Published November 10, 2008

A chunk of CapitaLand assets may be up for grabs

Four pieces of industrial assets in Singapore are believed to be coming to the market following a shift in the group's strategy

By KALPANA RASHIWALA

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(SINGAPORE) Property giant CapitaLand is understood to be looking to sell its portfolio of four industrial properties in Singapore.

In the offing: Assets to be sold are expected to include Kallang Avenue Industrial Centre and Kallang Bahru Complex

The assets are said to be worth more than $300 million and comprise Kallang Bahru Complex and the adjoining Kallang Avenue Industrial Centre, Corporation Place in Jurong, and Technopark@Chai Chee.

Market watchers reckon CapitaLand may be open to selling the properties individually or as a portfolio.

CapitaLand's plan to divest the portfolio reflects its recent strategy of exiting the industrial/logistics arena and focusing on its core strengths in commercial, residential and serviced residences, market watchers say.

Even up to six months ago, the property giant had ambitions to grow in the industrial/logistics real estate space. It is said to have bid, unsuccessfully, last year for the $1.7 billion portfolio of industrial properties divested by JTC Corporation. And not too long ago, CapitaLand had its eye on listing an industrial Reit, some analysts noted.

But just a few months ago, the Singapore-listed group made a strategic decision to focus on its core strengths with the crash in financial markets.

'What this also means is that within the Temasek stable of property companies, the logistics/industrial sector will be left pretty much to Mapletree Investments group,' a market watcher noted.

In September, BT reported that CapitaLand had put on hold its tie-up with subsidiary Australand to set up a pan-Asian development platform in the industrial/ logistics business announced in February this year.

The two adjoining industrial properties at Kallang Avenue that CapitaLand owns are understood to have redevelopment potential. Kallang Avenue Industrial Centre comprises four blocks of two-storey workshops, while Kallang Bahru Complex is a nine-storey flatted warehouse.

The two sites are zoned for Business 1 use (similar to light industrial use) with a 3.0 plot ratio, of which at least 2.5 must be set aside for B1 use, with the rest for white uses. (The plot ratio is the ratio of maximum potential gross floor area to land area.)

Kallang Bahru Complex is on a site with about 70 years of remaining lease, while the Kallang Avenue Industrial Centre plot has a balance lease term of some 67 years.

The two properties were part of the former Pidemco Land portfolio. In 2000, Pidemco and DBS Land merged to form CapitaLand.

Corporation Place and Technopark@Chai Chee used to be under DBS Land. Technopark@Chai Chee, with a book value of $205.9 million as at Dec 31, 2007, comprises six high-tech industrial blocks with a total net lettable area of about 1.14 million sq ft on a sprawling site that also has a gymnasium and other amenities.

The building is almost 100 per cent occupied by tenants such as Flextronics, SIA Engineering, British Telecom, Sun Microsystems, Alacatel-Lucent and DBS Bank.

The property may offer a high-yield investment play to potential investors.

On the other hand, the Chai Chee site could also be redeveloped. The site has enjoyed an enhancement in use under the Urban Redevelopment Authority's Draft Master Plan 2008, with a Business Park zoning (2.5 plot ratio), compared with Business 1 zoning (2.5 plot ratio) under Master Plan 2003.

Corporation Place in Jurong is a seven-storey high-tech flatted factory development boasting tenants such as Siemens, Hewlett-Packard, Panasonic and Rockwell Automation.

The property has total net lettable area of about 622,000 sq ft and is 75 per cent owned by CapitaLand, with Ascendas Land owning the remaining 25 per cent. BT understands that Corporation Place will be offered for sale on a 100 per cent basis, that is, by both owners. CapitaLand fully owns the other three industrial properties.

CapitaLand reported a 25.6 per cent year-on-year drop in third-quarter net earnings to $419.4 million, on weaker home sales. However, the group reported stronger rentals from investment properties and higher fee-based income from Reits and funds under management.

The counter closed five cents higher on Friday at $3.17.

Published November 8, 2008

Sector In Focus
S-shares not out of the woods yet

All eyes are on how the Chinese economy pans out and whether fiscal policies will offer buffer. By Lynette Khoo

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THE rebound by S-shares this week may well turn out to be a dead cat bounce, as negative surprises in third-quarter results could trigger fresh selling, analysts say.

Many Chinese stocks listed here regained some of their losses earlier in the year. Their biggest jump came on Tuesday on the back of a recovery in world markets, which dealers termed a pre-election rally, one day before the US presidential vote on Wednesday.

Investors started picking up S-shares last week when reassurances from the Chinese premier on the stability of the country's markets helped bolster mainland Chinese stocks.

At yesterday's close, the Prime Partners China Index (PPCI) had put on 29.7 per cent to 59.06 points from its all-time low on Oct 29.

The FTSE ST China Index (FSTC) had added 29 per cent to 181.88 points from its all-time low on Oct 29.

Should investors with a longer-term view think of venturing into S-shares, they could look at those trading at two to three times price-earnings ratios or half their book values, a local analyst says.

But the recovery could prove to be short-lived, as more quarterly earnings results are due in the weeks ahead.

Not trough yet

Citi analyst Tan Han Meng says S-shares have yet to reach trough valuations. 'At 0.6 times price to book (P/B), the FSTC index is trending closer to the potential low of 0.5-0.3 times P/B for mid-small caps reached during the 1998/99 downturn.'

Analysts expect more earnings downgrades after the Q3 results, projecting earnings growth in the S-share universe to range from negative to a marginal increase.

