5終站相接總站．每1公里有停站 新山地鐵2018年落成

http://www.chinapress.com.my/node/238613

（新山30日訊）新山預計2018年落成的地鐵（MRT）計劃，將有5大終站與甘拔士總站相接，每隔約1公里再有停站，方便南上北下的民眾。

　建議中的終站包括努沙再也終站、烏魯地南終站、巴西古當終站、古來終站及士乃機場終站。

有望紓解交通流量

　工程預計2018年竣工，到時有望紓解新山地區的交通流量，新加坡也正策劃擴建現有的地鐵軌道，准備與新山地鐵連接，相信可在2018年成事。

　然而，地鐵計劃乃是一件大工程，並有多方面需要考量，雙方仍在商討階段。

　新山地鐵工程顧問羅斯里博士在“馬來西亞依斯干達特區─新加坡的綜合發展潛能”研討會發表指出，新山地下鐵路總站將建在甘拔士，能與吉隆坡中環媲美，因為該總站也將提供一站式服務，包括德士、巴士及輕快鐵等。

　他說，總站有如購物中心般，設有購物商店、小食中心等，讓公眾在等待之餘，還能閒逛，消磨時間。

　將近百人出席研討會，包括城市規劃師、建築師及馬新兩國的政府官員。其他出席者包括，依斯幹達旗艦發展部副主席莫哈末扎米爾及新加坡市區重建局主管黃玉寧（譯音）。

暫定在兀蘭共和理工學院
馬新兩國地鐵將連接

新加坡暫把連接點定在兀蘭共和理工學院，從該處延申現有的地鐵線到我國。

　新加坡陸路交通管理局總建築師張愛珠受《中國報》訪問時透露，馬新兩國的地鐵路將會相連，連接點暫定在共和理工學院一帶。

　“新加坡方面的路線經已肯定，不過尚未開始建造，需要考量各方面的安全及地價問題。新加坡政府要建個四通八達的地下鐵路，好讓人民舒適地乘搭地鐵，更能夠惠及人民。”

　她之前曾到過香港考察當地的地鐵系統，並發現該國的地下鐵路非常方便，值得新加坡學習。

　她坦承，新加坡的地下鐵路工程應該會在2018年竣工，現在政府正在篩選發展商。

尋合適跑道建地下鐵路

羅斯里透露，現階段大馬當局尚在尋找合適的跑道興建地下鐵路，因為需要多方面考量。

　他說，就算找到合適的跑道，也要找到合適的地點興建總站與終站，需要蠻大的地段及空間，才能建成。

　“興建新的地下鐵路工程就要投入很大心血、資金及人力，這是件非常龐大且复雜的工程。如果成功找到合適的跑道和地點，政府還需投入大筆資金和人力，也需時間想出一個十全十美的計劃，以便建造一個人人受用的地下鐵路。”

　此外，他說，政府也還需要考量安全問題，因為不想發生任何不愉快事件。

Location a key factor for SouthKey’s JB project

SOUTHKEY Properties Sdn Bhd is banking on the strategic location of its integrated mixed development project in Johor Baru as the main selling point to attract local and foreign property buyers.

The project, known as SouthKey, is located on a 134ha site on the Majidee Army Camp area and is dubbed as the “last remaining large prime development land” about 4km north of the Johor Baru city centre.

“Apart from the project's strategic location, we also see Iskandar Malaysia as another strong pulling factor to help sell the project,'' executive director Quek Cham Hong told StarBizWeek in an interview recently.

The development is surrounded by established housing estates such as Taman Sentosa, Permas Jaya, Taman Suria, Melodies Garden and Kg Melayu Majidee with a catchment population of more than 120,000 within a 3km radius.

He says the development enjoys good accessibility and connectivity to the project via three major highways Tebrau Highway and Southern Link Expressway and Eastern Dispersal Link Expressway (EDL) which will be completed next year.

Banking on location: Southkey Properties Sdn Bhd executive director Quek Cham Hong (left) with general manager J.E. Ng looking at a model of the SouthKey mixed integrated property development project.

Quek adds it is only a few minutes drive from the Sultan Iskandar Customs, Immigration and Quarantine complex in Bukit Chagar via EDL, which traverses the eastern portion of the site connecting to the North-South Expressway.

“A proposed light rail transit route runs along the 1.5km Jalan Bakar Batu fronting the southern boundary of the site under the Iskandar Malaysia comprehensive transportation master plan will further enhance accessibility,'' he says.

Quek adds that the project's plus point is its location within the JB City Centre Zone A- one of the five flagship development zones in Iskandar Malaysa's 2,127 sq km.

The other four zones are the Nusajaya, Eastern Gate Development, Western Gate Development and Senai-Kulai.

He says the Johor Baru property market has seen a lot changes since the inception of Iskandar Malaysia on Nov 4, 2006, with demand for high-end properties on the upward trend.

Quek says the country's first economic growth corridor is moving in the right direction, attracting domestic and foreign investments in multi sectors including property.

Figures released by the Iskandar Regional Development Authority revealed that as of last December, Iskandar Malaysia has attracted about RM69.48bil investment, surpassing the RM47bil target for 2010.

In the first quarter of the year, RM3.7bil new investments were received, bringing the total committed investments to RM73.24bil since 2006 with Iskandar Malaysia targetting RM73bil in new investments from Jan 2011 to Dec 2015.

“The influx of domestic and foreign investors and new residents to Iskandar Malaysia will have positive impact on Johor Baru's property market,'' he says.

SouthKey is Selia Pantai Sdn Bhd's maiden project in Johor Baru a joint-venture company between Teluk Zamrud Sdn Bhd and Kumpulan Prasarana Rakyat Johor Southkey Properties is a member of the Selia Group.

The project is divided into nine precincts. Work on the first phase of the project on a 35.61ha site has already started with RM2bil gross development value (GDV) and is expected to be completed within the next five to seven years.

Quek says work on the second phase on the remaining 46.94ha area will begin in 2015, when the entire Majidee Camp is expected to be relocated to its new site in Batu Pahat by 2014.

Phase one is made up of 128 units of Lakefront strata-titles shop-offices comprising of 3, 4, 5 and 8-storey blocks with prices from RM918,000 to RM15.50mil and 70% of the units already sold.

The new launch under phase one next year will see Soho units and serviced apartments, business hotel, medical centre, retail shops, showrooms, neighbourhood retail complex and a college.

“We want to position SouthKey as the business address in Johor Baru and the only way to do it is to offer product differentiation compared with our competitors,'' Quek says it plans to attract companies and businesses from other locations within Iskandar Malaysia to relocate their offices to SouthKey and also those from the Klang Valley planning to set up branch offices in Johor Baru.

MIDAS (Lim&Tan)

S$0.56-MIDS.SI

􀁺 Midas’ 32.5% owned associate company Nanjing Puzhen has won 2 contracts worth a total of Rmb3.13bln to supply 402 metro train cars for Nanjing Metro Company for 2 projects (Nanjing Metro Line 3 Project and Nanjing Metro Line 10 Project). Delivery is expected to be from 2013-2015.

􀁺 Nanjing Puzhen being based in Nanjing and having won 3 other Nanjing Metro Line Projects in the last few years, it should not be a surprise for them to continue to win projects within the Nanjing region. Being 32.5% owned by Midas, we believe Midas will be doing the train car bodies for Nanjing Puzhen.

􀁺 While a positive for Midas and could well provide a short term boost to its share price given the oversold conditions, the key point is that all railway stocks in China as well as Midas remains in wellentrenched downtrend channels established since Feb’11 after the firing of the top official in the railway ministry for corruption charges.

􀁺 And the continued negative news-flow in the sector continues on a daily basis with the latest being that a lot of travel agencies have received calls to cancel high speed travels right in the middle of the peak travel season with The Global Times newspaper quoting a manager as saying that close to 80% of their clients are switching to air travel instead of rail travel.

􀁺 The above suggests that the well-entrenched downtrend channels for railway related stocks would likely remain in place not-withstanding near term bounces.

􀁺 Midas’ close to 40% share price decline since Feb’11 is in line with that of the railway related stocks listed in China and Hong Kong.

Singapore Airlines (DBSVickers)

BUY S$14.71

STI : 3,189.85

Price Target : 12-Month S$ 17.00

1Q12 results weak and below expectations but worst should be over

A weak set of 1Q12 results....below expectations

SIA reported 1Q FYE Mar '12 earnings that were weak and below expectations. Net profit declined 82% yoy to S$45m versus our expectation of S$150m as the yield improvement that we expected was not as strong as we projected. This is likely due to promotional fares to boost demand on the weak Japan routes. Revenue grew by 3% yoy to S$3,578m on 3.5% yoy growth in RPK but net fuel cost rose by 27% yoy. Load factor fell by 2.7ppt yoy, due to weakness on Japan routes arising from the Japan nuclear crisis. Hence, the Group's core passenger airline business slipped into an operating loss of S$36m versus a profit of S$136m a year ago. SIA Cargo also registered losses of S$14m against a S$60m gain a year ago.

... but outlook should improve

We expect sequential results to improve as 1) load factors start to firm up. Passenger load factor was 75.6% in 1QFY12 although this can be broken down into 74.6% for April, 73.6% in May and 78.8% in June. We have seen load factor already showing improvement as capacity has been adjusted post the Japan crisis while demand gradually returns. SIA has moderated down capacity growth to 5% this year, as opposed to 6% growth in capacity announced 3 months ago. These adjustments to capacity are made to help boost load factors.

