successful
bids for new orders and execution of contracts is now lower as compared to
mid-2007. Swiber's record US$320m new orders win in 2007, and the two
recent contract extensions from the unnamed oil major and Brunei Shell -
who are known to have strict safety and technical requirements - support
this point.
Thirdly, we continue to believe that with two oil majors as its new
customers, it may result in a snowballing effect in attracting other oil
majors to come on board as Swiber's clients in Asia Pacific. As such, we
believe our new orders win assumption of US$400m in 2008 is achievable.
Relevance: Our fair value stays at S$3.49, using 15x FY08 PE. We expect the
contracts flow momentum to be strong through the rest of 1Q 2008, providing
price catalysts to the counter. Maintain BUY.
F & N Starting on a strong note
Story: F&N's strong 1Q08 results were in line with our expectations.
Topline grew by 19% to S$1.32bn, from S$1.11bn. Attributable net profit
ended at S$108.6m, up by 40% from a year ago.
Point: All its business divisions, except for Printing and Publishing,
delivered growth. Its soft drinks (+12%), dairies (+140%), breweries (+17%)
and investment properties (+29%) divisions were the main contributors to
its topline growth.
Relevance: As highlighted in our previous report on 14 Nov, we expect the
Group to continue to deliver positive performances over the next few
quarters, backed by the progressive recognition of its sold-out development
property launches in the past year. In addition, we believe that the Group
is well-positioned in the mid-end residential market in Singapore with a
total landbank of close to 3,000 units. This is also complemented by its
relatively large landbanks of over 34 m sq ft overseas. Maintain BUY; TP:
S$7.18 (previously S$7.40) as we peg the listed entities at current market
values. Our TP is based on sum-of-the-parts with a 10% premium on its
property RNAV in lieu of its huge landbanks in Singapore and overseas.
Topline grew by 19% to S$1.32bn, from S$1.11bn. Attributable net profit
ended at S$108.6m, up by 40% from a year ago.
Point: All its business divisions, except for Printing and Publishing,
delivered growth. Its soft drinks (+12%), dairies (+140%), breweries (+17%)
and investment properties (+29%) divisions were the main contributors to
its topline growth.
Relevance: As highlighted in our previous report on 14 Nov, we expect the
Group to continue to deliver positive performances over the next few
quarters, backed by the progressive recognition of its sold-out development
property launches in the past year. In addition, we believe that the Group
is well-positioned in the mid-end residential market in Singapore with a
total landbank of close to 3,000 units. This is also complemented by its
relatively large landbanks of over 34 m sq ft overseas. Maintain BUY; TP:
S$7.18 (previously S$7.40) as we peg the listed entities at current market
values. Our TP is based on sum-of-the-parts with a 10% premium on its
property RNAV in lieu of its huge landbanks in Singapore and overseas.
China Fishery Group
BUY S$1.78 Price Target : 12-Month S$ 2.72 (Prev S$ 2.89)
Netting higher profits
Story: CFG's 4Q/FY07 results came just a tad (4.3%) below our expectations
of US$92.4m. This was due to (i) some delays in shipment of fishmeal and
(ii) higher operating expenses than our forecast.
Point: Revenue surged 160% y-o-y to US$406m largely due to higher catch
volumes (from its 3rd and 4th Vessel Operating Agreements [VOAs]) and a
full year contribution from its fishmeal operations. Consequently, gross
profit was at US$141m, up 137% from FY06. However, operating expenses
increased by a much higher 228%, largely due to the addition of its
Peruvian fishmeal operations. As a result, net profit ended at US$88.5m, up
by almost 85% from US$48m last year.
Relevance: We have adjusted our forecasts in FY08F-09F down slightly by
about 6% to factor in higher operating expenses. Consequently, our TP is
revised down to S$2.72 (from S$2.89), still premised on 13x FY08F earnings.
Notwithstanding that, we still remain positive of the Group's prospects
over the longer term as we believe it is well poised to benefit from the
rising global demand for fish amid rising affluence and the growth of
aquaculture. On the fishmeal front, based on management's information and
industry reports, it seems that fishmeal prices have stabilised at around
US$900 – US$950/mt region. Catalysts for this counter would come if the
Group manages to re-negotiate its 4th VOA to a prepayment terms, higher
catch volumes and higher than expected fish and fishmeal prices. Maintain
BUY.
Netting higher profits
Story: CFG's 4Q/FY07 results came just a tad (4.3%) below our expectations
of US$92.4m. This was due to (i) some delays in shipment of fishmeal and
(ii) higher operating expenses than our forecast.
Point: Revenue surged 160% y-o-y to US$406m largely due to higher catch
volumes (from its 3rd and 4th Vessel Operating Agreements [VOAs]) and a
full year contribution from its fishmeal operations. Consequently, gross
profit was at US$141m, up 137% from FY06. However, operating expenses
increased by a much higher 228%, largely due to the addition of its
Peruvian fishmeal operations. As a result, net profit ended at US$88.5m, up
by almost 85% from US$48m last year.
Relevance: We have adjusted our forecasts in FY08F-09F down slightly by
about 6% to factor in higher operating expenses. Consequently, our TP is
revised down to S$2.72 (from S$2.89), still premised on 13x FY08F earnings.
Notwithstanding that, we still remain positive of the Group's prospects
over the longer term as we believe it is well poised to benefit from the
rising global demand for fish amid rising affluence and the growth of
aquaculture. On the fishmeal front, based on management's information and
industry reports, it seems that fishmeal prices have stabilised at around
US$900 – US$950/mt region. Catalysts for this counter would come if the
Group manages to re-negotiate its 4th VOA to a prepayment terms, higher
catch volumes and higher than expected fish and fishmeal prices. Maintain
BUY.
DBS 2007 Results Flash
DBS : BUY (Target : S$25.00)
DBS reported 2007 net profit of S$2.28b, flat versus 2006's S$2.27b. This is marginally lower than our S$2.40b forecast, primarily due to higher allowances for credit and other losses.
Net interest margin narrowed 3 bps to 2.17%. Net interest income rose 14% to S$4.11b, driven by gross loan expansion of 25%. However, NIM narrowed 3 bps, due to lower interest margins in HK. The recent margin squeeze was more pronounced - 4Q07 NIM of 2.11% was down from 3Q07's 2.14%, due to lower HK prime lending rate, and lower interbank asset yields. Given the continued weak SIBOR, we expect margin to remain narrow in the quarters ahead. But DBS loans expansion could still drive net interest income expansion.
Non-interest income rose 11%. Fee & commission income (71% share of non-interest income) surged 27% to S$1.46b. The key contributors were a) stockbroking (+77% or S$109m); and b) wealth management (+46% or S$79m). Net income from financial investments was up 97% to S$450m. However, net trading income collapsed 66% to S$180m as the fallout from the US sub-prime mortgages impacted the credit trading portfolio and structured credit business. This was further compounded by marked-to-market losses from Rosa's CDOs.
Though specific allowances for loans fell to S$16m, specific allowances for non-loan assets was a high S$100m, inclusive of a S$117m charge for the S$267m of investment CDOs with exposure to US sub-prime mortgages. General allowances of S$66m included S$53m for investment CDOs with exposure to US sub-prime mortgages and another S$30m for the balance S$944m of investment CDOs.
DBS declared a final dividend of 20¢ ps (one-tier tax-exempt). Total 2007 dividends amounts to 80¢, which is more than 2006's 76¢.
DBS reported 2007 net profit of S$2.28b, flat versus 2006's S$2.27b. This is marginally lower than our S$2.40b forecast, primarily due to higher allowances for credit and other losses.
Net interest margin narrowed 3 bps to 2.17%. Net interest income rose 14% to S$4.11b, driven by gross loan expansion of 25%. However, NIM narrowed 3 bps, due to lower interest margins in HK. The recent margin squeeze was more pronounced - 4Q07 NIM of 2.11% was down from 3Q07's 2.14%, due to lower HK prime lending rate, and lower interbank asset yields. Given the continued weak SIBOR, we expect margin to remain narrow in the quarters ahead. But DBS loans expansion could still drive net interest income expansion.
Non-interest income rose 11%. Fee & commission income (71% share of non-interest income) surged 27% to S$1.46b. The key contributors were a) stockbroking (+77% or S$109m); and b) wealth management (+46% or S$79m). Net income from financial investments was up 97% to S$450m. However, net trading income collapsed 66% to S$180m as the fallout from the US sub-prime mortgages impacted the credit trading portfolio and structured credit business. This was further compounded by marked-to-market losses from Rosa's CDOs.
Though specific allowances for loans fell to S$16m, specific allowances for non-loan assets was a high S$100m, inclusive of a S$117m charge for the S$267m of investment CDOs with exposure to US sub-prime mortgages. General allowances of S$66m included S$53m for investment CDOs with exposure to US sub-prime mortgages and another S$30m for the balance S$944m of investment CDOs.
DBS declared a final dividend of 20¢ ps (one-tier tax-exempt). Total 2007 dividends amounts to 80¢, which is more than 2006's 76¢.
China Essence Group New capacities onstream
3Q/9M08 results were in line with our expectations.
Point: Revenue for 9M surged by 63% y-o-y to RMB588.8m from RMB361.2m a
year ago on higher ASPs and higher volumes for its potato starch. This was
largely due to its newly added 80,000 tpa capacities at its Sui Ling,
Heilongjiang and Ahlihe, Inner Mongolia plants (40,000 tpa each). Gross
profit rose by 57% to RMB268.3m. Due to higher costs of potatoes in this
harvest season (Aug – Nov'07) at RMB450/mt vis-à-vis the previous season's
average cost of RMB320/mt, gross margins were lower by 1.8ppt to 45.6%,
from 47.4% a year ago. However, net profit for 9M still ended at RMB174.7m,
up by 67% from RMB104.8m as a result of its lower effective tax rate.
Relevance: The Group also announced that construction of the production
lines for its two new products – potato fibre and potato protein – has
progressed well and is expected to commence production in 3QFY09. We have
adjusted our FY09F forecasts upwards by about 12.6% to take into account:
(i) contributions from potato fibre and potato protein; and (ii) higher
ASPs of its potato starch. However, in line with the general de-rating of
the market in recent weeks, we are pegging our valuations to a more
conservative 8x on FY09F earnings (instead of 12x previously). This is at
the lower end of the counter's historical trading band. Consequently, our
TP is revised to S$0.85.
Point: Revenue for 9M surged by 63% y-o-y to RMB588.8m from RMB361.2m a
year ago on higher ASPs and higher volumes for its potato starch. This was
largely due to its newly added 80,000 tpa capacities at its Sui Ling,
Heilongjiang and Ahlihe, Inner Mongolia plants (40,000 tpa each). Gross
profit rose by 57% to RMB268.3m. Due to higher costs of potatoes in this
harvest season (Aug – Nov'07) at RMB450/mt vis-à-vis the previous season's
average cost of RMB320/mt, gross margins were lower by 1.8ppt to 45.6%,
from 47.4% a year ago. However, net profit for 9M still ended at RMB174.7m,
up by 67% from RMB104.8m as a result of its lower effective tax rate.
Relevance: The Group also announced that construction of the production
lines for its two new products – potato fibre and potato protein – has
progressed well and is expected to commence production in 3QFY09. We have
adjusted our FY09F forecasts upwards by about 12.6% to take into account:
(i) contributions from potato fibre and potato protein; and (ii) higher
ASPs of its potato starch. However, in line with the general de-rating of
the market in recent weeks, we are pegging our valuations to a more
conservative 8x on FY09F earnings (instead of 12x previously). This is at
the lower end of the counter's historical trading band. Consequently, our
TP is revised to S$0.85.