DMG & Partners Securities analyst Heng Tong Jin expects S-share companies to post flat to marginal earnings growth on a year-on-year basis due to weak demand. 'It's not time for bottom-fishing,' he says, citing potential share price weakness towards the end of the year.

A local S-share analyst expects overall earnings to decline among the companies he follows, as they could have been hit indirectly by plant closures in Beijing and surrounding cities during the August Olympics, which caused clients to withhold stocking up on inventory.

Some S-share companies have joined the chorus of companies here issuing profit warnings in the past two weeks.

Among them, China New Town Development and Pan Hong Property Group guided for a Q3 loss. Steelmaker Delong Holdings reported a net loss in Q3 due to eroding margins.

But there have been bright spots. Sports apparel firm China Hongxing and backpack maker China Zaino, for instance, reported earnings growth from a year ago.

China Zaino, whose net profit grew 8.2 per cent to 92.64 million yuan (S$20.27 million), also managed to improve its gross margin to 33.2 per cent from 32.6 per cent in Q3 last year.

Its executive chairman Chen Xizhong told BT the current economic outlook will not derail plans for expansion, and the company will use 255 million yuan from its IPO proceeds raised in April for these plans over the next two years.

But analysts say investors can no longer bank on the past super-normal growth of the Chinese economy that has bolstered many S-share companies that feed on domestic demand.

'Recent data has shown that when the world slows down, China slows down as well,' says DMG's Mr Heng. 'Investors who think 2009 will still be a good year run the risk of over-estimating China's strength in this financial turmoil.'

Concern over China's economy has overriden stock-specific or sectoral views when it comes to stock picking, analysts say. All eyes are on how the economy pans out and if fiscal policies will offer any buffer.

The challenge is the lag effect of fiscal stimulus and its impact being potentially confined to specific sectors such as the recently announced investments in railway infrastructure.

'Historical evidence shows that growth supported by government spending tends to be lower-quality growth and may not benefit corporate earnings as witnessed in the period of 1998-2001,' says Citi's Mr Tan. 'We continue to remain cautious on cyclical commodities amid current global downturn and China housing slowdown.'

China's once-roaring economy expanded 9 per cent in the third quarter - the slowest rate since 2003.

Based on the purchasing managers index (PMI), China's manufacturing sector contracted sharply in October.

The slower economic growth outlook and weaker consumption have already prompted DBS Vickers to cut its fiscal 2008 and 2009 forecasts for S-chips.

Based on latest reports, economists at Citi and Credit Suisse believe a soft landing is still the more likely scenario for China, with GDP coming in at high single-digits for 2008 and 2009.

'The key now is demand. Many companies have expanded aggressively over the past few years and if demand does not pick up, there will be excess capacity,' says CIMB-GK analyst Ho Choon Seng. 'The outlook is going to be challenging.'

Also dampening the mood are credibility issues surrounding S-shares, with some touted to have poor corporate governance amid recent scandals.

But Mr Heng points out that everything is measured in risk and reward. 'We can't assume that all Chinese companies are poorly run,' he says. 'If you get it right, you can get about four times the money you put in. Blue chips can't give you that.'

Should investors with a longer-term view think about venturing into the S-shares space, they could look at those trading at two to three times price-earnings ratios or half their book values, one local analyst says.

Published November 8, 2008

Sembcorp boosts Q3 net profit by 24.8% to $144.9m

By VINCENT WEE
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SEMBCORP Industries has boosted third-quarter profit 24.8 per cent to $144.9 million on an 11.7 per cent increase in revenue to $2.5 billion.

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Click here for Sembcorp's financial results

For the first nine months, the main profit contributors continued to be marine and utilities, which accounted for 96 per cent of group profit. Overall, turnover rose 18.8 per cent to $7.2 billion, while profit increased 8.5 per cent to $406.2 million.

General and administrative expenses rose 20 per cent to $70.4 million in Q3 and diluted earnings per share rose from 6.45 cents to 8.08 cents. The utilities business continues to do well. Turnover increased 30 per cent to $1.3 billion in Q3 and by 33 per cent to $3.5 billion in the first nine months.

Nine-month profit fell to $170.4 million from $179.4 million previously, although in the previous corresponding period the UK's performance was boosted by a profit on the sale of land. Singapore and UK operations contributed $118.6 million and $52.9 million respectively. Q3 profit rose by a third to $66.3 million, but this was primarily due to gains from the transfer of transmission and distribution pipeline assets to PowerGas.

Turnover for the marine business increased 8 per cent to $3.4 billion in the first nine months on better performance by Sembcorp's rig-building, offshore, conversion and repair businesses. But Q3 revenue was flat at $1.1 billion.

Profit, however, continued to be strong, rising 68 per cent in Q3 to $86.1 million and 48 per cent for the first nine months to $220.5 million. This was due to higher operating margins from rig-building and shiprepair work and better contributions from associates.

While contributing only a small part to Sembcorp's overall profit, the environment, industrial parks and others/corporate businesses performed badly. Industrial parks profit fell 37 per cent to $7.2 million, mainly due to lower contributions from parks in Indonesia and Vietnam, which was partly offset by a higher contribution from an industrial park in China.

The environment and others/corporate businesses turned in losses of $4.1 million and $10.6 million respectively. The environment's loss ballooned from $460,000 in the previous Q3 as business was hit by impairment charges for plant and machinery. The others/corporate segment turned to a loss from a $3.9 million profit previously, mainly due to the weak performance of an offshore engineering associate in China.

Sembcorp shares closed flat at $2.50 yesterday.