Asia Pacific Equity Research | Singapore MARKET PULSE Key Idea Key Singapore Indices STI Catalist Finance Property Electronics Vol(m) Val(S$m) Close 3315.7 150.9 861.7 748.0 425.2 1735.4 1064.9 Chg 10.7 0.5 4.5 2.3 2.9 -5.7 -175.3 % Chg 0.3 0.3 0.5 0.3 0.7 -0.3 -14.1 Close 17634.7 4688.5 2039.8 6654.4 1813.8 24087.4 17490.8 1575.9 1945.1 8982.9 Chg -18.1 8.4 0.5 18.9 -2.0 67.4 98.0 -1.3 -15.4 2.2 % Chg -0.1 0.2 0.0 0.3 -0.1 0.3 0.6 -0.1 -0.8 0.0 World Indices Dow Jones Nasdaq S&P500 FTSE KLCI Hang Seng Nikkei SET KOSPI TWSE Morning Call 17 Nov 2014 Dyna-Mac Holdings: Enquiries remain high Dyna-Mac Holdings reported an 18.9% YoY rise in revenue to S$79.4m and a 43.6% increase in net profit to S$7.6m in 3Q14, bringing 9M14 net profit to S$20.8m, accounting for 72% of our full year estimate. Core PATMI met 75% of our full year figure, in line with expectations. There is still room for the Malaysian yard to grow, and a partnership structure with Keppel in Brazil (similar to Keppel Subic in the Philippines) is possible should there be local content requirements. Looking ahead, the group is still upbeat on order wins in 2015 despite lower oil prices, as it services the production stage of the oil and gas value chain. Enquiries also “remain high”, and we expect more firm orders that will add to its S$223m net order book. With the share price correction, we upgrade the stock to BUY with an unchanged S$0.445 fair value estimate and forecasted dividend yield of ~5.3%. More reports: - Market Statistics (SG) STI No. No. No. 52-week range of gainers of losers of unchanged 2,953 3,388 227 275 161 1.3 116.6 0.4 0.2 75.8 0.0 -0.3 0.0 0.0 1.6 Economic Statistics S$/US$ Yen/US$ 3-mth S$ SIBOR 3-mth US$ SIBOR Crude futures (US$) Research Team (65) 6531 9800 e-mail: [email protected] Wheelock Properties (S) Ltd: Initiatives to rejuvenate Scotts Square - Hotel Properties Limited: Earnings dip due to condo attaining TOP - Olam International: Upgrade to HOLD with S$2.30 FV - ECS Holdings: Cash offer for ECS - Midas Holdings Ltd: 3Q14 earnings way below Expectations - Pacc Offshore Services Holdings: Soft 3Q14 - Libra Group Ltd: Strong order book momentum - KS Energy: Uneventful quarter News Headlines Capitaland has entered a JV with a subsidiary of Credo Group, wherein each will hold 50% stake, to develop an integrated development in Central Jakarta, Indonesia. SGX looks to launch an electronic trading platform for regional corporate bonds next year, and is currently in talks with banks and asset managers. Pacific Radiance has secured a long-term charter contract worth over US$140m for vessel to be delivered in 2016/2017. Sources: MasNet, Bloomberg, Business Times, Straits Times and other media Please refer to important disclosures at the back of this document. MCI (P) 006/06/2014 OCBC Investment Research Market Pulse 17 Nov 2014 Dyna-Mac Holdings: Enquiries remain high group has also paid out dividends of S$0.02/share per year in the past two years, and we expect the same for FY14, translating to an attractive dividend yield of about 5.3%. (Low Pei Han) Enquiries remain high Forecasted div yield ~5.3% Upgrade to BUY . 3Q14 results in line Dyna-Mac Holdings reported an 18.9% YoY rise in revenue to S$79.4m and a 43.6% increase in net profit to S$7.6m in 3Q14, bringing 9M14 net profit to S$20.8m, accounting for 72% of our full year estimate. Stripping out one-off items, core PATMI met 75% of our full year figure, in line with expectations. Revenue was higher as more projects were executed in the Singapore and overseas yards, but gross margin was lower at 22.2% in 3Q14 vs 30.2% in 3Q14 due to higher recognition of costs from overseas yards. . . . . Wheelock Properties (S) Ltd: Initiatives to rejuvenate Scotts Square 3Q14 figures within expectations Rejuvenating Scotts Square retail SG resi headwinds persist 3Q14 results broadly in line 3Q14 PATMI came in at S$11.0m, down 7.2% YoY mostly due to lower progress recognition from Ardmore Three, higher admin expenses and FX losses during the quarter. 