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Maybank Kim Eng Reports June 2013
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PostPosted: Mon Jun 03, 2013 10:49 am    Post subject: Maybank Kim Eng Reports June 2013 Reply with quote

Singapore Strategy: Gravity Check | NEUTRAL
As we write, the market has just had its first big correction in months, on fears that the Fed will be closing the taps of economic stimulus soon as the American economy improves, which would then drive the US dollar higher, putting pressure on Singapore companies that earn their revenue in the greenback.

The interest rate sensitive stocks that have done well last year and this year have already gone into a tailspin, as markets have been used to low interest rates for so long its become the norm. We have been negative on the S-REITs for some time and the yield trade looks like it is finally coming to an end. Similarly, we have sell calls on two of the biggest names in the telco space SingTel and StarHub.

A harder grind ahead in the next six months than the last six months. Earnings growth is lacking, and economic reality has lacked momentum. We think the economy will really start to stutter in future quarters under the governments labour reform policies. Forward valuations are above mean and only 2% earnings growth is expected in 2013.

While the interest rate sensitive plays, namely REITs, telcos and banks, are at risk, we are positive on the defensive stocks with resilient earnings, undervalued situations with asset support, as well as stocks with investment spinoff angles. Our top picks are CapitaLand, CMA, ComfortDelGro, Keppel Land, Osim, OUE, Sembcorp Marine, SIA Engineering, Tat Hong, Vard, Wing Tai and Yongnam.
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PostPosted: Tue Jun 11, 2013 9:05 am    Post subject: Reply with quote

Lian Beng Group: Ready For A Ground Breaking Year; Upgrade to Buy, TP$0.68
LBG SP | Mkt Cap USD221.0m | ADTV USD1.0m

Upgrade to BUY with a revised TP of SGD0.68, indicating upside of 30%. At current levels, Lian Beng is trading at 3.1x FY14F P/E, verses peers at between 5x and 7x P/E. We peg Lian Beng construction earnings at 6x, on par with its construction peers.
We caught up with Lian Bengs management for updates on ongoing construction and property launches, and are now convinced that FY5/14 will be a record breaking year with earnings surpassing its 2012 peak of SGD51.4m.
The recent Poh Lian construction scandal offered Lian Beng the opportunity to take-over the Goodwood Residence construction contract, which is scheduled for completion in October 2013. Lian Bengs orderbook currently stands at SGD1.2b.
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PostPosted: Wed Jun 12, 2013 9:11 am    Post subject: Reply with quote

SMRT Corp: Earnings Weakness Not Priced In; Sell, TP $1.00
MRT SP | Mkt Cap USD1.7b | ADTV USD1.8m

Maintain Sell with TP of SGD1.00. With structurally higher leverage and poor dividend yield support, we argue that SMRT should de-rate structurally from its historical levels. The stock of SMRT currently trades at 25X FY14E P/E and yields merely 1.7%.
We have 3 key concerns on the stock: 1) Structurally higher leverage, 2) Fare revenue and OPEX mismatch and 3) Lack of CAPEX visibility.
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PostPosted: Fri Jun 14, 2013 11:31 am    Post subject: Reply with quote

Sarin Technologies: No Threat From CFire; Maintain Buy, TP $1.66
SARIN SP | Mkt Cap USD392.5m | ADTV USD0.1m
OGI Systems, a competitor, debuted their own light performance technology (LPT) called the CFire in the recent JCK Las Vegas jewellery show. But note that Sarins Sarine Light was first launched back in Sept 2011 in the Hong Kong Jewellery Show and subsequently in May 2012 in the JCK Las Vegas Show. Sarine Light is already in the commercialisation phase with Japanese retailer CIMA adopting the technology in their stores.
The JCK Las Vegas show ended with improved sentiments in the US retail market, providing the needed strength to compensate for weaknesses in Europe and the Far East. The real interest would be better gauged a few months after the show when the positive retail sentiments filter down to the rest of the market.
We do not think that this new product from OGI would have any material impact as we view that Sarin is way ahead in bringing its LPT product to the market. Maintain BUY, TP SGD1.66 on this under-researched stock.
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PostPosted: Tue Jun 18, 2013 9:21 am    Post subject: Reply with quote

Yeo Hiap Seng: Steps In The Right Direction; Hold TP $2.55
YHS SP | Mkt Cap USD1.23b | ADTV USD0.1m