China Dairy Group Ltd: Caught between a rock and a hard place
Summary: We spoke to the management of China Dairy Group Ltd (CDG) recently, and the key takeaway was the rising heat from inflationary costs. Recent statistics from raw milk producer China Milk Products Group Ltd suggest that the cost of raw milk, a key component of CDG's cost of goods, could have risen by 27% in 2H07. Coupled with rising oil prices which will flow into higher operational costs, we expect a decline in the profitability of milk processors across the PRC, since they are generally unable to fully pass on costs to consumers. Furthermore, the PRC government has introduced curbs on price hikes for consumer products such as grain, milk and meat, adding to these food processors' woes of a margin squeeze. With various negative externalities inhibiting its growth, we have trimmed our estimates for CDG. We roll forward our valuation to FY08, but use a lower PER of 12x (previously 15x) to account for the lack of near term catalysts, translating to a fair value estimate of S$0.28. Downgrade to HOLD.
StarHub: Wins Uefa Broadcast Rights
Summary: StarHub has won the exclusive rights to broadcast the 2008 Uefa European Football Championship in Singapore, meaning that rival SingTel is still without a major sporting event to help draw more customers to its Mio pay-TV service. While StarHub did not disclose the price it paid for the broadcast rights, we do not expect it to come cheap. And as with the case of the 2006 World Cup broadcast, we expect StarHub to charge its sports viewers on a pay-per-view basis. We will have more updates when we see what sort of package StarHub intends to offer. Meanwhile, we are also leaving our numbers unchanged, pending the release of its FY07 results this evening. For now, we retain our BUY call and S$3.41 fair value.
NEWS HEADLINES
- Aztech Systems has secured a S$253m contract for the supply of construction material.
- China Essence Group posted an 85% YoY increase in 3Q08 net profit to RMB100.m as revenue almost doubled from RMB166m to RMB330.3m.
- Jade Tech is selling its wholly-owned, loss-making subsidiary Jade Precision Engineering to United Pacific Industries (UPI) for about S$6m in UPI shares and cash.
- Yoma Strategic Hldgs posted a S$21.06m net profit in 3Q08, a turnaround from a S$13.82m loss a year ago, thanks mainly to the completed acquisition of a 27% interest in Winner Sight Investments.
- Mercator Lines reported a 3Q08 net profit of US$14.4m, up sharply from US$2.4m a year ago. The company attributed the 106% YoY gain in revenue at US$43.1m to improved vessel day rates and an increase in the number of operating days.
- Vicom, the vehicle inspection unit of ComfortDelGro, posted a 31% YoY gain in FY07 net profit to S$13.5m.
- KTL Global has secured a 5-year contract to supply up to US$7m worth of wire ropes for crane equipment to the McDermott Group. It also announced a 24.6% YoY increase in 1H net profit to S$2.18m.
- Saizen REIT's 2Q08 net property income jumped 77.8% YoY to S$7.95m on the back of an 85% increase in gross revenue to S$11.23m.
StarHub: Wins Uefa Broadcast Rights
Summary: StarHub has won the exclusive rights to broadcast the 2008 Uefa European Football Championship in Singapore, meaning that rival SingTel is still without a major sporting event to help draw more customers to its Mio pay-TV service. While StarHub did not disclose the price it paid for the broadcast rights, we do not expect it to come cheap. And as with the case of the 2006 World Cup broadcast, we expect StarHub to charge its sports viewers on a pay-per-view basis. We will have more updates when we see what sort of package StarHub intends to offer. Meanwhile, we are also leaving our numbers unchanged, pending the release of its FY07 results this evening. For now, we retain our BUY call and S$3.41 fair value.
NEWS HEADLINES
- Aztech Systems has secured a S$253m contract for the supply of construction material.
- China Essence Group posted an 85% YoY increase in 3Q08 net profit to RMB100.m as revenue almost doubled from RMB166m to RMB330.3m.
- Jade Tech is selling its wholly-owned, loss-making subsidiary Jade Precision Engineering to United Pacific Industries (UPI) for about S$6m in UPI shares and cash.
- Yoma Strategic Hldgs posted a S$21.06m net profit in 3Q08, a turnaround from a S$13.82m loss a year ago, thanks mainly to the completed acquisition of a 27% interest in Winner Sight Investments.
- Mercator Lines reported a 3Q08 net profit of US$14.4m, up sharply from US$2.4m a year ago. The company attributed the 106% YoY gain in revenue at US$43.1m to improved vessel day rates and an increase in the number of operating days.
- Vicom, the vehicle inspection unit of ComfortDelGro, posted a 31% YoY gain in FY07 net profit to S$13.5m.
- KTL Global has secured a 5-year contract to supply up to US$7m worth of wire ropes for crane equipment to the McDermott Group. It also announced a 24.6% YoY increase in 1H net profit to S$2.18m.
- Saizen REIT's 2Q08 net property income jumped 77.8% YoY to S$7.95m on the back of an 85% increase in gross revenue to S$11.23m.
DMG Daily 13 Feb 08 - NOL, DBS, Jade, Yoma, China Essence, Vicom, Mercator, Aztech, Robinson
Market Outlook
It was a day for the bargain hunters as the STI opened up 0.9% at 2,895
over its previous close and barely looked back for the rest of the
session.
A positive open by the Hong Kong market further strengthened sentiment
on the local front as the STI eventually closed up 57.94 points or 2.02%
to
2,926.23 on Tuesday. The show that had been put on by the index was
easily one of the best performers in the region. On the scoreboard,
gainers beat losers 466 to 208 while volume traded also improved to
1.49bn shares that were worth some $1.55bn. Index heavyweight SingTel
continued to lend support to the STI as it jumped 21 cents or 5.6% to
$3.93 although the three local banks underperformed as investors
continued to shun financials.
A target price cut on UOB and DBS by a major foreign brokerage didn't
help as both lagged the broader market by inching up 1.2% and 0.7% to
$17.20 and
$16.78 respectively. For the week, expect the retail sales economic data
to be released on Wednesday in the US as one of the major events as
investors gauge the health of the US consumer.
Media Highlights
- NOL Q4 net up almost four times to US$196m
- DBS seen posting sharply lower Q407 earnings
- Jade Tech in deal to sell loss-making unit
- Yoma in the black with $21m Q3 profit
- China Essence reports 85% jump in Q3 net profit
- Vicom full-year net profit accelerates 31% to $13.5m
- Mercator's Q3 profit jumps to US$14.4m
- Aztech wins $253m material supply deal
- Robinson Q2 profit up 6.7% on higher sales
Economic Highlights
- Credit crisis spreading far beyond sub-prime loans
- Fed may have to cut rates to 1% or lower: Citigroup
It was a day for the bargain hunters as the STI opened up 0.9% at 2,895
over its previous close and barely looked back for the rest of the
session.
A positive open by the Hong Kong market further strengthened sentiment
on the local front as the STI eventually closed up 57.94 points or 2.02%
to
2,926.23 on Tuesday. The show that had been put on by the index was
easily one of the best performers in the region. On the scoreboard,
gainers beat losers 466 to 208 while volume traded also improved to
1.49bn shares that were worth some $1.55bn. Index heavyweight SingTel
continued to lend support to the STI as it jumped 21 cents or 5.6% to
$3.93 although the three local banks underperformed as investors
continued to shun financials.
A target price cut on UOB and DBS by a major foreign brokerage didn't
help as both lagged the broader market by inching up 1.2% and 0.7% to
$17.20 and
$16.78 respectively. For the week, expect the retail sales economic data
to be released on Wednesday in the US as one of the major events as
investors gauge the health of the US consumer.
Media Highlights
- NOL Q4 net up almost four times to US$196m
- DBS seen posting sharply lower Q407 earnings
- Jade Tech in deal to sell loss-making unit
- Yoma in the black with $21m Q3 profit
- China Essence reports 85% jump in Q3 net profit
- Vicom full-year net profit accelerates 31% to $13.5m
- Mercator's Q3 profit jumps to US$14.4m
- Aztech wins $253m material supply deal
- Robinson Q2 profit up 6.7% on higher sales
Economic Highlights
- Credit crisis spreading far beyond sub-prime loans
- Fed may have to cut rates to 1% or lower: Citigroup
Budget PreviewSingapre Market Focus
Generous pro-individual budget expected
Managing rising inflation. The key thrust in this year's budget will not
be
significantly different from previous years. Amidst a backdrop of
growing
downside risks to growth and escalating inflation, the forthcoming
budget
will focus on sharing the fruits of growth, helping the lower income
group
cope with the escalating costs of living and enhancing the
competitiveness
of the economy so as to provide the platform for stronger growth in the
years ahead.
Fat surplus, generous budget for the individual: The key measures to be
announced would probably be cuts in the personal income tax. Top tier
personal income tax rate, presently at 20% could be aligned more closely
to
the existing corporate tax rate of 18% in order to make Singapore a more
attractive location for top foreign talents. To alleviate burden of
rising
costs of living on the lower income group, the budget is expected to be
"spiced" substantially with inflation offset measures.
Corporate tax cut unlikely. Following last years' 2pct cut in corporate
tax
rate to 18%, we do not expect another cut in corporate income tax rate
this year. However, the budget is expected to include measures which are
targeted at enhancing the competitiveness of businesses. With that in
mind,
further increase in the employers' share of the CPF contribution is
unlikely given that such a measure will increase the wage costs and
depress
margin at a time when growth is most likely to slow further.
No cheer for the stockmarket. Unlike 2007, we do not expect the budget
to
have any impact on the stockmarket, given the remote possibility of a
corporate tax cut. The upcoming budget is likely to be pro-individual,
given ongoing concerns of rising inflation and the fact that
pro-business
measures had been employed over the past few years. Focus will be on the
4Q
and final GDP growth rate for 2007, as well as the government's forecast
for 2008, to be released this Thursday. With the deteriorating growth
environment, there's downside risk to our current growth forecasts of
6.5%
for 2008, vs 7.5% for 2007(preliminary estimate).
Managing rising inflation. The key thrust in this year's budget will not
be
significantly different from previous years. Amidst a backdrop of
growing
downside risks to growth and escalating inflation, the forthcoming
budget
will focus on sharing the fruits of growth, helping the lower income
group
cope with the escalating costs of living and enhancing the
competitiveness
of the economy so as to provide the platform for stronger growth in the
years ahead.
Fat surplus, generous budget for the individual: The key measures to be
announced would probably be cuts in the personal income tax. Top tier
personal income tax rate, presently at 20% could be aligned more closely
to
the existing corporate tax rate of 18% in order to make Singapore a more
attractive location for top foreign talents. To alleviate burden of
rising
costs of living on the lower income group, the budget is expected to be
"spiced" substantially with inflation offset measures.
Corporate tax cut unlikely. Following last years' 2pct cut in corporate
tax
rate to 18%, we do not expect another cut in corporate income tax rate
this year. However, the budget is expected to include measures which are
targeted at enhancing the competitiveness of businesses. With that in
mind,
further increase in the employers' share of the CPF contribution is
unlikely given that such a measure will increase the wage costs and
depress
margin at a time when growth is most likely to slow further.
No cheer for the stockmarket. Unlike 2007, we do not expect the budget
to
have any impact on the stockmarket, given the remote possibility of a
corporate tax cut. The upcoming budget is likely to be pro-individual,
given ongoing concerns of rising inflation and the fact that
pro-business
measures had been employed over the past few years. Focus will be on the
4Q
and final GDP growth rate for 2007, as well as the government's forecast
for 2008, to be released this Thursday. With the deteriorating growth
environment, there's downside risk to our current growth forecasts of
6.5%
for 2008, vs 7.5% for 2007(preliminary estimate).