3Q14 revenue decreased 17.4% YoY to S$22.8m similarly due to the weaker contributions from Ardmore Three. We judge this quarter’s earnings to be within expectations and 9M14 PATMI now makes up 92.0% of our full year forecast, including the S$109.4 accounting gain in 2Q14 which resulted from moving the group’s stake in Hotel Properties Ltd (“HPL”) from AFS assets to an interest in an associate. Room for Malaysian yard to grow The Malaysian yard, which is still under development, saw a utilitisation rate of about 30% for the year, compared to almost full utilisation rates for the two Singapore yards, Chinese yard and the Philippines yard (Keppel Subic). A similar partnership structure with Keppel in Brazil is possible, should there be local content requirements for Brazil work. Rejuvenating Scotts Square with stronger brands Wheelock Place continues to enjoy strong occupancy (99.7% as at end 3Q14) and positive rental reversion over the quarter, with the blended monthly rent now ~S$13.50 psf per month. Scotts Square retail’s occupancy remained flat QoQ at 93% as at end 3Q14, though we note that average monthly rent dipped marginally from ~S$22 psf as at end 2Q14 to ~S$21 psf as at end 3Q14. Management reports that the exercise to rejuvenate the mall with stronger international luxury labels and F&B concepts is in process, and they will roll out advertising and promotion initiatives over the rest of the year to heighten awareness and entice shoppers for festive shopping. Still expecting to secure orders Looking ahead, the group is still upbeat on order wins in 2015 despite lower oil prices, as it services the production stage of the oil and gas value chain. Enquiries also “remain high”. It has a net order book of S$223m with deliveries till 2016, and the group has also secured letters of intent (LOI) for the construction of FPSO modules from repeat customers. Two of the contracts are likely to be inked by the end of this year, and we estimate a combined contract value of about S$100-150m. YTD, the group has secured contracts of $92m, excluding the LOIs. Persistent residential headwinds in Singapore We note persistent headwinds in the domestic residential sector, particularly in the high-end segment, and the sales status at the group’s Scotts Square residential towers remained stagnant over the quarter with 79% of total units sold (268 units sold out of Upgrade to BUY Dyna-Mac’s share price has corrected 14% since our last hold rating on the company in early Sep, and now with the potential upside of more than 20% (this includes dividends) to our unchanged fair value estimate of S$0.445, we upgrade the stock to BUY. The 2 OCBC Investment Research Market Pulse 17 Nov 2014 338 total units). Management indicates that their current focus is to lease unsold units, and 33 units have been leased to date with average rentals above S$5.2k pm. At Ardmore Three, three units out of the total 84 units have been sold to date (ASP: S$3.2k psf) while the 698-unit The Panorama is now 40% sold (282 units sold). Maintain BUY with an unchanged fair value estimate of S$2.38. (Eli Lee) . . . . Maintain BUY with unchanged S$5.32 FV estimate The group’s balance sheet remained firm as at end Sep 2014 with S$129.3m in cash and 49.2% net gearing. Our investment thesis continues to be underpinned by significantly under-valued prime Orchard assets in the group’s real estate portfolio portfolio which are ripe for potential redevelopment. To reflect the uncertainty of redevelopment ahead, however, we opt to assign a punitive a punitive 35% discount to HPL’s RNAV of S$8.20 per share, which yields a fair value estimate of S$5.32. Maintain BUY. (Eli Lee) . Hotel Properties Limited: Earnings dip due to condo attaining TOP . PATMI dip due to condo 1Q14 TOP 