2) We expect fuel surcharges to fully kick-in to help offset higher fuel costs. This should be the worst quarter for SIA in FY12 in terms of earnings.

Earnings to be reviewed following analysts’ briefing on Monday morning, TP under review

We will review our earnings (expect FY12 numbers to be lowered) after the analysts’ briefing on Monday but expect to maintain our BUY call. Post the S$1.20 dividend (ex on 2nd Aug), SIA will still be in a strong net cash position of over S$4bn (with potential for further capital efficiency improvement moves) and we like its recent moves to be more aggressive in Australia (via the tie-up with Virgin Australia) and in the LCC segment (with the setting up of a low fare, mid and long haul carrier). SIA also has a 49% stake in Virgin Atlantic, the value of it could be unlocked if sold.

Hyflux (DBSVickers)

BUY S$2.00

STI : 3,189.85

Price Target : 12-Month S$ 2.47

Fire at Magtaa warehouse no material financial impact - damages claimable, FY11 earnings pushed back to FY12

Event :

Hyflux announced that a fire broke out on 28 July 2011 at its warehouse at the Magtaa project site. The Project is now more than 80% completed. Building erected and equipment already installed at the construction site are not affected but equipment in the warehouse would have to be repurchased, particularly RO membrane. As a result, the project completion is expected to be delayed till May 2012 instead of August 2011. According to preliminary estimates, all related costs and damages arising from this incident are around U$50m.

Our take :

There could possibly be kneejerk reaction to share price with this news but we do not expect material financial impact because 1) the project is covered by a comprehensive construction all risks insurance policy with internationally reputable insurers, so we believe the project company (which is 47%-owned by Hyflux) would be able to make the claims. Moreover, the project company would be applying for force majeure so that would also free Hyflux's obligation on project delay. At this juncture, our check with management indicated that they will not be making any provision for this incident. Earnings wise, we had expected Hyflux to complete the Magtaa project by this year, but this development would now push back 13% of earnings to FY12 instead. That, however, would not impact TP as we roll over to FY12 earnings in deriving our TP.

Operation wise, business momentum remains on track: 1) Tuas 2 desal project would commence construction in 4Q11, in line with our expectation. 2) We understand Hyflux continues to pursue new projects in China, SEA and India as the MENA region takes a breather. While we have not factored in anymore contract wins for the rest of this year, we believe chances are high for small contract wins out of China.

Hyflux is due to report results on 4 Aug, we expect net profit of S$27m on sales of S$150m.

No change to Buy recommendation and TP of S$2.47.

Midas Holdings (DBSVickers)

BUY S$0.56

STI : 3,189.85

Price Target : 12-Month S$ 1.05

Midas Associate NPRT secures 2 metro contracts worth RMB3.13bn.

Midas announced that its 32.5%-owned associate, Nanjing Puzhen Railway Transport Co., Ltd has won 2 projects totalling RMB3.13bn. The first project is for the supply of 46 train sets (or 276 train cars) for Nanjing Metro Line 3 project for delivery between 2013 and 2015, valued at RMB2.15bn. The second is to supply 21 train sets (or 126 train cars) for the Nanjing Metro Line 10 project, valued at RMB980m, to be delivered from 2013 to 2014.

The firm orders from Nanjing are not surprising, as the city is gearing up to host the youth Olympics in 2014. Whilst obviously positive for Nanjing Puzhen, this win also implies potential follow-on orders for Midas in terms of aluminium train profiles of c. RMB100m worth of orders or more (assuming Nanjing Puzhen buys the profiles from Midas, which is very likely) so this development is positive for Midas' core business as well. Midas' share price has seen a substantial drop in recent days following the unfortunate accident in China, but we think the accident should not have a material impact on the investment and development plan of high speed railway in China (other than a renewed focus on safety). Furthermore, Midas is also well positioned to win orders from metro projects in China as well as overseas projects.

We maintained our recommendation and target price for Midas

Kitchen Culture Holdings (KimEng)

Background: Kitchen Culture specialises in the sale and distribution of a range of high-end imported kitchen systems, appliances, wardrobe systems, household furniture and accessories brands from Europe and the US since 1991. It holds exclusive distribution rights for eight of the 15 brands that it represents in Singapore and manages showrooms here and in Malaysia. About 92.7% of its FY10 revenue is derived locally and the rest from Southeast Asia.

Recent development: Last Friday, Kitchen Culture debuted on the Catalist through an IPO of 17m new shares placed out at $0.30 per share. This represents 17% of the company’s enlarged issued share capital of 100m shares.

Our View

Use of net proceeds. Kitchen Culture raised $3.7m in net proceeds from the listing, which will be used for general working capital and funding for future acquisitions or joint ventures. Management said that through this listing, it hopes to draw on the strength as a premium multi-kitchen brands holder and gain recognition over the other single-brand competitors in the market, thus making it easier to break into the Indonesian and Hong Kong markets. It has plans to secure more kitchen brand distributorships.

Robust orderbook. As of January this year, the company has $25.9m worth of residential projects contracts and $8.7m worth of distribution and retail projects, of which $2.6m have been fulfilled and the rest to be fulfilled in the next two years. It has worked with many reputable developers such as Hong Leong, City Developments and Far East Organization. Net profit margins are above 10% on average.

Dividend policy. Although it has no official dividend policy, the prospectus lists that Kitchen Culture intends to pay out at least 20% of its net profit to shareholders this year and next. The stock currently trades at 7.6x PER and 4.4x P/B.

Key ratios…

Price-to-earnings: 7.6x

Price-to-NTA: 2.9x

Net cash/(debt) per share: $0.02

Net cash as % of market cap: 4.8%

Share price) S$0.315

Issued shares (m) 100

Market cap (S$m) 31.5

Free float (%) 17%

Recent fundraising activities IPO listing for 17m shares at $0.30 per share

Financial YE 31 Dec

Major shareholders CEO Lim Wee Li (74.7%), Exec Director Lim Han Li (8.3%)

YTD change NA

52-wk price range S$0.300-0.345

Singapore Airlines (KimEng)

Event

SIA posted dismal 1QFY Mar12 net earnings of just $44.7m, down 82% from a year ago. Earnings were decimated by higher fuel costs, which increased by over $300m alone versus the previous year. This is also despite the fact that revenues remained strong, up 3% YoY to $3.6b. We are reducing our forecasts substantially, but maintain our HOLD rating and target price of $14.40 in view of SIA’s robust balance sheet.

Our View

Passenger yields saw some moderation to 11.8cts/pkm from 12.1 cts/pkm in the previous quarter, but remained relatively firm. We also estimate that cargo saw flat revenue from weaker yields despite increasing its loads.

On the cost side, the variance in fuel costs implies that the airline has not pursued a more aggressive hedging policy. SIA only achieved some $12m in hedging gains for the quarter. We are raising our assumption for average cost of fuel from US$120/barrel to US$130/barrel, which implies minimal hedging, and for oil prices to stay at current levels for the next nine months. All other costs were kept broadly in check.

Going forward, we expect some improvement in yields, as SIA has so far resisted raising ticket prices and fuel surcharges further. We believe that this will be inevitable, and the firm loads suggest that the market will be able to bear this.

We slash our forecasts by 45% for FY Mar12 to $798.0m and by 18% for FY Mar13 to $1,100.7m. This reduction is solely due to the higher fuel cost assumption and partially offset by higher yield assumptions.

Action & Recommendation

We maintain our fundamental HOLD rating on the stock, based on a P/B of 1.2x. While earnings in the short term are at risk, SIA’s balance sheet will enable it to weather the storm, as it has several times before. Reminder: book closure for SIA’s bumper $1.20 final and special dividend is next Thursday.

Singapore Airlines: Bracing For More Downgrades (DMG)

(SELL, S$14.71, TP S$12.35)

SIA’s results disappointed, with core earnings for 1QFY12 representing less than 1% of our and consensus’ full-year forecasts. The dismal results were due to a combination of weak breakeven load factor and escalating jet fuel prices, which led to unit costs spiraling above breakeven profitability as yields remained flat. We expect another round of earnings downgrades by consensus and ourselves after its analyst briefing on 1 Aug 2011. Reiterate SELL with an unchanged FV of SGD12.35.

Way, way below. While SIA’s topline was in line our and consensus forecasts, its bottomline was a shocking disappointment, with core earnings representing less than 1% of our and street estimates. The carrier reported a weak core net profit of SGD6.1m for 1QFY12 (q-o-q: -96.4%, y-o-y: -97.4%) on the back of flat revenue of SGD3.58bn (q-o-q: -0.3%, y-o-y: +3.2%) as jet fuel costs escalated (q-o-q: +16.1%, y-o-y: +27.1%), which jacked up SIA’s overall breakeven load factor (of 68.9%) above its effective load factor (of 67.4%). As such, SIA (the parent airline) and SIA Cargo became operationally loss-making, reporting losses of SGD36m and SGD14m respectively. However, the carrier’s overall operating profit was still positive at SGD11m, thanks to positive earnings contribution from SIA Engineering and SilkAir, which neutralize the negative impact. SIA’s EBITDA was also weaker (q-o-q: -28.4%, y-o-y: -34.8%), representing 17% of our full-year forecast.

