CDL Hospitality Trust - Favourable risk-reward (CIMB)

The local tourism scene differs from what it was during the last crisis. Backed by fairly resilient Asian consumption, we expect arrivals and REVPAR to hold up. Investors, however, appear to have priced in the worst with the REIT down 30% from its peak.

We judiciously shave REVPAR, factoring in flat rates, lower visitor growth and hotel occupancy for FY12. This lowers our DPU estimates and DDM-based target price (disc. rate: 8.6%). Maintain Outperform, nevertheless, on a favourable risk-reward trade-off.

Not expecting 2008/9

We deem the local tourism scene different from what it was during the last crisis, with more positives than before. The two integrated resorts are running in full steam and continue to offer different experiences for both leisure and business travellers. There are more attractions to come on top of the government?s continual investments to woo the tourism dollar. 2009 was hit by a double whammy of an economic slowdown and H1N1. Further, with a higher dependence on growing regional economies, we believe visitor arrivals and REVPAR can hold up even as growth in Western economies slows.

Dynamics still positive

We are expecting 3-5% growth in arrivals which should keep occupancy at 84-86%, given a moderate 6% increase expected in rooms next year. Even if arrivals are flat next year, occupancy should remain above 80%, allowing hoteliers to raise rates.

6% yields even if pegged at the worst

We project a moderate 5% decrease in REVPAR, assuming flat room rates and industry occupancy rates, though upside could come from stronger rates after the refurbishment of Orchard Hotel, CDLHT's largest asset. Recent guidance suggests that corporate rates could be pushed up given tight occupancy. The share price, however, appears to have priced in the worst with the REIT down 30% from its peak. Offering a decent 6% yield even if we were to peg its local assets at the levels of the last crisis, we see a fairly attractive entry point.

Singapore Airlines Ltd - Alliance with Virgin Australia (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$10.47

Fair Value: S$10.85

Alliance with Virgin Australia approved. The Australian Competition and Consumer Commission yesterday gave the final approval to the alliance between Singapore Airlines (SIA) and Virgin Australia (VBA), Australia's number two carrier. On top of code-sharing on one another's international and domestic flights under this alliance, SIA and VBA will be able to work together closely on schedule planning so as to provide passengers with seamless flight connections. However, the tie-up will not include VBA's trans-Pacific flights to the USA. In addition, VBA CEO John Borghetti had earlier told the media VBA's alliance with SIA will not diminish VBA's collaboration with other code-sharing partners, possibly restricting the SIAVBA code-sharing from certain Australian cities.

A win-win collaboration. SIA currently flies to the four Australian destinations of Brisbane, Melbourne, Perth and Sydney. With the alliance with VBA, SIA will be able to improve its service offering by providing its passengers with better flight connectivity to more Australian cities. This should increase its passenger volume between Singapore and Australia. On the other hand, VBA sees this alliance as a way to capture a larger market share of the lucrative business travel segment from Qantas Airways (QAN), Australia's flag carrier. By leveraging on SIA's more extensive network, VBA hopes the better connectivity to destinations around the world will attract more business from the corporate travellers. In turn, this potentially increases passenger flow to SIA's flights by connecting VBA's passengers to international locations.

Possible partnership between Qantas Airways, Malaysian Airlines and AirAsia may intensify competition. QAN has been trying to establish closer ties with Malaysia Airlines (MAS) in a bid to gain a bigger foothold in Asia. QAN even sponsored MAS, as a member elect, into the oneworld airline alliance back in Jun 2011. However, the share swap between the majority shareholders of AirAsia (AIRA) and MAS in Aug 2011 has complicated the relationship between QAN and MAS. Latest media reports say QAN is now actively seeking collaboration with AIRA CEO Tony Fernandes. If a partnership between the three airlines materialises, it will provide tough competition to the SIA-VBA alliance.

Maintain fair value of S$10.85 and HOLD. While the alliance with VBA is a positive development for SIA, it is too early to quantify its impact to SIA's bottom line. We maintain our fair value estimate of S$10.85 and HOLD rating on SIA.