3Q14 numbers broadly in line Hotels performance remain firm . . . . Olam International: Upgrade to HOLD with S$2.30 FV 3Q14 PATMI down due to absence of Tomlinson Heights contributions Hotel Properties limited (HPL) reported 3Q14 PATMI of S$15.1m, down 70.0% YOY mostly due to the absence of contributions from the Tomlinson Heights condominium, which achieved TOP over in 1Q14, and lower share of results from associates/JV, which decreased S$25.3m to S$0.3m as the Interlace achieved TOP in Sep-13. The YoY dip in 3Q14 earnings was also aggravated by a S$12.6m non-recurring gain in 3Q13 from the disposal of investment assets in Kensington Square, London. That said, the figures from the hotels and resorts division remained healthy, with the Group’s resorts in Maldives and Bali putting in higher contributions over the quarter. In terms of the top line, 3Q14 revenues dipped 18.9% to S$146.0m, again due to the impact from Tomlinson Height’s TOP earlier this year. 9M14 PATMI now makes up 88% of our full year forecast and we judge 3Q14 figures to be in line with expectations. 1QFY15 NPAT below forecast More divestments in 2QFY15 Valuations not as stretched Muted start to FY15 Olam posted a muted start to FY15. While 1QFY15 revenue eased 0.5% YoY to S$4298.6m, EBITDA fell 11.9% to S$219.4m, it attributed the fall to adverse price movement in its hazelnuts and dairy business, coupled with execution challenges in upstream dairy. Reported net profit edged 3.1% lower to S$44.3m; but operational PATMI slipped 29.4% to S$32.2m. As a whole, revenue met 20% of our FY15 forecast, but operational PATMI only met 7%, which we deem to be below our expectations (first quarter earnings typically make up about 11% of full-year). Weaker Food Staples & Packaged Food By segments, Edible Nuts did better, aided by strong performance from upstream Almonds, US Peanuts; but it did see some weather-related impact on its Hazelnuts business, which may continue into 2QFY15. Confectionary business was fairly stable, and likewise for Industrial Raw Materials. But Food Staples & Packaged Food turned in a weaker showing (revenue, volume and Soft marketing started for London units Management noted that the group’s hotels and resorts typically perform well in the last quarter of the year, though possible headwinds could appear through political uncertainties and the potential escalation of the Ebola outbreak. In London, the group has commenced soft marketing of apartments at Burlington Gate and Campden Hill and income from these will be recognized on a COC basis on completion. In Singapore, however, the group highlights that sentiments in the residential market remain weak, with both transaction volumes and prices declining. EBITDA all slipped), impacted by sharply lower milk prices and yields in Uruguay dairy farming. And management notes that the execution challenges in upstream dairy could continue into 2QFY15. More divestments expected in 2Q15 Going forward, Olam will continue to make the divestments as outlined in its FY14-16 Strategy Plan. Three announced initiatives, which are expected to be completed in 3 OCBC Investment Research Market Pulse 17 Nov 2014 2QFY15, are likely to release further cash of ~S$313.1m, generate a (one-time) P&L gain of S$22.4m, and add S$118.8m directly to its capital reserves. Olam still has a target of being FCFF positive, although 1QFY15 FCFF was a negative S$54.6m (FCFE was a large S$160.3m negative due to the net interest paid). margin segment. Unchanged FV; ACCEPT the offer Taking into account its latest results, we retain our forecasts and reinstate our previously under review FV of S$0.68. The cash offer of S$0.68 proposed by VST represents a premium of 11.48% over its last traded price on 22-Sep (last trading date prior to suspension), and 9.15% to its 6month volume weighted average price up to 22-Sep. We believe the offer by VST presents a good