Earning downgrade imminent; turbulence ahead. Given the anaemic earnings, we expect another round of earnings downgrade by consensus and ourselves after the airline’s analysts briefing on 1 Aug 2011. We maintain our earnings for now but anticipate a sharp downside bias revision post briefing, as our assumptions on the load factor decline may have been quite optimistic, which was also the case with consensus. Flat yields, escalating jet fuel and depressed load factors caused by a series of black swan events (MENA and the Japan earthquake) coupled by faltering economic growth in the US and Europe are to blame for the turbulent year ahead. SIA’s forward bookings are relatively unchanged compared to the previous year, and we expect intensifying competition from low cost carriers and Middle Eastern carriers to continue to put pressure on yields.

Maintain SELL. We maintain our SELL call on SIA with our FV unchanged at SGD12.35, which is premised at 15x FY12 EPS. We will be shifting our valuation methodology to P/BV given the carrier’s depressed earnings. SIA’s special and final dividends of 8% goes ex on 2 Aug, and we suspect this will exert further downward pressure on the share price going forward.

City Developments Ltd - A new market, a new risk profile (CIMB)

UNDERPERFORM Maintained

S$10.50 Target: S$10.86

Mkt.Cap: S$9,548m/US$7,942m

Bulking up in China

Acquiring prime land in Suzhou. CityDev has acquired a prime mixed development site in Suzhou Industrial Park (SIP), China, for S$167m or Rmb3k psm (GFA: 295,455sm). The project will have high-end residential, office, retail and hotel components. This is the group’s second major venture into China, following its earlier announcement of setting aside initial funds of S$300m for development opportunities. We see the move as opportunistic, capitalising on softening land prices. However, other big-cap developers with a deeper and longer presence in China are likely to have more competitive cost structures. While China remains a small part of its assets (less than 5%), we believe the market should begin to reassess CityDev’s risk profile if more capital is allocated to China going forward. For now, residential concerns in Singapore remain its key overhang. We keep our earnings estimates and target price of S$10.86, still at a 15% discount to RNAV of S$12.77 with muted accretion of 1.5% expected from the project. Maintain Underperform. We prefer KepLand and CapLand among the big caps. For a Singapore pure developer, we would go for OUE.

The details

The 3.2m sf GFA project is located in the heart of SIP with a major subway line several blocks to the north of the site currently under construction. CityDev plans to build a 750-unit high-end residential block, accompanied by an office tower, a retail mall and a luxury hotel. The site was acquired through a government land tender held on 27 Jul for S$167m or Rmb3k psm − bigger than its first deal in China.

Muted accretion. CityDev is in discussions with a local developer, Genway Housing Development Group, for a possible JV to develop the site. On a 100% stake basis, we estimate accretion at a muted 1.5% for RNAV, assuming a capital value of Rmb12k-15k psm for the project.

More capital to be allocated to China? This is the group’s second major venture into China, on the heels of its earlier announcement of setting aside initial funds of S$300m for development opportunities last year. The Chairman of CDL China, Mr Sherman Kwek, earlier suggested that the decision to go into China was strategic, motivated by a cooling property market which could result in bargains down the road. We see this latest move as opportunistic, as land prices in China have begun to soften. However, other big caps (e.g. CapLand and KepLand) with a deeper and longer presence in China are likely to have more competitive cost structures there. While China remains a small part of its assets (less than 5%), we believe the market should begin to reassess CityDev’s risk-profile if more capital is allocated to China going forward. For now, we believe residential concerns in Singapore will remain its key overhang.

Valuation and recommendation

Maintain Underperform. We keep our earnings estimates and target price of S$10.86, still set at a 15% discount to RNAV of S$12.77 with muted accretion of 1.5% expected from the project. We prefer KepLand and CapLand among the big caps. For a pure Singapore developer, go for OUE.

Straits Asia Resources - Downgrade to HOLD; positives likely priced in (OCBC)

Downgrade to HOLD

Previous Rating: BUY

Current Price: S$3.04

Fair Value: S$2.99

1H11 results mostly in line. Straits Asia Resources (SAR) reported 2Q11 revenue rising 17.9% YoY (+5.7% QoQ) to US$225.8m, aided by higher ASPs (US$94.60/ton, +31.1% YoY/+15.1% QoQ); although sales volume dipped slightly to 2478 tons (-13.3% YoY/-7.5% QoQ). While gross margin improved to 30.1% in 2Q11 from 24.3% in 2Q10, it was lower than the 34.0% recorded in 1Q11; this was mainly due to higher diesel costs (+16% QoQ, +50% YoY). As a result, net profit fell 5.9% QoQ to US$38.9m, even though it jumped 67.5% YoY. For 1H11, revenue grew 27% to US$439.5m, meeting 47% of our FY11 forecast, while net profit surged 133% to US$80.3m, meeting 53% of full-year estimate. SAR also proposed an interim dividend of 4.24 US cents.

Lower coal production in 2Q11. For the quarter, SAR experienced lower coal production at both its mines - Jembayan saw a 4.6% YoY and 3.0% QoQ decline to 2352 tons while Sebuku registered a 41.7% YoY increase (but 28.4% QoQ drop) to 282 tons. According to management, the quieter production was mainly due to waste movement and higher strip ratios (Jembayan at 11.44, +6.1% YoY/+22.4% QoQ; Sebuku at 7.48, +24.0% YoY/+42.5% QoQ). While it is also going into the seasonally weaker quarter in 3Q, SAR stressed that the mine plans for 2011 remain on track; with the first sale of coal from Sebuku's northern leases anticipated in 4Q11. It further expects the longer-term outlook to remain robust, with all the main importing nations in Asia demonstrating "unrelenting appetite" for reliable coal supplies over the medium to long term.

Keeping an eye on rising costs. On its higher ASP of US$94.6/ton for 2Q, management notes that this also came about with increasing use of index-linked pricing; this as about half of the remaining shipments for this year are priced on an index-linked basis. And as of 30 Jun, SAR has committed around 87% of its planned 2011 production for sale. Meanwhile, management has repeated its cautionary note on industry pressures on costs, inflation and oil prices. This suggesting that cash cost for both mines could continue to rise; for 2Q11, Jembayan +29.3% YoY/+28.8% QoQ; Sebuku +5.5% YoY/+43.4% QoQ. Management also expects the effective tax rate, which fell to 27% in 2Q11, to trend upwards in 2H11 towards its 30-33% guidance.

Downgrade to HOLD. Although we modestly raised our FY11 estimates by 0.9-1.5%, which in turn bumps up our DCF-based fair value from S$2.91 to S$2.99, we note that most of the positives may have already been captured in the share price. Hence, given the limited upside from here, we downgrade our call to HOLD.

GMG Global - Rain affected 2Q11 results (DBSVickers)

FULLY VALUED S$0.265 STI : 3,189.85 (Downgrade from Hold)

Price Target : 12-Month S$ 0.22

Reason for Report : 2Q11 results; rating downgrade

DBSV vs Consensus: Below consensus on lower rubber price

• 2Q11 core profit of S$14.2m marginally below expectations

• Volumes impacted by heavy rains in Cameroon and Ivory Coast port closure

• Downgrade to Fully Valued, TP maintained at S$0.22

Core profit of S$14.2m slightly below expectations. GMG reported core profit of S$14.2m, up 50% y-o-y (-8% q-o-q) after adjusting for exceptional gain of S$12.4m (waiver of loan owed by Teck Bee Hang (TBH) and compensation from government of Cameroon for costs of social programs) and loss of S$10m (we estimate S$8.7m after tax) from closing out of loss making rubber forward contracts – marginally below expectations.

Sales impacted by port closure and weather. 2Q11 sales volume was up 4.3% q-o-q (+149% y-o-y) to 47,409 MT. However, this was below management expectations due to prolonged heavy rainfall at Hevecam plantation and closure of ports in Ivory Coast. These events resulted in c.S$6m in lost earnings.

FY11-13F EPS reduced by 0.4% to 1.0%. Due to slower than expected recovery in volumes from TBH and higher than expected distribution costs, offset by smaller assumed discount for ASP relative to benchmark rubber prices (5.9% from 8% in FY11), we revise FY11-13F EPS down by 0.4% to 1.0%.

Downgrade to Fully Valued. With minor changes to our earnings, we maintain our S$0.22 TP. Despite our favourable view on GMG’s blend of plantations and processing plant assets and strategy of acquiring working capital constrained processors such as TBH, there is 17% downside to the share price from current level. Hence, downgrade GMG to Fully Valued.

2Q11 core profit of S$14.2m slightly below expectations

GMG Global reported 2Q11 core profit of S$14.2m (+ 50% y-o-y and -8% q-o-q) after accounting for gain of S$5.8m from waiver of loan owed by Teck Bee Hang to minority shareholders (net gain after tax and MI of S$3.2m), gain of S$15m arising from agreement with the State of Cameroon for compensation of costs for social programs at the Hevecam operations (net gain after tax and MI of S$9.2m) and pretax loss of S$10m from closure of loss making rubber forward contract entered into in the prior year (we estimate S$8.7m after tax impact). GMG also expects pre-tax loss of between S$3-4m to be incurred in 2H11 from reversal of the forward contract.