Our latest discussions with management confirm they are indeed focused on building up its F&B business. We believe the company is taking steps in the right direction.
The company is in the midst of reorganizing its plants to improve overall efficiency and also building new plants in Indonesia and Cambodia, two markets where it is enjoying high growth.
We see latent potential in the Groups F&B business, but warn that improvements in margin and more meaningful geographical expansion will likely be a multi-year story. Maintain HOLD.
Click here for full report jameskoh@maybank-ke.com.sg
Economics
Singapore NODX, May13: Dragged by the Es
NODX stayed in the red for a fourth straight month in May 2013 as it fell by -4.6% YoY (Apr 2013: -1.0% YoY). From the previous month, NODX dropped by -2.1% MoM (Apr 2013: -2.2% MoM) and -1.1% MoM on a seasonally adjusted basis (s.a Apr 2013: +1.1% MoM). NODX fell by -8.7% YoY in Jan-May 2013 (Jan-May 2012: +4.6% YoY).
European and Electronics drag continues. Shipments to the European Union (EU), the largest destination for NODX that is buffeted by the Eurozone recession, continued to decline although the pace eased for the third month in a row (May 2013: -4.3% YoY; Apr 2013: -13.4% YoY), while Electronics declined by -13.2% YoY in May 2013 (Apr 2013: -9.0% YoY).
Hope floats for a better NODX showing in the coming months as Singapores manufacturing purchasing managers index (PMI) is on an improving trend. In particular, the new exports orders sub-index rose for the third consecutive month (May 2013: 52.9; Apr 2013: 50.6), lifted especially by new exports orders for electronics (May 2013: 53.3; Apr 2013: 53.1)
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PostPosted: Wed Jun 26, 2013 9:00 am    Post subject: Reply with quote

CapitaMall Trust: Jurong's Ready For Four Gems; Buy TP $2.45
CT SP | Mkt Cap USD5.2b | ADTV USD17.9m

We reiterate our BUY recommendation on CapitaMall Trust (CMT) following our visit to Jurong Gateway. Our DDM-derived target price of SGD2.45 remains unchanged, implying an attractive total return of 33%.
Despite the recent successful opening of Lend Leases 818,000 sq ft Jem at Jurong Gateway, we believe the potential of the up-and-coming region is vast and can sustain the four malls in the vicinity of Jurong East MRT station, including CMTs JCube, IMM and the upcoming Westgate Mall.
We believe that the potentially higher interest rates have little negative impact on CMT, and the recent sell-down offers investors an enticing entry yield of 5.6%, based on FY14F DPU of 10.8 SG cents.
Click here for full report wilsonliew@maybank-ke.com.sg
Auric Pacific: Saw Magic Begins to Shine; Not Rated
AP SP | Mkt Cap USD124.6m | ADTV USD0.03m

Auric Pacific has offered to take Food Junction private for SGD0.255 per share, 40.11% above the last transacted price and 34.1% above 12-month VWAP.
Excluding a one-off impairment charge and restaurant losses in FY12, this values food courts segment at an ex-cash PER of just 4.8x. We view this deal as highly attractive, and are positive that CEO Saw Phaik Hwa is transforming Auric Pacific one step at a time.
We think Auric is undervalued at the moment as share price does not factor in the potential growth prospects after a possible restructuring of the restaurant business, and possibly a rationalization of its various F&B brands to build up economies of scale.
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PostPosted: Thu Jun 27, 2013 9:16 am    Post subject: Reply with quote

Singapore Transportation Update: What If The Haze Returns?
The haze impact will not last long. We stay positive on SIAEC (BUY, TP: SGD6.16), SATS (BUY, TP: SGD3.90) and ComfortDelGro (BUY, TP: SGD2.33) and believe that any negative reaction presents opportunities to accumulate undervalued transportation sector stocks that we favour.
SIA, SIAEC & SMRT most exposed. We estimate that SMRT and ComfortDelGro would suffer a weekly earnings impact of SGD2m and SGD1.4m or 2.0% and 0.5% of annual profit respectively for every 15% reduction in fare revenue. SIA and SIAEC would be exposed as Singapore is their main operating base, but it is not possible to assess the earnings impact on aviation stocks as there are too many moving parts. Inbound traffic could be hit, but this could be offset by more outbound traffic.
Historically, no impact on stocks as long as haze lasts less than a month. We observed no material adverse reaction during the worst of the haze in Sep 1997 and Oct 2006, which generally lasted about a month. As long as the haze does not last for more than a month this time round too, we remain sanguine on the situation. Using a far worse example to gauge downside, the SARS epidemic impacted the aviation stocks by almost 20% at the worst, but land transport stocks were unscathed.
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PostPosted: Fri Jun 28, 2013 9:21 am    Post subject: Reply with quote