opportunity for investors to exit the illiquid market for ECS shares. The average daily trading volume for ECS during the 6month period up to 22-Sep was only ~102,297 shares, representing less than 0.04% of the total number of issued ordinary shares. Furthermore, VST does not intend to take any steps to restore public float to lift the suspension of trading. Hence, with the offer price of S$0.68/share meeting our FV estimate, we think the offer is fair and recommend shareholders to accept the offer. (Eugene Chua) Easing FV to S$2.30; upgrade to HOLD We are paring our FY15F earnings by 4% to account for the weaker 1Q showing; this also reduces our fair value from S$2.38 to S$2.30 (still based on 12.5x FY15F EPS). However, due to the fall in share price over the last quarter, we think that valuations are not as stretched as before. Hence we upgrade our call to HOLD. (Carey Wong) . . . . . ECS Holdings: Cash offer for ECS VST’s S$0.68/share offer for ECS Intends to delist ECS Accept the offer . VST Holdings Limited to make cash offer for ECS Last Friday night, ECS announced that VST Holdings Limited (“VST”), which has 89.5% shareholdings in ECS, intends to make an unconditional cash offer of S$0.68/share for all the remaining ordinary shares it does not currently own. Separately, VST also proposed to pay holders of outstanding options a cash amount by which the offer price (S$0.68/share) is in excess over the exercise price of the options, provided that the option holders do not exercise their options by the close of the unconditional cash offer. Note that VST intends to delist and make ECS its wholly-owned subsidiary. That is if entitled to, VST will exercise its rights of compulsory acquisition of the remaining ordinary shares. . . . . Midas Holdings Ltd: 3Q14 earnings way below expectations Midas Holdings Ltd’s (Midas) 3Q14 results showed huge disappointment as it came in way below our expectation. While revenue grew 7.7% YoY to RMB324.2m on the back of higher revenue from its Aluminium Alloy Extruded Products Division, PATMI plunged 91% to RMB1.5m due to higher start-up and finance costs arising from its new plants. Midas’ 3Q14 administrative and finance expenses jumped 42.1% and 117.0% to RMB36.5m and 35.5m respectively, eroding the 6.2 ppt gain in gross profit margin of 27.0%. A 96.9% drop in share of profits of an associate, Nanjing SR Puzhen Rail Transport Co Ltd (NPRT) further contributed to a lower PATMI. 9M14 revenue rose 21.6% to RMB957.3m while PATMI dropped by a significant 19.3% to RMB21.3m, as they formed 70.5% and 56.2% of our FY14 projections, respectively. We expect higher start-up and finance costs to continue into 2H15 as we estimate commercial production from the new plants will only gradually commence from 4Q15. Pending a conference call with management later in the morning, we put our BUY rating and FV of S$0.50 under review. (Eugene Chua) Latest 9M14 results update For 9M14, ECS’ PATMI came in slightly below our expectation as it formed 72.0% of our FY14 projections while revenue was in-line at 74.1% of our FY14 projections. ECS’ 9M14 revenue declined 1.1% to S$3.1b while PATMI grew 1.2% to S$26.2m as its strategy to shift focus from the lower margin DT segment to higher margin ES segment appears to be paying off. Furthermore, we think ECS is on track to meet our FY14’s PATMI projection as we expect PATMI to grow further with strategy to focus on higher . 