StarHub Ltd: Eyes 10% revenue growth in FY08
Summary: StarHub Ltd posted a good set of 4Q07 results, with revenue up 13.9% YoY and 5.0% QoQ to S$538.8m, aided by good performance from all its business units. Although net profit fell 30.5% YoY (+21.0% QoQ) to S$98.4m, we note that the year-ago quarter was boosted by S$57.6m tax credit versus S$6.7m in 4Q07 (none in 3Q07). StarHub also declared a final dividend of S$0.045/share (versus S$0.035 in 4Q06), bringing the total dividend for the year to S$0.16 (versus S$0.115 in FY06). For FY08, management remains confident that it can sustain revenue growth at 10%, and hold EBITDA margin on service revenue at about 33%. It also aims to pay a minimum cash dividend of S$0.18/share, or around S$0.045 per quarter. In line with the latest guidance, we have adjusted our FY08 estimates by around 4% higher. Again, we see StarHub as a good defensive stock, backed by an attractive dividend policy, hence we maintain our BUY rating with a revised fair value of S$3.51.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Tat Hong Holdings Ltd: 3Q08 results indicated signs of slower growth
Summary: Tat Hong Holdings Limited (THH) turned in a mixed bag of 3Q08 results yesterday. Though revenue increased 17% YoY to S$157.9m and net profit rose 20% YoY to S$21.2m, revenue slipped 1.4% QoQ and net profit fell 7.3% QoQ. We also note that the total fleet tonnage has decreased 3.5% from 43,416 tonnes in 2Q08 to 41,906 tonnes in 3Q08, implying that THH is facing a limitation in expanding fleet tonnage capacity in this tight equipment supply market. Nonetheless, we believe that there is still much to cheer about as a slew of local development projects are planned in 2008, although we foresee lower utilisation levels and that rental rates are likely to reach a plateau soon. In view of this, we are trimming our forecasted revenue and net profit estimates. We have not factored in a potential one-off gain from the listing of Fushun Yongmao in our FY08F valuations. Rolling forward our valuation parameter to FY09F earnings, our fair value estimate is now S$3.44 (from S$4.02 previously). Maintain BUY.
For more information on the above, visit www.ocbcresearch.com for detailed report.
SSH Corporation Ltd: Stellar set of 1H08 results
Summary: SSH Corporation Ltd (SSH) turned in a stellar set of 1H08 results yesterday. Both revenue and gross profit surged 48% YoY to S$114.7m and S$29.2m respectively. Consistent with that of 1H07, gross profit margin maintained at 26%. Stripping off the one-time extraordinary gains of approximately S$1.7m, SSH's recurring net profit of S$10.8m came close to our half-year expectations of S$10.6m. SSH has proposed an interim dividend of 0.7 cent (tax-exempt) per share. We believe that SSH should not have any problems maintaining our dividend payout projection of at least 1 cent for FY08, translating into a decent yield of at least 3.2% for FY08. We are maintaining our FY08 and FY09 earnings estimates. However, with the vulnerability in the global market sentiment, we are lowering our valuation parameter to 12x. Our fair value estimate is trimmed to S$0.54 (from previously S$0.60) based on 12x FY09 forecasted earnings. We reiterate our BUY rating.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Rotary Engineering Limited: Seals US$62m deal to build storage tanks in Saudi Arabia
Summary: In our recent report dated 31 January, we had previously mentioned that Rotary Engineering Limited (Rotary) was in the running for several projects, both locally and in the Middle East. In line with this, Rotary announced yesterday that its join venture company, Petrol Steel Co Ltd (Petrol Steel) had secured a US$62m deal with Saudi Kayan Petrochemical Company to construct 24 tanks for its Saudi Kayan Petrochemical Complex in Al-Jubail, Kingdom of Saudi Arabia. Work would commence soon and is expected to be completed by end 2008. We view this award positively, as this is Petrol Steel's first significant win. We await Rotary's FY07 results on 26 Feb 2008 for more updates. In the meantime, we maintain our BUY rating for Rotary, with a fair value estimate of S$1.48.
Silverlake Axis: Good set of 2Q08 results
Summary: Silverlake Axis Limited (SAL) reported a good set of 2Q08 results as expected last night, with revenue up 30.3% YoY at MYR50.1m, while net profit jumped 78.4% to MYR44.3m, thanks to its recent SIBS licensing expansion into non-banking financial services sector. As a result, SIBS licensing contributed nearly 73.9% of total revenue, and because of its high margin, contributed 83.2% of gross profit. We were also heartened to see an associate contribution of MYR3.0m from Unifisoft, which marked a turnaround from a MYR0.5m loss in 1Q08. At the half way mark, SAL's revenue rose 67.6% to MYR107.6m, meeting nearly 58.1% of our FY08 estimate, while net profit jumped 69.5% to MYR76.9m, or 71.1% of our FY estimate. SAL has also declared an interim dividend of S$0.015/share, versus S$0.0075 last year. We will be meeting with management for an update later. For now, we retain our BUY rating and S$0.75 fair value.
Singapore Shipping Corporation Ltd: Weak set of 3Q results
Summary: Singapore Shipping Corporation Ltd (SSC) released a weaker set of 3Q08 results YoY as expected, with revenue down 52.1% YoY to S$3.1m due to the cessation of the manning service from January 2007 for third party vessels. Operating profit margin was relatively stable at 12.1% in 3Q08 versus 12% in 3Q07. While net profit fell by a steep 91.1% YoY to S$0.5m in 3Q08, we note that it was mainly due to a S$5.3m gain from the disposal of associated companies in 3Q07. On the balance sheet front, SSC's cash balance stands at S$38.1m as at Dec 07, attributable to Dec's special interim dividend payout of approximately S$52.3m (S$0.12/share). Hence, we revise our net assets projection for FY09 to S$94.9m, from S$105.6m previously. With SSC sourcing for suitable vessels to expand its current fleet and operations and all 3 vessels still out on charter, we expect organic growth in the near to medium term to remain stable based on existing operating assets. As such, we are maintaining the P/B ratio of 1x and our new fair value for SSC is S$0.22 (S$0.32 previously). As SSC is currently trading around S$0.39, we are maintaining our SELL rating.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Tat Hong Holdings Ltd: 3Q08 results indicated signs of slower growth
Summary: Tat Hong Holdings Limited (THH) turned in a mixed bag of 3Q08 results yesterday. Though revenue increased 17% YoY to S$157.9m and net profit rose 20% YoY to S$21.2m, revenue slipped 1.4% QoQ and net profit fell 7.3% QoQ. We also note that the total fleet tonnage has decreased 3.5% from 43,416 tonnes in 2Q08 to 41,906 tonnes in 3Q08, implying that THH is facing a limitation in expanding fleet tonnage capacity in this tight equipment supply market. Nonetheless, we believe that there is still much to cheer about as a slew of local development projects are planned in 2008, although we foresee lower utilisation levels and that rental rates are likely to reach a plateau soon. In view of this, we are trimming our forecasted revenue and net profit estimates. We have not factored in a potential one-off gain from the listing of Fushun Yongmao in our FY08F valuations. Rolling forward our valuation parameter to FY09F earnings, our fair value estimate is now S$3.44 (from S$4.02 previously). Maintain BUY.
For more information on the above, visit www.ocbcresearch.com for detailed report.
SSH Corporation Ltd: Stellar set of 1H08 results
Summary: SSH Corporation Ltd (SSH) turned in a stellar set of 1H08 results yesterday. Both revenue and gross profit surged 48% YoY to S$114.7m and S$29.2m respectively. Consistent with that of 1H07, gross profit margin maintained at 26%. Stripping off the one-time extraordinary gains of approximately S$1.7m, SSH's recurring net profit of S$10.8m came close to our half-year expectations of S$10.6m. SSH has proposed an interim dividend of 0.7 cent (tax-exempt) per share. We believe that SSH should not have any problems maintaining our dividend payout projection of at least 1 cent for FY08, translating into a decent yield of at least 3.2% for FY08. We are maintaining our FY08 and FY09 earnings estimates. However, with the vulnerability in the global market sentiment, we are lowering our valuation parameter to 12x. Our fair value estimate is trimmed to S$0.54 (from previously S$0.60) based on 12x FY09 forecasted earnings. We reiterate our BUY rating.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Rotary Engineering Limited: Seals US$62m deal to build storage tanks in Saudi Arabia
Summary: In our recent report dated 31 January, we had previously mentioned that Rotary Engineering Limited (Rotary) was in the running for several projects, both locally and in the Middle East. In line with this, Rotary announced yesterday that its join venture company, Petrol Steel Co Ltd (Petrol Steel) had secured a US$62m deal with Saudi Kayan Petrochemical Company to construct 24 tanks for its Saudi Kayan Petrochemical Complex in Al-Jubail, Kingdom of Saudi Arabia. Work would commence soon and is expected to be completed by end 2008. We view this award positively, as this is Petrol Steel's first significant win. We await Rotary's FY07 results on 26 Feb 2008 for more updates. In the meantime, we maintain our BUY rating for Rotary, with a fair value estimate of S$1.48.
Silverlake Axis: Good set of 2Q08 results
Summary: Silverlake Axis Limited (SAL) reported a good set of 2Q08 results as expected last night, with revenue up 30.3% YoY at MYR50.1m, while net profit jumped 78.4% to MYR44.3m, thanks to its recent SIBS licensing expansion into non-banking financial services sector. As a result, SIBS licensing contributed nearly 73.9% of total revenue, and because of its high margin, contributed 83.2% of gross profit. We were also heartened to see an associate contribution of MYR3.0m from Unifisoft, which marked a turnaround from a MYR0.5m loss in 1Q08. At the half way mark, SAL's revenue rose 67.6% to MYR107.6m, meeting nearly 58.1% of our FY08 estimate, while net profit jumped 69.5% to MYR76.9m, or 71.1% of our FY estimate. SAL has also declared an interim dividend of S$0.015/share, versus S$0.0075 last year. We will be meeting with management for an update later. For now, we retain our BUY rating and S$0.75 fair value.
Singapore Shipping Corporation Ltd: Weak set of 3Q results
Summary: Singapore Shipping Corporation Ltd (SSC) released a weaker set of 3Q08 results YoY as expected, with revenue down 52.1% YoY to S$3.1m due to the cessation of the manning service from January 2007 for third party vessels. Operating profit margin was relatively stable at 12.1% in 3Q08 versus 12% in 3Q07. While net profit fell by a steep 91.1% YoY to S$0.5m in 3Q08, we note that it was mainly due to a S$5.3m gain from the disposal of associated companies in 3Q07. On the balance sheet front, SSC's cash balance stands at S$38.1m as at Dec 07, attributable to Dec's special interim dividend payout of approximately S$52.3m (S$0.12/share). Hence, we revise our net assets projection for FY09 to S$94.9m, from S$105.6m previously. With SSC sourcing for suitable vessels to expand its current fleet and operations and all 3 vessels still out on charter, we expect organic growth in the near to medium term to remain stable based on existing operating assets. As such, we are maintaining the P/B ratio of 1x and our new fair value for SSC is S$0.22 (S$0.32 previously). As SSC is currently trading around S$0.39, we are maintaining our SELL rating.
StarHub -Strong Results; Excellent Dividend Play
4Q and full-year results. StarHub reported 4Q operating revenue of S$538.8m (+13.9% yoy) and net profit of S$98.3m (-30.6% yoy). Moreover, EBITDA increased to S$157.4m (+7.8% yoy). It also declared a final dividend of S$0.045 per ordinary share, which was higher than the final dividend of S$0.035 last year. This brought the total annual dividend to S$0.16 (+39.1% yoy) per ordinary share for 2007 that is significantly higher than the total annual dividend of S$0.115 for 2006.
