Singapore Blue Chip Stock Analysis Reports

CapitaLand - Caught in an ebbing tide

2009-09-24T14:06:00.000+08:00

We have downgraded our rating for Capitaland to 3 from 2 after the government’s announcement (on 14 September) of measures to ensure a ‘stable and sustainable’ property market, including a surprise (in our view) withdrawal of the Interest Absorption Scheme (IAS). We expect CapitaLand’s shares, a proxy for the Singapore property sector, to be pulled down by the negative sentiment.

We see CapitaLand’s share-price driver as deal flow (capitalproductive announcements, including the possibility of monetising its China-mall assets or a major acquisition) and not the state of the Singapore residential market, although the company is poised to launch The Interlace next month. We have not changed our earnings forecasts.

We have lowered our six-month target price, to S$3.84, based on a reversion to its average premium to NAV (based on our estimates) of 29% over the past five years, from S$4.30 (based previously on one-half standard deviation above the average NAV premium). We have not changed our NAV estimate of S$2.98.

Singapore Post: Time to factor in growth possibilities

2009-09-24T13:59:00.000+08:00

Bumping up earnings estimates. We have tweaked our earnings estimates to take into account G3 Worldwide Aspac (G3AP)'s contribution to the group's revenue. We had earlier refrained from doing so given the uncertainty of its impact in the face of a fragile global economy. Although the general mood is still cautious given that government stimulus packages have not resulted in a sustained recovery in consumer spending (amongst other risks present in the global system), we now deem it appropriate to increase our earnings estimates by about 6% to incorporate G3AP's earnings. Overseas revenue now accounts for 8.2% of total revenue compared to only 0.4% previously.

Recovery underway but not time to party. Composite leading indicators of key OECD countries are continuing their upward trend after reaching their inflexion points around 1Q09. 2Q09 GDP growth cues have also been largely positive, especially for Asian economies. While there are still doubts on fundamental recovery in the financial markets, there is no denying that an improvement in investor sentiment has allowed companies and banks to raise capital and shore up their balance sheets. However, certain risks, such as 1) deteriorating personal credit and loans in the US, 2) possible build-up of asset bubbles in China, and 3) possible weak private sector spending in major economies after government stimulus plans wear off, threaten to destabilise the global economy and hence Singapore's economy. As SingPost's earnings are significantly correlated with Singapore's GDP growth, it is worth noting the possible trajectories of the global economy.

Worldwide postal sector only feeling a pinch. According to a Universal Postal Union survey, postal operators are definitely feeling the effects of the crisis, but are "not showing signs of an economic depression". Shares of listed postal operators have performed well during this crisis, given their relatively defensive nature (Exhibit 2). Besides having a decent dividend yield, SingPost is also pursuing growth, as seen by its recent M&A deals, enhancing the attractiveness of the stock.

Maintain BUY. SingPost is still the dominant player in Singapore's postalindustry despite threats from new competitors, and we foresee its strong operating and free cash flows to continue to buttress its reputation as a stable and well-run business. Meanwhile, it is taking the opportunity to grow its regional network during this downturn, which is definitely a positive development. With the incorporation of G3AP's future earnings, we have also raised our fair value estimate to S$1.09 (prev S$0.97). Maintain BUY.

Singapore Exchange - Downgrading to Neutral

2009-09-24T13:57:00.000+08:00

Trading volumes have increased in recent weeks, and we believe these higher levels are sustainable due to an economic recovery and a decline in risk aversion among investors. We raise our FY10/11/12 EPS estimates for Singapore Exchange (SGX) from S$0.35/0.40/0.46 to S$0.39/0.43/0.48, and our price target from S$9.00 to S$9.20. However, we believe the stock is fully valued at current levels and thus downgrade our rating from Buy to Neutral.

We expect foreign inflows to Asia to continue because of its better economic growth prospects relative to the west. Additionally, we think local retail participation in Singapore’s equity market could rebound after having fallen from an average of 15.2% of household wealth in 2003-07 to an estimated 9.3% at the end of 2008. However, we believe this will be offset by fewer Chinese listings because of the better valuation premium commanded by similar listings in China.

We believe SGX’s main risk, the potential break-up of its monopoly, has been mitigated by its announcement of a joint venture with Chi-X to set up the first exchange-backed “dark pool” in Asia. We think this partnership should eliminate criticism of SGX’s monopoly status and allow it to defend its market share.

We continue to derive our price target using a DCF-based methodology, explicitly forecasting long-term valuation drivers with UBS’s VCAM tool. Our new price target reflects our higher estimates. Our key assumptions include a WACC of 8.9% (previously 8.6%) and a long-term growth rate of 3%. The change in WACC is due to higher beta.

Neptune Orient Lines NOL - Downgrade to Hold

2009-09-23T14:01:00.000+08:00

Recent surge in share price. The share price has risen by about 20% since our last report on 2 September 2009. We would like to highlight that NOL is still expected to post a full year loss of US$633m in FY2009F. Although we are anticipating a recovery in 2010, it is projected to report a loss of US$131m in FY2010F. It is only in FY2011F that we expect a profit of US$208m.

