Surprising market size — Normalizing Resorts World Sentosa’s 2Q10 gaming
revenue and making it comparable to that earned by Marina Bay Sands during the
65 days it operated in 2Q10, we believe RWS had a market share of ~67% vs MBS’
~33%. We anticipate MBS to fight back and RWS to see its market share normalize
to ~60%, which implies that the two casinos could generate total gaming revenue of
US$3.8bn in 2011 (vs. our previous assumption of US$3.1bn).
Blowout 2Q numbers — GENS reported revenue of S$860.8m and EBITDA of
S$503.5m during 2Q10, beating both our estimates and consensus of ~S$220m by
miles with a very robust 2Q EBITDA margin of 58%. Although management
attributed the strong results to a higher than average hold rate, we believe VIP
rollings and mass market drops also rose materially.
Strong balance sheet — During 1H10, GENS drew down the remaining S$900m
from its syndicated loan facility to fund its construction of phase two at RWS. We
believe that the operator is now close to peak-CAPEX gearing level. On our
estimates, the operator’s 2010 debt-to-EBITDA multiple is a healthy ~3.5x, and the
ratio is expected to improve going forward, given the solid operating cash flows
generated from the casino. One concern on the B/S though is the rising accounts
receivable balance, which we believe is due to the increase in VIP gaming volume.
Upgrade to Buy (1M) — We like GENS because, based on the data points available
to date, GENS apparently has the right casino product that appeals to the market
and will continue to dominate the Singapore market in the near term, in our view.
We continue to value the stock on a blend of DCF and SOTP (consistently on
Macau’s sector EV/EBITDA multiple of ~12.5x). Consequently, we raise our TP from
S$0.99 to S$1.55 and upgrade the stock from Sell (3H) to Buy (1M).
We transfer coverage from Dominic Noel-Johnson to George Choi.
Saturday, August 14, 2010
UOB - Citi
Loan Demand - Mgmt noted that credit demand is driven more by working capital
requirements (rather than capex needs), while also seeing more corporates going to
the capital markets for funds. At group level, mgmt expects high single digit loan
growth for 2010, but added that profitability is more important than volume growth.
Increased demand for longer-tenor fixed rate loans by corporates seeking to lock-in
low interest rates, but UOB not keen to compete in this segment.
S$5bn MTN Program - Mgmt also noted an increase in demand for US$-loans by
corporates. The recent establishment of the S$5bn euro MTN program will provide
bank with additional capacity and flexibility to fund US$-loans when needed.
Growth Drivers - 1) Growing regional contribution. Regional markets offer better
margins (relative to Singapore); Mgmt looks to lift contribution from overseas units
to 40% (1H10: 33%). 2) Growing fee income. Increase cross-selling efforts, and
focus on growing customer’s wallet size. Efforts supported by having an integrated
platform and product suite across the region.
Singapore outlook - Keen competition likely to put pressure on loan yields,
particularly in the consumer and large corporate space. SME banking space also
seeing more competition, though mgmt added that the recent crisis has further
demonstrated importance of long-term relationship, noting that clients appear to be
more willing to pay a premium in return for reliable (“through the cycle”) banking
relationship.
Others. [1] Asset quality remains good, no new NPL formation from Asian
corporates. [2] In China, UOB hopes to bring down LDR (c.140%) by garnering
more retail deposits. LDR lower than or near 100% in other regional mkts.
requirements (rather than capex needs), while also seeing more corporates going to
the capital markets for funds. At group level, mgmt expects high single digit loan
growth for 2010, but added that profitability is more important than volume growth.
Increased demand for longer-tenor fixed rate loans by corporates seeking to lock-in
low interest rates, but UOB not keen to compete in this segment.
S$5bn MTN Program - Mgmt also noted an increase in demand for US$-loans by
corporates. The recent establishment of the S$5bn euro MTN program will provide
bank with additional capacity and flexibility to fund US$-loans when needed.
Growth Drivers - 1) Growing regional contribution. Regional markets offer better
margins (relative to Singapore); Mgmt looks to lift contribution from overseas units
to 40% (1H10: 33%). 2) Growing fee income. Increase cross-selling efforts, and
focus on growing customer’s wallet size. Efforts supported by having an integrated
platform and product suite across the region.
Singapore outlook - Keen competition likely to put pressure on loan yields,
particularly in the consumer and large corporate space. SME banking space also
seeing more competition, though mgmt added that the recent crisis has further
demonstrated importance of long-term relationship, noting that clients appear to be
more willing to pay a premium in return for reliable (“through the cycle”) banking
relationship.
