Sunday, March 16, 2014

DBS Vickers Report 17 Mar 14

Today’s Focus
􀂃 Soilbuild REIT - Maiden accretive acquisition in
Woodlands; maintain BUY, TP revised slightly higher to
S$0.89
STI’s pullback off 3145 to 3073 last week is within our
expectations. Ongoing uncertainty between Russia and
Ukraine as well as concerns about the slowing China
economy was reasons behind investors’ caution. The FED
meets mid-week to decide on interest rates and the QE3
tapering pace. Consensus expects the FED funds rate to stay
unchanged at 0.25% while the monthly bonds purchase is
expected to be cut to USD55bil from USD65bil
We maintain our view for the current correction to find
support at 3000-3050. With the index now fallen closer to
our indicative support range, we switch our stance to one of
“bargain hunt on weakness” from “near-term cautious”
earlier on. We see the likelihood of STI heading above 3150
beyond 1QCY13 should the US economic activities warm up
again with the end of the cold winter and rekindle recovery
optimism.
Historically, the period starting around mid-March spanning
through April is good for equities and odds are for a positive
index return in coming weeks once the current pullback ends.
STI delivered positive returns during this period in 7 out of the
past 10 years and was negative in only 2. The average return
over a 10-year period from 2004-2013 was 5.7%. Bargain
hunting ahead of blue chips’ going “ex-dividend” mostly
during the April-May period is a possible reason why STI’s
performance has been historically positive.
Soilbuild REIT (SBREIT) announced it has acquired 39 Senoko
Way, from Tellus Marine Engineering for a total consideration
of S$18m. The initial yield is estimated to be north of 7.5%,
which is higher than the portfolio average of 6.3%. Given
sufficient debt headroom, SBREIT will be funding this
acquisition using debt and gearing is estimated to increase to
c. 30.7%. We have raised FY14-15F earnings by c1.5% each
as we include this acquisition in our forecasts. Yields are
attractive at c7.9-8.5%, one of the highest amongst the
industrial REITs. Maintain BUY, TP revised slightly higher to
S$0.89 (Prev S$ 0.87).
US Indices Last Close Pts Chg % Chg
Dow Jones 􀀙 16,065.7 (43.2) (0.3)
S&P 􀀙 1,841.1 (5.2) (0.3)
NASDAQ 􀀙 4,245.4 (15.0) (0.4)
Regional Indices
ST Index 􀀙 3,073.7 (7.7) (0.2)
ST Small Cap 􀀘 536.9 0.2 0.0
Hang Seng 􀀙 21,539.5 (216.6) (1.0)
HSCEI 􀀙 9,298.6 (24.3) (0.3)
HSCCI 􀀙 3,977.2 (50.2) (1.2)
KLCI 􀀙 1,805.1 (13.7) (0.8)
SET 􀀘 1,372.2 1.7 0.1
JCI 􀀘 4,878.6 152.5 3.2
PCOMP 􀀙 6,391.2 (38.6) (0.6)
KOSPI 􀀙 1,919.9 (14.5) (0.7)
TWSE 􀀙 8,687.6 (60.2) (0.7)
Nikkei 􀀙 14,327.7 (488.3) (3.3)
STI Index Performance
Singapore
Total Market cap (US$bn) 570
Total Daily Vol (m shrs) 2,278
12m ST Index High 3,454
12m ST Index Low 2,960
Source: Bloomberg Finance L.P.
Stock Picks – Large Cap
Rec’n Price (S$)
14 Mar
Target Price
(S$)
ComfortDelgro Buy 1.950 2.19
Global Logistic Properties Buy 2.760 3.31
Keppel Corp Buy 10.460 12.60
Yangzijiang Buy 1.060 1.45
Stock Picks – Small /Mid Cap
Rec’n Price (S$)
14 Mar
Target Price
($)
Ezion Holdings Buy 2.140 3.26
Goodpack Buy 2.000 2.25
China Merchants Buy 0.960 1.32
Pacific Radiance Ltd Buy 0.985 1.20
Nam Cheong Buy 0.330 0.43
Source: Bloomberg Finance L.P., DBS Bank
Singapore
Wired Daily
Page 2
Our analyst visited Centurion’s Toh Guan permanent
dormitory and Tuas temporary dormitory last week.
Centurion stand out as a welfare and safety minded
dormitory operator in contrast to other factory-converted
or purpose built dormitories which merely provide sleeping
areas and minimal ancillary facilities for residents. Phase 2
of Toh Guan hits 50% occupancy, and is expected to fill up
within the next two months, according to management.
We like Centurion for its strong income visibility and
growth over the next two years – we have forecasted 70%
growth in core earnings for FY14. Furthermore, FY14 will