Dowgrade from Buy to Hold with fair value at S$2.12. We have a fair value of S$2.12 for the stock. This works out to 1.2 times book value for FY2009F. We derive our fair value based on expectations that NOL will start recovering from the downturn in FY2010F. Due to limited upside of 11.6% to our target price, we downgrade the stock from buy to hold.

SMRT - Ridership figures could have a lag in the recovery in GDP

2009-09-23T13:42:00.000+08:00

Weak start at Circle Line due to poor connectivity however mgmt expects impact to be minimal. SMRT average daily rail and bus ridership in Aug09 grew by 1.6% YoY and -1.2% YoY to 1.4m and 0.8m, respectively. The trend has been weaker than expected due to poor ridership at its core North East South West (NSEW) lines as a result of the slowing economy.

In addition, ridership at Circle Line (CCL) has been below our expectations of 55k in average daily ridership. Stripping out CCL ridership of more than 30k in average daily ridership, the core ridership at NSEW lines would have declined by 0.5% YoY. YTD SMRT's ridership for rail grew at 2.6% YoY and bus at -0.7% YoY.

Revised our ridership forecast downwards. We have revised our FY09E ridership forecasts for rail from 6.4% YoY to 3.5% YoY and bus from 0.8% YoY to -0.5% YoY. We have revised our earnings downwards by 2-3% in FY10-12E to account for the lower ridership in our forecasts partially offset by higher rental revenue assumptions (due to the redevelopment of five MRT stations), lower staff costs, lower depreciation and higher EBIT contribution from bus and taxi divisions.

Lowered our TP from S$2.05 to S$2.00; Buy. SMRT offers a defensive yield of 5.0%. Our revised target price is based on our DCF valuation using a COE of 7.5% and a TGR of 1.0%. Our S$2.00 TP implies a PE of 17.0x FY10E. Downside risks: rebound in the oil price, lower ridership, reduction in fares, taxi competition and disease outbreak.

StarHub confident of extending EPL rights

2009-09-23T13:37:00.000+08:00

The likelihood of any irrational bidding for the English Premier League (EPL) rights may be limited due to a risk of regulatory intervention to keep prices in check, we believe. Also for StarHub, the standalone economics may not be appealing, and investment is largely justified on the opportunity cost analysis. SingTel will also need to consider its ADSL coverage/quality issues. A joint bid may not be acceptable to the FA Premier League as it reduces pricing tension for future auctions. Our base case is StarHub winning again, otherwise a wholesale deal (for access to their HFC and/or even content) cannot be ruled out, in our view.

There has been no significant change in the operating environment — competition is benign and the macro impact moderating. We expect revenue growth to remain benign this year at 1-2%, with margins largely stable. On NBN, the company does not expect significant pricing pressure in the consumer segment and sees upside from nonresidential and government segments. In the local fixed network market, the incumbent SingTel has ~75% share and StarHub ~25%.

StarHub is one of the few global carriers with a Femtocell product. It offers it for up to four 3G phones for S$32.10/month and includes unlimited local calls and SMS. Although these are still early days, Femtocell could be a niche segment and good for the carriers as it overcomes coverage issues/reduces capacity on the macro network. However, the customer needs to be offered strong incentives to take up this service, and revenue upside may be limited. Issues around interference, handover and bandwidth efficiencies are being addressed.

Our DCF-based 12-month price target of S$2.35 assumes a WACC of 8% with a terminal growth rate of 1.5%.

Singtel - The Indian Connection

2009-09-22T14:13:00.001+08:00

Bloomberg reported that Bharti Airtel (India’s biggest mobile phone company with 102.4 subscribers, of which quarterly record of 8.44 mln was added in Q2) and MTN (South Africa’s biggest wireless company) have reached a US$24 bln preliminary accord to buy each other’s shares, as a first step leading to a merger.

Bharti is to buy 49% of MTN for US$14 bln, while MTN will acquire 33% of Bharti for US$10 bln. If consummated (which requires 75% approval by shareholders of MTN), the deal will:

- create the world’s biggest mobile phone company with 200 mln subscribers and US$20 bln annual revenue;

- will dilute Sing Tel’s existing 30% stake in Bharti. (Sing Tel has said it was prepared to invest a further US$3 bln by buying more Bharti shares from minority shareholders of MTN receiving Bharti shares, to maintain the stake.)

The proposed merger between Bharti and MTN was first announced on May 25th, with Bharti offering 86 rand plus half a Bharti share for every MTN share. Yesterday, MTN closed at 127 rand and Bharti at 409.35 rupees. Bharti’s latest offer values MTN at 145 rand per share. (Bharti is generally believed to be anxious to merge with MTN given the rapid inroads into its market by Vodafone and Reliance.)

We remain Neutral on Sing Tel, which has no particularly attractive atrribute:

Sing Tel’s main attraction is its defensiveness, which is not appealing in current bullish market environment.

The 3.9% yield at $3.17 based on 12.5 cents paid for ye Mar ’09 is only average.

And as has been our stance all along, Bharti, AIS of Thailand, Globe Telecom of Philippines, Telkomsel of Indonesia are mere portfolio investments of Sing Tel, no basis for re-rating of the stock. (Note results comments have tended to focus on contributions from associates, which in turn are often subject to currency fluctuations.)