4 . . . . OCBC Investment Research Market Pulse 17 Nov 2014 Pacc Offshore Services Holdings: Soft 3Q14 KS Energy: Uneventful quarter KS Energy reported a 34.2% YoY rise in revenue to S$58.5m and a net loss of S$0.6m in 3Q14 vs. a net profit of S$0.2m in 3Q13. This brings 9M14 PATMI to S$46.4m vs. our full year estimate of S$51.5m, boosted by a rig sale in 2Q14. Core PATMI in 9M14 is estimated to be about S$3m vs. our full year figure of S$8m. Profit after tax in 3Q14 was a respectable S$3.3m but PATMI slipped due to the reallocation of profits to shareholders from 80% of the profits of a subsidiary to 50%. This arose due to the payment of dividends by a subsidiary totaling S$8.6m. If not for the dividend payment, PATMI would have been S$1.9m. Pending more details from management, we put our Buy rating and fair value estimate of S$0.58 under review. (Low Pei Han) Pacc Offshore Services Holdings (POSH) reported a 3% YoY rise in revenue to US$67.0m but saw a 30% fall in net profit to US$14.6m in 3Q14, bringing 9M14 net profit to US$63.2m. However, excluding one-off items such as vessel disposal gains, we estimate core net profit to be about US$3m in the quarter, below expectations. This was partly due to lower gross margins of 25.9% in 3Q14 vs 41.1% in 3Q13 and 30.1% in 2Q14. Share of JV results was also a negative US$5.7m, mainly due to the JVs in Mexico. Looking ahead, the group’s SSAV, POSH Xanadu, is expected to generate revenue towards the middle of 1Q15, while the other SSAV, POSH Arcadia, is scheduled to be delivered in 2Q15 and efforts are underway to secure employment. With the change in analyst coverage and pending details from management, we put our Buy rating and fair value estimate of S$1.21 under review. (Low Pei Han) . . . . . . Libra Group Ltd: Strong order book momentum Summary: Last Friday evening, Libra announced that it has been awarded S$9.5m of M&E contracts, which brings its order book up to an estimated S$94.4m year-to-date. This is ~3.0x of last year’s revenues (FY13: S$31.5m) and represents strong order book momentum for the group which has announced S$21.6m of new contracts over the last two months. The latest awards comprise a S$5.4m M&E contract for a proposed condo project at Tampines St 86 (to be completed in Jul-16), and a S$4.1m sub-contract for a teaching facilities building (Block 8A) at Temasek Polytechnic (to be completed in Aug-15). We believe the new management team is gaining good traction in terms of growing business volumes, while leveraging on tailwinds from the firm public construction outlook. Since our initiation on Libra as our top pick in the small cap space on 27 Oct, its share price has appreciated 7.5% to date and we continue to see value at current levels given significant potential for earnings and dividends growth ahead. Reiterate BUY with an unchanged fair value estimate of S$0.33. (Research Team) . . . . . 5 . . . . OCBC Investment Research Market Pulse 17 Nov 2014 Calendar of key events 17-Nov-14 18-Nov-14 19-Nov-14 Swissco 3Q14 Willas-Array 1H15 King Wan 2QFY14 US Oct CPI CN Oct Property Prices US Nov Housing Starts US Oct Existing Home Sales 25-Nov-14 26-Nov-14 27-Nov-14 28-Nov-14 Xpec HY15 SG Oct Bank Loans and Advances Thai Bev 3Q14 20-Nov-14 21-Nov-14 SG Oct NODX 24-Nov-14 SG Oct CPI US 3Q GDP SG Oct Ind Production US Nov Consumer Conf Index US Oct Durable Goods Orders SG Oct Money Supply US Oct New Home Sales 01-Dec-14 02-Dec-14 03-Dec-14 04-Dec-14 05-Dec-14 US Nov ISM Mfg US Nov unemployment Rate CN Nov Mfg PMI US Oct Chg in Nonfarm Payrolls 08-Dec-14 09-Dec-14 10-Dec-14 11-Dec-14 12-Dec-14 CN Nov Exports CN Nov CPI CN Nov New Yuan Loans US Nov Retail Sales Adv CN Nov Money Supply CN Nov Retail Sales (13th Dec) CN Nov Ind Production 15-Dec-14 SG 3Q Unemployment rate 16-Dec-14 17-Dec-14 18-Dec-14 SG Nov NODX CN Nov Property Prices SG Oct Retail Sales Notes: Sourced from Bloomberg All US Tech results dates have been adjusted to Singapore dates. US Initial jobless claims are released every Friday. MBA mortgage applications are released every Wednesday. 6 19-Dec-14 OCBC Investment Research Market Pulse 17 Nov 2014 SHAREHOLDING DECLARATION: For shareholding disclosure on individual companies, please refer to the latest reports of these companies. DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. 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