Lian Beng Group Ltd - Continuing to add to order book (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.345

Fair Value: S$0.51

Return to familiar grounds. Lian Beng (LBG) announced earlier this week that it has won two new construction contracts, worth a total of almost S$98m. The bigger S$84.5m contract relates to construction work for Mandai Estate, for which LBG holds a 55% stake in. The smaller, but not less significant, S$13.2m contract was awarded by HDB. It is important as it marks the return of LBG to the public residential construction space, where it first made its name. Given the government's intent to supply more HDB flats, we believe this is a more fertile ground for winning construction contracts than before. Management stated that they will continue to tender for both HDB and private construction projects. With its track records in both public and private construction, we believe LBG will be able to refresh its order book.

Development segment getting bigger. LBG has enjoyed fair bit of success in its development business so far. The sales result (>90% sold after its recent launch around 4QCY11) of the Mandai Estate is an example of its acumen for development investments. In its continuing search for attractive development opportunities, the group recently deployed S$260m to acquire 128,076 sqft of commercial area (Midlink Plaza) and 118,943 sqft of residential area (Dragon Mansions), and this increases its development resources substantially.

Change of valuation method to better account for development segment. In view of these recent additions to its development arm, we believe a SOTP valuation (RNAV approach for LBG's development segment and a multiple based approach to value LBG's main construction business) will be more appropriate, as it will allow for better assessment of the value of the development business. Exhibit 1 shows the summary of our SOTP valuation. Combining both the multiple based approach and our RNAV (50% discount) estimation, we yield a fair value estimate of S$0.51.

Still yields an attractive upside. With the latest contracts win, LBG's net order book goes above S$850m. We continue to like LBG for its strong order book, track record in both public and private residential projects and undemanding valuations. We find that despite applying a discount rate to capture the likely economic slowdown ahead, LBG still appears attractively priced. The updated fair value estimate of S$0.51 (previously S$0.55, lower due to change of valuation method) still shows potential upside of about 46%. Maintain BUY.

China Fishery Group Limited (KE)

Background: China Fishery Group (CFG) is a leading integrated industrial fishing company with access to some of the world’s most important fishing grounds. It typically employs supertrawlers equipped with sonar fish-finding technology and navigation systems to optimise fish yields and minimise wastage. It also has purse seine fishing vessels and fishmeal processing plants strategically deployed along the Peruvian coast.

Recent development: CFG’s recently-reported FY Sep11 results came in slightly below market expectations. Despite robust revenue growth of 27.2%, net profit declined by 11.1% YoY to US$103.7m due to several one-off charges. Gross margin also narrowed by 3.9ppt to 33.1% as a result of an increase in vessel operating expenses arising from higher costs of fuel and a larger fleet.

Key ratios…

Price-to-earnings: 6.8x

Price-to-NTA: 1.4x

Dividend per share / yield: S$0.045 / 4.9%

Net gearing: 61.2%

Net debt as % of market cap: (66.1%)

Share price S$0.910

Issued shares (m) 1,022.3

Market cap (S$m) 930.26

Free float (%) 29.4

Recent fundraising activities Jun’10 private placement to Carlyle Group – 113.5m new shares @ S$1.85/sh, 26.7m warrants @ S$1/sh (S$190m)

Financial YE 28 Sep

Major shareholders Super Investment – 69.8% Carlyle Group – 11.1%

YTD change -59.4%

52-week price range S$0.835-2.360

Our view Successful refinancing of Senior Notes. Notably, CFG’s bottomline was hurt by one-time charges, particularly from the redemption of the Senior Notes. Excluding this non-recurring expense of US$18.7m, core net profit would have been US$122.3m, implying a 5.1% YoY increase from FY Sep10. Nevertheless, the redemption, which was refinanced by a term loan in September this year, is expected to yield significant interest-cost savings for the group in the long run.