Others. [1] Asset quality remains good, no new NPL formation from Asian
corporates. [2] In China, UOB hopes to bring down LDR (c.140%) by garnering
more retail deposits. LDR lower than or near 100% in other regional mkts.
Singapore Technologies Engineering
Stronger MRO expected in 2011 — Management sees further upside to the MRO
segment since pickup in both air and cargo traffic has yet to completely filter down
towards MRO demand, with selected airlines deferring heavy maintenance to
conserve cash. A 6-12 month lagged effect of air traffic on MRO is expected. On
PTF (passenger to freighter) conversion, possibility of more conversion wins is not
ruled out, replacing B727s with B757s, while delivery schedule for the existing
Fedex contract could be brought forward in 2011, boosting top line growth.
Stronger MRO margins — MRO margins recovered from 8.7% in 1Q09 (trough) to
12.8% in 2Q10 and the trend of improving margin should continue into 2H10-
2011. Better orderbook mix, as well as higher margins achieved on PTF
conversions (post early stage learning curve), are reasons enhancing profitability.
Outlook from China — Management is upbeat on the presence it has established in
China. Growth will be broad based, driven by multiple MRO partnerships, Land
Systems (infrastructure), as well as Electronic products (communication). We
believe revenue contribution could double from current mid single digit level, albeit
from a small base within the next 2-3 years.
Marine business — Management is positive on the marine sector outlook despite
negative headwinds, and opine recent military shipbuilding yard closures in the US
has a minimal impact due to different product mix. Growth strategy remains
unchanged, aligning cost structure to be competitive and targeting both niche
commercial vessels and US government contracts. ST Eng is "SSA" qualified and
able to bid for US military projects. Should it succeed, there will be tremendous
growth potential given the size of the addressable market.
segment since pickup in both air and cargo traffic has yet to completely filter down
towards MRO demand, with selected airlines deferring heavy maintenance to
conserve cash. A 6-12 month lagged effect of air traffic on MRO is expected. On
PTF (passenger to freighter) conversion, possibility of more conversion wins is not
ruled out, replacing B727s with B757s, while delivery schedule for the existing
Fedex contract could be brought forward in 2011, boosting top line growth.
Stronger MRO margins — MRO margins recovered from 8.7% in 1Q09 (trough) to
12.8% in 2Q10 and the trend of improving margin should continue into 2H10-
2011. Better orderbook mix, as well as higher margins achieved on PTF
conversions (post early stage learning curve), are reasons enhancing profitability.
Outlook from China — Management is upbeat on the presence it has established in
China. Growth will be broad based, driven by multiple MRO partnerships, Land
Systems (infrastructure), as well as Electronic products (communication). We
believe revenue contribution could double from current mid single digit level, albeit
from a small base within the next 2-3 years.
Marine business — Management is positive on the marine sector outlook despite
negative headwinds, and opine recent military shipbuilding yard closures in the US
has a minimal impact due to different product mix. Growth strategy remains
unchanged, aligning cost structure to be competitive and targeting both niche
commercial vessels and US government contracts. ST Eng is "SSA" qualified and
able to bid for US military projects. Should it succeed, there will be tremendous
growth potential given the size of the addressable market.
Sembcorp Industries - Citi
Buy: Weakness in UK Offset by Strength in Asia & Mid East
Maintain Buy —We still like SCI, given its expansion pipeline in the Utilities division,
and more aggressive acquisition roadmap. The possibility of its Marine division
securing a substantial contract from Petrobras could also be a stock catalyst.
Despite the rise in the share price, Utilities stub valuation is inexpensive at 10.3x
2011PE (vs.15x for regional peers). We maintain our Buy call.
2Q10 Results — PATMI of S$161m (+2% QoQ; +14% YoY) was in-line with mkt
expectations, bringing 1H10 profit to S$320m (48% of our FY10 est). Earnings
growth YoY was largely driven by the grp’s marine business (+18% QoQ; +26%
YoY; 67% of PATMI), which achieved higher gross profitability through i) executing
projects ahead of schedule; and ii) productivity gains. Utilities delivered S$52m
profit (+8%YoY), underpinned by growth from Singapore (+11%) and China,
Vietnam and UAE (+23%). 1H10 (annualized) ROE stood at 18.4%.
Utilities Operations in UK remain challenging.. — 2Q10 PATMI from the group’s
UK operations fell 39% YoY to S$8m due to closure of customer facilities and lower
mkt spreads. Mgmt is in the process of right-sizing operations and expects current
mkt spreads for power to improve in the longer term. New condensing turbines are
being installed to provide flexibility between steam and power production by 3Q11.