Wilmar - Listing on track

2009-09-22T13:47:00.000+08:00

The listing of Wilmar’s China business is on track, with the company targeting the end of 2009. The proceeds would mostly be used for expansion purposes, ie, investing in new processing and distribution facilities. We think new segments such as rice and wheat can start contributing meaningfully in the next few years, driving the long-term earnings profile for the company.

We believe growth in China portion of the business will be muted compared to the rest of Wilmar’s business in the near term due to regulatory constraints (we expect the market share to remain stagnant of consumer pack and crushing businesses). However we believe the medium- to long-term outlook is strong as new facilities and new businesses will come onstream.

Margins in both crushing and refining are a function of volatility; however, Wilmar could take advantage of its market leadership and scale up to better time purchases and sales to make better spreads than its peers.

Wilmar took a price cut for its consumer products in July to pass on lower raw material costs. Thus, margins in 3Q consumer pack business can be lower q-q but still be substantially higher y-y, in our view.

We maintain our price target of S$7/share (with an implied China value at ~US$14.5bn at 19x FY10F earnings of ~US$760mn for China business).

Genting Singapore - Even odds

2009-09-22T13:25:00.000+08:00

RWS could beat consensus forecasts in its maiden year of operation in 2010, and boost GENS’ earnings by 210.0% and 50.3% in 2010-11. Recommend HOLD due to limited upside to fair price of S$0.95.

We initiate coverage on Genting Singapore (GENS) with a HOLD call and a DCF-based fair price of S$0.95/share, which implies a target 2011 EV/EBITDA of 12.7x. While we believe Resorts World@Singapore (RWS) could trounce consensus forecasts in its maiden year as a casino operator in Singapore in 2010, a peakish market outlook could prompt investors to cash in following GENS’ 98.9% ytd price appreciation. We expect GENS to trade in the S$0.90-0.95 range, with the top end having already factored in continuity of the Singapore casino licence and scarcity premium for comparable Asian gaming-consumer plays. As our fair price has limited upside potential, we recommend HOLD with an entry price of S$0.80.

Earnings on a roll. We project GENS’ earnings to surge 210.0% and 50.3% to S$295.2m and S$443.8m in 2010-11 as RWS’ casino operations go into full swing by 1Q10, ahead of rival Singapore casino operator Marina Bay Sands. GEN could beat consensus forecasts of S$105.3m given its firstmover advantage, and with the partial deferment of expansion of the less profitable non-gaming operations.

Leveraging on Asia’s sizeable VIP and Singapore’s domestic gaming markets. RWS should be able to capture 5.0% of Asia’s VIP market (estimated at US$9b-10b p.a.) and 12.5% of Singapore’s gaming market (estimated at S$9b-10b p.a.). This excludes the full grind market potential which RWS could tap from neighbouring countries such as Malaysia, Indonesia, and possibly even China. This is based on the premise of RWS’ strong global network, favourable tax structure and strategic location in Asia.

Quick wins and high margins at RWS. The S$5.6b RWS project promises a good payback period of 8-9 years, riding on Singapore’s favourable gaming tax structure which gives RWS an advantage over its competitors in Australia and Macau in the high roller segment. Meanwhile, the non-gaming division (principally Universal Studios) should eventually attain decent returns, judging from Universal Studios Japan’s achievements in recent years.

UK business’ run of bad luck should turn by 2011. GENS’ UK business is projected to recover only in 2011 due to the UK’s prolonged economic slowdown and adverse regulatory environment. Still, earnings could post a positive surprise as 2008’s streamlining and restructuring exercises could save up to £10m annually, but the upside is not significant to group earnings. For details, please refer to our blue-top on Genting Singapore.

Qala will spearhead M1’s entry into the corporate business

2009-09-18T14:15:00.000+08:00

M1 announced two significant investments recently. One, it will bootstrap itself a presence in the corporate fixed broadband via the acquisition of Qala, a local internet service provider. Two, it will launch the Novatel MiFi, a battery-operated mobile router that allows users to create and bring with them their own personal wireless hotspot wherever they go, even while in a car or in a remote area where there are no public hotspots.

M1 will pay up to $17.9m (of which $3m is subject to financial targets being met) for Qala, a nine-year old SBO-based ISP originally seeded by Creative Technology but owned largely by two individuals. It provides data and communications services to corporate customers almost exclusively, while in its consumer business, subsidiary QMax is one of three providers of the free nation-wide 1Mbps WiFi service, Wireless@SG.

Qala’s profits are currently negligible compared to M1 but it will allow M1 to provide SMEs with a cheaper alternative to SingTel, which monopolizes the data and telecom needs of companies operating in non-CBD areas. In addition, Qala will be able to cross-sell M1’s consumer Internet services, such as its 7.2Mbps wireless broadband. M1 anticipates minimal capex - no network investment will be needed while backend support can be combined with its existing consumer facility.

We reckon the innovative MiFi device could have a positive impact on M1’s market share in mobile broadband, which stood at 137,000 (dongles only) as at Jun 2009 (estimated to be 25-30% market share). M1 is the first telco in Asia to launch this device. As it allows up to five devices to be simultaneously connected at 7.2Mbps download speed, it may even prompt existing dongle users to switch, depending on the prices for the device and data plans, as well as supplier exclusivity.

