WORLD PRECISION (Lim&Tan)

S$0.565-WPRE.SI

􀁺 Key point from our plant visit is that business momentum has picked up pace both on a yoy as well as qoq basis in 2Q’2011 with utilization rates on an overall group basis rising close to 85-90% up from 70-80% a year and quarter ago;

􀁺 the strong business momentum in turn reflected their record order books of about Rmb428mln secured as at end Apr’2011, up from Rmb250-300mln in early 2011;

􀁺 in fact demand from customers was so strong that the company managed to raise average selling prices by 5% in Apr’2011 for the higher tonnage and performance equipment, after having raised selling prices by a similar amount for the conventional machines earlier in the year;

􀁺 as their overall group utilization rate is reaching maximum limits and expecting more orders ahead, management will be bringing in more production capacity in 2H2011, targeting to increase production capacity by another 20% which will cost them about Rmb80mln;

􀁺 next year, the company will be starting up a new production plant in Shenyang with the completion of Phase 1 expected to be in 2H2012, with estimated annual production output of Rmb300mln, representing another 20+% increase in production capacity;

􀁺 as most of their current customer base is predominantly in Southern China, the new plant in Shenyang will allow them to tap a new pool of customers in the North Eastern part of China as well as allow them to be closer to the source of their raw material supply, thereby helping them save costs;

􀁺 management expects total capex this year to amount to Rmb200-250mln and next year another Rmb200-250mln which will be financed partly by internal resources, bank borrowings and if the market allows some form of equity financing;

􀁺 since the company’s IPO in 2006, its sales has grown from Rmb449mln to Rmb1.04bln in 2010 and management is expecting to grow another 40% this year to Rmb1.46bln, which will be a record for them;

􀁺 their market share has grown from 2-3% since their IPO to about 7-8% currently and with new markets and customers, management targets to continue to grow this closer to their number 1 competitor’s 12-13%;

􀁺 bottom-line has also grown from its IPO’s base of Rmb116mln to Rmb125mln last year and management is targeting to grow this further to Rmb180mln this year, surpassing 2007’s record Rmb144mln, implying a forward PE of 6x which is undemanding compared its growth rate and its historical average of about 8x;

􀁺 the company had paid 38% of their earnings as dividends last year and is targeting again to maintain it within this range this year, implying a potential yield of 6%;

􀁺 unlike other S-Chips, the company’s founder, Chairman and major shareholder has increased his shareholding in the company since its IPO in 2006 from about 73% to 77.4% currently at an average acquisition price in the range of mid-50 cents and together with his board members they account for close to 80% of the company’s shareholding. And since its IPO in 2006, the company has also not raised funds from the market and in fact has paid out an average of 30-40% of their earnings as dividends;

􀁺 in an effort to improve their corporate transparency, the company is engaged Frost and Sullivan to do an independent market survey of their competitive landscape in an effort to allow investors to understand their industry positioning and the report is expected to be released sometime at the end of this month;

􀁺 since our last BUY report on 22 June 2011, the stock has risen about 11% but we believe the company’s record interim results could see further re-rating catalysts ahead, hence maintain our BUY recommendation.

STAMFORD LAND (Lim&Tan)

S$0.625-STLD.SI

􀁺 Stamford Residences & Reynell Terrace will, according to the just released annual report, be completed by August this year, ie during Stamford Land’s Q2 ending Sept ’11.

􀁺 With only 9 of the 122 tower units not sold, and likely strong demand for the 5 Reynell Terrace units and 5 commercial units when marketing begins on completion (and selling prices for the terrace units starting from A$4 mln a unit), we expect earnings for the quarter to be substantially boosted for Stamford Land to declare an interim dividend. (Note what’s not yet sold are estimated to be valued at A$70 mln vs A$162.6 mln for the 113 tower units sold.)

􀁺 Stamford Land will release results for the quarter sometime in November. And it has been Stamford Land’s practice to declare dividend once a year, with one exception: half year ended Sept ’08 when it paid 1.5 cents special bringing the total for that fiscal year to 4 cents.)