The UK enjoyed a S$7.5m one-off gain due to closure of defined benefit pension
scheme to future accrual
.. But experiencing robust growth in other regions— i) Utilities operations in China
grew in 1H10 and poised to continue in 2H10; ii) Capacity expanding in ME, with
Salalah IWPP project to complete in 1H12 and 30% desalination capacity increase
in Fujairah scheduled for completion by end 2013; iii) Establishing wastewater
facility (9,600m3/day) in Tembusu (Jurong Island) by 2Q12 (with key customer,
LANXESS, secured); iv) Acquisition % of Cascal incurred ~S$9m in related cost.
Maintain Buy —We still like SCI, given its expansion pipeline in the Utilities division,
and more aggressive acquisition roadmap. The possibility of its Marine division
securing a substantial contract from Petrobras could also be a stock catalyst.
Despite the rise in the share price, Utilities stub valuation is inexpensive at 10.3x
2011PE (vs.15x for regional peers). We maintain our Buy call.
2Q10 Results — PATMI of S$161m (+2% QoQ; +14% YoY) was in-line with mkt
expectations, bringing 1H10 profit to S$320m (48% of our FY10 est). Earnings
growth YoY was largely driven by the grp’s marine business (+18% QoQ; +26%
YoY; 67% of PATMI), which achieved higher gross profitability through i) executing
projects ahead of schedule; and ii) productivity gains. Utilities delivered S$52m
profit (+8%YoY), underpinned by growth from Singapore (+11%) and China,
Vietnam and UAE (+23%). 1H10 (annualized) ROE stood at 18.4%.
Utilities Operations in UK remain challenging.. — 2Q10 PATMI from the group’s
UK operations fell 39% YoY to S$8m due to closure of customer facilities and lower
mkt spreads. Mgmt is in the process of right-sizing operations and expects current
mkt spreads for power to improve in the longer term. New condensing turbines are
being installed to provide flexibility between steam and power production by 3Q11.
The UK enjoyed a S$7.5m one-off gain due to closure of defined benefit pension
scheme to future accrual
.. But experiencing robust growth in other regions— i) Utilities operations in China
grew in 1H10 and poised to continue in 2H10; ii) Capacity expanding in ME, with
Salalah IWPP project to complete in 1H12 and 30% desalination capacity increase
in Fujairah scheduled for completion by end 2013; iii) Establishing wastewater
facility (9,600m3/day) in Tembusu (Jurong Island) by 2Q12 (with key customer,
LANXESS, secured); iv) Acquisition % of Cascal incurred ~S$9m in related cost.
OCBC - Citi
Net interest income – Credit demand remains firm and broad-based, from both
consumer and business (corporates and SMEs), and across various sectors. Most
loans originated are on floating rates rather than fixed. NIM fell 7bps QoQ in 2Q10
due to various factors: Blending effects from consolidating Bank of Singapore
(BoS)’s loan portfolio (c.1-2bps), lower gapping opportunities, thinner loan spreads,
and generally lower interest rate environment. Mgmt noted some foreign banks
have been more aggressive in the corporate lending space. As such, spreads have
narrowed, but remain above pre-crisis 2007 levels. For the rest of the year, mgmt
expect loans spreads to stay fairly stable.
Update on regional businesses- Malaysia: Accounted for 26% of OCBC’s 1H10 PBT.
OCBC is the largest foreign bank in Malaysia (by asset) focusing on the SME
segment, though housing loan momentum has also picked up in 1H10. Interest
margins helped by BNM rate hike (2Q10 +19bps QoQ). Recent pick-up in
expenses reflects tighter labor market, plus increased business volumes. Indonesia.
Bank OCBC NISP largely focused on the SME segment, but has been adding
exposure to consumer loans (c.30% of loan book). 2Q10 NIM dipped 21bps QoQ
partly on increased consumer loans (lower margin), and higher deposit costs due to
competition from some foreign banks.
Bank of Singapore (BoS) - Bank has been active in recruitment, with headcount
rising to 220 (from c.200, including 50 from OCBC Private Bank). Mgmt estimates
incoming RMs will take 6-12 months to re-grow their AUMs. Non-interest income /
interest income split c.80:20, while higher cost-income ratio (relative to group) is
balanced against lower capital consumption. Acquisition has generated numerous
cross-selling opportunities (both-way) between the corporate/SME business and
BoS. Over time, BoS could become net US$ liquidity provider to group even clients’
asset largely denominated in US$.