$6m in lost earnings from wetter weather and port closure

2Q11 sales volume was up 4.3% q-o-q (+149% y-o-y) to 47,409 MT. Management believes volumes could have been higher if not for prolonged heavy rainfall at Hevecam plantation (volumes for plantations were down by 1,060MT in 1H11 compared to 1H10) and closure of ports in Ivory Coast in April. Resultant impact was estimated to be $6m in lost earnings. We also understand volumes for GMG’s Indonesian operations were flat q-o-q.

Slight revision to sales volume forecasts

Despite the 2Q11 weather problems experienced in Cameroon, we are not making any changes to our Hevecam volume estimates as we had already assumed slow growth of 2% for FY11. For TRCI, we had already accounted for port closure in our numbers hence no change. However, as Teck Bee Hang only recorded sales volume growth of 3.3% q-o-q to 22,427MT in 2Q11 (44,153MT for 1H11), which was below our expectations, we reduce our TBH volume assumptions to 125k MT, 150k MT and 180k MT for FY11F, FY12F and FY13F respectively. This compares to our earlier forecast of 135k MT, 162k MT and 190k MT.

No change in gross margin assumptions

After accounting for one off losses due to reversal of a rubber forward contract entered into in the prior year, core gross margins (14.5%) were close to our expectations. Accordingly, we have not made any changes to our gross margin assumptions. We also note that TBH recorded gross margin of 5.3% in 1H11 which was in line with our FY11 forecast of 5.5%. Further with core margins remaining resilient we believe GMG’s 2Q11 results is consistent with our thesis of robust gross margins for processors due to consolidation of the processing industry vis-à-vis fragmentation of their end customers (tyre manufacturers).

FY11-13F EPS reduced by 0.4% to 1.0%.

Following changes to our volume assumptions and increase in distribution costs (higher than expected to date due to additional replanting fee in Thailand) offset by smaller assumed discount for ASP relative to benchmark rubber prices (now 5.9% for FY11versus previous assumption of 8.0%) we reduce FY11-13F core EPS by 0.4% to 1.0%.

Downgrade to Fully Valued on account of 17% downside to share price

With marginal changes to our earnings, we maintain our TP of S$0.22. Despite our favourable view on GMG’s blend of plantations and processing plants assets and strategy of acquiring working capital constrained processors such as TBH, we downgrade GMG to Fully Valued given 17% downside from the current share price to S$0.22 TP.

DBS Group - On track for record earnings (KimEng)

Event

 DBS Group’s 2Q11 results were in line with expectations, raising firsthalf profitability by 23% YoY and putting the group on course for a record year of profitability. By and large, most of the strategic initiatives put in place by CEO Piyush Gupta have gained traction and there may be an opportunity to rewrite the group’s history of underperformance. Maintain BUY.

Our View

 DBS’s 2Q11 net profit came in at $735m, up 2% YoY but down 9% QoQ. Net interest income posted healthy growth of 12% YoY and 7% QoQ on strong loan growth. Loans grew by 15% YoY and 7% QoQ thanks to robust demand from corporates amid a slowdown in the residential market. Net interest margin showed signs of bottoming out, remaining stable at 1.8% for the fourth quarter.

 2QFY11 numbers were dragged down by poor market‐related income, just as we had expected. Non‐interest income shrank by 15% YoY and 19% QoQ, largely due to a decline in fees from investment banking/stockbroking as well as trading income. The cost‐to‐income ratio was stable at 43% with the NPL ratio falling to 1.5%. ROE for the quarter was 10.6% (11.1% for 1H11).

 On a positive note, the group’s regional drive achieved progress with double‐digit growth seen in China, India, Taiwan and Indonesia. Its Hong Kong operations also showed marked improvement in the last few quarters; 1H11 earnings rose by 51% YoY excluding account currency translation. The ability to offer offshore‐Hong Kong services has been critical in its drive for mainland China business, especially in the field of trade financing which outperformed this quarter (Greater China ex‐Hong Kong loans grew 34% this quarter).

Action & Recommendation

Among the three local banks, DBS offers the best promise for overseas growth and structural improvement in ROE performance. Our target price, based on the Gordon Growth Model, is raised to $17.60, implying 1.42x FY11F P/B and 3.5% dividend yield. Maintain BUY.

Straits Asia Resources Limited - Growth expectations factored in (CIMB)

UNDERPERFORM Maintained

S$3.06 Target: S$3.29

Mkt.Cap: S$3,470m/US$2,885m

Coal Mining

• In line; maintain Underperform. 2Q11 net profit of US$38.9m (+67.5% yoy, -5.9% qoq) meets expectations at 25% of our FY11 estimate. 1H11 earnings of US$80.3m (+133.2% yoy) form 51% of our forecast (US$156m) and 49% of consensus (US$163m). Revenue and margins were spurred by higher thermal coal prices in 2Q11, partially offset by lower volumes and higher unit costs. An interim dividend of 4.24 UScts has been declared. We are keeping our estimates and S$3.29 target price (DDM-based, discount rate 9.8%). We believe growth expectations are in the price and foresee de-rating catalysts from production shortfalls and lofty valuations vs. its Indonesian peers (12.5x CY12 P/E vs. 11.3x average).

• Sequentially weaker on higher costs, lower volumes. While 2Q11 was stronger than 2Q10, margins and profits were weaker vs. 1Q11 due to higher costs (+31% qoq) and lower volumes (-8% qoq). Management expects high production costs to persist in 3Q11 on higher strip ratios, escalating fuel costs and wage inflation in Indonesia.

• Tall expectations factored in, leaving risks of disappointment. Our projections imply ASPs of US$90/tonne for FY11, higher than the US$88 booked in 1H11. We believe consensus estimates have factored in growth expectations from Northern Leases, whose contributions are expected to come on stream in 4Q11. Given such tall expectations, there may be risks of negative earnings surprises or execution delays.

Singapore Post - Regionalization on full drive (DBSVickers)

At a Glance

• 1Q12’s underlying net profit of S$37.3m (+0.3% YoY) and interim DPS of 1.25 Scts were inline.

• Invested c.S$65m in regional acquisitions since Jan, which should more than offset the potential decline in the mail segment in the long run

• Maintain HOLD with TP of S$1.17

Comment on Results

Net underlying profit of S$37.3m was inline with our expectations. Proposed interim DPS of 1.25 Scts as expected. Group revenue was up 2.9% yoy, mainly driven by 11% growth in logistics revenue, while mail and retail segments grew by 1.6% and 1.7% respectively. However, management highlighted that mail segment has begun to face increased pressure from e-substitution recently. Operating expenses grew by a faster 7% yoy due to 12% yoy increase in labour costs but partly offset by stable depreciation & amortization expenses.

Acquiring e-commerce, e-substitution & logistics companies. Out of S$200m raised through a bond issue in March 2010, SingPost has used S$65m to acquire stakes in six regional companies. Contribution from these acquisitions is estimated to be S$2-3m in FY12F and should grow further. This may help to buffer the potential decline in the mail segment as revenue and margins come under pressure. We would like to highlight that acquired business have lower operating margins but should help to enhance Singpost’s earnings in the long run. With the remaining invested in cash and high-yield financial instruments, Singpost has the financial muscle to acquire companies. We also expect a one-time capex of S$50m-70m for the replacement or upgrade of its mail-sorting machine. The timing is not certain, as there is a possibility that it may be delayed from 2013/14.

Maintain HOLD. Our TP of S$1.17 is based on DDM (cost of equity 7.7%, growth rate 2%). We have assumed that dividends can grow by 2% p.a. in the long term.

SMRT Corporation - Challenging operating environment (KimEng)

Event

 SMRT’s 1QFY Mar12 results came in below expectations. Despite an increase in train and bus ridership, as well as taxi revenue, flat Circle Line (CCL) ridership and a huge spike in fuel and staff costs badly damaged profit margins and dented net profit by 9% YoY. With SMRT leaving electricity and diesel unhedged, the opening of CCL Stages 4 and 5 in October could push these costs up by another 4‐5%. Key uncertainties include the award of the Downtown Line contract, which may not be viewed positively by the market, and future debt fundraising for the planned capex of $600m this year. Maintain HOLD.

Our View

 Higher train and bus revenue notwithstanding, topline growth lagged ridership growth due to lower average fares following the advent of the distance‐based fare system in July last year. Particularly disappointing was the fact that daily CCL ridership stayed flat QoQ at about 181,000 passengers, an unexpected development that saw CCL losses widened from 4QFY Mar11.

 Profitability was badly hit by a surge in electricity and diesel costs that weighed on train profits and widened bus losses. SMRT did not hedge its electricity and diesel needs during the quarter as prices were too volatile. Margin pressure is likely to worsen in future quarters as the opening of CCL Stages 4 and 5 in October will bump up electricity consumption further.

 No growth catalysts are in sight. The Downtown Line operating contract is expected to be awarded in 3Q11. If SMRT wins the bid, investors may not view this positively given CCL’s poor performance to‐date. Further, SMRT is likely to tap the medium term note market to raise funds for the planned $600m in capex this year. We estimate this will push the company from net cash to 0.3x gearing.