CDL Hospitality Trusts: Too much Pessimism shrouding Hotels; Up to Buy TP $1.90
CDREIT SP | Mkt Cap USD1.3b | ADTV USD4.0m

Upgrade to BUY (from Hold) with revised TP of SGD1.90. CDHLT has corrected 14% ever since Bernankes congressional testimony on 22 May. At this price, we think previous concerns on hotels oversupply and RevPar declines are overdone.
According to CBRE, a total of 12,092 new rooms from known projects will be coming onboard between 2013-2016. This constitutes ~23% of available stock. Nonetheless, we expect tourist arrivals to register 4.5% CAGR over 2012-2016 but hotel room supply (measured in terms of available room nights) will grow at 3.9% CAGR, behind demand growth of 4.2%. RevPar growth is projected to slow from 4% in 2012 to -1% this year and 2%-7% over 2014-2016.
CDLHT is currently trading at ~400 bps yield-spreads vis--vis average/median historic spread of 294 bps. Adding the most hawkish FY13 risk-free rate of 3% gives a hypothetical DPU yield of 5.9%. The counter is presently trading at a yield of 6.9% and is thus 100bps under-priced in our view.
Click here for full report ongkianlin@maybank-ke.com.sg
SingTel: No Myanmar Licence for SingTel, Hooray! Upgrade to Hold TP $3.50
ST SP | Mkt Cap USD47.0b | ADTV USD72.6m

Myanmar has awarded the two coveted foreign operator licences to Telenor of Norway and Ooredoo (formerly Qatar Telecom) with the France Telecom/Marubeni joint venture picked as backup in case one of the two winners back out.
SingTel did not get a licence despite being often mentioned as a favourate but in a way, this is not a bad outcome as a win would have meant billions of dollars of investment, an opaque regulatory environment and more short-term losses.
Instead, it can now focus on getting opportunities to clinch sub-contracts from the winners who will be under great pressure to deliver active services in 9 months time, 25% mobile coverage in a year and 80% coverage within 5 years. Raise from SELL to HOLD. TP SGD3.50.
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PostPosted: Thu Jul 04, 2013 10:14 am    Post subject: Reply with quote

Biosensors International: More Risks To Licensing Revenue; Hold, TP$1.17
BIG SP | Mkt Cap USD1.5b | ADTV USD3.0m

We flag further risks in licensing revenue from Terumo which could cap share price recovery. Not time for re-entry, maintain Hold, SOTP-based TP trimmed to SGD1.17.
We note in Terumos The New Mid-Term Plan (FY2013 FY2016) dated May 2013 that a new Drug Eluting Stent (DES) was introduced in its product pipelines. We suspect that this is intended to eventually replace the Nobori DES once the licensing agreement with Biosensors expires in 2016.
Biosensors has a sound business strategy to transform into a multi-product platform and we recognise the long-term potential. However, given the difficulties in quantifying the long-term potential and risks from M&As without more clarity, we have been holding back our optimism. We await value accretive M&As as potential catalysts for upgrade.
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PostPosted: Mon Jul 08, 2013 8:49 am    Post subject: Reply with quote

Neptune Orient Lines: Near Term Earnings Weakness; Hold, TP $1.25
NOL SP | Mkt Cap USD2.1b | ADTV USD3.5m

We assume coverage of NOL with a HOLD rating and TP of SGD1.25 based on FY13-14E P/BV of 1.1X (long term average: 1.2X).
Fundamentally, we believe that the container shipping industry is near its cyclical trough and expect better times ahead as the supply overhang diminishes over the next few years.
However, we remain cautious in our recommendation as the prospect of a third consecutive year of losses in FY13 (on our estimates) will likely weigh on sentiment towards the stock, especially as we believe consensus expectations of a profitable FY13 will be missed.
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PostPosted: Tue Jul 09, 2013 9:11 am    Post subject: Reply with quote