Great Eastern (GEH). Underlying business growth has been consistent, both in
Singapore and Malaysia. GEH has also been focusing on higher margins /
embedded value products (eg. investment-linked products). 2Q10 earnings
affected by poorer investment returns due to market volatility related to eurozone
concerns. In Indonesia, GEH’s footprint is still small, but firm has been working to
increase agency workforce. Inorganic growth not ruled out, but only if the
opportunity is right
consumer and business (corporates and SMEs), and across various sectors. Most
loans originated are on floating rates rather than fixed. NIM fell 7bps QoQ in 2Q10
due to various factors: Blending effects from consolidating Bank of Singapore
(BoS)’s loan portfolio (c.1-2bps), lower gapping opportunities, thinner loan spreads,
and generally lower interest rate environment. Mgmt noted some foreign banks
have been more aggressive in the corporate lending space. As such, spreads have
narrowed, but remain above pre-crisis 2007 levels. For the rest of the year, mgmt
expect loans spreads to stay fairly stable.
Update on regional businesses- Malaysia: Accounted for 26% of OCBC’s 1H10 PBT.
OCBC is the largest foreign bank in Malaysia (by asset) focusing on the SME
segment, though housing loan momentum has also picked up in 1H10. Interest
margins helped by BNM rate hike (2Q10 +19bps QoQ). Recent pick-up in
expenses reflects tighter labor market, plus increased business volumes. Indonesia.
Bank OCBC NISP largely focused on the SME segment, but has been adding
exposure to consumer loans (c.30% of loan book). 2Q10 NIM dipped 21bps QoQ
partly on increased consumer loans (lower margin), and higher deposit costs due to
competition from some foreign banks.
Bank of Singapore (BoS) - Bank has been active in recruitment, with headcount
rising to 220 (from c.200, including 50 from OCBC Private Bank). Mgmt estimates
incoming RMs will take 6-12 months to re-grow their AUMs. Non-interest income /
interest income split c.80:20, while higher cost-income ratio (relative to group) is
balanced against lower capital consumption. Acquisition has generated numerous
cross-selling opportunities (both-way) between the corporate/SME business and
BoS. Over time, BoS could become net US$ liquidity provider to group even clients’
asset largely denominated in US$.
Great Eastern (GEH). Underlying business growth has been consistent, both in
Singapore and Malaysia. GEH has also been focusing on higher margins /
embedded value products (eg. investment-linked products). 2Q10 earnings
affected by poorer investment returns due to market volatility related to eurozone
concerns. In Indonesia, GEH’s footprint is still small, but firm has been working to
increase agency workforce. Inorganic growth not ruled out, but only if the
opportunity is right
NOL - Citi
Management guides for strong 3Q — Full impact of Transpacific rate hike and Peak
Season Surcharge are expected to manifest in 3Q. Together with peak season
volumes, this will drive QoQ improvement in 3Q10 profitability. Volumes and rates
are expected to taper off in 4Q in line with seasonality and lapse of Peak Season
Surcharge. Bookings lack visibility thereafter.
Capex update — Recent orders totaling ~100,000 TEU (including LOIs) were at
reasonable prices and meant to replace chartered-in vessels that are due to retire
so as to improve NOL’s cost structure. Additional orders will depend on ship price
trends and the market environment, allowing NOL to be more responsive to market
dynamics through capacity and cost management. Financing for recent capex has
not been finalized, but should not be an issue given NOL’s low gearing ratio.
Dynamics behind slow steaming — A common concern was whether slow steaming
will reverse, given the recent strong volumes and lower bunker price (-13% YTD).
NOL observed that slow-steaming is still in place on most routes, and unlikely to be
reversed quickly. The decision whether to slow-steam would depend on i) bunker
price – how much cost savings can be reaped; ii) ship prices – whether there is net
savings by slow steaming and deploying more assets; iii) freight rates – whether
there is net earnings by increasing vessel speed to chase high freight rates and
volumes. Logistically, it would also be difficult to reverse slow-steaming due to rigid
berthing slot timings and the need to re-deploy excess assets.
Box shortage — Box manufacturers are still working one shift and have room to
ramp up production by switching to a double shift if they choose. Some liners are
trying to implement surcharges to cover the higher box costs.
Season Surcharge are expected to manifest in 3Q. Together with peak season
volumes, this will drive QoQ improvement in 3Q10 profitability. Volumes and rates
are expected to taper off in 4Q in line with seasonality and lapse of Peak Season
Surcharge. Bookings lack visibility thereafter.
Capex update — Recent orders totaling ~100,000 TEU (including LOIs) were at
reasonable prices and meant to replace chartered-in vessels that are due to retire
so as to improve NOL’s cost structure. Additional orders will depend on ship price
trends and the market environment, allowing NOL to be more responsive to market
dynamics through capacity and cost management. Financing for recent capex has
not been finalized, but should not be an issue given NOL’s low gearing ratio.
