Thursday, May 8, 2014

OCBC Report 9 May 14

KEY IDEA

Fortune REIT: Promising start for 2014

Fortune REIT’s 1Q14 DPU of 10.38 HK cents (+15.3% YoY) was above our expectations. We note that portfolio occupancy has improved 0.6ppt QoQ to reach 99.3%, while positive rental reversion of 26.5% was achieved. Going forward, management expects Fortune Kingswood and the completed AEIs at Ma On Shan Plaza and Fortune City One Market to contribute to further growth. We understand the HK$80m AEI at Belvedere Square Phase 3 will commence as planned in 2H14, and that ROI of 15% is targeted. For the rest of the year, we also believe there may be opportunities for repositioning and rental growth at Fortune Metropolis and Provident Square, as a sizeable portion of their total GRA will be expiring. After incorporating the better results, our fair value is now raised to HK$6.68 from HK$6.28. Maintain BUY on Fortune REIT. (Kevin Tan)


MORE REPORTS


Petra Foods: Riding on fast-growing markets

Petra Foods’ 1Q14 reported results for continuing operations appears disappointing because of weaker regional currencies against USD on a YoY basis. Reported 1Q14 revenue declined 3.6% YoY to US$122.7m, forming 21.0% of our FY14 forecast. Reported PATMI declined 1.6% to US$13.9m, making up 19.2% of our forecast. However, in constant currency terms, growth is robust as 1Q14 revenue and PATMI increased by 15.7% and 14.8% respectively. Management is optimistic that the Philippines and Indonesia markets will grow at 15% over the coming years. Consequently, Petra Foods will be increasing production capacity over the next three years. We lower our FY14F growth forecast as IDR remains depreciated YTD relative to 1H13. Based on 28x blended FY14/FY15F EPS, we maintain BUY with new fair value estimate of S$4.06 (previous: S$4.08). (Yap Kim Leng)


Hyflux: FY14 likely to remain slow – maintain SELL

Hyflux Ltd made a poor start to FY14, with revenue tumbling 29% YoY to S$88.3m, meeting just 14% of our full-year forecast. Reported net profit came in at S$37.9m, boosted by one-off divestment gain of S$54.1m; excluding that and other exceptional items, Hyflux would have reported a net loss of S$7.2m (versus a core net profit of S$7.5m in 1Q13). With the financial close of the Dahej project in India being delayed further from 1H14 to before end-2014, Hyflux could be looking at a pretty slow FY14 indeed. While the company continues to be actively bidding for new projects in MENA, India and Singapore, we note that the risk of delays to financial close remains. As such, we maintain our SELL rating with a lower S$0.83 fair value (versus S$1.00 previously), still based on 20x blended FY14/FY15F EPS. (Carey Wong)


CWT Ltd: Venturing into financial services

CWT Limited announced that its financial services subsidiary, Straits Financial Services Pte Ltd (SFSPL), has been granted a Capital Market Service Licence by the MAS. With the licence, SFSPL will be able to provide worldwide commodity futures, options and centrally-cleared OTC contracts. We think this will complement CWT’s capability in logistics management and global warehousing facilities by providing an integrated one-stop service on both physical and hedging needs. We view this development positively as it shows CWT is actively growing its business beyond its traditional warehousing business in recent years. The development of its financial services segment could be an additional earnings growth engine in the coming years and provide re-rating should it become sizable enough. We re-iterate our BUYcall with S$1.87 fair value estimate. (Yap Kim Leng)

OUE Commercial Trust: Firm showing for first financial results

Yesterday evening, OUE Commercial REIT (OUE-CT) reported results for the period from 27 Jan 2014 to 31 Mar 2014. Distributable income and DPU for this period came in at S$8.6m and 1.0 S-cent, respectively, which is 3.6% and 4.2% higher than forecasted in its IPO Prospectus and in line with our expectations. In terms of the topline, gross revenues for the period were S$13.8m, similarly 1.0% higher than forecasted. These firm numbers were mostly driven by Lippo Plaza, which saw its occupancy rate increase an impressive 5.2ppt from 91.3% as at end Dec 2013 to 96.5% as at end Mar 2014. The asset also experienced 9.2% positive rental reversion for new leases signed, with current passing rents currently at RMB 9.10 psm / day. OUE Bayfront remains 100% occupied and similarly saw 13.9% positive reversions to attain passing rentals of S$10.61 psf/month. As at end Mar 2014, OUE-CT’s aggregate leverage is 40.8% with an average cost of debt of 2.47%. Maintain BUY with our fair value estimate of S$0.88 under review. (Eli Lee)