Fresh acquisitions. Early last month, CFG announced that it has acquired two Peruvian fishing companies amounting to US$26.16m. We understand that their assets include two fishing vessels and one fishmeal processing plant. The fishing quotas attached to the fishing permits are equivalent to 0.16% of the total fishing quota in the northern zone of Peru and 0.81% of the total fishing quota in the southern zone of Peru. This brings CFG’s share of the total allowable catch of Peruvian Anchovy to 6.21% in North Peru and 11.72% in South Peru.

Strong focus on growth strategy. According to management, the strategic location of the additional fishmeal processing plant in IIo, the most important port city in South Peru, will allow the group to achieve a geographical spread throughout this western South American country and enhance the use of its fishing quota in the region. In turn, this should lead to better economies of scale and higher operating efficiencies of both fishing fleet and fishmeal processing plants.

Undemanding valuation. Along with the recent market volatility, the stock’s valuation has slipped to about 6.8x FY Sep11 PER. A dividend payout of $0.045 was declared, translating to a decent yield of almost 5.0%.

Super Group - Some chinks in its armour (KE)

Taking profit. Super’s share price has risen by 6% YTD against the STI which has slipped by 13% during the same period. While we are still optimistic on the group’s long-term prospects, we believe this is the right time to take some profit off the table as we discern possible speed bumps ahead.

Lacklustre 3Q11 results. Overall revenue growth of 23% YoY masked the fact that branded consumer sales was up only 4% YoY. With price hikes of 6% YTD, this implied that sales volume was worryingly flat. The weakness was attributed to lower sales in Thailand, a key market making up 30% of Super’s branded consumer sales. Even on a YTD basis, we estimate that gross profitability for branded consumer sales has declined.

Margin optimism overdone. The market may be too optimistic on margins as Super transits from pure consumer sales to duo contribution. During 2008-10 when there were no third-party ingredients sales, gross margins averaged 35%. With increasing revenue from this segment going forward, overall gross margins may not hit market expectations of 33-35% even if raw material prices were to retreat.

Pricing power a test of brand equity. The lack of volume growth in the branded consumer division is more worrying in the light of Super’s recent pricing decisions. This year, Nestle has increased prices in similar markets by about 10-12% to pass on higher costs, stretching its premium over Super to about 15%. In essence, Super is absorbing higher raw material prices to win market share. This may be a part of its longer-term strategic plans but we doubt whether Super’s brands have sufficient pricing power.

Downgrade to HOLD. We revise our estimates, taking into account the Thai floods whose impact will likely be felt in the next two quarters. Our recurring net profit excludes deferred gains of $3m a year from 2007’s property sale (ending FY13). Our target price of $1.485 is pegged at 15x FY12F.

Valuetronics (KE)

Background: Valuetronics is an electronics manufacturing services (EMS) company focused on an OEM (80% of sales) and ODM (20%) business model. Its management is headquartered in Hong Kong and it has two factories in nearby Guangdong Province in China (Huizhou City and Daya Bay).

Recent development: 1HFY Mar12 revenue registered a positive growth of 26.3% YoY to HK$1,154m but corresponding net profit declined by 1.9% YoY to HK$61.6m. Management said that a slowdown in demand has started to show in its OEM/ ODM business but the effect was partly masked by strong growth from one particular OEM customer this quarter.

Key ratios…

Price-to-earnings: 3.6x

Price-to-NTA: 0.89x

Dividend per share / yield: HK$0.07 / 11.4%

Net cash/(debt) per share: HK$0.163

Net cash as % of market cap: 13%

Share price S$0.205

Issued shares (m) 358.30

Market cap (S$m) 73.45

Free float (%) 45.9

Recent fundraising activities Nil

Financial YE 31 March

Major shareholders Chairman & CEO Ricky Tse – 22.2% Director Chow Kok Kit – 20.8% Director Hung Kai Wing – 10.3%

YTD change -16.3%

52-week price range S$0.190-0.310

Our view

Net margin depressed by higher SG&A. The company incurred higher SG&A expenses due to increased salaries and bonuses. In addition, there was a full-quarter cost effect from the licensing business which commenced in 1QFY Mar12. Half-year net margin fell from 6.7% last year to 5.2% this year.