We reiterate our view that M1 will have the biggest upside once NGNBN comes online. Its acquisition of Qala is a credible step in filling up its lack of a corporate business, and will give it upside beyond the consumer business alone. We will start to model in NGNBN benefits once there is more clarity. Target price is raised to $2.18 (13x FY09) with higher peer valuations. M1 is still attractive at 7.2% yield. Maintain BUY.

Golden Agri - Stock looks inexpensive, with the lowest PEG ratio in the sector at 0.44x

2009-09-18T14:06:00.000+08:00

We have increased our CPO price forecasts due to the El Nino effect. This has a direct bearing on our forecast earnings. We expect Golden Agri’s productivity to rise in FY09-11, as its hectarage matures. Overall, the impact of El Nino should reduce its CPO yield in FY09F to 4.9 tonnes per hectare, from 5.2 tonnes in FY08. However, we expect a marked recovery in FY10 and FY11, to 5.34 tonnes and 5.43 tonnes per hectare, respectively. The amount of mature hectarage should also rise from 247,000 hectares in FY09F to 274,000 in FY11F.

Golden Agri’s balance sheet is unleveraged, in our view. The company raised S$692m (US$423m) in a recent rights and warrant issue, which is to be used to increase planted area by 50,000 hectares per annum over the next three years. We expect the already relatively low (vs peers) net gearing to fall steadily from 9% in FY08 to -5% in FY11. We expect the company to have US$782m in cash in FY09, despite its US$120m capex programme. This offers the capacity to acquire plantation assets, should the opportunity arise. Although the acquisition profile has not been detailed, Golden Agri has the resources to increase its footprint in regional plantations.

We now forecast a 2% decline in net earnings in FY09, but a 12% increase in FY10 and a 25% increase in FY11. EPS is diluted by the recent rights and warrant issue: Golden Agri completed a 17 for 100 shares rights issue in July. Investors also received two warrants for every rights share. Therefore, we increase our invested capital growth and operating margin forecasts in phase 2 of our DCF valuation. Our target price rises to 60 cents, implying 25% upside potential and a Buy rating. The stock looks inexpensive at 17x FY09F earnings and a PEG ratio of 0.44x.

ComfortDelGro - Playing the recovery theme

2009-09-18T13:23:00.000+08:00

We remain BUYers of CDG for its strong earnings recovery momentum on lower fuel costs in 2009 and improvement of business conditions and margins in 2010. We maintain our BUY call and raise our target price to S$1.85.

We met with management and received insights into its management of fuel cost, after record high oil prices last year sent margins packing, and plans to reach its self-imposed target of growing overseas contribution to revenue from the near-50% at present to 70% by 2015. We also delved into the impact of foreign currency on its financials and prospects for overseas businesses into 2010.

Playing the recovery theme. We like ComfortDelGro Corporation (CDG) for the two opportunities it offers for playing the recovery theme. The earnings recovery momentum derived from lower fuel expenses is set to continue for the rest of 2009. In 2010, we expect to see improved business conditions on the back of a sturdier global recovery to augment the effect of normalised margins and give earnings a second, and more meaningful, boost.

2009: Margin recovery on lower energy-related costs. Margins are already on the road to recovery on the back of significantly lower oil prices, and the company’s fuel hedging programme that was put in place end-08. In 2Q09, EBIT margin recovered to 12.5% (+5.9ppt yoy), and net margin recovered to 7.6% (+3.8ppt yoy). By our estimation, the bulk of the savings in energy-related costs over 2Q08 flowed directly down to net profit.

2010: Turnover improvements augment effects of normalised margins. CDG is set to enter 2010 with margin levels that no longer reflect distressed business conditions. In addition, we expect some of the circumstances (weak UK earnings, fare reduction in Singapore) that gave rise to weaker turnover to reverse, so that improvements to the top-line augment the effects of normalised margins.

We have changed our valuation methodology from SOTP (DCF for SBST and blended PE for the other businesses) to DCF, as PE valuation is no longer useful for key segments (eg the UK, where transport operators are trading at distressed valuations). Our discounted FCFE places CDG’s value at S$1.85/share (6.4% cost of equity, 2% terminal growth). Our revised target price (up from S$1.76) gives a return of 15.6% over the last closing price of S$1.60.

City Developments - 1H09: Residential sales momentum going strong

2009-09-17T14:12:00.000+08:00

City Developments is well positioned to capitalise on the sales recovery in the residential segment. We continue to see good value in the company and maintain our BUY call with a target price of S$12.70. Maintain BUY.

City Developments (CDL) reported 2Q09 PATMI of S$140.0m (-15.3% yoy), bringing 1H09 PATMI to S$223.1m, in line with our expectations and representing 50.1% of our full-year forecast. The Group reported a higher revenue of S$787m (+0.8% yoy) primarily due to a higher contribution from the property development segment which continues to be the largest contributor, accounting for 60% of pre-tax profit of S$197.9m. However, this segment’s pre-tax profit declined 19.4% yoy due to the weaker margins for recently-launched projects. Hotel operations, notably in Singapore and Australia, continued to suffer due to the economic slowdown, which resulted in a decline in the Group’s overall RevPAR. Revenue from rental properties increased 12.5% yoy to S$69.2m, mainly due to the locking in of higher rental rates for long-term office rental leases.