Tat Hong-A soaring crane still needs to rest
Story: Tat Hong's revenue grew 17% y-o-y to S$157.9m in 3Q08, and 31% to
S$456.2m in 9M08. The crane utilization rate still stood at a high 81.2% as
of end 3Q08, slightly down q-o-q from 83.5%. Net profit subsequently jumped
20% y-o-y to S$21.2m in 3Q08 and 65% to S$61.4m in 9M08. This set of
results is roughly in line with expectation, and Tat Hong remains on target
to reach our net profit estimate of S$86.8m in FY08.
Point: Despite the strong outlook for construction and infrastructure
projects in Asia Pacific and its proven track record, we believe that the
lowered investors' risk appetite will make it increasingly hard for Tat
Hong to continue justifying a substantial valuation premium over its listed
peers and subsidiary in Singapore and Australia. Tat Hong currently trades
at 15x FY09 PE and 6.8x FY07 P/B, vs. its peers'average PE of 8x and P/B of
about 1.5x. Indeed, given that the market volatility is unlikely to subside
in the near term, we reckon the risk to Tat Hong's share price to be
increasingly tilted towards valuation compression, as compared to the lower
probability of share price re-rating.
Relevance: We have downgraded our fair value for Tat Hong to S$2.70, using
a downward revised 13x FY09 PE, vs. 16x previously. This is within the PE
range of 9x-25x since the group staged a profit turnaround in FY03, and is
roughly in line with Tat Hong's average PE of about 13.6x. While the
substantial valuation premium over its peers' corresponding 8x PE, at our
fair value, may still look huge, we believe that it is reasonable given Tat
Hong's proven track record in pursuing earnings growth and its
substantially bigger market capitalization. We have also downgraded Tat
Hong to Fully Valued.
S$456.2m in 9M08. The crane utilization rate still stood at a high 81.2% as
of end 3Q08, slightly down q-o-q from 83.5%. Net profit subsequently jumped
20% y-o-y to S$21.2m in 3Q08 and 65% to S$61.4m in 9M08. This set of
results is roughly in line with expectation, and Tat Hong remains on target
to reach our net profit estimate of S$86.8m in FY08.
Point: Despite the strong outlook for construction and infrastructure
projects in Asia Pacific and its proven track record, we believe that the
lowered investors' risk appetite will make it increasingly hard for Tat
Hong to continue justifying a substantial valuation premium over its listed
peers and subsidiary in Singapore and Australia. Tat Hong currently trades
at 15x FY09 PE and 6.8x FY07 P/B, vs. its peers'average PE of 8x and P/B of
about 1.5x. Indeed, given that the market volatility is unlikely to subside
in the near term, we reckon the risk to Tat Hong's share price to be
increasingly tilted towards valuation compression, as compared to the lower
probability of share price re-rating.
Relevance: We have downgraded our fair value for Tat Hong to S$2.70, using
a downward revised 13x FY09 PE, vs. 16x previously. This is within the PE
range of 9x-25x since the group staged a profit turnaround in FY03, and is
roughly in line with Tat Hong's average PE of about 13.6x. While the
substantial valuation premium over its peers' corresponding 8x PE, at our
fair value, may still look huge, we believe that it is reasonable given Tat
Hong's proven track record in pursuing earnings growth and its
substantially bigger market capitalization. We have also downgraded Tat
Hong to Fully Valued.
Comparson between China Railway Group (390 HK) & China Railway Construction Corp
According to local press, China Railway Construction Corporation (CRCC)
resumed the IPO process this week. The Group began investor education for
HK portion of its deal this week before a formal roadshow starts on 25th
Feb. A price range will be set on 22nd Feb. CRCC plans to sell to
investors 37.9% of company shares through the dual listing (A+H). The
proceeds from the IPO is about US$3-4b. The stellar share price
performance of the China Railway Group (CRG) has triggered greater
attention on the railway industry in China and CRCC's IPO.
We did a comparison between CRG and CRCC. There are a lot of similarities
between CRG and CRCC (such as revenue breakdown, industry outlook, company
background and profitability), as they are the two leading construction
companies in China. Infrastructure construction division accounted for
over 90% of CRG's and CRCC's turnover in 2006. Railway construction
accounted for about 40% of both CRG's and CRCC's turnover at the
infrastructure construction division. CRG has a higher exposure to China
property sector as property division accounted for 1.2% of total turnover
and 11.6% of operating profit in 2006. Property division only accounted for
0.4% and 3.1% of CRCC's total turnover and operating profit in 2006. CRG's
overall margin appears to be higher than CRCC as CRG achieved better
operating performance at the property division and equipment manufacturing
division. CRCC achieved higher operating efficiency as CRCC's sales and
net profit per staff were higher.
We consider both CRG and CRCC are high quality railway plays in China. The
industry outlook for both companies is favourable given the government's
plan to expand the railway network aggressively in the coming years. In
view of their proven track records and dominant market position, both
companies are well-positioned to benefit from the rapid growth in the
railway industry. Apart from railway construction, there are other growth
drivers, including a.) expansion into overseas markets, b.) expansion into
other business and c.) improvement in operating efficiency.
Without an indicative price range, it is impossible to do a comparison
between CRG and CRCC based on valuation (such as PER, EV/EBITDA or PEG).
However, we believe that CRCC is likely to price attractively in order to
lure investors given the current market environment.
Differences between China Railway Group (CRC) and China Railway
Construction Corporation (CRCC)
China Railway Group China Railway Construction Corporation
Ticker 390 HK
FY06 Turnover
breakdown (%)
Infrastructure 91.4 95.3
Construction
Survey, Design 2.7 2.2
and Consulting
Services
Equipment 2.7 0.9
manufacturing
Property 1.2 0.4
Others 4.1 1.9
FY06 Operating
profit breakdown
(%)
Infrastructure 60.5 85.8
Construction
Survey, Design 9.5 3.3
and Consulting
Services
Equipment 12.1 0.7
manufacturing
Property 11.6 3.1
Others 4.9 7.1
FY06 Operating
margin (%)
Infrastructure 1.6 1.4
Construction
Survey, Design 8.5 2.4
and Consulting
Services
Equipment 10.9 1.3
manufacturing
Property 22.7 13.2
Others 2.9 5.8
FY06 turnover Railway (43.7%) Railway (42.0%)
Breakdown of Highway (30.0%) Highway (38.9%)
Infrastructure Municipal works (26.3%) Municipal works (19.1%)
Construction
division
Survey & design 1 2
institutes
Equipment Largest manufacturers of Largest large track maintenance
manufacturing turnouts. machinery manufacturer
Sole developer and manufacturer
currently producing high
manganese steel welded frogs
and the only manufacturer
currently producing
acceleration turnouts in China
Property 6.3m 5.4m
development (GFA Beijing, Chengdu, Shenzhen, Guiyang, Changsha,Xuzhou, Baoding,
m2) Guiyang, Guangzhou, Wuhan Hebei, Chongqing, Laixi, Beijing
Location Shijizhuang and Anging Qingdao and Linan.
Other business 3 gold mines (1 in Inner Potential investment in cement
Mongoia and two in Congo), 1 production in Nigeria
cobalt mine in Congo
Ranking in China 1 2
Listed China Raiwlay Erju Nil
subsidiaries
No. of staff 276,504 183,308
Sales per staff 555,392 837,989
(Rmb) 7,400 6,628
Net profit per
staff (Rmb)
Future growth Property development, overseas Cement production, margin improvement
drivers projects, margin improvement, especially at the survey, design and
mining and BT and BOT projects consulting services division and
equipment manufacturing division
(FY08 PER) 36 n.a.
Mkt cap. (US$m) 12,301 4,000.
Major subsidiaries under CRG and CRCC
China Railway Group China Railway Construction
Corporation
China Overseas Engineering Group China Civil Engineering
Construction Corp
China Railway No.1 Engineering Group China Railway 11th Construction
Bureau Corp
China Railway No.2 Engineering Group China Railway 12th Construction
Bureau Corp
China Railway No.3 Engineering Group China Railway 13th Construction
Bureau Corp
China Railway No.4 Engineering Group China Railway 14th Construction
Bureau Corp
China Railway No.5 Engineering Group China Railway 15th Construction
Bureau Corp
China Railway No.6 Engineering Group China Railway 16th Construction
Bureau Corp
China Railway No.7 Engineering Group China Railway 17th Construction
Bureau Corp
China Railway No.8 Engineering Group China Railway 18th Construction
Bureau Corp
China Railway No.9 Engineering Group China Railway 19th Construction
Bureau Corp
China Railway No.10 Engineering Group China Railway 20th Construction
Bureau Corp
China Railway Major Bridge Engineering China Railway 21th Construction
Group Bureau Corp
China Railway Tunnel Group China Railway 22th Construction
Bureau Corp
China Railway Electrification Engineering China Railway 23th Construction
Group Bureau Corp
China railway Construction Group (CRCG) China Railway 24th Construction
Bureau Corp
China Railway Eryuan Engineering Goup China Railway 25th Construction
Bureau Corp
The Third Railway Survey and Design Zhong-Tie Construction Group
Institute Corp
China Railway Engineering Consulting Group China Railway Material Corp
China Railway Major Bridge Reconnaissance
Design Institute
Huatie Engineering Cosulting Co
Martech Marine & China Railway Engineering
China Railway Shanhaiguan Bridge Group
Baoji China Railway Turnout & Bridge
Development
China Railway Baoji Machinery
China Railway heavy Machinery
China Railway Northwest Research Institute
China Railway Southwest Research Institute
China Railway Engineering Machinery
Research & Design Institute
HangRan Management Institute
China Railway Engineering Institute
resumed the IPO process this week. The Group began investor education for
HK portion of its deal this week before a formal roadshow starts on 25th
Feb. A price range will be set on 22nd Feb. CRCC plans to sell to
investors 37.9% of company shares through the dual listing (A+H). The
proceeds from the IPO is about US$3-4b. The stellar share price
performance of the China Railway Group (CRG) has triggered greater
attention on the railway industry in China and CRCC's IPO.
We did a comparison between CRG and CRCC. There are a lot of similarities
between CRG and CRCC (such as revenue breakdown, industry outlook, company
background and profitability), as they are the two leading construction
companies in China. Infrastructure construction division accounted for
over 90% of CRG's and CRCC's turnover in 2006. Railway construction
accounted for about 40% of both CRG's and CRCC's turnover at the
infrastructure construction division. CRG has a higher exposure to China
property sector as property division accounted for 1.2% of total turnover
and 11.6% of operating profit in 2006. Property division only accounted for
0.4% and 3.1% of CRCC's total turnover and operating profit in 2006. CRG's
overall margin appears to be higher than CRCC as CRG achieved better
operating performance at the property division and equipment manufacturing
division. CRCC achieved higher operating efficiency as CRCC's sales and
net profit per staff were higher.
We consider both CRG and CRCC are high quality railway plays in China. The
industry outlook for both companies is favourable given the government's
plan to expand the railway network aggressively in the coming years. In
view of their proven track records and dominant market position, both
companies are well-positioned to benefit from the rapid growth in the
railway industry. Apart from railway construction, there are other growth
drivers, including a.) expansion into overseas markets, b.) expansion into
other business and c.) improvement in operating efficiency.
Without an indicative price range, it is impossible to do a comparison
between CRG and CRCC based on valuation (such as PER, EV/EBITDA or PEG).
However, we believe that CRCC is likely to price attractively in order to
lure investors given the current market environment.