Dynamics behind slow steaming — A common concern was whether slow steaming
will reverse, given the recent strong volumes and lower bunker price (-13% YTD).
NOL observed that slow-steaming is still in place on most routes, and unlikely to be
reversed quickly. The decision whether to slow-steam would depend on i) bunker
price – how much cost savings can be reaped; ii) ship prices – whether there is net
savings by slow steaming and deploying more assets; iii) freight rates – whether
there is net earnings by increasing vessel speed to chase high freight rates and
volumes. Logistically, it would also be difficult to reverse slow-steaming due to rigid
berthing slot timings and the need to re-deploy excess assets.
Box shortage — Box manufacturers are still working one shift and have room to
ramp up production by switching to a double shift if they choose. Some liners are
trying to implement surcharges to cover the higher box costs.
Takeaways from ASEAN Investor Conference, Aug. 11-12 - Citi
Takeaways from Singapore - DBS presented at Citi's ASEAN Investor Conference on
Aug. 11-12. Below are key takeaways.
Outlook on loan growth – After a strong 1H10 (loans +12.6%), mgmt guided loan
growth is likely to moderate, possibly in the range of low-mid single digits each
quarter, with FY10 loan growth possibly in the high teens. Healthy demand seen for
long-term fixed rate loans (both mortgages and corporate), and presents
opportunities for DBS to make better use of its excess S$, while growing its S$-
loans market share. This strategy is meant to be deployed through the interest rate
cycle, and not only at selected points in the cycle.
Improving quality of trading income. For 2Q10, c.60% (1Q10: 50%) of trading
income was customer-driven, driven by stronger demand for FX and rates hedging
products.
NIM drivers – Of the 9bps fall in NIM, 6bps attributed to shift in investment
securities portfolio. Remaining 3bps due to loan and deposits pressure. Loan yield
pressure due to re-pricing of housing loans (c.1ppt difference) while corporate
yields are fairly stable.
Rolling out various initiatives. Mgmt highlighted a number of initiatives which the
bank has been working on, including 1) Regional cash management, 2) Regional
SME platform, and 3) Wealth management. Initiatives will likely take a few quarters
before earnings kick in. Similarly, expenses likely to rise progressively, which could
see cost-income ratio (1H10:40%) creeping upwards.
Update on regional businesses. Hong Kong: As an anchor into greater China, DBS
Hong Kong remains an important part of the group. High LDR (Jun 2010: 104%)
due to tight liquidity as more Chinese banks use Hong Kong as a funding base.
Beside retail deposits, DBS could also finance additional loan growth using
interbank, or by swapping S$ into US$. .China. Now present in 8 cites, the bank
plans to add more sub-branches to deepen DBS’s presence and grow the SME &
wealth mgmt businesses. India: DBS has been successful at growing the loan book
at good margins. India now contributes c.6-8% of revenue and earning. RBI is
expected to provide more details on foreign banks’ subsidiarization later this year,
which could facilitate the opening of more branches in India. Indonesia. The bank
now operates about 40 branches across 11 cities in Indonesia. Overall contribution
to group’s bottom-line still small.
Aug. 11-12. Below are key takeaways.
Outlook on loan growth – After a strong 1H10 (loans +12.6%), mgmt guided loan
growth is likely to moderate, possibly in the range of low-mid single digits each
quarter, with FY10 loan growth possibly in the high teens. Healthy demand seen for
long-term fixed rate loans (both mortgages and corporate), and presents
opportunities for DBS to make better use of its excess S$, while growing its S$-
loans market share. This strategy is meant to be deployed through the interest rate
cycle, and not only at selected points in the cycle.
Improving quality of trading income. For 2Q10, c.60% (1Q10: 50%) of trading
income was customer-driven, driven by stronger demand for FX and rates hedging
products.
NIM drivers – Of the 9bps fall in NIM, 6bps attributed to shift in investment
securities portfolio. Remaining 3bps due to loan and deposits pressure. Loan yield
pressure due to re-pricing of housing loans (c.1ppt difference) while corporate
yields are fairly stable.
Rolling out various initiatives. Mgmt highlighted a number of initiatives which the
bank has been working on, including 1) Regional cash management, 2) Regional
SME platform, and 3) Wealth management. Initiatives will likely take a few quarters
before earnings kick in. Similarly, expenses likely to rise progressively, which could
see cost-income ratio (1H10:40%) creeping upwards.
Update on regional businesses. Hong Kong: As an anchor into greater China, DBS
Hong Kong remains an important part of the group. High LDR (Jun 2010: 104%)
due to tight liquidity as more Chinese banks use Hong Kong as a funding base.