Residential property sales to remain key growth driver. CDL continues to benefit from the strong momentum set in developer sales volume in 2Q09. The Arte @ Thomson is nearly sold out at an average selling price (ASP) of S$950psf and Volari, which was launched in early- July, is more than 96% sold at an ASP of S$2,000psf. In the mass market segment, the Group received a good response for its Gale @ Pasir Ris with over 90% sold at an ASP of S$650psf, and for its 724-unit Livia at Pasir Ris. In 2H09, the Group is planning to launch 396 residential units at the former Hong Leong Garden site at West Coast, a 160-unit project at the former Albany site, and 100 units at The Quayside Isle @ Sentosa Cove. We expect strong demand for these projects as well, considering their good locations and the recent upswing in sales momentum, which should help boost CDL’s bottom line in the coming quarters.

Hotel occupancy rates to stabilise with opening of IRs. The hotel segment suffered the most in 1H09 due to the economic downturn with occupancy rates touching 66.7% (-8.7% yoy) in Asia and 59.8% (-6.7% yoy) in the US. Going forward, we expect occupancy rates to improve in Singapore in 2H09 with the expected increase in tourist arrivals due to major events like the APEC conference, F1 Grand Prix and the opening of the integrated resort at Sentosa. Overall, these factors should contribute to revenue in 2H09.

We continue to see good value in CDL and maintain our BUY recommendation with a target price of S$12.70 pegged at a 15% premium to 2009 RNAV of S$11.04.

Parkway Holdings: Results boosted by exceptionals

2009-09-17T14:01:00.000+08:00

Parkway recorded 2Q09 revenue of S$258.6m (+10% YoY), on the back of strong performance from its International Hospitals and its Singapore Healthcare segments. Operating profit came in at S$39.4m (+14% YoY) for the quarter, which was in line with our estimates. Net profit rose 42% YoY to S$40.3m, boosted by the S$17.2m reversal of allowance on impairment of receivables, which Parkway had booked in 4Q08. Factoring in this exceptional gain, we would be raising our earnings estimate for Parkway accordingly. We are likely to maintain our SELL recommendation for Parkway, as we feel that current valuation is rich and net gearing of 0.46x is relatively high, compared with peers. However, we are likely to raise our P/E valuation (from 13x), as its peers are trading at an average of 14x forward P/E. No dividends were declared for this quarter.

International hospitals remain the growth driver. Revenue from International Hospitals climbed 33% YoY, due to increased patient volume and revenue intensity at its Pantai Hospitals and its Brunei cardiac centre. The improved performance was also attributed to the additional contribution from Gleneagles Hospital KL (GHKL), as Parkway had raised its stake in GHKL from 30% to 58% in 4Q08.

Singapore hospital revenue declined, but healthcare segment grew. Foreign patient numbers continued to decline in 2Q09, attributed to the global economic slowdown and the H1N1 outbreak. This was mitigated by Parkway's introduction of 40 medical packages to see treatment at its hospitals. These packages were introduced in 2Q09, and saw strong local demand. Hence, revenue from its Singapore hospitals dipped 3% YoY during the quarter.

Its Parkway Shenton group of clinics secured several major new corporate contracts during the quarter. It was also awarded a contract from the Ministry of Health, to conduct temperature screenings at all entry points into Singapore. This new contract and as more patients sought flu vaccinations at its clinics, helped to boost the performance of its Healthcare segment.

Exceptional item. Parkway made a provision for impairment loss on receivables amounting to S$34.4m in 4Q08. As at end 2Q09, it had reached a settlement for these receivables and hence, wrote back excess allowance of S$17.2m.

Valuation and recommendation. Its peers are currently trading at an average of 14x forward P/E. We will be raising our earnings estimates for Parkway, taking into account the write back of the receivables that it had provided for in 4Q08. We are also likely to raise our P/E valuation and hence, our target price will be adjusted accordingly.

CapitaCommercial Trust - Office rentals still declining

2009-09-17T13:48:00.000+08:00

Management expects office rents to be on a declining trend till the end of the year. Write-down in asset values expected to increase gearing from 30.6% to 37.0%. Maintain HOLD.

Office rentals still declining. CapitaCommercial Trust (CCT) has received more enquiries from financial institutions (fund management), oil & gas companies (HQ functions) and professional services (legal and accounting) recently. However, these enquiries have not translated into take-up for office space. Management expects office rents to be on a declining trend till the end of the year, although the magnitude of decline has moderated. According to Colliers, average rents for Grade A office space within Raffles Place has dropped by a severe 29.0% qoq to S$7.45psf. We continue to expect rents for Grade A office space within Raffles Place to slide further to S$6.00psf by end-10, representing a two-third correction from the last peak.

Further write-down on revaluation. Based on transactions for strata office space at Suntec City Office Towers, capital values rebounded 38% in 1H09 from the bottom in Feb 09 and remained stable in Jul and Aug 09. The huge correction in office rents could once again put pressure on capital values. We estimate NAV/share will be reduced from S$1.50 to S$1.14, assuming 6 Battery Road and One George Street are valued at S$1,680psf (current: about S$2,320psf) while HSBC Building, Robinson Point and Capital Tower are valued at S$1,200psf (current: about S$1,520psf). Gearing will correspondingly increase from 30.6% to 37.0%.