Brand licensing business did not disappoint. We have been hopeful that the brand licensing business could turn out to be a winner and its performance did not disappoint us. Revenue for this segment showed a sharp 429% YoY growth and a 133% QoQ growth in 2QFY Mar12. The licensing agreements give Valuetronics exclusive rights to use the “Whirlpool”, “Maytag” and “Amana” brands for home appliances in the North American market.

Managing the challenges. Global manufacturing activities are slowing down and weak consumer demand continues to be the biggest threat facing the company. Mass production for a number of new OEM customers is scheduled for early 2012, which may offer some reprieve from the macro slowdown. Valuation for the stock remains relatively cheap at only 3.6x FY Mar11 PER and 0.89x NTA.

OKP Holdings Limited - Near-term prospects to remain healthy (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.525

Fair Value: S$0.640

Pressing ahead with work on new tenders. We recently caught up with OKP's management for an update of their outlook of 2012 and also as a check of our contract win assumptions for the next two years. From speaking with them, we understand that the group has been working on a number of tenders. Given its high tender success rate (c.94% success rate for tenders the group participated in during 2010) and track record, we believe that the group will be successful in some of its tenders, and add more contracts in the near future. OKP's current order book already offers revenue visibility till 2014. More contract wins will provide more assurance to our view that OKP's project pipeline will continue to grow.

Exposure to government spending. Majority of OKP's projects are government-related and LTA is a major customer. As it stands, the government has already shown commitment to several projects to expand the island's road network. An example is the acquisition of the Rochor site, making way for the construction of the 21km North South Expressway. Besides the projects already in the pipeline, we believe there may be more to come. Based on recent history, the government typically increased its construction spending during periods of low economic growth. Following recent downward revision of Singapore's GDP growth forecast, we believe there is an increased likelihood that the government will look to increase its spending. This will be positive for OKP's near-term prospects.

China Sonangol partnership may bear fruit soon. OKP's partnership with China Sonangol (CS) has already resulted in the group gaining a construction contract for Angullia Park. As CS moves towards completion of the acquisition of Amber Towers, we believe this may present another possible area of collaboration between them. Given OKP's strong balance sheet (net cash of c.S$94.7m as of 3QFY11) and its intent to diversify into property development (resolution passed after Sep. 2010's EGM), we see possibility of OKP participating in the Amber Towers project, alongside CS. In addition, we also believe OKP stands to win more residential construction contracts through this, given that their current working relationship.

Maintain BUY. Given OKP's order book of more than S$400m and its gainful position if Singapore government increases infrastructure spending, we continue to believe that the nearterm prospects of OKP should remain healthy. We also like OKP's above peers' margins and undemanding valuations. We re-iterate our BUY rating and maintain our fair value estimate at S$0.64, implying potential upside of c.22%.

Ascendas REIT - In an enviable position (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$2.04

Fair Value: S$2.23

Good performance expected to continue. Ascendas REIT (A-REIT) had exceeded our expectations for its 2QFY12 results, despite our previous forecasts of a healthy growth in operating performance. Going into 2012, we maintain our prognosis that A-REIT will continue to deliver, thanks to its well-diversified portfolio, and contributions from completed development projects and acquisitions. The group currently holds 94 properties, with a good mix of long and short term leases (48:52) and strong weighted average lease to expiry of ~4.3 years. It also has a pipeline of developments and asset enhancements which are expected to complete in the first quarter of 2012 (e.g. FedEx Singapore Regional Hub, FoodAxis@Senoko). This provides A-REIT with the stability and driver for continued growth in its distributable income.

