OCBC Report 13 Nov 13

KEY IDEA Singapore Residential Property: Prices to dip in 2014 but crash is unlikely While the Fed Fund rate is expected to stay at low levels until at least 2015, we expect increasing caution to set in as the overhang from government measures remains in play and the market grapple with an onerous pipeline of physical supply ahead. Over FY14, we forecast for mass-market residential prices to dip 5%-15% and for high-end residential prices to dip 0%-10%. In light of the subdued outlook for the domestic residential sector, we favor large-cap developers with strong balance sheets and diversified exposure across regional real estate markets. Our top picks in the space are CapitaLand, rated BUY with a fair value estimate of S$3.77 (30% RNAV disc.), and Keppel Land, rated BUY with a fair value estimate of S$4.09 (30% discount to RNAV). (Eli Lee) MORE REPORTS Nam Cheong: Cruising ahead Nam Cheong Limited reported a solid set of 3Q13 results, with revenue surging 140.4% YoY to MYR341.2m and PATMI jumping 86.0% to MYR58.7m. This was the highest ever bottomline achieved by Nam Cheong since its RTO listing in May 2011. Revenue was in-line with our expectations but PATMI exceeded, with 9M13 revenue of MYR851.3m (+71.1%) and PATMI of MYR135.2m (+54.9%) forming 72.4% and 83.4% of our FY13 forecasts, respectively. Looking ahead, we believe that Nam Cheong will be able to leverage on the robust industry outlook to capitalise on growth ahead. We rework our financial model and assumptions following a change in analyst coverage, and derive a new fair value estimate of S$0.37 (previously S$0.35) on Nam Cheong, which is premised on 8.5x FY14F EPS (representing one standard deviation above its historical average forward PER). Maintain BUY. (Wong Teck Ching Andy) KSH Holdings: Good earnings growth momentum   2QFY14 PATMI came in at S$12.2m, up 24% YoY and 6% QoQ, mostly due to stronger contributions from both the property development and construction segments. These results were spot on with our expectations as 1HFY14 PATMI now makes up 49.7% of our full year estimates. An interim dividend of 1.25 S-cents per share was declared. Despite a market cap of S$205m, KSH now holds S$76m in cash with a low net gearing of 6.4%. This provides sizable capital headroom for growth, and we continue to like management’s ability to execute on accretive growth opportunities (LTM ROE: 24%) and balanced approach for capital allocation (FY14F dividend yield: 4.8% yield). Maintain BUYwith an unchanged fair value estimate of S$0.73. Our fair value is based on 5 times FY14F construction earnings and 40% discount to the property segment’s RNAV. (Eli Lee) Petra Foods: A decent 3Q13 Petra Foods’ 3Q13 results met our expectations: revenue increased 10.4% YoY to US$126.9m while core operating profit and PATMI grew 5.4% to US$20.9m and 3.9% to US$14.8m, respectively. For 4Q13, we expect Petra to end the year on a positive note. An expected Indonesian ruppiah appreciation should stem currency losses and aid its gross profit margin while demand should stay stable at current levels on a QoQ basis in its key markets of Indonesia and the Philippines. In terms of its share price, we feel that Petra has over-corrected since its lacklustre 2Q13 results. With our forecasts largely unchanged, we leave our fair value estimate of S$3.95 unchanged and upgrade Petra to BUY on valuation grounds. (Lim Siyi) Noble Group Ltd: Improvement seen in 3Q13 Noble Group (Noble) reported its 3Q13 results last evening, with revenue rising 13% YoY to US$25,595m, buoyed by revenue growth from all three business segments. Excluding non-cash Associate loss of US$103m, core earnings would have come in around US$113.0m. 9M13 revenue of US$73,524m met 74% of our full-year forecast; core earnings of US$194.1m would have met around 64% of our FY13 estimate. Going forward, management says it will continue to focus on long-term efficiency gains made from recent initiatives to reduce SAO and finance cost; also taking full advantage of the current