Redevelopment of Market Street Car Park postponed indefinitely. New anchor tenant Koufu, a food court operator, has opened for business at Market Street Car Park after completing renovations. Net lettable area has increased as Koufu occupies the whole atrium/courtyard. Planned redevelopment for Market Street Car Park has been postponed indefinitely as the new lease with Koufu will expire at least three years later. The Outline Planning Permission (OPP) for the redevelopment of Market Street Car Park has lapsed. CCT will have to reapply to Urban Redevelopment Authority if it intends to redevelop the property at a later stage.

We believe office rents will continue to be under pressure due to large new supply coming on stream in 2010 and 2011 and competition from business parks outside the Central Business District (CBD).

We have assumed portfolio occupancy tapering off from 94.9% in 2Q09 to 90% by 2Q11 (previous: 88%). Maintain HOLD. Our fair price of S$1.09 is based on the Dividend Discount Model (required rate of return: 7.7%, terminal growth: 2.5%).

Genting Spore: Raise TP $1.40 (pre rights) $1.30 (post rights)

2009-09-17T13:20:00.000+08:00

1-for-5 renounceable rights at 80cent (33% discount to 8-Sep-2009 closing price of S$1.19), fully underwritten. 40% of S$1.63b proceeds would be used to pare down borrowings (reducing 2009F net gearing to 2.5x from 4.0x) and 60% for future investments (could include Resorts World at Sentosa's S$600m Western Zone which was supposed to be funded by operating cashflows). We believe GENS' immediate focus would be to complete RWS (still on-track and within budget), while keeping the option to look at potential opportunities.

Marginal dilutive impact, although share base would increase by up to 2m shares or 21% to 11.7b. If 40% of proceeds is used for reducing borrowings, we estimate a 9-11% dilution to 2010-11F EPS (potentially less if future acquisitions are accretive), supported by S$29m of interest savings. If the entire amount is used instead, we expect 2-7% dilutive impact. More importantly, the rights issue would reduce financial risk and interest cost pressure on earnings/cashflow.

Remain positive on RWS' prospects. We have revised our 2009-11F earnings to factor in a 12-month contribution in the first year of operations (vs 11 months) and a lower depreciation rate (assuming capex would be equally spread over 30 years vs 7% based on Genting Malaysia's used previously). Maintain BUY, and raise sum-of-parts TP to S$1.30 (assuming 7% WACC, 1.5% long-term growth). GENS remains the cheapest gaming stock on PEG basis (0.41x vs sector average 0.65x).

Neptune Orient Lines - is expected to be a beneficiary of the recovery

2009-09-16T14:08:00.000+08:00

NOL reported a smaller loss of US$146m in 2Q09 from US$244m in 1Q09. It mentioned that the performance for 3Q09 would be better than 2Q09 due to seasonal demand. Manufacturers would start shipping and manufacturing goods in 3Q09 in preparation for the Christmas season. We forecast the loss to narrow further to US$123m in 3Q09. Despite the improvement, NOL is expected to report a full year loss of US$633m in FY2009F. As the global economy continues to recover, it is likely to report a lower loss of US$131m in FY2010F and return to profit of US$208m in FY2011F.

From the list, we note that the median P/E and P/B for the industry are 8.63 and 0.91 respectively. NOL is currently valued at 19.20 times P/E and 0.65 time P/B. Our recommendation. NOL is expected to be a beneficiary of the recovery of the global economy. Although it is currently reporting a loss, it is financially strong as it has the resources to emerge stronger from the crisis. In fact, its net debt to equity ratio is 0.0 for FY2009F. We have a buy recommendation and fair value is S$2.12, which is 1.2 times book value for FY2009F.

Kuok Group subscribes to Wilmar China

2009-09-16T13:53:00.000+08:00

Several members of the Kuok Group (KG) has subscribed for 1.61% of the enlarged capital base of Wilmar China (the proposed IPO entity in HK) for HK$1.933bn.

This sets the valuation ball rolling. This implies a valuation of US$15.5bn for Wilmar China. KG will, within three days of being notified, top up the difference with the IPO price should the IPO valuation be higher than its subscription price.

Our assumptions are close! Assuming that Wilmar China contributes to half of Wilmar International’s earnings, this would lead to a valuation for Wilmar International that is about 6% higher than our valuation target. We had assumed a 25x earnings multiple for Wilmar China and 15x for the rest of its business, leading to a 20x blended multiple for Wilmar International and thus a target price of S$6.50 for the stock. Wilmar International plans to add ‘domestic ownership’ to its Chinese unit through the IPO – this should help the company outpace foreign competitors constrained by rules introduced last year that limits capacity expansion.

Sustainability of earning base or rapid growth? The key for us as more details of its IPO come through is an evaluation of Wilmar International’s earnings growth profile. The stock’s rerating since May (when news of its proposed IPO was released) implies that the IPO event will quickly transform Wilmar International into a fast-growth firm.