see a one-off contribution of c.S$16m from the sale of
industrial land in Mandai. We maintain our BUY call, with
target price of $0.86.
Vard Holdings has secured new contracts for the design
and construction of two Platform Supply Vessels (PSV) for
Mermaid Marine Australia. The vessels will be delivered
from Vard Vung Tau in Vietnam in 4Q 2015 and 1Q 2016
respectively.
Interra Resources has conditionally agreed to sell a 90%
stake in its wholly owned subsidiary, Goldwater LS (GLS),
to PT Mitra Investindo (MITI) for US$13.5m. GLS owns IBN
Oil Holdico (IBN), which is the sole operator of the Linda
Sele field in the province of West Papua, Indonesia. It has a
tenure of 20 years, expiring in October 2018. The
estimated realised loss on disposal pursuant to the
proposed disposal is US$1.9m, Interra said.
Singapore Airlines Cargo will make a financial provision of
$6m in the current financial year as it settles a class action
which was launched in Australia in 2007. The class action
was brought against a number of airlines, including SIA
Cargo, in the wake of competition investigations in the air
cargo market.
Singapore's non oil exports grew more than expected in
February, due to more shipments of non electronic goods
and pharmaceuticals. NODX rose 9.1% y-o-y in February
after declining 3.3% in January, better than market
expectation for a 7.5% expansion. Exports rose 7.2% m-om
in seasonally adjusted terms after declining 5.0%
January. The market projected a 1.0% gain. Shipments to
China rose 35.5% compared with a 15.3% rise in January.
Exports to the European Union rose 3.4% after gaining
9.5% the previous month. Exports to the US rose 22.3%
after a 5.3% gain in January. Electronics exports declined
3.7% compared with a 17.0% decline in January. Non
electronics shipments gained 15.4% after a 3.5% rise in
January. Pharmaceutical exports rose 21.8% compared
with a 9.4% decline the previous month.
Singapore retail sales edged up 0.1% y-o-y in January this
year, as sales of motor vehicles took a dive. Stripping out
the sales of vehicles, retail sales rose 9.2% from a year
earlier. Sales of motor vehicles fell 33.2% y-o-y, but went
up 2.5% m-o-m. On a month-on-month, seasonally
adjusted basis, retail sales crept up 0.6% in January and
inched up 0.2% after excluding sales of motor vehicles.
Sales of food & beverages (F&B), supermarkets and
department stores got a boost from the Chinese New Year
holidays in January, surging by 44.9%, 19.4% and 18%
respectively from the corresponding month in 2013. Other
categories which reported higher sales year-on-year include
medical goods & toiletries (up 10.2%) as well as watches &
jewellery (up 9%).
The People’s bank of China (PBoC) announced on Saturday
that it will widen the USD/CNY trading band to ±2%
around parity from the present ±1%; effective 17 Mar. The
move is in line with our economist’s expectation and a sign
of confidence that the authority had successfully fought off
a plague of currency speculators. Since early-Feb, the yuan
has been guided weaker by the PBoC after achieving a
record high in mid-Jan. The band was last widened in April
2012 to ±1% around parity from ±0.5%. After the move,
the yuan was allowed to sink about 1.5% over a roughly
three-month period. This time around, however, we are
cautious against expecting a repeat of the bearish yuan
trading behavior witnessed after the 2012 band widening.
Back then, the Eurozone crisis was capitulating from the
political backlash against austerity in 2Q12. Today, the
recovery of the Eurozone and the US economy should
warrant China’s current account surplus to likely remain a
sizable USD282 bn or 2.6% of GDP based on our
projection. We reckon that the constructive outlook should
continue to see USD/CNY stay in the lower half of the new
trading band over the course of 2014.

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