downturn to add significant off-take and marketing agreements. We are upgrading our call from Sell to HOLD with higher S$1.03 fair value (versus S$0.76 previously) to reflect improved outlook. (Carey Wong) City Developments Limited: Cautious on domestic residential space 3Q13 PATMI decreased 10.4% YoY mostly due to the absence of disposal gains booked in 3Q12 for the sale of several industrial strata assets. Due to slower than anticipated recognition at development projects, 9M13 PATMI cumulates to only 66.3% of our FY13 forecast and we judge the latest quarter to be a miss. We lower our FY13 PATMI forecast by 11.4% to S$617.0m. Management indicates that it is turning increasingly cautious of the domestic residential space and will focus on developing its overseas growth engines in London and China. In particular, the group is actively pursuing acquisition opportunities in London and is confident of securing more sites in due course. Maintain HOLD with a lower fair value estimate of S$9.98 (30% RNAV disc.), versus S$11.38 previously, as we opt to raise our RNAV discount closer in line with those at listed peers and to reflect a softer domestic residential outlook. (Eli Lee) Biosensors International Group: Another shocking quarter Biosensors International Group (BIG) turned in another poor set of results, with 2QFY14 core PATMI plunging 60.6% YoY to US$11.5m despite a 4.1% growth in revenue to US$83.0m. This was significantly below ours and the street’s expectations, as 1HFY14 core PATMI of US$23.6m (-59.0%) formed only 30.0% of our original FY14 estimates (27.4% of Bloomberg consensus). BIG also lowered its FY14 revenue guidance. While we had previously cautioned that management would have difficulty meeting its previous 15% topline growth guidance and that BIG was also facing mounting cost pressures, the situation appears to be worse than we had expected. In light of the challenging conditions surrounding BIG, we slash our FY14 and FY15 core PATMI projections by 26.9% and 19.1%, respectively. Our DCF-derived fair value estimate consequently declines from S$0.96 to S$0.80. Downgrade BIG from Hold to SELL. (Wong Teck Ching Andy) Golden Agri-Resources: Another disappointing quarter - SELL Golden Agri-Resources (GAR) continued to feel the blunt of weaker CPO prices and suffered another disappointing quarter, resulting in 9M13 earnings meeting just 51% of our original forecast. While it expects to see the sequential growth in CPO production in 4Q13, GAR now guides for a 5% contraction in CPO production this year (versus earlier 5-10% growth guidance); although it is likely to revert to this usual growth forecast next year. While our FY13 earnings estimate is probably one of the lowest on the street, we need to slash it further by 31% (FY14 by 12%), while keeping our revenue forecasts largely unchanged. No doubt that the worst may be over, we note that the recent price rally looks overdone. As such, we maintain our SELLrating with an unchanged fair value of S$0.465 (based on 12.5x FY14F EPS versus 11x blended FY13/FY14F EPS). (Carey Wong) Singapore Airlines: Competitive pressures remain Singapore Airlines’ (SIA) 2QFY14 results exceeded our expectations following a lower fuel bill and much better-than-forecasted associate performance and one-off gains. (Management also declared an interim dividend of 10 S cents vs. 6 S cents for 1H13). However, despite the improved performance, passenger yields remained depressed as sustained competitive pressures necessitated a prolonged extension of promotional fares. Although management has indicated advance bookings for 3QFY14 to be higher YoY, we feel that the increase is seasonal rather than structural and yields are still likely to stay depressed as a result. Maintain SELL on SIA with an unchanged fair value estimate of S$9.50. (Lim Siyi) ECS Holdings: 3Q13 results within our expectations ECS Holdings (ECS) reported a 4.5% YoY increase in its 3Q13 PATMI to S$8.7m on the back of a 11.4% jump in revenue to S$999.3m. After adjusting for forex and other