Occupancy likely to remain resilient. Occupancy rates for 2QFY12 had also held up well, with multi-tenanted building occupancy at 93.0% and overall portfolio occupancy at 96.4%. This represents an improvement in occupancy rates from 92.5% and 96.2% seen in 1QFY12 respectively. While a multitude of factors, including (1) the PMI indicating a contraction in manufacturing for four consecutive months in Oct, (2) softer pace of increase in URA rental indices in 3Q11 and (3) modest GDP growth projection of 1-3% in 2012 by MTI, point to slower growth in economic activity going forward, we believe the impact on A-REIT is likely to be limited. In fact, our check on its historical performance showed that A-REIT had never registered rates below 90.5% and 95.3% for quarterly multitenanted and portfolio occupancy, respectively, over the past five fiscal years (which encompasses the global financial crisis). Thus, we do not expect A-REIT to experience a sharp decline in occupancy in the coming quarters, barring unforeseen circumstances.

Limited credit and cash call risk. As at 30 Sep, A-REIT's aggregate leverage was at 31.5%, a healthy level in our view. Even after funding for all committed investments of ~S$255m (which will see leverage rise to 34.5%), the group still has debt headroom of ~S$555m before reaching the 40% mark. This relatively low leverage places A-REIT in a comfortable position to fund potential investment opportunities and to withstand any negative capital revaluation. According to Moody's recent report on S-REITs, A-REIT's leverage would still come within allowable parameters, and its rating would be safe from downgrade even with a 20% downward revaluation of assets (extreme scenario, in our view). Hence, we also see limited credit and cash call risk at this juncture. Maintain BUY and S$2.23 fair value.

HOTEL PROPERTIES (LIM&TAN)

S$1.66-HPLS.SI

? HPL's board said they were unaware of reason(s) that could explain yesterday's 16-cent / 8.8% drop in share price on above-average 2.05 mln shares.

? This should "take care" of issues like redevelopment of HPL's properties at Orchard Road (HPL House, Forum, Hilton Hotel).

? However if it should concern the second largest shareholder: Wheelock Prop and its 20% stake, then it is not up to HPL's board to be kept informed.

? Recall Wheelock first bought over Quek Leng Chan / QuocoLand's 20% stake 5 years ago (at around $1.80 a share), which in turn was held on to for 7 years.

? Our last call was a BUY after Ong Beng Seng bought 1.3 mln shares on Aug 31st at $1.96 each. The stock rose to $2.11 on Sept 7th before resuming on its downtrend.

? At 38.5% discount to latest book NAV of $2.70, we recommend adding, while acknowledging HPL remains a game of "patience", and also that most property stocks trade at big discounts to NAV.

STX OSV: NOK1.2b new order is a positive surprise (DMG)

(NEUTRAL, S$1.125, TP S$1.20)

Raise FY11 EPS and TP; maintain Neutral. New NOK1.2b contract win from the Norwegian Defence Logistics Organisation (NDLO) for the construction of a research vessel lifted YTD order win to more than NOK7.4b (our estimate) and ahead of our forecast of NOK7b. With this new win, we raise 2011 order win forecast to NOK8.5b (+20%) and upgrade our FY11F EPS by 7%. Our new TP of S$1.20 is pegged to an unchanged FY12 target P/E of 7.2x. We maintain Neutral on the stock given 7% upside to our TP.

The news: NOK1.2b order from NDLO. STX OSV announced that they have secured a NOK1.2b order win for the construction of one research vessel for NDLO. With the latest new order, we estimate 2011 total order win has reached NOK7.4b-7.7b and exceeded our conservative order win forecast of NOK7b (excluding NOK3b from Transpetro). The newbuild research vessel is scheduled to be delivered from STX OSV Langsten in Norway in 4Q14.

Analysis: Higher visibility for FY12; raise EPS. We raise our FY12F EPS by 7% to reflect the big order win from NDLO. Our revised FY12-13F EPS estimates are 9% and 16% below consensus mainly on lower margins as we expect EBITDA margins to normalise to 11% by FY13. Based on our earnings model, 74% of our FY12F revenue forecast is backed by secured contracts. We expect more orders in the next six months to make up the remaining unsecured portion but there could be downside risk if vessel buyers stay away due to uncertainty caused by the European debt crisis. Our revised new order forecasts for FY11-12F are NOK8.5b and NOK10b respectively.