12-month price target: S$6.50 based on a PER methodology. We believe Wilmar has rerated since 4Q08 because the company has proven that not only is it capable of circumventing some of the harshest conditions in credit and commodity markets, but it is able to do so while maintaining strong profitability levels.

We downgraded the stock to Neutral on valuation grounds in our 20 August note, Pricing in the IPO option. Our target price of S$6.50 for Wilmar International implies 20x FY09E earnings.

MobileOne: Hitting the right buttons

2009-09-16T13:48:00.000+08:00

A concrete step in the corporate data segment. M1 has acquired Singapore-based Internet Service Provider “Qala Singapore” for about S$17.9m in cash. Out of S$17.9m, S$3m would be paid only if Qala meets its annual targets in June 09. Qala has 9-year experience in providing data centre and broadband solutions to Singapore corporates.

Corporate data segment is worth over S$1 bn annually. Corporate data market is estimated to be worth over S$1 bn annually in Singapore, where SingTel is the dominant player. Despite NBN providing level playing opportunity in 2010, our earlier impression was that M1 could hardly make an impact in the corporate segment due to the lack of expertise and track record. However, by acquiring corporate data capability through Qala, M1 should be able to secure decent market share among SMEs and corporate customers. M1 can take care of consumer broadband segment on its own through its extensive island wide distribution network.

How much can M1 benefit from broadband? The household fixed broadband penetration is around 74% in Singapore, implying the market is not completely saturated yet. M1 is keen to gain 20% market share in the broadband market in the next five years. Overall, we estimate, M1’s top line could grow by about 20-25% in the next five years from consumer and corporate broadband. While broadband margins are difficult to estimate, M1’s bottomline should grow by at least 10% in a similar time frame. We would model NBN benefits into our model, once we have more clarity on broadband margins.

Important Relevant Dates for Renounceable Rights By Genting

2009-09-16T13:42:00.000+08:00

Ratio : 1 : 5
Rights Issue Offer Price : S$0.80
Theoretical ex-rights price : S$1.017 (based on share
price of S$1.06)

Important dates
Shares trade ex-Rights : 18 Sep 09, from 9.00 a.m.
Book Closure date : 23 Sep 09 at 5.00 p.m.
Commencement of trading of "nil-paid" rights : 28 Sep 09, from 9.00 a.m.
Cessation of trading of "nil-paid" rights : 6 Oct 09 at 5.00 p.m.
Listing date of the Rights Securities : 21 Oct 09 from 9.00 a.m.

Last date and time for
Acceptance and payment : 12 Oct. 09 at 5.00 p.m.
Excess share application and payment : 12 Oct. 09 at 5.00
p.m. (9:30 p.m. for Electronic Applications)

Genting Singapore - Get set for Casino Royale

2009-09-16T13:37:00.000+08:00

A flurry of activity at the construction site; working 24/7 – We visited RWS’ construction site last week. Testing of some of the Universal Studio (USS) rides have already begun while 4 hotels scheduled for opening in phase 1 have been topped up. In our view, RWS should be able to open on time, if not earlier. Note that a charity concert, to be held at the Festive Hotel, has already been scheduled for December 19th.

High quality project, in our view: The project site is sizeable – 49 ha in total with USS occupying 20 ha. USS, when opened fully will have 24 attractions of which 18 are unique to Singapore. USS will open with 20 attractions next year. A variety of rides will be present - with some appealing to younger crowd while others appealing to older crowd. A few public attractions such as the Crane Dance, a pyrotechnic show will further enhance the resort site and landscape. The project is led by experienced management team - CEO Tan Hee Teck joined the Genting Group in 1982 and has been significantly involved in management of Genting Highlands in the past.

Infrastructure being put in place to cater for IR traffic: Completion of the 3rd lane (per direction) on the vehicle bridge linking mainland to Sentosa (from 2 lanes to 3). Vehicles from mainland can also enter car park of RWS from the bridge without having to drive into Sentosa. A 620m pedestrian bridge with travellators (capacity of 8,000 guests / hour / direction) will also be constructed.

Management’s visitor arrival guidance closer to our bullish case: Management is guiding for 13MM visitors in 1st year of operations (vs. their initial guidance of 12-13MM, our estimates of 10MM). USS will be a major draw - casino business is a volume business and USS should draw the crowd. Of the 13MM visitors, 40% is expected to be locals and 60% foreigners. Our current June-10 PT of S$1.20 is based on our base case assumptions. However, if numbers come in closer to our bullish case assumptions, share price could rerate closer to the S$2 level.

Wilmar International - Selling Wilmar China to Kuok Group at est. 20x FY10 PE

2009-09-15T17:19:00.000+08:00

Wilmar International (WIL) has completed the restructuring to transfer all its China operation into Wilmar China Limited. The total number of issued and paid-up shares of Wilmar China Limited is 35,034m of HK$1.00 each, all of which are held by WCL Holdings Limited (100% owned by Wilmar International).

Yesterday WIL announced an issuance of 1.61% of the enlarged issued share capital of Wilmar China for a total consideration of HK$1,933.4m (or HK$3.43/share) to Kuok Group.

Based on the two announcements and our earnings estimate for its China operation (FY10 EPS: 2.23 US cents or HK$0.173), the new shares sold to Kuok Group translated into a FY10 PE of 20x.

