Bukit Sembawang Estates (KimEng)

Company background: Bukit Sembawang Estates began as a leading rubber company in 1911. The company started development of landed property in the 1950s, and got listed in 1968. Tapping on its large legacy land bank from its rubber plantations in the old days, it has, for over half a century, been building some of Singapore’s most well-known residential estates such as Seletar Hills and Sembawang Hills.

Key ratios…

Price-to-earnings: 5.8

Price-to-NTA: 1.01

Dividend per share / yield: 12 cts / 3.0%

Share price (S$) 3.98

Issued shares (m) 258.9

Market cap (S$ m) 1,030.5

Free float (%) 52.8

Recent fundraising activities Feb 09: $246m from 1-for-1 rights issue at $2.30

Financial YE March

Major shareholders Singapore Investments – 13.4%, Selat (Pte) Ltd – 11.4%, Aberdeen Assets – 8.7%

YTD change -15.25%

52 week px range S$3.60-S$4.86

Our View

A land bank like no other. Its land bank far surpasses all other developers, in our view. It has 2.6m sq ft of unsold GFA zoned for landed housing, making it Singapore’s largest landed property developer. In a recent land tender for landed housing in Serangoon Gardens, a total of 16 bids were received, a sign that developers remain positive on the landed segment of the property market.

Luxus Hills snapped up, four times. Luxus Hills, its landed project in Seletar, has released 198 units in 4 phases since July 2009. In every phase, units were almost fully sold in the first month, achieving prices from $1,000-$1,200 psf versus its estimated cost of $410 psf. We estimate the company made about $265m pre-tax profits from the first 4 phases.

Latest launch is July’s best selling project. 283-unit Skyline Residence, the redevelopment of Fairways, achieved a 60% take-up in July 2011 and an ASP of $1,900 psf. The project is located near the upcoming Telok Blangah MRT Station, which will begin operation in October. With an ASP assumption of $1,900 psf, pre-tax profits from the project is estimated to be above $200m.

Lowly geared, highly undervalued. The company has been repaying its debts. Net gearing is now at a low of <20%. The estimated $900m in revenue from sold units to be gradually recognised from 2Q FYMar11 gives the company strong earnings visibility. GDV of its unsold land bank is valued at $3.6b.

Yangzijiang Shipbuilding (KimEng)

Event

We are downgrading Yangzijiang Shipbuilding (YZJ) to a HOLD rating on worries that the outlook for shipping may deteriorate further amid global economic uncertainty. On top of that, investors continued to take issue with the group’s growing investment in its non-core financing business. Despite its undemanding valuation, we do not see any potential stock catalysts in the near-tem given the lingering headwinds and fierce competition among the regional shipyards.

Our View Operationally, YZJ is sitting on comfortable order book of US$5.5b, which will keep its yard busy till 2013. With the remaining two units of 10,000 TEU containerships being made effective, the contract for all seven vessels have been converted to firm orders after the collection of initial deposit. Recall that Seaspan still has an outstanding option for 18 units of similar vessels, which is likely to confirm within the next 12 months.

Granted, YZJ is recognised for its execution track record and leadership in cost control. But we are increasingly negative on the shipbuilding outlook in general with heightened risks of prolonged downcycle especially if global economy goes into a deep recession. Even while newbuild contract dry up, the group may also have to offer longer vessel delivery schedule to existing buyers to avoid order cancelation.

YZJ recently acquired a 31.5% equity stake in Wuxi Runyuan Technology Microfinance Co. Ltd for a total cost of RMB94.5m. The latter is a company licensed to provide microcredit to small and medium technology enterprises. Despite market scepticism, we think this is in fact, a deliberate move by the management to diversify more into its financing business given the less-than-favourable shipbuilding outlook.

Action & Recommendation

Following a sharp de-rating of Chinese shipbuilders, we are cutting our P/E multiple for the group’s shipyard business from 12x to 8x, pegged in line with its sector peers. Accordingly, our target price has been lowered to $1.15, still based on SOTP valuation. Downgrade to HOLD.

Goodpack Ltd - Dilution to set in with warrants expiring in Nov 2012 (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$1.71

Fair Value: S$1.90

In-the-money warrants expiring in Nov 2012. Goodpack currently has 63,998,910 warrants with a strike price of S$0.68 outstanding. As a quick recap, Goodpack issued 93.3m warrants at a price of S$0.22 each in Oct 2009 to raise funds for its working capital purposes. The move was viewed then as a positive as the proceeds raised from the warrant subscription gave Goodpack the financial ability and strength to fully participate in the market recovery in 2009 and allowed it to expand into its planned new avenues of growth. These warrants are due to expire in Nov 2012 and will lapse if not exercised by then. Since its financial year-end in Jun 2011, 268,000 warrants have been exercised.

Financial flexibility from proceeds of warrant exercise. With the remaining warrants in-the-money, we expect the warrants to be fully exercised (barring any significant market event), which will add 13% more shares to its total shares outstanding and raise S$43.5m for the company. Management has communicated to us that they intend to use the proceeds from the anticipated warrant exercise to increase capital expenditure on new IBCs as well as pay down existing loans. Furthermore, given that Goodpack is in the midst of exploring opportunities in the automotive space where it has already initiated trials with global car manufacturers (OEMs) and car parts suppliers, the additional working capital from the warrant exercise should allow it the flexibility to increase their supply of IBCs when required.

Further warrant issuance unlikely. Upon the expiration of these outstanding warrants, management does not intend to pursue another round of fund raising via equity funding (at least in the near term) as existing shareholders have expressed their unwillingness to tolerate another round due to its dilutive nature.

Dilution to kick in; fair value reduced. The warrant exercise did not impact our revenue growth forecasts for the company, which remains at 8% to reflect management's intention to boost its top line by increasing rates on renewed contracts by a total of 10-15% over the life of the contract (typically three years). We also continue to like Goodpack for its strong fundamentals and promising growth potential. However, with the increase in shares outstanding from the warrant exercise, our valuation per share of the company will be reduced correspondingly. Assuming full conversion of the warrants by year-end FY12, our previous fair value estimate of S$2.15 is now reduced to S$1.90 in anticipation of the 13% increase in shares outstanding. Maintain BUY.