Differences between China Railway Group (CRC) and China Railway
Construction Corporation (CRCC)
China Railway Group China Railway Construction Corporation
Ticker 390 HK
FY06 Turnover
breakdown (%)
Infrastructure 91.4 95.3
Construction
Survey, Design 2.7 2.2
and Consulting
Services
Equipment 2.7 0.9
manufacturing
Property 1.2 0.4
Others 4.1 1.9
FY06 Operating
profit breakdown
(%)
Infrastructure 60.5 85.8
Construction
Survey, Design 9.5 3.3
and Consulting
Services
Equipment 12.1 0.7
manufacturing
Property 11.6 3.1
Others 4.9 7.1
FY06 Operating
margin (%)
Infrastructure 1.6 1.4
Construction
Survey, Design 8.5 2.4
and Consulting
Services
Equipment 10.9 1.3
manufacturing
Property 22.7 13.2
Others 2.9 5.8
FY06 turnover Railway (43.7%) Railway (42.0%)
Breakdown of Highway (30.0%) Highway (38.9%)
Infrastructure Municipal works (26.3%) Municipal works (19.1%)
Construction
division
Survey & design 1 2
institutes
Equipment Largest manufacturers of Largest large track maintenance
manufacturing turnouts. machinery manufacturer
Sole developer and manufacturer
currently producing high
manganese steel welded frogs
and the only manufacturer
currently producing
acceleration turnouts in China
Property 6.3m 5.4m
development (GFA Beijing, Chengdu, Shenzhen, Guiyang, Changsha,Xuzhou, Baoding,
m2) Guiyang, Guangzhou, Wuhan Hebei, Chongqing, Laixi, Beijing
Location Shijizhuang and Anging Qingdao and Linan.
Other business 3 gold mines (1 in Inner Potential investment in cement
Mongoia and two in Congo), 1 production in Nigeria
cobalt mine in Congo
Ranking in China 1 2
Listed China Raiwlay Erju Nil
subsidiaries
No. of staff 276,504 183,308
Sales per staff 555,392 837,989
(Rmb) 7,400 6,628
Net profit per
staff (Rmb)
Future growth Property development, overseas Cement production, margin improvement
drivers projects, margin improvement, especially at the survey, design and
mining and BT and BOT projects consulting services division and
equipment manufacturing division
(FY08 PER) 36 n.a.
Mkt cap. (US$m) 12,301 4,000.
Major subsidiaries under CRG and CRCC
China Railway Group China Railway Construction
Corporation
China Overseas Engineering Group China Civil Engineering
Construction Corp
China Railway No.1 Engineering Group China Railway 11th Construction
Bureau Corp
China Railway No.2 Engineering Group China Railway 12th Construction
Bureau Corp
China Railway No.3 Engineering Group China Railway 13th Construction
Bureau Corp
China Railway No.4 Engineering Group China Railway 14th Construction
Bureau Corp
China Railway No.5 Engineering Group China Railway 15th Construction
Bureau Corp
China Railway No.6 Engineering Group China Railway 16th Construction
Bureau Corp
China Railway No.7 Engineering Group China Railway 17th Construction
Bureau Corp
China Railway No.8 Engineering Group China Railway 18th Construction
Bureau Corp
China Railway No.9 Engineering Group China Railway 19th Construction
Bureau Corp
China Railway No.10 Engineering Group China Railway 20th Construction
Bureau Corp
China Railway Major Bridge Engineering China Railway 21th Construction
Group Bureau Corp
China Railway Tunnel Group China Railway 22th Construction
Bureau Corp
China Railway Electrification Engineering China Railway 23th Construction
Group Bureau Corp
China railway Construction Group (CRCG) China Railway 24th Construction
Bureau Corp
China Railway Eryuan Engineering Goup China Railway 25th Construction
Bureau Corp
The Third Railway Survey and Design Zhong-Tie Construction Group
Institute Corp
China Railway Engineering Consulting Group China Railway Material Corp
China Railway Major Bridge Reconnaissance
Design Institute
Huatie Engineering Cosulting Co
Martech Marine & China Railway Engineering
China Railway Shanhaiguan Bridge Group
Baoji China Railway Turnout & Bridge
Development
China Railway Baoji Machinery
China Railway heavy Machinery
China Railway Northwest Research Institute
China Railway Southwest Research Institute
China Railway Engineering Machinery
Research & Design Institute
HangRan Management Institute
China Railway Engineering Institute
Singapore market – Market advances further
• Market Preview: Straits Times Index (STI) secured another 23.31 or 0.8% gain to 2,949.54 points after Dow's overnight increase with Warren Buffett's rescue plan for the troubled bond insurers. Buffett's offer to reinsure up to US$800 billion in municipal bonds has brought about certain level of reassurance to investors. Trading volume went up 1.7 billion shares valued at S$1.8 billion. Gainers led losers 346 to 304. Property giants saw bigger gains following recent heavy sell-down. CapitaLand up 18 cents or 3.2% to S$5.86 while Keppel Land added 12 cents or 2.1% to close at S$5.89.
• The market is likely to cheer the improvement over the US economic outlook rather than the slight downgrading of Singapore outlook. As Singapore is an open economy, its performance will depend on external economies. As such, market is likely to react more positively to a better US numbers. Going forward, we may see more mixed US numbers. Investors who have acted on our accumulate call earlier may consider taking some profit.
• In this morning's Singapore 4Q07 GDP release, the Ministry of Trade and Industry (MTI) has lowered the 2008 Singapore GDP forecast by half a percentage point to 4%-6%. The 4Q07 GDP growth rate grew at year-on-year rate of 5.4% (see Table), slightly lower than the 6% reported in the advanced estimate. Manufacturing sector achieved a lower growth rate of 0.2%, lower than the fresh estimate growth rate of 0.5%. Construction sector's performance was inline with the fresh estimate, growing at 24.3%. Finance sector was the second best performing sector, growing at 15.9%. Overall, the Singapore economy grew at 7.7% in 2007, better than the fresh estimate of 7.5%. This was due to adjustment in prior quarters' numbers. Despite MTI's downgrading, we keep our GDP forecast for 2008 at 4.8% as we have already factored in a negative 1% growth in the manufacturing sector. We believe the strong construction and business services sectors are likely to power the economy in 2008.
• Wall Street: US shares moved up sharply on unexpected increase in retail sales figures last month. The Commerce Department announced a 0.3% rise in January retail sales, beating analyst's expectation of a 0.3% decline. The surprise increase lifted some of the market's worries that consumers are not willing to spend in this uncertain economic where fuel prices are rising and real estate sector experiencing a downfall. Dow gained 178.83 or 1.4% to 12,552.24 while Nasdaq grabbed of 53.89 or 2.3% to 2,379.93 points. Applied materials, the largest maker of semiconductor equipment, closed 10.2% higher at US$19.91 after it reported a surge in orders for machines that make flat screen.
• Crude Oil rose US$0.49 to close at US$93.27 per barrel on NYMEX.
Company Highlights
Australand- FY07 operating profit after tax up 5% to S$163.2 million
• Australand Holdings Limited announced a FY07 net profit of S$269.2 million, including unrealized gains in property revaluations while the full year operating profit after tax, excluding unrealized gains in property revaluations, was S$163.2 million, up 5% on the prior year.
• Earnings per Stapled Security, on operating profit after tax, was up 2% to S$17.6 while dividends up 3% to S$0.17 per stapled security.
Rotary Engineering – seals US$62 million deal
• Rotary Engineering announced that it is increasing stake in its joint venture company, Petrol Steel Co. Ltd. in Saudi Arabia to 51%.
• The joint venture has secured a US$62 million deal with Saudi Kayan Petrochemical Company to construct 24 tanks. Work is due to commerce and is expected to be completed by end of the year
• The market is likely to cheer the improvement over the US economic outlook rather than the slight downgrading of Singapore outlook. As Singapore is an open economy, its performance will depend on external economies. As such, market is likely to react more positively to a better US numbers. Going forward, we may see more mixed US numbers. Investors who have acted on our accumulate call earlier may consider taking some profit.
• In this morning's Singapore 4Q07 GDP release, the Ministry of Trade and Industry (MTI) has lowered the 2008 Singapore GDP forecast by half a percentage point to 4%-6%. The 4Q07 GDP growth rate grew at year-on-year rate of 5.4% (see Table), slightly lower than the 6% reported in the advanced estimate. Manufacturing sector achieved a lower growth rate of 0.2%, lower than the fresh estimate growth rate of 0.5%. Construction sector's performance was inline with the fresh estimate, growing at 24.3%. Finance sector was the second best performing sector, growing at 15.9%. Overall, the Singapore economy grew at 7.7% in 2007, better than the fresh estimate of 7.5%. This was due to adjustment in prior quarters' numbers. Despite MTI's downgrading, we keep our GDP forecast for 2008 at 4.8% as we have already factored in a negative 1% growth in the manufacturing sector. We believe the strong construction and business services sectors are likely to power the economy in 2008.
• Wall Street: US shares moved up sharply on unexpected increase in retail sales figures last month. The Commerce Department announced a 0.3% rise in January retail sales, beating analyst's expectation of a 0.3% decline. The surprise increase lifted some of the market's worries that consumers are not willing to spend in this uncertain economic where fuel prices are rising and real estate sector experiencing a downfall. Dow gained 178.83 or 1.4% to 12,552.24 while Nasdaq grabbed of 53.89 or 2.3% to 2,379.93 points. Applied materials, the largest maker of semiconductor equipment, closed 10.2% higher at US$19.91 after it reported a surge in orders for machines that make flat screen.
• Crude Oil rose US$0.49 to close at US$93.27 per barrel on NYMEX.
Company Highlights
Australand- FY07 operating profit after tax up 5% to S$163.2 million
• Australand Holdings Limited announced a FY07 net profit of S$269.2 million, including unrealized gains in property revaluations while the full year operating profit after tax, excluding unrealized gains in property revaluations, was S$163.2 million, up 5% on the prior year.
• Earnings per Stapled Security, on operating profit after tax, was up 2% to S$17.6 while dividends up 3% to S$0.17 per stapled security.
Rotary Engineering – seals US$62 million deal
• Rotary Engineering announced that it is increasing stake in its joint venture company, Petrol Steel Co. Ltd. in Saudi Arabia to 51%.
• The joint venture has secured a US$62 million deal with Saudi Kayan Petrochemical Company to construct 24 tanks. Work is due to commerce and is expected to be completed by end of the year
What's on the table
Straits Asia Resources (S$3.35) - Thermal coal prices reaching new
heights
We are raising our benchmark thermal coal price assumptions to
US$100/tonne
(+US$10/tonne) for FY08, US$90/tonne (+US$10/tonne) for FY09and
US$80/tonne
(+US$10/tonne) for FY10 onwards. This follows last week's jump in
Barlow Jonker
spot pricing to US$122.4.tonne (+23.8/tonne, +4.1%), and this week's
news of
further weather-related problems in Australia. We have adjusted our
assumed
pricing for Straits Asia to account for benchmark coal quality (6,000
kcal/kg GAR
for Sebuku, 5,600 kcal/kg GAR for Jembayan) and for FY08 forward sales.
Following
this upgrade, our FY08-09 EPS for Straits Asia increase by 13-16% and
our
DCF-based target price rises to S$4.32 (previously S$3.57). This offers
28%
upside from the company's current share price, which is below the 37%
upside to
our STI target of 4,100. However, we maintain our Trading Buy
recommendation
given further possible earnings upgrades following yesterday's
announcement of
sizeable upgrades in Straits Asia's coal resources.