Beside retail deposits, DBS could also finance additional loan growth using
interbank, or by swapping S$ into US$. .China. Now present in 8 cites, the bank
plans to add more sub-branches to deepen DBS’s presence and grow the SME &
wealth mgmt businesses. India: DBS has been successful at growing the loan book
at good margins. India now contributes c.6-8% of revenue and earning. RBI is
expected to provide more details on foreign banks’ subsidiarization later this year,
which could facilitate the opening of more branches in India. Indonesia. The bank
now operates about 40 branches across 11 cities in Indonesia. Overall contribution
to group’s bottom-line still small.
Venturing into China - Citi
Results largely in line. For 2Q10, CityDev reported a net profit of S$165m,
reflecting an 18% rise qoq. Including the 1Q net profit of S$139m, 1H10 earnings
are S$304m. This is equivalent to 47% of consensus estimates of S$642m and
49% of our estimate of S$623m for FY10.
Property development led growth. By segments, property development continues to
be the main driver of profit before tax, contributing over 60% of the total PBT.
Profits were booked for Cliveden, One Shenton, The Arte, Wilkie Studio, Shelford
Suites, Tribeca and The Residences at W. Both Tribeca and The Arte were
completed in 2Q10.
Sales update and impending launches. In 1H10, the group sold a total of 773 units
amounting to sales value of S$0.95bil. Year-to-date (9 Aug), they have sold 934
units with sales value of S$1.2bil. The key contribution in the last month came
from the sold-out 368 Thomson (157 units). CityDev plans to launch 2 projects in
3Q10: the 642-unit NV Residences located in Pasir Ris and the redevelopment of
Copthorne Orchid (150 units). As for its other luxury-end landbank, management
is of the view that 2011 would be a better time to launch luxury projects.
Venturing into China. City Devt will invest an initial S$300m to set up its presence
in various cities throughout China. Mr Sherman Kwek has been appointed as the
CEO of CDL China Limited to lead this initiative.
Sell rating maintained for valuation reasons, TP at S$9.80 (from S$9.60). We are
leaving our estimates largely unchanged for 10/11E but have raised our RNAV and
TP to S$9.33 and S$9.80 respectively to reflect the higher valuation of M&C and
slightly higher selling price of its mass market projects.
reflecting an 18% rise qoq. Including the 1Q net profit of S$139m, 1H10 earnings
are S$304m. This is equivalent to 47% of consensus estimates of S$642m and
49% of our estimate of S$623m for FY10.
Property development led growth. By segments, property development continues to
be the main driver of profit before tax, contributing over 60% of the total PBT.
Profits were booked for Cliveden, One Shenton, The Arte, Wilkie Studio, Shelford
Suites, Tribeca and The Residences at W. Both Tribeca and The Arte were
completed in 2Q10.
Sales update and impending launches. In 1H10, the group sold a total of 773 units
amounting to sales value of S$0.95bil. Year-to-date (9 Aug), they have sold 934
units with sales value of S$1.2bil. The key contribution in the last month came
from the sold-out 368 Thomson (157 units). CityDev plans to launch 2 projects in
3Q10: the 642-unit NV Residences located in Pasir Ris and the redevelopment of
Copthorne Orchid (150 units). As for its other luxury-end landbank, management
is of the view that 2011 would be a better time to launch luxury projects.
Venturing into China. City Devt will invest an initial S$300m to set up its presence
in various cities throughout China. Mr Sherman Kwek has been appointed as the
CEO of CDL China Limited to lead this initiative.
Sell rating maintained for valuation reasons, TP at S$9.80 (from S$9.60). We are
leaving our estimates largely unchanged for 10/11E but have raised our RNAV and
TP to S$9.33 and S$9.80 respectively to reflect the higher valuation of M&C and
slightly higher selling price of its mass market projects.
Singtel - Nomura
Action
Singapore and Optus reported solid 1Q FY11 results, while Associates were
relatively disappointing again. Total revenue was up 12% y-y, but EBITDA rose
only 1% largely due to a 15% drop in Associates’ contribution. Singapore outlook
remains strong, while there could be some concerns for Optus as Telstra is looking
to increase its variable costs significantly to regain share this year. At the same
time, we think operating trends at Bharti and Telkomsel could improve over the
balance of the year; hence, we still like SingTel for its diversified earnings. BUY.
ō”Catalysts
Improved operational trends at Bharti, further traction in Singapore and Australia,
and capital management are potential catalysts.
Anchor themes
Volatility due to rising competition in regional markets could persist, but SingTel’s
associates have strong market positions, balance sheets and earnings outlook.