Action & Recommendation

We maintain our HOLD call in the light of the challenging operating environment. However, dividend yields are fairly decent at 4‐5%.

Singapore Post: Results in line; awaiting more news (OCBC)

1QFY12 results within expectations. Singapore Post (SingPost) reported a 3.0% YoY rise in revenue to S$142.3m but saw a 3.5% fall in net profit to S$39.2m in 1QFY12, accounting for 24.9% and 23.0% of our full year estimates, respectively. Mail revenue grew 1.6% YoY with improved contributions from domestic mail, driven by direct mail. Logistics revenue increased by 10.7% with growth in Quantium Solutions, Speedpost and vPost shipping activities. Retail revenue grew by 1.5% in the last quarter, while rental and property-related income was also higher by 5.1%, mainly due to higher rental income from the Singapore Post Centre.

Higher operating costs. Though top-line figures grew, operational costs continued to increase as well. Higher salaries and contract labour costs in the tight labour market led to a 12.2% YoY rise in labour and related expenses. Stripping away benefits worth about S$470k from the Jobs Credit Scheme in 1QFY11, labour and related expenses still grew by 10.9%. Administrative and other expenses also increased by 8.5% YoY, and we expect cost pressures to continue amid the inflationary environment.

Turnaround in associate losses soon. Share of loss of associated companies and JVs was S$0.3m in 1QFY12, and this was mainly attributable to Postea Inc. We understand that none of the companies that SingPost has acquired stakes in recent months (GDEX, Efficient, ITL and 4PX) have been included in last quarters' results, and we expect to see a profit in coming quarters as the four are all currently profitable.

Maintain HOLD. The group has been active in acquiring stakes in companies outside of Singapore for both business and geographical diversification. This momentum is likely to continue, and we expect to hear more news on the M&A front, especially in logistics and e-commerce. We have tweaked our estimates to take into account rising operational costs amidst the inflationary environment, as well as increasing contribution from the logistics business which generally has lower margins than the mail business. As such, our DCF-based fair value estimate slips from S$1.21 to S$1.14. Meanwhile, the group has declared an interim dividend of 1.25 S cents per share, in line with its usual practice. Maintain HOLD for SingPost's decent dividend yield of 5.7%, backed by its stable operating cash flows and strong financial position (net gearing stands at 0.5x and EBITDA/interest coverage of 18.1x as at 30 Jun 2011).

SMRT Corporation: 1QFY12 results within expectations (OCBC)

1Q results within expectations. SMRT's 1Q12 revenue came in within 2% of our forecasts as it grew 7.5% YoY (+3.5% QoQ) to S$253.1m; this on the back of higher MRT and bus ridership of 8% and 7% YoY respectively - albeit at lower average fares YoY due to the implementation of distance fares - and increases in external fleet maintenance revenue (+54.2% YoY). However, EBITDA fell 5.4% YoY (+1.7% QoQ) due to larger staff related costs and the surge in fuel prices over the past year. As a result, overall net profit was lower by 8.9% YoY (+2.3% QoQ) at S$34.8m, which was also within 2% of our forecast. On its balance sheet front, SMRT continues to maintain a net cash position with a 9.3% YoY increase to S$411.2m.

Higher operating expenditure continues to squeeze margins. In terms of gross profit and EBITDA margins on the group level, margins fell by 2.1 and 3.9 percentage points respectively. Staff costs remained elevated (+11.0% YoY) after the increase in headcount for Circle Line (CCL) operations, higher CPF contributions and the absence of jobs credit, while the higher average tariffs pushed electricity and diesel costs up (+32.5% YoY). Consequently, most of its various segments experienced declines in operating margins with bus operations the worst hit as its losses increased more than four times to S$4.36m. Rental (+10.9% YoY) and engineering and other services (+412.3% YoY) segments were the only exceptions.

Challenging operating environment ahead. Going forward, SMRT warns that its FY12 profitability may not be maintained at FY11's level (16.6% net margin) as it expects cost pressures from higher staff and energy expenses to remain. In addition, higher operating expenses are anticipated upon commencement of CCL operations from Oct this year. We concur with management's assessment on the cost front, and as mentioned in our previous reports, we view CCL's operating profit contribution this year to be negative. Current daily ridership levels are at a distant 37% of its full estimate, we deem any upside to be limited at least for FY12. As for its application to raise fares by 2.8%, we do not expect the Public Transport Council (PTC) to approve the full amount and anticipate a marginal increase on the low end of the 1-1.5% range.

Some bright spots remain, maintain HOLD. While bottom-line growth from train and bus operations looks sluggish, we do see some offsetting effects from increases in rental revenue (management forecast: +S$7m for FY12) and operating profits following the redevelopment of various MRT stations (e.g. Jurong East). As the 1Q results were in line with our forecasts, we leave our FY12 estimates unchanged, and maintain our HOLD rating with an unrevised fair value estimate of S$2.04.

Biosensors International Group: Exceeding industry growth yet again (OCBC)

1QFY12 results above expectations. Biosensors International Group (BIG) reported a sturdy set of 1QFY12 results which exceeded our expectations. Revenue rose 72.7% YoY and 28.2% QoQ to US$57.0m, forming 22.3% of our FY12 forecasts (consolidation of JWMS is expected to occur from 2HFY12). Net profit jumped 597.3% YoY and 23.8% QoQ to US$22.6m. Excluding exceptional items, net profit would have increased 143.6% YoY and 44.7% QoQ to US$24.1m; constituting 28.9% of our fullyear estimates. BIG's sterling performance was fuelled by higher product sales and a 328.6% jump in licensing revenues as the Nobori stent was launched in Japan by its licensee Terumo during the quarter. The former was largely attributed to growing demand for BIG's BioMatrix family of drugeluting stents (DES) although the group did not obtain any new major geographical market approval. This exemplifies the increasing market share penetration in existing markets and greater acceptance from physicians as BIG strongly outperformed the overall DES market growth. A better product mix and increased economies of scale in manufacturing also helped to boost its margins. Gross profit and EBIT margins gained traction at 81.1% (+5.4 ppt from 1QFY11 and +1.8 ppt from 4QFY10) and 40.9% (+18.3 ppt from 1QFY11 and +8.4 ppt from 4QFY10) respectively.

DES's large contribution highlights strong competitive positioning. Management maintained that they were happy with their current ASP levels relative to the market, although they are expecting some price erosion in China by year end. With regards to Johnson & Johnson's (J&J) decision to exit the DES market, management highlighted that BIG's DES sales had already been gaining traction over the years given the positive clinical data of BioMatrix against J&J's Cypher stent. However, the group also believes that it can still benefit from physicians who would be looking for a second generation stent after J&J's exit. Total revenue guidance of 50-60% growth for FY12 was reaffirmed, subject to the completion of acquisition of JWMS (remaining 50% equity stake).

Room for further growth; reiterate BUY. While BIG's share price has surged 28.4% since we resumed coverage with a BUY on 15 Oct 2010, we believe that further upside potential exists, given the recent spate of positive developments taking place at group and industry level. These include new earnings drivers from the licensing revenue coming from the Nobori stent in Japan and J&J's decision to exit the DES market, which should underpin BIG's growth momentum moving forward. Taking into account the betterthan-expected set of results, we raise our FY12/13F core earnings by 13.4/6.8%. Our DCF-based fair value estimate thus increases from S$1.60 to S$1.68. Reiterate BUY.

Mapletree Industrial Trust - Further details on equity fund-raising (CIMB)

OUTPERFORM Maintained

S$1.15 Target: S$1.30

Mkt.Cap: S$1,682m/US$1,397m

Equity fund-raising for JTC acquisition

MINT has released details on its equity fund-raising for its JTC acquisition. The overall acquisition cost of S$404.9m will be funded by 57% debt and 43% equity. Equity fundraising will comprise a private placement at S$1.09 and a preferential offering at S$1.06. Pricing for the two tranches appears tight at 2-5% discounts to adjusted VWAP on 27 Jul. Accretion appears slightly higher than our previous expectations on a higher debt component and low cost of debt of about 2.2%. Asset leverage will rise to 39% after the acquisition, still leaving debt headroom of about S$265m for acquisitions. Factoring in the acquisition and rental reversions for its existing portfolio, we adjust our FY12-14 DPU estimates by 1-3%. Accordingly, our DDM target price climbs to S$1.30 (discount rate: 8.4%) from S$1.27. We continue to see re-rating catalysts from higher-than-expected rental reversions.

The news

MINT will be funding its S$404.9m acquisition of Tranche 2 of JTC’s second-phase divestment with 57% debt and 43% equity. Equity fund-raising will comprise a private placement of 48.5m new units at S$1.09 apiece (top end of the S$1.07-S$1.09 range) and a preferential offering at S$1.06 apiece (mid-range of expected pricing). The pricing for both appears tight at 2-5% discounts to adjusted VWAP of S$1.115 for trades done on 27 Jul. Private placement was also well-received with a 13x subscription.

Comments

Accretion boosted by higher debt component and low cost of debt. As previously guided, management has decided to fund the acquisition with debt and equity. FY13 accretion appears higher than our previous expectation of about 1% due to greater debt reliance and low-cost debt of about 2.2% per annum.