ST Engineering: Steady FY14 start

ST Engineering (STE) reported its 1Q14 results this morning, with revenue coming in at S$1551.8m, +0.5% YoY, and met 22% of our FY14 forecast; higher marine revenue was largely offset by lower revenue from the Electronics and Land Systems sectors, while Aerospace had comparable revenue. Nevertheless, profit before tax climbed 5.8% to S$167.9m, led by higher PBT from the Marine sector. NPAT increased 2.4% to S$137.2m, or about 22% of our full-year forecast. Going forward, STE expects to achieve comparable revenue and PBT in 1H14 as that of 1H13; also expects to achieve higher revenue and PBT for FY14 over FY13. Order book inched up from S$13.2b (as of end 2013) to S$13.4b as of end-1Q, and STE expects to deliver S$3.3b of orders in the rest of 2014. We will have more after the analyst briefing later. For now, we maintain our HOLD rating but place our S$3.84 fair value under review. (Carey Wong)


Singapore Airlines: Ending FY14 with special dividend sweetener

Singapore Airlines’ (SIA) revenue came in within expectations (-0.2%) at S$3.6b in 4QFY14. However, operating loss is 19% lower than expected at S$60.3m due to lower-than-estimated fuel costs (-2.3%). On a full-year basis, FY14 revenue increased 1.0% to S$15.2b. Expenditure rose in tandem by 0.8%, though we note that this was greatly helped by average jet fuel prices being 5.2% lower YoY. Consequently, FY14 operating profit increased 13.1% to S$259m. Exceptional items and lower contributions from associates, partially mitigated by the  S$372m gain from the sale of Virgin Atlantic, dragged FY14 PATMI down 5.1% to S$359.5m. A final and special dividend of 11 S-cents and 25 S-cents respectively were proposed, which we expect to lend near-term support to the share price. We maintain HOLD but put our S$9.50 fair value estimate under review pending an analyst briefing. (Yap Kim Leng)


Wilmar: Dismal start to FY14

Wilmar International Limited (WIL) made a dismal start to FY14, with reported net profit tumbling 49% YoY and 56% QoQ to US$161.8m, hit by negative soybean crush margin and lower demand for soybean meal; also higher seasonal losses in its Sugar business. Excluding exceptional items, core earnings came in around US$215m, still down 32% YoY and 39% QoQ, meeting just 15% of our FY14 forecast. Revenue of US$10,268.6m (+1% YoY but down 12% QoQ) met 22% of our full-year forecast. And with China’s economy still looking somewhat uncertain, we place our Buy rating and S$3.65 fair value under review, pending an update from management later. (Carey Wong)

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


NEWS HEADLINES


- The US stock market ended a volatile session on Thu with modest losses, driven by renewed selloffs in previously high-flying names.

- Vicom has posted a 7.4% YoY rise in its 1Q14 net profit to S$8.01m on higher business volume.


- Parkson Retail Asia posted a net profit of S$7.56m for 3QFY14, down 22.6% YoY, partly due to a poorer performance by its Malaysia and Vietnam operations.

- Chip Eng Seng's 1Q14 net profit came in at S$21.6m, up from S$4.67m a year ago, mainly from higher revenue in its property development division.

- Weaker corporate business in Singapore and lower retail sales in Malaysia have pulled down Challenger Technologies' net profit by 26.1% for 1Q14.

- DeClout's IT asset recovery subsidiary, Procurri Corp, will be issuing new shares by the end of this month to raise S$10m to fund its global expansion plans.


- Intraco Limited has unveiled plans to acquire a 70% stake in a homegrown fire-protection specialist for S$16.6m.


- Design Studio's 1Q14 net profit stood at S$2.1m, up from S$716,000 a year ago, owing to higher margins and lower marketing and distribution expenses.

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