􀁺 For ye Mar ’11, 3 cents have been declared (2 normal and 1 special), and the stock will trade ex-dividend from Aug 2nd.

􀁺 The annual report also disclosed a bit more information on the redevelopment of Stamford Grand North Ryde, 20 minutes drive from Sydney CBD and close proximity from Macquarie Centre, Macquarie University and Macquarie University hospital : a total of 626 residential units on a site spread over 22,400 sq meters.

􀁺 We maintain BUY.

Singapore Airlines: June ‘11 Stats: Bracing For Weaker 1Q (DMG)

(SELL, S$14.35, TP S$12.35)

SIA’s operating statistics were in line with our expectations. The June passenger numbers continued to remain weak as load factor was crippled by poor travel demand on its Japan routes and cargo activity softened amid a slower pace of recovery in the global economy. With load factor hardly unchanged QoQ and on given the marginal 1.3% QoQ improvement in passenger numbers amid the flattening yields and a 7% higher jet fuel price QoQ, we see the upcoming 1Q results to be released on 29 June likely to disappoint. Reiterate SELL at an unchanged FV of S$12.35.

Weakness in passenger numbers persists. System-wide passenger numbers and RPK for the month of June were down marginally by -0.4% YoY. The poor take-up for its new frequencies on existing routes in East Asia and South America led to a weaker load factor, which was lower by 4-ppts y-o-y to 78.8%. However, this is SIA’s highest load factor so far for 2011. Poor load factor was seen across the board, with East Asia showing the sharpest drop of 8.4ppts on weaker travel demand to Japan. In view of the pick-up during the summer travel period, its m-o-m numbers improved across the board as passenger carriage and RPK rose 2.6% and 3.5% m-om respectively, with load factor notching up 5.2ppts. Q-o-q RPK and passenger carriage jumped 1.2% and 1.3% respectively (YTD: 3.5% and 3.2% respectively) while load factor improved marginally by 0.12ppts to 75.6% (YTD load factor: -2.7ppts to 75.6%). For the first time, SIA also disclosed its passenger numbers for Silk Air, for which RPK and passenger carriage grew by strong double digits at 10.3% and 11.9% YoY respectively on the back of 6.9% growth in capacity, which strengthened its load factor by 2.4ppts.

Cargo softens as economic recovery falters. SIA's cargo numbers improved marginally, with FTK only improving by 0.7% in tandem with the weakening pace of recovery in the global economy while tonnage carried was stronger, at 4.5% growth. Cargo activities in the South West Pacific picked up strongly, with load factor accelerating by 5.6ppts to 59.7% and Europe seeing slightly higher shipments (as load factor improved by 0.6ppts to 70.5%). Meanwhile, the other regions saw negative growth, with East Asia seeing the steepest drop in load factor of 1.5ppts to 58.1% owing to the slowing expansion momentum in the Chinese economy.

Maintain SELL as earnings could disappoint. Both cargo and passengers numbers were in line with our expectations so far. We expect RPK and FTK to grow by 3% and 5% respectively in FY12. With passenger numbers improving only marginally, (by 1.3% QoQ) and on the back of a 7% QoQ increase in jet fuel price hike its load factor is barely changed (Q4FY11: 75.5% vs Q1FY12: 75.6%), we think its Q1FY12 earnings may at best be only slightly better than in the previous quarter. This is because its breakeven load factor is expected to inch up further on higher jet fuel prices and as yields are anticipated to be flat since competition against the Middle Eastern and low cost carriers heightens. SIA reported a core net profit of only S$170m in 4QFY11, representing 17% and 15% of our and consensus’ FY12 forecasts respectively. Hence, we caution that there could be further downside risk in our FY12 earnings projection. For now, we continue to maintain our earnings estimates (pending more details at its upcoming analyst briefing on 1 July on its foray into low cost carriers, on which we are skeptical) and reiterate our SELL recommendation, with our FV unchanged at S$12.35, premised on 15x FY12 EPS.