Sponsor to retain stake. Unit-holders are allowed the opportunity to participate in the fund-raising through the preferential offering. As a demonstration of its commitment, sponsor and largest unit-holder, Mapletree Investments Pte Ltd, will provide an irrevocable undertaking to accept its provisional allotment of new units under the preferential offering.

Asset leverage to rise to 39%. Asset leverage will rise to 39% after the acquisition. This still leaves debt headroom of about S$265m to management’s mid-term gearing target of 45% to fund further acquisitions.

Valuation and recommendation

Maintain Outperform. Factoring in the acquisition and stronger rental reversions for its existing portfolio, we adjust our FY12-14 DPU estimates by 1-3%. We continue to like MINT for its organic growth potential and expect catalysts from higher-thanexpected rental reversions.

Mapletree Commercial Trust - Upside from VivoCity yet to kick in (CIMB)

OUTPERFORM Maintained

S$0.89 Target: S$1.01

Mkt.Cap: S$1,647m/US$1,368m

• In line; maintain Outperform. 1Q12 DPU meets expectations at 19% of our fullyear estimate and consensus. The quarter only consisted of 65 days, after listing. Annualised, DPU would have formed 26% of our FY12 forecast. There was strong rental growth at VivoCity even though the bulk of potential lease-renewal upside (43% of leases) has yet to kick in. This remains a key catalyst for MCT in FY12, we believe, with the completion of AEI in PSAB and the possible acquisition of MBC forming the next triggers. We refine our model to assume slightly stronger growth for VivoCity (raising FY12-13 earnings by 3-4%) but lower our DDM-based target price from S$1.08 to S$1.01 on applying a lower terminal growth rate of 2% (2.5% previously), in line with our assumptions for its listed peers. MCT trades at a 5.9% CY12 yield.

• Potential upside from VivoCity yet to kick in. 1Q12 revenue inched up 3% yoy to S$33m as VivoCity’s base and turnover rents grew 4.5% and 6.7% yoy respectively. Although 43% of its total leases are due for renewal this year, we understand that the new base rates are likely to kick in only at end 2011/early 2012. The asset remains substantially under-rented, in our view, at S$9.79psf as at Nov 10 vs. an average of S$11-14psf for comparable malls in Singapore. We understand that GTO growth at VivoCity could have been 10-15% yoy, lending support to revenue growth for MCT (GTO rents form 20% of VivoCity’s gross revenue). We anticipate substantial rental reversions in FY12 as the mall enters its first renewal cycle.

• PSAB enhancement and MLHF step-up to add to NPI; acquisition trigger from MBC. Strong rental growth in the quarter was partially offset by the decanting of retail units for the development of the new Alexandra Retail Centre (ARC), due to be completed by end-2011. Retail space is estimated at 89.6k sf of NLA while office space consists of 15.1k sf of NLA. By Dec 11, the rental step-up provision for MLHF’s master lease (10-12%) will also be triggered to fuel further organic growth. In the mid-term, acquisition upside could continue to come from its sponsor’s assets under ROFR, namely Mapletree Business City.

Cache Logistics Trust - Upside from Acquisitions (DBSVickers)

BUY S$0.975

At a Glance

• In line with expectation and on track to meet our full year forecasts

• Acquisitions and asset enhancement activities to drive earnings growth.

• Maintain Buy, S$1.11

DPU of 2.1ct is inline with expectation. Cache Logistics Trust (“Cache”) reported S$15.5m net property income (“NPI”), 6.1% above IPO forecasts. 2Q sequential performance was relatively robust with gross revenue and NPI rising 9.2% and 7.2% to S$16.2m and S$15.5m respectively, lifting distributable income to about S$13.2m (+7.1% qoq). The robust performance was largely due to an enlarged portfolio and the group’s continuous asset enhancement efforts. As a result, DPU rose by about 6.8% qoq to 2.09cts. The first 2 quarters’ DPU forms 50% of FY11 forecast.

New acquisitions yet to kick in, more to come. Recent acquisition of Jinshan Chemical warehouse in Shanghai and Air market Logistic Centre in Singapore, as well as the 70,000 sf asset enhancement works at Cold Hub should underpin earnings growth in the coming quarters. Gearing remained healthy at 29.1% and the group is looking to grow portfolio further via acquisitions in Singapore and China. All-in Interest rate has also lowered from 4.37% to 3.92% due to the more attractive rates secured for its recent acquisitions.

Recommendation

BUY Call, TP maintained at S$1.11. Cache remains attractive for its FY11-12F yield 8.2-8.7%, which is 230-270 bps above the peers’ average 5.9% - 6.2%. Re-rating catalysts will be the execution of more acquisitions that the manager is currently reviewing.

Biosensors Int’l Group - Exceeding industry growth yet again (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$1.335

Fair Value: S$1.68

1QFY12 results above expectations. Biosensors International Group (BIG) reported a sturdy set of 1QFY12 results which exceeded our expectations. Revenue rose 72.7% YoY and 28.2% QoQ to US$57.0m, forming 22.3% of our FY12 forecasts (consolidation of JWMS is expected to occur from 2HFY12). Net profit jumped 597.3% YoY and 23.8% QoQ to US$22.6m. Excluding exceptional items, net profit would have increased 143.6% YoY and 44.7% QoQ to US$24.1m; constituting 28.9% of our full-year estimates. BIG's sterling performance was fuelled by higher product sales and a 328.6% jump in licensing revenues as the Nobori stent was launched in Japan by its licensee Terumo during the quarter. The former was largely attributed to growing demand for BIG's BioMatrix family of drug-eluting stents (DES) although the group did not obtain any new major geographical market approval. This exemplifies the increasing market share penetration in existing markets and greater acceptance from physicians as BIG strongly outperformed the overall DES market growth. A better product mix and increased economies of scale in manufacturing also helped to boost its margins. Gross profit and EBIT margins gained traction at 81.1% (+5.4 ppt from 1QFY11 and +1.8 ppt from 4QFY10) and 40.9% (+18.3 ppt from 1QFY11 and +8.4 ppt from 4QFY10) respectively.

DES's large contribution highlights strong competitive positioning. Management maintained that they were happy with their current ASP levels relative to the market, although they are expecting some price erosion in China by year end. With regards to Johnson & Johnson's (J&J) decision to exit the DES market, management highlighted that BIG's DES sales had already been gaining traction over the years given the positive clinical data of BioMatrix against J&J's Cypher stent. However, the group also believes that it can still benefit from physicians who would be looking for a second generation stent after J&J's exit. Total revenue guidance of 50-60% growth for FY12 was reaffirmed, subject to the completion of acquisition of JWMS (remaining 50% equity stake).

Room for further growth; reiterate BUY. While BIG's share price has surged 28.4% since we resumed coverage with a BUY on 15 Oct 2010, we believe that further upside potential exists, given the recent spate of positive developments taking place at group and industry level. These include new earnings drivers from the licensing revenue coming from the Nobori stent in Japan and J&J's decision to exit the DES market, which should underpin BIG's growth momentum moving forward. Taking into account the better-than-expected set of results, we raise our FY12/13F core earnings by 13.4/6.8%. Our DCFbased fair value estimate thus increases from S$1.60 to S$1.68. Reiterate BUY.

Ascott Residence Trust - Potential value creation (CIMB)

OUTPERFORM Maintained

S$1.23 Target: S$1.37

Mkt.Cap: S$1,384m/US$1,150m

Provisional permission to redevelop Somerset Grand Cairnhill

Potential accretion. ART announced yesterday that URA has granted provisional Outline Planning Permission for the redevelopment of Somerset Grand Cairnhill Singapore, into an integrated hotel and residential project. While we believe that any redevelopment could unlock value for unit-holders (asset appears undervalued against capital values for comparable residential and hospitality properties on the conversion of use), we believe this will have to be weighed against high replacement costs, potentially lower Singapore income contributions and development risks. No change to our DPU estimates or DDM-based target price of S$1.37 (discount rate 8.3%) pending clarity on any potential redevelopment. At a forward yield of 7% and 0.9x P/BV, we believe ART offers more value exposure to strong Asian consumption and travelling. We see catalysts from higher-than-expected room REVPAU.

The news

The URA has granted provisional Outline Planning Permission for the redevelopment of Somerset Grand Cairnhill Singapore, into an integrated hotel and residential project. Approval has been granted on the following terms and conditions:

• Rezoning the site from residential to commercial and residential

• Maximum allowable GFA of about 43,400 sq m; comprising minimum hotel and hotel-related uses and 60% residential use

• Retention of the Al-Falah Mosque in the redevelopment; and

• Payment of development charges, if any, and land/differential premiums.

The existing lease will expire in 2082 and the manager will look into the possibility of an extension. Apart from the above, management’s priorities would be the retention of ART’s presence in the Orchard Road area and yield accretion for unit-holders. Management is evaluating possible options and there is no certainty if it will proceed with plans.

Comments

Potential unlocking of value. Somerset Grand Cairnhill is a 32-storey building with GFA of 33,000 sq m and NLA of 20,048 sq m. It has been valued at S$271.9m (as at end-Jun 11), implying S$765 psf (GFA) and S$1,260 psf (NLA). We believe the unlocking of value could come from:

• A higher maximum allowable GFA: URA’s approval allows for a 31% increase in GFA to 43,000 sq m which should add to saleable/leasable area and the value of the asset.