exceptional items, we estimate that core earnings would have 4.7% higher at S$9.1m. This is in-line with our expectations. For 9M13, revenue increased 18.5% to S$3,107.1m, forming 73.1% of our FY13 forecast. Reported PATMI rose 14.9% to S$14.9m (estimated core earnings climbed 7.8% from S$22.7m to S$24.5m, or 75.3% of our full-year estimate). Looking ahead, ECS will focus on growing its mobile devices business by expanding its distribution coverage and product range to leverage on the expected increase in spending in this area in the IT industry. We will provide more details after meeting up with management. Meanwhile, we maintain our BUY rating but our S$0.56 fair value estimate is under review. (Wong Teck Ching Andy) CSE Global: 3Q13 PATMI lower than expected CSE Global Limited reported its 3Q13 results this morning, with PATMI growing 5.8% YoY to S$11.4m despite a 6.3% decline in revenue to S$122.0m. Revenue came in within our expectations but bottomline missed due largely to a higher-than-estimated effective tax rate. For 9M13, revenue fell 12.5% to S$358.1m while PATMI (before discontinued operations and one-time gains) rose 7.1% to S$36.5m. These formed 73.7% and 71.7% of our full year forecast, respectively. We will attend an analyst briefing and will provide more details thereafter. Our Buy rating and S$0.96 fair value estimate is under review due to a change in analyst coverage. (Wong Teck Ching Andy) Swiber Holdings: So-so set of 3Q13 results Swiber Holdings reported a 3.4% YoY rise in revenue to US$274.2m and a 4.5% increase in net profit to US$7.7m, such that 9M13 revenue and net profit accounted for 72% and 57% of our full year forecasts, respectively. Net profit was lower than ours and the street’s expectations – 9M13 net profit represented 54% of consensus’ full year estimate. Stripping out one-off items, 9M13 recurring net profit was 64% of our full year estimate. Gross margin was 14.2% in 3Q13 vs. 15.3% in 2Q13 and 14.1% in 3Q12; we are likely to reduce our margin assumptions following this weaker-than-expected set of results. Pending an analysts’ briefing later in the afternoon, we put our Buy rating and our fair value estimate of S$0.86 under review.(Low Pei Han) Yangzijiang Shipbuilding: Healthy set of 3Q13 results Yangzijiang Shipbuilding (YZJ) reported a 2% YoY rise in revenue to RMB3.67b and a 6% decrease in net profit to RMB820.7m, such that both 9M13 revenue and net profit accounted for about 80% of our full year forecasts, slightly better than our expectations. Gross profit margin remained healthy at 29.6% in 3Q13 vs. 29.4% in 3Q12 and 27.5% in 2Q13, while administrative expenses were contained at about 2% of revenue in the quarter. Encouragingly, there were also no vessel cessations in 3Q13. Meanwhile, time will be needed for the group to move significantly into the offshore oil and gas sector –its first jack-up rig is scheduled for delivery in mid-2015. Pending an analysts’ briefing later in the morning, we maintain our HOLD rating but put our fair value estimate of S$1.04 under review. (Low Pei Han)

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NEWS HEADLINES - US stocks ended with modest losses on Tue, with the Dow industrials retreating from the previous session’s record close. - Ascendas Hospitality Trust’s 2QFY14 distributable income missed its 2QFY14 IPO forecast due to higher-than-expected taxes. - Straco Corporation reported a 72% YoY surge in net profit to S$15.2m for in 3Q13. - Fraser and Neave posted FY13 net profit of S$5.4b compared with S$837.5m last year, thanks to a S$4.8b gain it made from disposing its discontinued operations. - Religare Health Trust posted a DPU of 2.06 S cents for 2QFY14, narrowly beating its projected DPU of 2.05 S cents. - SBS Transit's net profit for 3Q13 slumped 43.8% to S$3.54m, hit by losses at its two biggest businesses - bus and rail. - Courts Asia's 2QFY14 net profit plunged 55% YoY to S$7.16m. - ARA Asset Management posted a 2% rise in 3Q13 attributable net profit to S$20m on higher REIT management fees.