Suntec REIT: Reward Awaits The Patient Investor; Maintain Buy TP $1.75
SUN SP | Mkt Cap USD2.8b | ADTV USD14.0m

Suntecs 2Q13 DPU is likely to be lackluster, dragged down by Suntec City Malls (SCM) ongoing renovation works. We estimate that the largest dip on FY13 DPU will occur in both 1Q & 2Q13, when Phase 1 new tenants have yet to start paying rentals and Phase 2 old tenants are being vacated for the AEI.
We noted that many Phase 1 tenants (H&M, Uniqlo, etc.) have begun operations in Jun, but they are likely to be still on rent-free periods (1-2 mths. We forecast 2Q13 DPU at 2.23 SG-cts (flat QoQ; -5.5% YoY) and FY13 DPU at 9.23 SG-cts. (-2% YoY).
Suntec received cash proceeds of ~SGD147m from the sale of Chijmes in 1Q12. So far, it has topped-up SGD2.7m in 1Q13 and we do not rule out another top-up in 2Q13, as 1Q13/2Q13 quarters will witness the largest occupancy dip. We raise our risk-free rate to 3% from 1.4% previously. Reiterate BUY with reduced TP of SGD1.75.
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PostPosted: Wed Jul 10, 2013 9:01 am    Post subject: Reply with quote

Singapore Press Holdings: Another Step Closer to REIT IPO; Buy, TP $4.52
SPH SP | Mkt Cap USD5.3b | ADTV USD21.4m

SPH REIT filed prospectus with MAS yesterday after market closed. Despite the recent market uncertainty, it seems to us that SPH is getting closer to a successful spinoff. We continue to like SPH. However, due to the rising interest rates of Singapore government bonds, we adjust our risk free rate assumption in our DCF valuation to 3% from 1.3% before. Maintain BUY but lower TP to SGD4.52.
Limited free float could help a successful IPO despite the recent market uncertainty. We expect the IPO process to finish by August, slightly later than managements original plan.
Short term downside risk for the stock is mainly the possibly lower-than-expected 3QFY13 results which will be announced next Monday
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PostPosted: Thu Jul 11, 2013 10:21 am    Post subject: Reply with quote

Singapore Office Sector: Respite May Be Brief | NEUTRAL
The Singapore office market appears to have stabilized in 1H13, as the slide in rents in 2012 has been stemmed by a temporary lack of new supply. However, we believe the respite could be brief with more downside in spot rents possible in 2014 as leasing demand remains lukewarm.
We expect KREIT and CCT to report flattish QoQ DPU growth when they announce their 2Q13 results on 15 and 17 July respectively. Their prospects for 2H13 will be more important, with the yield protection at CCTs One George Street expiring in July and the completion of KREITs acquisition of 8 Exhibition Street completing in around August.
We have adjusted our risk-free rate and cost of equity assumptions and consequently lowered our target prices for CCT (TP:SGD1.2Cool and KREIT (TP:SGD1.15). Our HOLD recommendations are maintained.
Click here for full report wilsonliew@maybank-ke.com.sg
ComfortDelGro Corp: Minimal impact from Visa termination; Buy, TP $2.33
CD SP | Mkt Cap USD3.2b | ADTV USD16.3m

According to a channelnewsasia report, commuters will not be able to pay for their cab fares using Visa cards from July 15. Commuters are currently charged an extra 10% administrative fee for the use of credit card payments, which is a breach of contract terms.
Our analysis showed that cashless transactions contribute approximately 6% of profits for CDGs Taxi business in Singapore. However, our discussion with management suggests that majority of the contributions from cashless transactions are due to other payment modes, such as NETS, and market penetration for the use of Visa cards had been low. Hence, the termination of this payment mode would have minimal impact on the profits for its taxi business in Singapore.
No earnings revision, Maintain Buy. We made no revision to our estimates and reiterate our positive view on the stock. ComfortDelGro offers a defensive business exposure and currently trades below its historical valuation levels at only 15X FY14E P/E (long term average: 16X).
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PostPosted: Tue Jul 16, 2013 9:15 am    Post subject: Reply with quote

