Wednesday, May 7, 2014

OCBC Report 7 May 14

KEY IDEA

OSIM International: Buoyant start to the year

OSIM International Ltd (OSIM) started FY14 on a bright note, recording a 14.6% YoY and 14.7% YoY increase in its 1Q14 revenue and PATMI to S$172.6m and S$28.8m, respectively. This was within our expectations. An interim dividend of 1 S cent/share was declared, similar to 1Q13. Management highlighted during the analyst briefing that the prospects for its core business remain very positive. We expect this to be driven by its productivity gains and continued product innovation drive, such as the recent launch of its uDiva massager. Keeping our forecasts intact, we maintain BUY and S$3.18 fair value estimate on OSIM, pegged to 20x blended FY14/15F EPS. (Wong Teck Ching Andy)


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Sembcorp Industries: Primed for growth

Sembcorp Industries (SCI) posted an 11.8% YoY rise in revenue to S$2.63b and a 4.5% YoY increase in net profit to S$184.8m in 1Q14, within our expectations. Though competition in the Singapore power market remains intense, the group expects its utilities segment to deliver a steady performance compared to last year. Going forward, SCI’s pipeline of projects is expected to increase its power capacity by more than 70% and its water and wastewater treatment capacity by more than 20% over the next three years, enhancing recurring earnings. We also await more details on the “revival” of SCI’s property development subsidiary, which we see synergies with the industrial park business. Meanwhile, with the lowering of SembMarine’s fair value (from S$5.26 to S$4.90), our SOTP-based fair value also slips from S$6.42 to S$6.17. Maintain BUY. (Low Pei Han)

UOB: Cautiously
optimistic
At the post-results meeting, UOB’s management reiterated that they are still positive on the longer term outlook for China, but prefer to take a more prudent approach to risk management in the near to medium term as the economy undergoes restructuring. Funding costs are poised to move up, and management is focusing on ensuring stability in funding in all its key regional markets. Taking into account the mixed medium-term outlook for the region, we have raised our impairment charge estimates in both FY14 and FY15. We are expecting a 5-8% increase in total operating income, but this will drop to 4-5% at the operating level due to higher operating expenses, raising our cost-to-income ratio to around 45% (from 42%-43% in FY11-FY13). However, we are retaining our fair value estimate of S$22.40 and at current price, we are also retaining our HOLD rating. (Carmen Lee)


SIA Engineering: Stable outlook

SIA Engineering Company's (SIAEC) FY14 results came in within our expectations. FY14 revenue increased 2.7% to S$1.18b, forming 101.4% of our forecast. However, lower margins resulted in PATMI declining 1.6% to S$266m, making up 99.1% of our forecast. A final ordinary and special dividend of 13 S-cents and 5 S-cents respectively were recommended, bringing full-year dividend to 25 S-cents. Though Asian airlines are adding capacity aggressively, bulk of the capacity growth is in the low cost carrier (LCC) segment. As there is typically less earnings from MRO per aircraft for LCCs, we see modest upside and think SIAEC’s outlook will continue to be stable. Incorporating the latest results, we maintain a HOLD rating on SIAEC but raise our FV slightly from S$4.77 to S$4.83 based on 19.0x FY15 EPS. (Yap Kim Leng)


Lippo Malls Indonesia Retail Trust: Another hit from weaker IDR

Lippo Malls Indonesia Retail Trust (LMIR Trust) reported 1Q14 DPU of 0.68 S cents, down 23.6% YoY. This is below market expectations, given that the quarterly distribution only met 18.7%/21.3% of our/consensus FY14 DPU forecasts. Nevertheless, on a sequential basis, DPU represents a 21.4% improvement, aided by hedging and capital management efforts by LMIR Trust. We understand that the currency hedges in place previously were only effective for ~15%-16% of the income. However, over 90% of the income is now covered with the new hedges, which should provide greater stability to LMIR Trust’s distribution going forward. Underlying portfolio performance, we note, has been encouraging thus far, with gross rental income in IDR terms growing 6.3% YoY and portfolio improving 1.8ppt YoY to 95.6% (4Q13: 95.0%). We now lower our fair value slightly from S$0.39 to S$0.37 to account for the weak results. Maintain HOLD. (Kevin Tan)

SingTel: Gets S$6m fine for Bukit Panjang fire

Summary: SingTel has been fined a record S$6m for its role in the fire at its Bukit Panjang internet exchange last Oct. The IDA has called it a “very serious service outage” which disrupted mobile and internet services of hundreds of thousands of subscribers for several weeks; but more importantly, the authority noted that it could have been avoided. SingTel has accepted the IDA’s findings and fine and it has taken steps to ensure similar incidents do not occur. With SingTel due to report its FY14 results on 15 May, we hold off adjusting our estimates – note that we see the fine as a one-off item and we also do not expect it to have any significant impact on the telco’s FY15 bottom-line. For now, we maintain our BUY rating but place our S$3.74 fair value under review. (Carey Wong)

For more information on the above, visit
www.ocbcresearch.comfor the detailed report.


NEWS HEADLINES


- US stocks sold off on Tue as the dumping of momentum plays, such as Twitter Inc. and economically sensitive stocks, including some bank stocks, spread to broader markets.


- Eu Yan Sang's net profit for 3QFY14 rose 4% YoY to S$8.79m while revenue rose 9% to S$110.28m.


- Perennial China Retail Trust posted a DPU of 0.95 S cent for its 1Q14, unchanged from a year ago.


- BBR Holdings' 1Q14 net profit stood at S$5.04m, up from S$2.06m a year ago.


- NSL Ltd posted 1Q14 net profit of S$12.8m, down from S$14.5m in the year-ago period.


- Singapore Exchange recorded its largest number of new bond listings so far this year in Apr, with 56 issues, up 24% YoY.


- The Singapore life insurance industry continued its strong performance from 2013, with a 24% YoY increase in weighted new business premiums in 1Q this year.

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