Quick Takes
* Coal Sector - Outlook remains strong
* Tat Hong Holdings (S$3.09) - 3QFY08 results - Head and
shoulders above
* Bukit Sembawang (S$8.96) - 3QFY08 results - Looking to time
the market
* StarHub (S$3.12) - 4QFY07 results - ARPU growth story
unfolds
* Rotary Engineering (S$0.93) - Arabian knight
Corporate News
* DBS appoints Richard Stanley as new CEO
* China XLX completes construction of power generation systems
* Sincere Q3 profit more than doubles
* CitySpring's Q3 DPU of 1.6cents beats projections
Trading Ideas
heights
We are raising our benchmark thermal coal price assumptions to
US$100/tonne
(+US$10/tonne) for FY08, US$90/tonne (+US$10/tonne) for FY09and
US$80/tonne
(+US$10/tonne) for FY10 onwards. This follows last week's jump in
Barlow Jonker
spot pricing to US$122.4.tonne (+23.8/tonne, +4.1%), and this week's
news of
further weather-related problems in Australia. We have adjusted our
assumed
pricing for Straits Asia to account for benchmark coal quality (6,000
kcal/kg GAR
for Sebuku, 5,600 kcal/kg GAR for Jembayan) and for FY08 forward sales.
Following
this upgrade, our FY08-09 EPS for Straits Asia increase by 13-16% and
our
DCF-based target price rises to S$4.32 (previously S$3.57). This offers
28%
upside from the company's current share price, which is below the 37%
upside to
our STI target of 4,100. However, we maintain our Trading Buy
recommendation
given further possible earnings upgrades following yesterday's
announcement of
sizeable upgrades in Straits Asia's coal resources.
Quick Takes
* Coal Sector - Outlook remains strong
* Tat Hong Holdings (S$3.09) - 3QFY08 results - Head and
shoulders above
* Bukit Sembawang (S$8.96) - 3QFY08 results - Looking to time
the market
* StarHub (S$3.12) - 4QFY07 results - ARPU growth story
unfolds
* Rotary Engineering (S$0.93) - Arabian knight
Corporate News
* DBS appoints Richard Stanley as new CEO
* China XLX completes construction of power generation systems
* Sincere Q3 profit more than doubles
* CitySpring's Q3 DPU of 1.6cents beats projections
Trading Ideas
China Resources Land Limited (1109.HK) Benefit from parent companys asset injection, performance outburst growth
Summary
With projects in Beijing, Shanghai, Shenzhen, Chengdu and other cities progressing smoothly, state participating large property developer China Resources Land (CRL) enjoyed a rapid development in 2007. In first half of 2007, the groups turnover and net profit respectively rose by 80.8% and 62.9% to HK$1.81 billion and HK$ 575 million. The annual turnover in 2007 is expected to reach HK $6.9 billion, with about HK$ 2.01 billion net profit. The parent company, China Resources Group, through the model of land acquisition, completion of first class land development and injection into listed company, fully guaranteed CRLs land bank. With an optimistic view on future development of CRL, we rate the group with "Buy", and target price at HK$ 18.02, representing 36% premium increase than current price.
Land bank benefited from parent companys asset injection
Parent company, China Resources Group injected cultivated land into CRL is an important way for the group getting access to land bank. The basic procedure is: the parent company usually buys new land at the land auction a year ago and finishes the first class land development, shoulders the risks and capital cost in early period, and then injects into listed company at the project to be producing or generating cash flow. Relatively low cash flow risks and faster turnover rate would benefit CRL.
China Resources Group has massively injected land assets into CRL in 2005 and 2006. In December 2007, with RMB 4.53 billion, CRL purchased the high quality land in Dalian Economic and Technological Development Zone, Hangzhou and Wuxi, with GFA amounts to 1.5 million sq.m.. As return, this transaction involved 269 million newly issued stocks, with RMB 16.83 per share payment, increased China Resources Groups shareholding from 59.36% to 62.07%.
In 2007, by means of large shareholders asset injection and market acquisition, CRL increased land bank by 4.926 million sq.m., amount to around 15 million sq.m. up to now. The 5.4 million sq.m. land bank of China Resources Group will be successively injected into CRL in 2-3 years.
2007-2008 performance outburst growth
CRL would have a sustained great growth on sales in 2007-2008. It is estimated that GFA sold of CR Land is approximately 0.65 million sq.m., with sales volume totals RMB 7.05 billion. GFA booked in 2007 has reached to 0.59 million sq.m., rose 47.5% than 2006. The sales turnover has reached RMB 6.4 billion, 115% increase than 2006. And with the open of Shenzhen MIXc, the groups rental income of investment property will soar, and is estimated to reach RMB 1.02 billion.
In 2008, CRL will accomplish many projects, among which a large portion was already sold in 2006-2007. The GFA completed is expected to more than 1.8 million sq.m., GFA booked with 1.44 million sq.m., sales turnover with RMB 1.39 billion
Gradually optimizing financial index
Light asset, high turnover is the rapid development strategy for many property developers lately, while in recent years development for CRL, the investment property income contributed for a large proportion in the groups performance, and relatively low property sales turnover directly effected the groups performance and returns to shareholders. (see Fig. 3) We believe that the groups stable expansion strategy and major shareholder China Resources Groups integration on the property business were the main reasons for such situation generated. The property asset successively injected by China Resources Group includes land, commercial property and other various type assets, for which not only influenced the capital structure of CRL, but also the groups development strategy. The merit for this strategy is comparatively low debt level, and significantly decreased financial risks. According to statistics, the average asset-liability ratio for CRL in 2002-2006 was about 51%, and10% lower than the industrial level. With the adjustment of development strategy, and the gradual release for property development performance in 2007-2008, the groups financial index would be gradually optimized.
Evaluation
We anticipate in 2007 and 2008, CRL will finish 0.59 million and 1.44 million sq.m. GFA booked respectively, generating RMB 6.4 billion and RMB 13.9 billion prime operating income, with RMB 1.86 billion and RMB 3.63 billion net profit, equals HK$2.008 billion and HK$ 3.919 billion.
We forecast that after acquiring the projects in Dalian, Wuxi and Hangzhou, NAV per share for CRL will reach HK$ 16.43 at the end of 2007. Then, the group would further be rewarded with China Resources Groups investment, with possible prospect of reaching NAV HK$ 18.96 per share at the end of 2008. Taking into consideration of the impact of macro control and the groups own feature, we give 5% discount. The 12-month target price for CRL is HK$ 18.02, 36% premium increase than present price, and 18.56 times of EPS in 2008. We give CRL "Buy" rating.
With projects in Beijing, Shanghai, Shenzhen, Chengdu and other cities progressing smoothly, state participating large property developer China Resources Land (CRL) enjoyed a rapid development in 2007. In first half of 2007, the groups turnover and net profit respectively rose by 80.8% and 62.9% to HK$1.81 billion and HK$ 575 million. The annual turnover in 2007 is expected to reach HK $6.9 billion, with about HK$ 2.01 billion net profit. The parent company, China Resources Group, through the model of land acquisition, completion of first class land development and injection into listed company, fully guaranteed CRLs land bank. With an optimistic view on future development of CRL, we rate the group with "Buy", and target price at HK$ 18.02, representing 36% premium increase than current price.
Land bank benefited from parent companys asset injection
Parent company, China Resources Group injected cultivated land into CRL is an important way for the group getting access to land bank. The basic procedure is: the parent company usually buys new land at the land auction a year ago and finishes the first class land development, shoulders the risks and capital cost in early period, and then injects into listed company at the project to be producing or generating cash flow. Relatively low cash flow risks and faster turnover rate would benefit CRL.
China Resources Group has massively injected land assets into CRL in 2005 and 2006. In December 2007, with RMB 4.53 billion, CRL purchased the high quality land in Dalian Economic and Technological Development Zone, Hangzhou and Wuxi, with GFA amounts to 1.5 million sq.m.. As return, this transaction involved 269 million newly issued stocks, with RMB 16.83 per share payment, increased China Resources Groups shareholding from 59.36% to 62.07%.
In 2007, by means of large shareholders asset injection and market acquisition, CRL increased land bank by 4.926 million sq.m., amount to around 15 million sq.m. up to now. The 5.4 million sq.m. land bank of China Resources Group will be successively injected into CRL in 2-3 years.
2007-2008 performance outburst growth
CRL would have a sustained great growth on sales in 2007-2008. It is estimated that GFA sold of CR Land is approximately 0.65 million sq.m., with sales volume totals RMB 7.05 billion. GFA booked in 2007 has reached to 0.59 million sq.m., rose 47.5% than 2006. The sales turnover has reached RMB 6.4 billion, 115% increase than 2006. And with the open of Shenzhen MIXc, the groups rental income of investment property will soar, and is estimated to reach RMB 1.02 billion.
In 2008, CRL will accomplish many projects, among which a large portion was already sold in 2006-2007. The GFA completed is expected to more than 1.8 million sq.m., GFA booked with 1.44 million sq.m., sales turnover with RMB 1.39 billion
Gradually optimizing financial index
Light asset, high turnover is the rapid development strategy for many property developers lately, while in recent years development for CRL, the investment property income contributed for a large proportion in the groups performance, and relatively low property sales turnover directly effected the groups performance and returns to shareholders. (see Fig. 3) We believe that the groups stable expansion strategy and major shareholder China Resources Groups integration on the property business were the main reasons for such situation generated. The property asset successively injected by China Resources Group includes land, commercial property and other various type assets, for which not only influenced the capital structure of CRL, but also the groups development strategy. The merit for this strategy is comparatively low debt level, and significantly decreased financial risks. According to statistics, the average asset-liability ratio for CRL in 2002-2006 was about 51%, and10% lower than the industrial level. With the adjustment of development strategy, and the gradual release for property development performance in 2007-2008, the groups financial index would be gradually optimized.
Evaluation
We anticipate in 2007 and 2008, CRL will finish 0.59 million and 1.44 million sq.m. GFA booked respectively, generating RMB 6.4 billion and RMB 13.9 billion prime operating income, with RMB 1.86 billion and RMB 3.63 billion net profit, equals HK$2.008 billion and HK$ 3.919 billion.
We forecast that after acquiring the projects in Dalian, Wuxi and Hangzhou, NAV per share for CRL will reach HK$ 16.43 at the end of 2007. Then, the group would further be rewarded with China Resources Groups investment, with possible prospect of reaching NAV HK$ 18.96 per share at the end of 2008. Taking into consideration of the impact of macro control and the groups own feature, we give 5% discount. The 12-month target price for CRL is HK$ 18.02, 36% premium increase than present price, and 18.56 times of EPS in 2008. We give CRL "Buy" rating.
Keppel Corporation Ltd: Record performance
Keppel Corporation Ltd: Record performance
Summary: Keppel Corporation (Keppel) yesterday posted unprecedented
full-year net profit after tax of S$1.03b (+36.6% YoY) buoyed by a surge in
revenue to S$10.4b (+37.2%) for 2007. All business segments performed
better. The contracts secured by Keppel O&M tipped the S$7b mark for a
second year, giving rise to a net order book of S$12.2b and extended
earnings visibility into 2011. However, there are growing threats of margin
erosions and forex hedging concerns as a result of cost escalations and
weakening of the USD. Keppel proposed final and special dividends of a
total of 30 cents. In view of potential margin erosions and slowdown in
order momentum, we are revising down our FY08 earnings estimates to S$963m.
Based on the current market weakness, we derive a fair value of S$14.80
(from S$17.10 previously) from sum-of-the-part valuation. We reiterate our
BUY rating on Keppel.