Singapore and Optus reported solid 1Q FY11 results, while Associates were
relatively disappointing again. Total revenue was up 12% y-y, but EBITDA rose
only 1% largely due to a 15% drop in Associates’ contribution. Singapore outlook
remains strong, while there could be some concerns for Optus as Telstra is looking
to increase its variable costs significantly to regain share this year. At the same
time, we think operating trends at Bharti and Telkomsel could improve over the
balance of the year; hence, we still like SingTel for its diversified earnings. BUY.
ō”Catalysts
Improved operational trends at Bharti, further traction in Singapore and Australia,
and capital management are potential catalysts.
Anchor themes
Volatility due to rising competition in regional markets could persist, but SingTel’s
associates have strong market positions, balance sheets and earnings outlook.
Banks - CIMB
• DBS the best, UOB and OCBC within expectations. The banks’ 2Q came in
within expectations with common features being 1) accelerating loan growth; 2)
lower provisions; 3) widening capital buffers; but 4) stronger-than-expected margin
pressure. DBS stood out from the pack because it had an extremely strong trading
gains. OCBC missed our PPOP numbers as its costs spiked up unexpectedly.
• Revenue challenges await. Our impression from 2Q is that revenue challenges are
brewing. The lending business sees tentative credit demand as disintermediation is
a rising trend again. Tighter lending spreads and lower yields from investment
securities are weighing down on margins. Revenue growth opportunities lies in fees
but those opportunities could be somewhat blunted if capital markets remain edgy.
• Sector rated Overweight; top pick OCBC, least preferred DBS. The sector is
rated Overweight though as valuations have pulled back to almost -1sd from mean
P/BV and looks attractive relative to other cyclicals. Also, having gone through
Banking Crisis Round 1 two years ago and operating away from western markets
that still need to cope with de-leveraging, we believe that the Singapore banks will
hold up. Our top pick is OCBC (Outperform, TP S$10.08) as we expect it to be best
positioned to derive revenue growth. DBS (Underperform, TP $14.03) saw its 1H10
revenue growth supported by trading gains - that is inherently volatile - but, ROE still
lags behind peers even with the trading boost and goodwill write-off. It is our least
preferred. UOB (Outperform, TP $21.37) might be a near-term revenue growth
laggard, but the avoidance of low-margin loans could accelerate the regionalisation
strategy while the de-risking of its balance sheet is a positive.
within expectations with common features being 1) accelerating loan growth; 2)
lower provisions; 3) widening capital buffers; but 4) stronger-than-expected margin
pressure. DBS stood out from the pack because it had an extremely strong trading
gains. OCBC missed our PPOP numbers as its costs spiked up unexpectedly.
• Revenue challenges await. Our impression from 2Q is that revenue challenges are
brewing. The lending business sees tentative credit demand as disintermediation is
a rising trend again. Tighter lending spreads and lower yields from investment
securities are weighing down on margins. Revenue growth opportunities lies in fees
but those opportunities could be somewhat blunted if capital markets remain edgy.
• Sector rated Overweight; top pick OCBC, least preferred DBS. The sector is
rated Overweight though as valuations have pulled back to almost -1sd from mean
P/BV and looks attractive relative to other cyclicals. Also, having gone through
Banking Crisis Round 1 two years ago and operating away from western markets
that still need to cope with de-leveraging, we believe that the Singapore banks will
hold up. Our top pick is OCBC (Outperform, TP S$10.08) as we expect it to be best
positioned to derive revenue growth. DBS (Underperform, TP $14.03) saw its 1H10
revenue growth supported by trading gains - that is inherently volatile - but, ROE still
lags behind peers even with the trading boost and goodwill write-off. It is our least
preferred. UOB (Outperform, TP $21.37) might be a near-term revenue growth
laggard, but the avoidance of low-margin loans could accelerate the regionalisation
strategy while the de-risking of its balance sheet is a positive.
Wilmar International - The EDGE Weekend Comment Aug 13
Kencana Agri rose 12% after confirming that Wilmar International was in talks to acquire a stake. Other agri-plantation stocks are also attracting attention, dealers say. — Goola Warden
Noble Group - Undeterred by poor quarter - Kim Eng
Event
ō Noble’s headline numbers for 2Q10 were disappointing, dragging
down its performance for 1H10. Looking past the numbers, we would
say that its fundamental growth trajectory was still intact. We are
confident that factors, which have hitherto weighed on performance,
will reverse course over the next few quarters. Maintain BUY.