Offshore & Marine: Contrasting Yard Fortunes (Overweight)
Recent industry developments reinforce our positive views on Singapore rigbuilders. Central to our argument is that Chinese and Korean competition will not bring down average rig prices and lead to future margin decline.
We see 2 possible repercussions from Chinese shipbuilder, China Rongshengs recent financial woes: (1) Customers may become less willing to award orders to Chinese yards for fear that they cannot deliver, (2) Rapid flushing out of excess capacities, accelerating sector recovery. Either way, this would ease competition for offshore orders. Korean shipbuilder, Hyundai Heavy also indicated the intention to raise shipbuilding prices. A return of shipbuilding orders could also ease offshore competition.
We see stable earnings outlook for the Singapore rigbuilders (Keppel Corp & Sembcorp Marine) ahead of 2Q13 results season, but flag possible downside risks for the Chinese shipbuilders (Cosco & Yangzijiang). Maintain preference for the Singapore Rigbuilders.
Click here for full report yeakcheekeong@maybank-ke.com.sg


Singapore Press Holdings: Core Business Continues to Weaken; Cut to Hold, TP$4.50
SPH SP | Mkt Cap USD5.5b | ADTV USD21.1m

SPH reported a net profit of SGD187.5m for 3QFY8/13, up 80.7% yoy. However, the growth is purely because of change in accounting policy. Excluding one-off items, core net profit of SGD91.7m was down 12% yoy.
In our view, the most immediate catalyst, REIT spinoff, is largely in price already while the core media business could continue to be under pressure for more quarters.
Current 5.5% dividend yield would be less attractive as government bond yields rise. We downgrade the stock to HOLD as there is limited upside to our target price. Wait for a better entry point
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PostPosted: Thu Jul 18, 2013 9:37 am    Post subject: Reply with quote

Keppel Land: China Sales Momentum Sustained; Buy, TP $4.80
KPLD SP | Mkt Cap USD4.4b | ADTV USD10.1m

We reiterate KepLand as one of our top-picks for its diversification into China. The strong home sales momentum in China has been sustained and we expect more ventures with China Vanke in the future. Maintain BUY with a TP of SGD4.80, pegged to a 20% discount to RNAV.
2Q13 results was a non-event, with the PATMI of SGD95.5m nearly flat both QoQ and YoY and in line with expectations. What impressed was KepLands home sales in China in 1H13, where about 1,940 units have been sold in the period, already ~18% more than it did in the whole of 2012.
The potential divestment of MBFC Tower 3 appears unlikely to materialize in 2H13, as KepLands management stated that there is currently no need for capital recycling given its strong balance sheet. We think that FY14 is a now more likely timeframe, despite the fact that Tower 3 has already attained 90% committed occupancy.
Click here for full report wilsonliew@maybank-ke.com.sg
Economics
Singapore NODX, June 2013: NODX down, trade surplus up
NODX growth in June 2013 fell by -8.8% YoY (May 2013: -4.6% YoY) as electronic shipments posted the longest successive declines (i.e. 11 months) since the global financial crisis (27 months, between Sept 2007 and Nov 2009). Electronic exports (June 2013: -12.4% YoY; May 2013: -13.2% YoY) and the volatile Pharmaceuticals shipments (June 2013: -35.4% YoY; May 2013: +19.9% YoY) were the primary drags, as well as sales to EU (June 2013: -33.6% YoY; May 2013: -4.3% YoY), Indonesia (Jun 2013: -24.8% YoY; May 2013: -19.8% YoY) and Japan (Jun 2013: -25.5% YoY; May 2013: -7.2% YoY).
Trade data justifies the better-than-expected advanced estimate for 2Q 2013 real GDP. Although NODX contracted by a steeper -4.9% YoY in 2Q 2013 compared with -2.8% YoY for Apr-May 2013 period, the decline was much smaller than -12.5% posted in 1Q 013. In addition, the trade surplus gained by +56.4% YoY to SGD 13.1b versus +32.5% YoY for Apr-May 2013 and the drop of -0.8% YoY to SGD8.9b in 1Q 2013, pointing to a positive full-quarter contribution of net external demand to GDP after the drag in 1Q 2013, hence the improved GDP performance last quarter (2Q 2013 Adv. Est.: +3.7% YoY & +15.2% ann. QoQ; 1Q 2013: +0.2% YoY & +1.8% ann. QoQ).
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