Chartered Semiconductor: Good headline 4Q07 numbers
Summary: Chartered Semiconductor posted its 4Q07 results this morning, with
revenue just down 0.6% QoQ (+4% YoY) at US$352.6m, while net profit (before
accretion to preference shareholders) came in at US$5.9m (+9.0% YoY, down
94.9% QoQ). Chartered had earlier guided for revenue to fall 2-6% QoQ to
US$334-346m, while net profit is expected to come in at US$1-11m. We were
looking for 4Q07 revenue of US$346.5m and net profit of US$2.9m. Chartered
attributed the better top-line number to strength in the communications
sector (+74.5% YoY, +16.8% QoQ), which made up for weakness in computer
(down 57.5% YoY, -25.5% QoQ). Nevertheless, we note that the bottom-line
strength came mainly from a tax credit of US$14.6m, and the foundry
actually made a PBT loss of US$8.7m, versus a profit of US$6.3m in 4Q06 and
US$7.1m in 3Q07. Going forward, Chartered is looking at a pretty upbeat
1Q08, as it is guiding for revenue to grow 2-6% QoQ to US$361-373m and net
profit to come in flat (+/- US$5m). Utilization rate is also expected to
improve from 81% in 4Q07 to 82-88%, although ASPs could down 2-6% to
US$845-885/wafer. We will be making some adjustments to our numbers after
the conference call this morning. For now, we retain our HOLD rating.
GP Batteries: Another loss in 3Q08
Summary: GP Batteries (GPB) posted another set of disappointing 3Q08
results. Although revenue rose 28.0% YoY to S$257.9m, it was down 11.5%
QoQ. Nevertheless, management noted that sales across all markets
registered growth, particularly Europe and North & South America, where
growth in each market rose over 40% YoY. However, it was not enough to
prevent GPB from slipping into the red to the tune of S$2.1m from a net
profit of S$3.0m in the year ago period. For 9M08, the net loss came up to
S$7.7m versus a net profit of S$8.0m in the year-ago period, despite a
26.9% rise in revenue to S$779.1m. Although revenue met nearly 90% of our
FY08 estimate, our previous earnings estimate of S$5.7m looks unlikely to
be met. We will be revising down our earnings estimates both for FY08 and
FY09 after our meeting with management later. For now, we retain our SELL
rating.
NEWS HEADLINES
- CSC Holdings Ltd has won 4 foundation works contracts totaling S$118m in
the past weeks, including one for the Marina Bay Financial Centre.
- The Hour Glass Ltd's 3Q net profit jumped 58% YoY to S$8.2m, with sales
rising 22% to S$132.2m.
- The Strata Titles Board overturned Allgreen Properties' S$34m purchase of
condominium site Regent Garden due to problems with the valuation of the
site.
- CapitaLand will issue S$1.3b of 10-year convertible bonds. Proceeds will
be used to refinance its existing borrowings, finance new investments and
for working capital.
- Brazil's largest energy company Petrobras will lease 36% of Chemoil's
newly opened Helios Terminal.
- Datacraft reported a 51% YoY rise in 1Q net profit to US$9.4m on the back
of a 35% growth in revenue to US$173.2m.
- Australian regulators have finalized their agreement with SP Ausnet for
the operation of its transmission network in Victoria, securing over 40% of
the company's total revenue for the next 6 years.
- Azeus Systems warned of substantially lower profits compared to FY07, as
its gross margin was impacted by intensive price competition in the Hong
Kong public sector market.
- Fragrance Group saw net profit more than doubled from S$14.8m to S$30.4m.
Please refer to the full report for more information and additional
disclosures.
Summary: Keppel Corporation (Keppel) yesterday posted unprecedented
full-year net profit after tax of S$1.03b (+36.6% YoY) buoyed by a surge in
revenue to S$10.4b (+37.2%) for 2007. All business segments performed
better. The contracts secured by Keppel O&M tipped the S$7b mark for a
second year, giving rise to a net order book of S$12.2b and extended
earnings visibility into 2011. However, there are growing threats of margin
erosions and forex hedging concerns as a result of cost escalations and
weakening of the USD. Keppel proposed final and special dividends of a
total of 30 cents. In view of potential margin erosions and slowdown in
order momentum, we are revising down our FY08 earnings estimates to S$963m.
Based on the current market weakness, we derive a fair value of S$14.80
(from S$17.10 previously) from sum-of-the-part valuation. We reiterate our
BUY rating on Keppel.
Chartered Semiconductor: Good headline 4Q07 numbers
Summary: Chartered Semiconductor posted its 4Q07 results this morning, with
revenue just down 0.6% QoQ (+4% YoY) at US$352.6m, while net profit (before
accretion to preference shareholders) came in at US$5.9m (+9.0% YoY, down
94.9% QoQ). Chartered had earlier guided for revenue to fall 2-6% QoQ to
US$334-346m, while net profit is expected to come in at US$1-11m. We were
looking for 4Q07 revenue of US$346.5m and net profit of US$2.9m. Chartered
attributed the better top-line number to strength in the communications
sector (+74.5% YoY, +16.8% QoQ), which made up for weakness in computer
(down 57.5% YoY, -25.5% QoQ). Nevertheless, we note that the bottom-line
strength came mainly from a tax credit of US$14.6m, and the foundry
actually made a PBT loss of US$8.7m, versus a profit of US$6.3m in 4Q06 and
US$7.1m in 3Q07. Going forward, Chartered is looking at a pretty upbeat
1Q08, as it is guiding for revenue to grow 2-6% QoQ to US$361-373m and net
profit to come in flat (+/- US$5m). Utilization rate is also expected to
improve from 81% in 4Q07 to 82-88%, although ASPs could down 2-6% to
US$845-885/wafer. We will be making some adjustments to our numbers after
the conference call this morning. For now, we retain our HOLD rating.
GP Batteries: Another loss in 3Q08
Summary: GP Batteries (GPB) posted another set of disappointing 3Q08
results. Although revenue rose 28.0% YoY to S$257.9m, it was down 11.5%
QoQ. Nevertheless, management noted that sales across all markets
registered growth, particularly Europe and North & South America, where
growth in each market rose over 40% YoY. However, it was not enough to
prevent GPB from slipping into the red to the tune of S$2.1m from a net
profit of S$3.0m in the year ago period. For 9M08, the net loss came up to
S$7.7m versus a net profit of S$8.0m in the year-ago period, despite a
26.9% rise in revenue to S$779.1m. Although revenue met nearly 90% of our
FY08 estimate, our previous earnings estimate of S$5.7m looks unlikely to
be met. We will be revising down our earnings estimates both for FY08 and
FY09 after our meeting with management later. For now, we retain our SELL
rating.
NEWS HEADLINES
- CSC Holdings Ltd has won 4 foundation works contracts totaling S$118m in
the past weeks, including one for the Marina Bay Financial Centre.
- The Hour Glass Ltd's 3Q net profit jumped 58% YoY to S$8.2m, with sales
rising 22% to S$132.2m.
- The Strata Titles Board overturned Allgreen Properties' S$34m purchase of
condominium site Regent Garden due to problems with the valuation of the
site.
- CapitaLand will issue S$1.3b of 10-year convertible bonds. Proceeds will
be used to refinance its existing borrowings, finance new investments and
for working capital.
- Brazil's largest energy company Petrobras will lease 36% of Chemoil's
newly opened Helios Terminal.
- Datacraft reported a 51% YoY rise in 1Q net profit to US$9.4m on the back
of a 35% growth in revenue to US$173.2m.
- Australian regulators have finalized their agreement with SP Ausnet for
the operation of its transmission network in Victoria, securing over 40% of
the company's total revenue for the next 6 years.
- Azeus Systems warned of substantially lower profits compared to FY07, as
its gross margin was impacted by intensive price competition in the Hong
Kong public sector market.
- Fragrance Group saw net profit more than doubled from S$14.8m to S$30.4m.
Please refer to the full report for more information and additional
disclosures.
Numbers in line
Keppel Corporation reported a strong set of FY07 numbers that were in line
with expectations. Revenue rose 37% to over S$10bn for the first time
while net profit of S$1.1bn set a new record.
Offshore has legs
The offshore and marine division led the way with a 17% rise in profit to
S$522mn. Management revealed the figure could have been higher if not for
provisions from an earlier Brazilian rig contract. Margins were also
impacted but should improve as the latest contracts have included clauses
for cost escalation. Management remains optimistic on the outlook for
2008.
Property full steam ahead
Despite the current slowdown, management remains optimistic on the long
term prospects of the property division. The Marina Bay Financial Centre
has already secured over 50% commitment two years ahead of its completion
on high rentals. Meanwhile, the group will be launching over 18,000 homes
in the region during 2008-09.
Other divisions also doing well
The infrastructure arm has turned the corner with the commencement of
water, cogen and waste projects in Singapore and Qatar. Keppel's
investment in SPC also continues to do well, with regional expansion
significantly increasing the group's production baseload in Oyong and
Bohai Bay during 2H07.
Maintain Buy
Valuations are attractive after the recent correction. We expect Keppel to
have another record year in 2008. 2008 P/E of about 15x is close to the
lows achieved two years ago. Maintain Buy.
with expectations. Revenue rose 37% to over S$10bn for the first time
while net profit of S$1.1bn set a new record.
Offshore has legs
The offshore and marine division led the way with a 17% rise in profit to
S$522mn. Management revealed the figure could have been higher if not for
provisions from an earlier Brazilian rig contract. Margins were also
impacted but should improve as the latest contracts have included clauses
for cost escalation. Management remains optimistic on the outlook for
2008.
Property full steam ahead
Despite the current slowdown, management remains optimistic on the long
term prospects of the property division. The Marina Bay Financial Centre
has already secured over 50% commitment two years ahead of its completion
on high rentals. Meanwhile, the group will be launching over 18,000 homes
in the region during 2008-09.
Other divisions also doing well
The infrastructure arm has turned the corner with the commencement of
water, cogen and waste projects in Singapore and Qatar. Keppel's
investment in SPC also continues to do well, with regional expansion
significantly increasing the group's production baseload in Oyong and
Bohai Bay during 2H07.
Maintain Buy
Valuations are attractive after the recent correction. We expect Keppel to
have another record year in 2008. 2008 P/E of about 15x is close to the
lows achieved two years ago. Maintain Buy.
What's on the table
Keppel Corp (S$11.32) - 4QFY07 results - Bumper dividend
KepCorp's 4Q07 core net profit of S$268.0m (up 46% yoy) was 25% below
our expectation and 9% below consensus due to
margin pressure faced by Offshore & Marine from rising labour costs.
The O&M net order book stood at S$12.2bn (up
16% yoy) with S$7.4bn of new orders secured in 2007. Dividend payout
hit a record 98% or S$0.64/share. Our earnings
estimates have been cut by 9.7% and 7.6% for FY08-09 to reflect further
margin pressure in O&M and slower growth for
Infrastructure for FY08. Our target price has been cut to S$13.70 from
S$17.90, still based on sum-of-the-parts
valuation, following our earnings downgrade and lower fair values for
its listed subsidiaries. Nevertheless,
maintain Outperform as we continue to like Keppel for its strong order
book with predictable earnings that could
provide some buffer against a global recession.
Quick Takes
* Singapore Land - Excessive sell-down unwarranted
* Regional Coal Sector - Benchmark spot price surges
* Singapore Banks - Booming loans an antidote to margin
squeeze
* HDD Sector - Off to a good start
* Regional Coal Sector - Thermal coal decoupling from crude
oil
Corporate News
* Chartered Semicon posts Q4 profit of US$3.42m
* Hour Glass Q3 profit up 58% at $8.2m
* STATS ChipPAC Q4 net jumps 46% to US$41.3m
* Petrobras leases 36% of Chemoil's terminal
* CapitaLand backs Youth Olympics bid in big way
Trading Ideas
* Suntec Real Estate Investment Trust
KepCorp's 4Q07 core net profit of S$268.0m (up 46% yoy) was 25% below
our expectation and 9% below consensus due to
margin pressure faced by Offshore & Marine from rising labour costs.