Our View
ō Revenue surged by 83% yoy in 1H10, thanks largely to the shift in
revenue mix to include the higher‐priced oil and gas products. As a
result, gross profit margins declined from 3.7% to 2.7%. Gross profit,
which is more reflective of the underlying profitability, was up 32%
while adjusted net profit shrank by 12%.
ō Gross profit growth would have been stronger if soybean margins at
its Chinese operations did not crash, exacerbated by the tight supply
from its South American sourcing. The oil and gas division registered
weaker gross profits due to the difficult trading environment.
However, we expect these situations to improve over time.
ō In our view, the astronomical increase in the selling, administrative
and operating (SAO) expenses was the single item which surprised
the most on the downside. Spending shot up by 87% to US$159m and
was attributed to start‐up costs for business expansion. Management
expects the SAO expenses to decline to a level more in line with the
historical average of 44% of gross profits in the future.
ō Noble’s headline numbers for 2Q10 were disappointing, dragging
down its performance for 1H10. Looking past the numbers, we would
say that its fundamental growth trajectory was still intact. We are
confident that factors, which have hitherto weighed on performance,
will reverse course over the next few quarters. Maintain BUY.
Our View
ō Revenue surged by 83% yoy in 1H10, thanks largely to the shift in
revenue mix to include the higher‐priced oil and gas products. As a
result, gross profit margins declined from 3.7% to 2.7%. Gross profit,
which is more reflective of the underlying profitability, was up 32%
while adjusted net profit shrank by 12%.
ō Gross profit growth would have been stronger if soybean margins at
its Chinese operations did not crash, exacerbated by the tight supply
from its South American sourcing. The oil and gas division registered
weaker gross profits due to the difficult trading environment.
However, we expect these situations to improve over time.
ō In our view, the astronomical increase in the selling, administrative
and operating (SAO) expenses was the single item which surprised
the most on the downside. Spending shot up by 87% to US$159m and
was attributed to start‐up costs for business expansion. Management
expects the SAO expenses to decline to a level more in line with the
historical average of 44% of gross profits in the future.
City Developments - Eyeing a foothold in China - Kim Eng
Event
ō City Developments (CDL) reported a 1H10 PATMI of $304m, a 36%
yoy improvement, led by robust property development profits. The
results are largely in line with our expectations and we anticipate
even stronger earnings in 2H10, as at least two development projects
will start to contribute to earnings. CDL has also set up a company to
look into investment opportunities in China. Maintain BUY.
Our View
ō Property development continued to be the mainstay of the group,
contributing about 53% of 1H10’s pre‐tax profit. The profits from
three sold‐out or substantially sold‐out projects have yet to be
recognised; we estimate that at least two should feature in 2H10.
ō The hotel business under Millennium & Copthorne is showing strong
signs of recovery, buoyed by RevPAR growth of 33% yoy in Singapore.
The 150‐unit freehold condominium on the site of the existing
Copthorne Orchid Singapore hotel is expected to be launched next
month. We estimate an ASP of $1,700 psf, which could mean an
accretion of 6 cents a share to CDL’s RNAV from the development
profits.
ō A new subsidiary, CDL China Limited (CDLCL), has been set up to drive
CDL’s expansion in China. CDLCL has an initial capital of $300m to
look for investment opportunities in Tier 1 and 2 cities, ranging from
residential to commercial developments. Nevertheless, Singapore is
expected to remain CDL’s key focus in the short‐to‐medium term.
ō City Developments (CDL) reported a 1H10 PATMI of $304m, a 36%
yoy improvement, led by robust property development profits. The
results are largely in line with our expectations and we anticipate
even stronger earnings in 2H10, as at least two development projects
will start to contribute to earnings. CDL has also set up a company to
look into investment opportunities in China. Maintain BUY.
Our View
ō Property development continued to be the mainstay of the group,
contributing about 53% of 1H10’s pre‐tax profit. The profits from
three sold‐out or substantially sold‐out projects have yet to be
recognised; we estimate that at least two should feature in 2H10.
ō The hotel business under Millennium & Copthorne is showing strong
signs of recovery, buoyed by RevPAR growth of 33% yoy in Singapore.
The 150‐unit freehold condominium on the site of the existing
Copthorne Orchid Singapore hotel is expected to be launched next
month. We estimate an ASP of $1,700 psf, which could mean an
accretion of 6 cents a share to CDL’s RNAV from the development
profits.
ō A new subsidiary, CDL China Limited (CDLCL), has been set up to drive
CDL’s expansion in China. CDLCL has an initial capital of $300m to
look for investment opportunities in Tier 1 and 2 cities, ranging from
residential to commercial developments. Nevertheless, Singapore is
expected to remain CDL’s key focus in the short‐to‐medium term.
Subscribe to:
Posts (Atom)