• Higher efficiency: its low efficiency of 61% (norms of 70-75% for serviced apartments) had always been a downside. Asset redevelopment should allow ART to extract higher efficiencies and value from the asset.

• Higher value for alternative uses: current psf valuations appear low against comparable hotel and residential assets. With nearby 99-year leasehold residential projects selling at ASPs S$2,700 psf and hotels (such as Mandarin Orchard, albeit older with a 99-year lease from Jul 1957) valued at about S$1.1k psf (GFA) or an estimated S$1.6k psf (NLA) as at end-Dec 10, redevelopment of the asset into an integrated hotel and residential project could unlock significant value.

Replacement costs could be high. Somerset Grand Cairnhill is ART’s largest asset locally by value and contributes to nearly half of its local gross rental income. Its redevelopment could reduce income contributions and further dilute its presence locally. With a low acquisition price of S$155m back when ART was listed, the completion of the refurbishment of its apartments recently in 2010 and likely high capital values for local competing assets, the opportunity cost of replacing this income stream could be high.

Structure. As management is still evaluating various options, no details on potential structures have been furnished. As REITs are not allowed to spin off development projects on completion, we believe CapitaLand and other third parties could potentially be involved should there be a residential component to the redevelopment. This could take the form of joint ventures with CapitaLand or a potential spinning off of the asset as an integrated residential and hotel to CapitaLand (before development), in our opinion. CapitaLand could also be potentially involved as a developer to ring-fence development risks for ART.

Too few details to determine net value now. Due to a lack of clarity on the configuration of the final asset (should there be redevelopment) and the mode of structuring the deal, there are too few details for the evaluation of its overall net value. We believe the transaction is likely an opportunistic one. Any action should also be weighed against development risks which ART may have to undertake.

Valuation and recommendation

Potential accretion; maintain Outperform. While we believe that any redevelopment could unlock value for unit-holders, this would have to be weighed against high replacement costs, potentially lower Singapore income contributions and development risks etc. No change to our DPU estimates or DDM-based target price of S$1.37 (discount rate 8.3%) pending clarity on any potential redevelopment. At a forward yield of 7% and 0.9x P/BV, we believe ART offers more value exposure to strong Asian consumption and travelling. We see catalysts from higher-than-expected room REVPAU.

ECS Holdings (KimEng)

Background: ECS is an information technology and communications product and service provider with strong established partnerships with leading IT vendors including Apple, HP, Dell, Cisco, IBM, Oracle and Microsoft. It also has a deep regional reach, comprising 39 offices in six countries (including China where it is the official distributor for Apple products) and more than 23,000 partners and resellers.

Recent development: ECS has been a hive of activity in recent months, starting with the clinching of distribution rights for Apple’s iPad and iPhone products in China late last year. Early last year, it also listed its Malaysian subsidiary on Bursa Malaysia, albeit at valuations similar to the Singapore listco, and it is now pursuing a depository receipt listing in Taiwan.

Key ratios…

Price-to-earnings: 5.8x

Price-to-NTA: 1.2x

Dividend per share / yield: $0.036 / 4.3%

Net gearing: 0.4x

Return on equity: 19.6%

Share price S$0.84

Issued shares (m) 365.4

Market cap (S$m) 306.9

Free float (%) 10.3%

Recent fundraising activities Nil

Financial YE 31 December

Major shareholders VST Holdings (89.3%)

YTD change +3%

52-wk price range S$0.515-0.945

Our view

Aggressive expansion with VCT at the helm. ECS is currently 89.3% owned by Hong Kong-listed IT product distributor, VST Holdings (856 HK). VST made a general offer for ECS in 2007 at $0.668/share but kept the public listing active and the original management involved. Since then, VST/ECS has been expanding aggressively in terms of geography, products and capital-raising, namely, significant contracts with Apple (in China) and Lenovo and Dell (regionally) as well as a successful Malaysian listing last year.

Upcoming iPhone 5 could generate more interest in ECS. ECS secured the distributorship for Apple’s iPad (now iPad 2) and iPhone 4 in China late last year. Already, the country accounts for almost half of group revenue of more than S$3b. FY11, which should see a full year’s contribution from the Apple distribution contract, will also be further boosted by Apple’s plans to launch a new iPhone, most likely in the third quarter of this year.

Arguably undervalued relative to listed peers in Taiwan. Unlike listed comparables such as Synnex (2347 TT) and Digital China (0861 HK), ECS trades at only 5-6x historical and 4-5x consensus earnings forecasts. Synnex trades at 14-17x forecasts while Digital China is valued at 10-12x. ECS hopes that a TDR listing to raise an estimated $50m will prompt the market to realise that it is undervalued. It is currently in the process of submitting documents to the Taiwan Stock Exchange.

CWT Ltd (KimEng)

Event

CWT announced yesterday that it has entered into an agreement to develop a $135m warehouse for AIMS AMP Capital Industrial REIT (AACI REIT). This marks its debut as a warehouse developer for a non-related third party. In our view, it signals recognition for its capability in this field and suggests that CWT’s warehouse development business might be more sustainable than the market has believed.

Our View

Under the terms of the agreement, CWT will undertake to design and construct a warehouse at 20 Gul Way within the Jurong Industrial Estate. Upon completion, the company will sign a master lease agreement with AACI REIT for the property for 4-5 years. This arrangement is not unlike the sale-leaseback model it has with Cache REIT, except that CWT does not need to fund the project at all.

We see three benefits from this undertaking. First, CWT stands to reap a development profit estimated at $40m, or about 30% of the project cost. Second, there will be a handy revenue stream for its logistics business once the warehouse is completed in 28 months’ time. Finally, immediate availability of land with all the relevant permits from JTC to boot, with its own landbank untouched.

As we have repeatedly highlighted, CWT’s warehouse development business is an attractive one with high entry barriers. We believe it has been chosen for this project because of its ability to guarantee tenancy, given its market leadership position in logistics in Asia. That it can now develop on third-party land signifies progress and implies that this business is more sustainable than the market believes.

Action & Recommendation

For this project, no investment is required of CWT. It needs just to fork out working capital of $5-10m and subscribe for units in AACI REIT to the tune of $2.5m. We keep our estimates intact as the auditors discuss how the profit (possibly $40m) will be recognised (likely progressively over the next 28 months). Maintain BUY with a SOTP-based target price of $1.90.

Singapore Post (SPOST SP) – 1QFY Mar12 results within expectations (KimEng)

Previous day closing price: $1.10

Recommendation – Under review

Target price – Under review (previously $1.27)

SingPost’s net profit for 1QFY Mar12 was slightly below our expectation at $37.4m as growing labour costs (+12.2% YoY) and administrative expenses (+8.5% YoY) eroded profitability. Otherwise, revenue for the first quarter came well within expectations (+3% YoY to $142.3m) as the steady mail business continued to boost topline growth. A dividend of 1.25 cent per share was declared.

The logistics business that SingPost is actively building up is still showing lackustre results, given that the share of losses from associates widened from $0.1m to $0.3m. We understand that the loss was attributable to Postea Inc, which was acquired in 2009. Contributions from acquisitions made early this year (GD Express Carrier and DataPost) have not kicked in. Since our last update in May, the group has spent another $29m on acquisitions in the international logistics space (Indo Trans Logistics and Shenzhen 4PX Express). These new investments are said to be profitable and should progressively contribute to the bottomline from the next quarter.

To-date, however, SingPost’s past investments have not delivered any tangible results and we do not expect contributions from the new investments to have any earthshaking impact on the bottomline in the near term. Nonetheless, the stock is supported by a steady dividend yield of 5.7% (based on fixed DPS of 6.25 cents). Pending a change in analyst coverage, we are putting our recommendation and target price under review.

SATS - Inflationary pressures to remain (DMG)

BUY

Price S$2.58

Previous S$2.98

Target S$2.92

Results below expectations due to margin compression. SATS recorded 1QFY12 PATMI of S$42.5m (-4% YoY), coming in below our expectations. This included a full-quarter consolidation of TFK’s results. Stripping out TFK’s results, SATS’ PATMI declined 11.1%, dragged down by higher operating expenses, especially raw materials cost. We have raised our FY12 revenue estimates by 9.8% to S$2,061.9m on the back of improving business volumes in its aviation operations. However, we believe that inflationary pressures would continue to dampen earnings growth in the next few quarters, and have lowered our margin assumptions. Consequently, our earnings estimates are lowered by 1.4% to S$201.5m. Our revised DCF-based TP is S$2.92 (previously S$2.98), implying a 13% upside. Maintain BUY.

TFK expect to be profitable in FY13. Management highlighted that business volumes at TFK are improving each month and its operations are likely to be profitable in FY13. TFK recorded a loss of S$2.3m (excluding one-off item of S$10.1m) in 1QFY12.

UK business recorded weakest ever quarter. This was due to a seasonally weak quarter as well as structural changes undertaken by management. It is also refreshing its soups brand and carrying out marketing activities to seek out more opportunities for its fruits business. These added further pressure on its earnings. Its UK business is expected to improve in 3QFY12.

Lower margins expected. Coupled with weak UK performance, EBITDA margins declined 12.7% in 1QFY12 (4QFY11: 15.4%; 1QFY11: 16.6%). We expect margins to remain under pressure over the next few quarters.