The O&M net order book stood at S$12.2bn (up
16% yoy) with S$7.4bn of new orders secured in 2007. Dividend payout
hit a record 98% or S$0.64/share. Our earnings
estimates have been cut by 9.7% and 7.6% for FY08-09 to reflect further
margin pressure in O&M and slower growth for
Infrastructure for FY08. Our target price has been cut to S$13.70 from
S$17.90, still based on sum-of-the-parts
valuation, following our earnings downgrade and lower fair values for
its listed subsidiaries. Nevertheless,
maintain Outperform as we continue to like Keppel for its strong order
book with predictable earnings that could
provide some buffer against a global recession.
Quick Takes
* Singapore Land - Excessive sell-down unwarranted
* Regional Coal Sector - Benchmark spot price surges
* Singapore Banks - Booming loans an antidote to margin
squeeze
* HDD Sector - Off to a good start
* Regional Coal Sector - Thermal coal decoupling from crude
oil
Corporate News
* Chartered Semicon posts Q4 profit of US$3.42m
* Hour Glass Q3 profit up 58% at $8.2m
* STATS ChipPAC Q4 net jumps 46% to US$41.3m
* Petrobras leases 36% of Chemoil's terminal
* CapitaLand backs Youth Olympics bid in big way
Trading Ideas
* Suntec Real Estate Investment Trust
Real Estate Fund Mgmt Guru ARA Asset Management
Story: ARA is an Asian real estate fund management company that focuses on
public listed REITs and private real estate funds. We believe that it is
one of the largest REIT managers in Asia (ex - Japan) in terms of real
estate assets under management. It manages REITs listed in Singapore, Hong
Kong and Malaysia, private real estate funds that invest in Singapore, Hong
Kong, Malaysia and China and a specialist equity fund that invests in REITs
and listed infrastructure and utility trusts in the Asia-Pacific region.
Point: We believe ARA can offer the following: (i) an opportunity to invest
in a stable fee-income business backed by real estate assets; (ii) this in
turn provides an alternative exposure to the asset reflation theme of the
Asian real estate market upturn; (iii) the real estate fund management
business is highly scalable and diversified. There are abundant
opportunities for the setting up of new REITs and private real estate funds
as developers pursue asset light business models and regional property
development opportunities.
Relevance: We have a target price of S$1.13 based on 14x PER (pegged to
its closest peer APN Property fund with FY09 earnings, PEG ratio of 0.40.
Following the recent price weakness, stock is currently trading at 8.0x
FY08 and 6.9x FY09 earnings. Therefore, valuation remains undemanding and
we are initiating with a Buy recommendation. We have assumed a 70% dividend
payout ratio in our forecasts.
public listed REITs and private real estate funds. We believe that it is
one of the largest REIT managers in Asia (ex - Japan) in terms of real
estate assets under management. It manages REITs listed in Singapore, Hong
Kong and Malaysia, private real estate funds that invest in Singapore, Hong
Kong, Malaysia and China and a specialist equity fund that invests in REITs
and listed infrastructure and utility trusts in the Asia-Pacific region.
Point: We believe ARA can offer the following: (i) an opportunity to invest
in a stable fee-income business backed by real estate assets; (ii) this in
turn provides an alternative exposure to the asset reflation theme of the
Asian real estate market upturn; (iii) the real estate fund management
business is highly scalable and diversified. There are abundant
opportunities for the setting up of new REITs and private real estate funds
as developers pursue asset light business models and regional property
development opportunities.
Relevance: We have a target price of S$1.13 based on 14x PER (pegged to
its closest peer APN Property fund with FY09 earnings, PEG ratio of 0.40.
Following the recent price weakness, stock is currently trading at 8.0x
FY08 and 6.9x FY09 earnings. Therefore, valuation remains undemanding and
we are initiating with a Buy recommendation. We have assumed a 70% dividend
payout ratio in our forecasts.
Real Estate Fund Mgmt Guru ARA Asset Management
Story: ARA is an Asian real estate fund management company that focuses on
public listed REITs and private real estate funds. We believe that it is
one of the largest REIT managers in Asia (ex - Japan) in terms of real
estate assets under management. It manages REITs listed in Singapore, Hong
Kong and Malaysia, private real estate funds that invest in Singapore, Hong
Kong, Malaysia and China and a specialist equity fund that invests in REITs
and listed infrastructure and utility trusts in the Asia-Pacific region.
Point: We believe ARA can offer the following: (i) an opportunity to invest
in a stable fee-income business backed by real estate assets; (ii) this in
turn provides an alternative exposure to the asset reflation theme of the
Asian real estate market upturn; (iii) the real estate fund management
business is highly scalable and diversified. There are abundant
opportunities for the setting up of new REITs and private real estate funds
as developers pursue asset light business models and regional property
development opportunities.
Relevance: We have a target price of S$1.13 based on 14x PER (pegged to
its closest peer APN Property fund with FY09 earnings, PEG ratio of 0.40.
Following the recent price weakness, stock is currently trading at 8.0x
FY08 and 6.9x FY09 earnings. Therefore, valuation remains undemanding and
we are initiating with a Buy recommendation. We have assumed a 70% dividend
payout ratio in our forecasts.
public listed REITs and private real estate funds. We believe that it is
one of the largest REIT managers in Asia (ex - Japan) in terms of real
estate assets under management. It manages REITs listed in Singapore, Hong
Kong and Malaysia, private real estate funds that invest in Singapore, Hong
Kong, Malaysia and China and a specialist equity fund that invests in REITs
and listed infrastructure and utility trusts in the Asia-Pacific region.
Point: We believe ARA can offer the following: (i) an opportunity to invest
in a stable fee-income business backed by real estate assets; (ii) this in
turn provides an alternative exposure to the asset reflation theme of the
Asian real estate market upturn; (iii) the real estate fund management
business is highly scalable and diversified. There are abundant
opportunities for the setting up of new REITs and private real estate funds
as developers pursue asset light business models and regional property
development opportunities.
Relevance: We have a target price of S$1.13 based on 14x PER (pegged to
its closest peer APN Property fund with FY09 earnings, PEG ratio of 0.40.
Following the recent price weakness, stock is currently trading at 8.0x
FY08 and 6.9x FY09 earnings. Therefore, valuation remains undemanding and
we are initiating with a Buy recommendation. We have assumed a 70% dividend
payout ratio in our forecasts.
Jiutian affected by snowstorm
Snowstorm hits China. China has experienced snowstorm since 10 Jan, which
affected 78m people in certain parts of 14 provinces (Anhui, Jiangxi,
Henan, Hubei, Hunan, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi,
Qinghai, Gansu, Xinjiang). It is reported that the northern China and
northeastern China are generally out of the disaster, while Xinhua News
reported that the snowstorm might only start to slowly fades away after 3
February.
Transportation and energy cuts are main problems caused by the snowstorm.
Xinhua News reported that certain production materials, coal, and goods may
have difficulties reaching the designated places, and there is also
electricity usage cuts in certain places. The affected products are mainly
agricultural products like vegetables, and sugarcane, while non-winter
crops like soybean, corn and cotton are not affected.
Snowstorm in China generally has negligible impact on S-Chips' earnings.
Our analysis of various S-Chips under coverage shows that the impact of the
ongoing snowstorm in China has negligible impact on their results in 1Q
2008. This is due to: 1) typical plant shutdown in the Lunar New Year
period, 2) enough inventories to cover possible delays in shipment of
products to customers, 3) main production plants are not located in the
affected areas, and 4) any possible temporary production delay can be
covered by subsequent production ramp-up.
Jiutian is the only S-Chip stock whose earnings are likely to be affected
by the snowstorm. Jiutian is shutting down its new 120k DMF plant for a
month, attributed to recent snowstorm that causes plants shutdown for some
of its PU customers. Whilst the new plant would only resume operations in
mid February, the old 30k tpa plant will however be running as per normal.
Coupled with our assumption of a possible slower ramp up of the new plant
upon resumption of production, we have cut our FY08 output estimates by
21.5k tonnes to 118k tonnes. We have also factored in an overhead expense
of RMB3m for the month of February, and our FY08 earnings is revised
downwards by 14.5% to RM136.1m. Following the earnings cut, our TP is
adjusted down to S$0.37 accordingly, still pegged to 12x FY08/09 PER.
affected 78m people in certain parts of 14 provinces (Anhui, Jiangxi,
Henan, Hubei, Hunan, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi,
Qinghai, Gansu, Xinjiang). It is reported that the northern China and
northeastern China are generally out of the disaster, while Xinhua News
reported that the snowstorm might only start to slowly fades away after 3
February.
Transportation and energy cuts are main problems caused by the snowstorm.
Xinhua News reported that certain production materials, coal, and goods may
have difficulties reaching the designated places, and there is also
electricity usage cuts in certain places. The affected products are mainly
agricultural products like vegetables, and sugarcane, while non-winter
crops like soybean, corn and cotton are not affected.
Snowstorm in China generally has negligible impact on S-Chips' earnings.
Our analysis of various S-Chips under coverage shows that the impact of the
ongoing snowstorm in China has negligible impact on their results in 1Q
2008. This is due to: 1) typical plant shutdown in the Lunar New Year
period, 2) enough inventories to cover possible delays in shipment of
products to customers, 3) main production plants are not located in the
affected areas, and 4) any possible temporary production delay can be
covered by subsequent production ramp-up.
Jiutian is the only S-Chip stock whose earnings are likely to be affected
by the snowstorm. Jiutian is shutting down its new 120k DMF plant for a
month, attributed to recent snowstorm that causes plants shutdown for some
of its PU customers. Whilst the new plant would only resume operations in
mid February, the old 30k tpa plant will however be running as per normal.
Coupled with our assumption of a possible slower ramp up of the new plant
upon resumption of production, we have cut our FY08 output estimates by
21.5k tonnes to 118k tonnes. We have also factored in an overhead expense
of RMB3m for the month of February, and our FY08 earnings is revised
downwards by 14.5% to RM136.1m. Following the earnings cut, our TP is
adjusted down to S$0.37 accordingly, still pegged to 12x FY08/09 PER.
Construction Sector Benefiting from more spending on infrastructure
New Land Transport initiatives to benefit Construction Sector. As part of
the government's plans to ease congestion and improve the rail network, a
total of S$50bn is slated to be spent by the government to build new
highways and rail lines over the next 10-12 years, which should help keep
overall demand robust in the construction sector.
New Expressways and Rail lines. Some S$40bn will be spent on doubling
Singapore's rail network to 278km by 2020. Whilst some of this would be
used on trains and related operating systems, the bulk of it should be
spent on infrastructure development. The government has also given the
green light to build a new 21km North-South Expressway to be completed by
2020, estimated to cost S$7-8bn. Add to that the Marina Coastal Expressway,
which costs S$2.5bn, it appears that some S$10bn will be spent on new
expressways alone up to 2020.
Maintain Overweight for Construction sector. We believe that the biggest
beneficiaries of this increase in infrastructure spending would be building
material suppliers like Hong Leong Asia (BUY, TP S$4.30) and Pan United
Corp (BUY, TP S$1.16).
the government's plans to ease congestion and improve the rail network, a
total of S$50bn is slated to be spent by the government to build new
highways and rail lines over the next 10-12 years, which should help keep
overall demand robust in the construction sector.
New Expressways and Rail lines. Some S$40bn will be spent on doubling
Singapore's rail network to 278km by 2020. Whilst some of this would be
used on trains and related operating systems, the bulk of it should be
spent on infrastructure development. The government has also given the
green light to build a new 21km North-South Expressway to be completed by
2020, estimated to cost S$7-8bn. Add to that the Marina Coastal Expressway,
which costs S$2.5bn, it appears that some S$10bn will be spent on new
expressways alone up to 2020.
Maintain Overweight for Construction sector. We believe that the biggest
beneficiaries of this increase in infrastructure spending would be building
material suppliers like Hong Leong Asia (BUY, TP S$4.30) and Pan United
Corp (BUY, TP S$1.16).
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