If the listing is at FY10 PE of 19.8x or a P/BV of 3.9x (HK$0.91), based on our sum-of-the-parts valuation, WIL's fair value would be at S$8.05 or a potential upside of 25%.

Golden Agri-Resources Limited - world’s second largest oil palm plantation

2009-09-15T13:44:00.000+08:00

Golden Agri-Resources Limited (“GAR”) is the world’s second largest oil palm plantation company with a total planted area of over 400,000 hectares located in Indonesia. Initiate coverage with a BUY at fair value estimate of S$0.53.

One of the purest upstream play. Approximately 98% of GAR’s profits are derived from its plantation division. We are bullish on palm oil prices given the positive industry dynamics and believe that GAR is well-positioned to benefit from the high CPO prices.

Above industry FFB yield. GAR’s current FFB yield of 22.4 tons per hectare is above the industry average. This is done through optimal fertilizer application, field management techniques, oil palm breeding and selection, as well as research to cultivate seedlings with superior characteristics.

Sizeable market shares in Indonesia for branded edible oil products. Filma and Kunci Mas, GAR’s two leading brands of cooking oil in Indonesia have captured a significant market share of over 16% in the branded edible oil category.

We are bullish on the palm oil industry on the back of 1) strong consumption demand from emerging countries; 2) tight soybean supply; 3) falling CPO production and inventory level and 4) likely occurrence of El Nino. We believe GAR is a beneficiary of high crude palm oil prices and it is a good proxy to CPO. We initiate coverage with a BUY at a fair value estimate of S$0.53, which represents a 15% upside from its last traded price of S$0.465.

Yangzijiang - Staying on course

2009-09-15T13:37:00.000+08:00

Yangzijiang Shipbuilding (YZJ) delivered record high NPAT of Rmb1.1bn (up 53.7%YoY) in H109 on revenue of Rmb4.6bn, up 32.4%YoY. Gross margin improved sequentially from 20.3% in Q1 to 24.4%% in Q2 due to falling raw material costs. Also, tight cost control yielded low operational expense at 2.1% of sales (6.9% in 2008).

The absence of new order inflow in H1 did not come as a surprise, and YZJ is focusing instead on securing the orderbook at hand. Its orderbook of 139 vessels worth US$6.1bn as at end-June will fill the production schedule till mid-2012, based on the current delivery schedule. Meanwhile, YZJ is also accommodating customers’ requests for late delivery of completed vessels and/or change in the vessel type.

As overcapacity for the shipping and shipbuilding industries is likely to worsen, we believe risks such as few new orders, order cancellation, and late payment etc will likely increase. Only established yards such as YZJ, with a track record in operation and financial strength, will survive the downturn, in our view.

We raise our 2009/10/11 EPS estimates by 11%/22%/27% from Rmb0.54/0.48/0.33 to Rmb0.59/0.57/0.46 on higher margin assumptions. We raise our target P/BV from 1.3x to 2.4x by applying a 30% premium (0% previously) over the regional peer average of 1.8x P/BV to reflect YZJ’s industry leading ROE. Our new price target of S$1.03 suggests 8.4x 2010E PE and 6.3x EV/EBITDA versus the peer average of 8.6x and 6.7x, respectively.

Wilmar International - Share price will continue to do well

2009-09-15T13:26:00.000+08:00

Despite its ytd strong performance, Wilmar will continue to outperform peers, driven by its strong financial performance and listing on HKEX in 4Q09 or 1Q10. Maintain BUY with a target price of S$7.50 based of SOTP valuation.

CPO price to stay resilient in 2H09 as demand dynamics still hold. Production for Malaysia in 2H09 would be lower than in 2008. Although we had expected lower production from Malaysia, current CPO price is ahead of this expectation and we still think the low demand in 4Q09 would push Malaysia’s palm oil inventory back to 1.6m-1.7m tonnes.

Good foresight to deliver better-than-sector CPO ASP. Due to its forward selling back in 2008, Wilmar delivered better-than-sector average selling prices (ASP). This likely to be the case for 2H09.

HKEX listing likely to be within next six months. During the briefing, noupdate was given on the application to Hong Kong Stock Exchange (HKEX). Base on the listing timeline, we expect the listing to take place in Dec 09-Jan 10. Based on HKEX’s regulation, for an initial public offering (IPO) of above HK$10b, the free float can be reduce to 15% (vs 25%). In our earlier note, we highlighted that the free float is likely to be at 20% for a potential listing market capitalisation of US$13.3b.

Catalyst to share price: a) earnings upgrade due to better sales volume as the economic situation improves, b) margin expansion - Wilmar raised cooking oil selling price again in Jul 09, and c) strongest catalyst will be its HKEX listing. In our sum-of-the-parts (SOTP) target price, we assume a listing PE of 17x 2010 earnings. A higher listing PE would drive the valuation higher.

Reiterate BUY. With the potential HKEX listing, we derive our target price based on SOTP valuation. Wilmar’s target price will be S$7.50 based on 17x 2010 PE to its China’s operation and retain 15x 2010 PE for its palm oil business. There is potential upside to our target price if the listing PE is higher than our expectation of 17x.