Tiger Airways: Adding six to Singapore (DMG)

(SELL, S$1.18, TP S$0.76)

Tiger announced that Tiger Singapore will be taking on delivery of six new aircrafts by Mar12,

increasing its fleet size to 20. At present it has 10 grounded aircrafts in Australia and two leased

to SEAIR bringing total fleet to 32 by year-end. Management targets 35 but we are assuming a

lower 33 in light of weaker demand in Australia, which may prompt the LCC to redeploy capacity

back to Asia. The stock has rebounded off its lows amidst speculation that SIA may raise its

33% stake in the budget carrier. At present, it is trading at 39.7x/ 21.3x our FY11/12F P/E and

3.1x/2.7x our FY11/12F P/B. Maintain SELL with TP of S$0.76, pegged at 2x FY12F P/B.

Adding capacity to Singapore. The six new A320s will be used to increase frequencies on

existing routes (Hat Yai, Kuching, Taipei, Tiruchirapalli, Bangkok and Guangzhou) and

commence new ones (Bangalore and Cebu). Changi Airport recently reported an 11% YoY rise

in passenger numbers for 1H2011, to which Tiger Singapore hopes to ride on. The LCC has

been ranked number one amongst the LCCs operating out of Changi and third overall in Changi

Airport’s first ever airline ranking.

Australian court hearing on 28July11. Tiger and the Civil Aviation Safety Authority of Australia

(CASA) had earlier applied to the Federal Court of Australia seeking an extension in its court

hearing date which was moved from 22 July to 28 July. Services are expected to resume on Aug

1 but we expect a gestation period for ticket sales to pick up as Tiger has suspended all ticket

sales in the country following pressure from the Australian Competition and Consumer

Commission (ACCC). While we expect the airline to redeploy capacity out of Australia to

Singapore on account of weaker demand following this recent blow to its brand and reputation,

we do not expect it to pull out of the country altogether.

Maintain SELL. The stock has rebounded off its lows amidst speculation that SIA may be

increasing its 33% stake in the LCC. Investors are also finding some reassurance following a

wave of new management changes at the top. However the stock is trading at a demanding

39.7x/21.3x FY11/12F P/E and 3.1/2.7x FY11/12F P/B. Maintain SELL with TP of S$0.76,

pegged at 2x FY12F P/B.

Straits Asia Resources: Results in-line with our expectations (DMG)

(NEUTRAL, S$3.06, TP S$3.08)

2Q11 net profit came in within our expectations at US$37m (+59% YoY, -12.3% QoQ). Profits were down on a QoQ basis as both Jembayan and Sebuku reported (1) lower production volumes, and (2) higher cash costs. This was partially offset by higher coal ASPs achieved in 2Q11. We maintain our NEUTRAL call and target price of S$3.08. Management will hold a conference call with analysts tomorrow.

Production lower due to overburden removal. Production volumes were down 28% and 3% QoQ for Sebuku and Jembayan respectively as overburdened removal increased during the year. This resulted in higher strip ratios for both mines in 2Q11, which is already factored in our assumptions and consistent with SAR’s mine plans.

Cash costs rising; offset by higher ASPs. Higher strip ratios and additional overburden removal for Jembayan and Sebuku, coupled with firm oil prices as well as other inflationary pressures caused cash costs to increase 29% QoQ for Jembayan, and 43% QoQ for Sebuku. This was offset by a 15% increase in ASP to US$94.6/tonne for 2Q11, as part of SAR’s strategy to include more indexlinked pricing, benefiting from the higher coal prices.

SMRT: Disappointing quarter on the back of higher opex (DMG)

(NEUTRAL, S$1.88, TP S$1.73)

Results below expectation. SMRT’s 1QFY12 PATMI fell 8.9% YoY to S$34.8m (+2.3% QoQ) despite 7.5% YoY rise in revenue to S$253m (+3.5% QoQ). Main reasons for the disappointment are 1) higher electricity and diesel costs, 2) higher other opex which comprises of cost of diesel sold to taxi drivers, and insurance costs, and 3) negligible sequential growth in Circle Line (CCL) ridership (est CCL Stage 1-3 ridership: ~181k/day, same as 4QFY11). In view of the disappointing results, we raised our opex assumption, mainly electricity and diesel costs by 7-8%. Consequently, our FY12-13 PATMI are reduced by 7.5-6.2% respectively. Our TP is subsequently lowered to S$1.73 based on DCF (WACC: 8.0%; Terminal rate: 1.0%). Maintain NEUTRAL.

Bus and MRT segments hit by high diesel and electricity costs. Operating loss at SMRT’s bus division widened to S$4.4m in 1QFY12 mainly due to 1) higher diesel costs, and 2) higher depreciation, partially offset by 3) higher revenue. We expect SMRT’s bus division to remain in the red in the next few quarters due to 1) high diesel price, and 2) lack of economies of scale at SMRT’s bus division. Meanwhile, EBIT margin of MRT division has dropped to 28% in 1QFY12 (-5.9ppt YoY; -3.0ppt QoQ) on the back of higher electricity cost of S$27m (+33% YoY; +40.5% QoQ). Management intends to hedge the electricity and diesel requirement once there are favourable rates. Currently, SMRT has not hedged any of its diesel and electricity requirements.

CCL Stage 1-3 ridership growth was flat sequentially. Whilst there was no published number on CCL Stage 1-3 ridership in 1QFY12, management indicated that the growth was flat QoQ, which implies that CCL Stage 1-3 ridership is ~181k/day. This comes as a major disappointment to us as our previous estimation has shown that CCL Stage 1-3 requires breakeven ridership of ~223k/day. We think the opening of CCL Stage 4-5 will hasten the ridership growth for the full CCL which is estimated to require breakeven ridership of ~450k/day (exclude CCL Marina Bay extension).

Leader Environmental Technologies: Sell-down unwarranted (DMG)

(BUY, S$0.162, TP S$0.47)

LET posted a strong set of 2Q11 results with RMB31.3m in revenue (+69.8% YoY) and RMB6.8m in net earnings (+55.9% YoY). Desulphurisation Engineering, Procurement and Construction (EPC) business continues to power growth, making up 85.5% of the group’s 1H11 sales. The bulk of its earnings (>80%) come in the second half. EPC order book currently stands at RMB100m, and we expect the group to secure another RMB250m worth of EPC contracts by the end of August. Reiterate BUY, with a TP of S$0.47 (previously S$0.53), based on 8.9x P/E (-1 SD industry P/E). The next key rerating catalysts of the stock are likely to be the green light to commence the Operate, Own and Transfer (OOT) business as well as its maiden contract breaking into the denitrification industry.

The right place to be in. Environmental protection industry, being top of the list of “seven strategic emerging industries”, will continue to receive tremendous support from the Chinese government in the next five years. With the recent approval of main pollutant emission control plan and the upcoming “Emission standard for air pollutants for thermal power plants”, more initiatives are being executed to meet the 12th Five-Year plan targets. LET is well-placed to tap on trends like the shift in desulphurisation demand and the upcoming denitrification market in this rapidly growing industry. Furthermore, once the OOT plan is approved, LET will gain a stable recurring revenue stream.

Unwarranted market panic, auditors give clean bill of health. The share price has dived more than 30% since May. It is clear to us now that the recent panic sell-down was unwarranted, making LET a bargain. There are two main reasons behind our belief on top of the group’s solid fundamentals. First, none of the major pre-IPO investors have reduced their shareholding even though the blockout period is over, casting their vote of confidence in LET. Second, both their external and internal auditors, Ernest & Young and Grant Thornton respectively, have audited LET’s account recently and have given it a clean bill of health.

DBS: Weak trading income offset strong interest income (DMG)

(NEUTRAL, S$15.32, TP UNDER REVIEW)

Earnings came in right between ours and consensus expectations. DBS recorded 2Q11 net profit of S$735m, which is right between consensus expectation of S$750m and our S$720m forecast. Net interest income was ahead of our expectations, rising 6.9% QoQ to S$1.20b, primarily due to average interest-bearing assets rising 5.4% QoQ. On the other hand, there was sequential weakness in net trading income, which fell 43% QoQ to S$146m, due to marked-tomarket impact of hedges taken for fixed income investments. ROE of 10.6% was lower than 1Q11’s 12.1%. We will be reviewing our earnings forecast and recommendation.

Asset expansion led to sequential net interest income growth. The strength of net interest income was due to asset expansion. Loans expanded 7.1% (S$11.3b) sequentially, driven by Singapore loans rising 7.2% and rest of Greater China (excluding HK) surging 34% sequentially. By industry, general commerce accounted for half the loan expansion, rising 34% (S$6b) sequentially. NIM was unchanged sequentially at 1.80%, in line with our expectations.

Trading income came in even lower than our relatively pessimistic forecast. We highlighted in our preview note the risk of lower 2Q11 trading income. The actual 2Q11 trading income of S$146m was down 43% sequentially and 11% lower than our expectations. We expect this volatility of trading income to persist in the quarters ahead.

Expenses rose 3.2% QoQ. Staff costs rose with a higher headcount, while non-staff costs also rose.

Asset quality continued to improve, with NPL ratio falling to 1.5%, versus Mar 11’s 1.8%. Correspondingly, allowances for credit of S$137m was close to 1Q11’s S$125m.