Local Brokerages Stock Call 26 April 2013

From OCBC:
Olam Int’l: Refocusing on cash flow generation
Olam International Limited (Olam) has completed its strategic review and intends to take a rebalanced approach to growth and cashflow generation. To achieve its goals, Olam has identified six specific pathways or “concrete actions”. By doing so, management believes that Olam can become FCF positive by FY14 and also reduce its gearing boundary condition from < 2.5x to < 2.0x. However, we suspect that any meaningful impact may take some time to flow through (likely towards end FY16). As 3Q13 results are due in two weeks, we opt to leave our forecasts unchanged for now. Meanwhile, we keep our HOLD rating but place our S$1.50 fair value under review. 

Sheng Siong Group: A local darling
Sheng Siong Group reported an excellent set of 1Q13 results with contributions from new stores boosting revenue growth by 12.3% YoY while cost management initiatives continued to improve operating margins. In the coming quarters, Sheng Siong’s outlook remains positive as the lack of any foreseeable price competition amongst the Big 3 players, and defensive consumer spending in the face of continued economic uncertainty should prove supportive for the group. That said, we expect a double-digit top-line growth and margin enhancements to sustain for FY13. We maintain BUY on Sheng Siong and increase our fair value estimate to S$0.82 from S$0.69 previously.

Suntec REIT: 1Q13 results speak volumes on strength
Suntec REIT announced 1Q13 DPU of 2.228 S cents, down 9.2% YoY. This is within expectations, given that the quarterly distribution made up 24-25% of our and consensus FY13F DPU. Retail segment registered a 38.9% YoY decrease in revenue due to the partial closure of Suntec City Mall. However, the office segment continued to perform, achieving a 7.6% growth in revenue on the back of positive rental reversions and consistently high occupancy of 99.7%. Management updated that it has signed a total of 185,000 sqft of leases in 1Q, leaving it with only 10.3% of office leases due to expire in 2013. As such, we expect the segment to continue to exhibit resilience for the rest of FY13. We also understand that the Suntec City AEI and ROI target of 10.1% remain on track, with Phase 1 space due to open in Jun 2013 as planned and already securing a 96.7% pre-commitment. We are keeping our forecasts intact but now raise our fair value to S$2.16 from S$1.94. Maintain BUY on Suntec REIT.

Yangzijiang Shipbuilding: Results in line; still a steady ship
Yangzijiang Shipbuilding (YZJ) reported a 22% YoY fall in revenue to RMB2.9b and a 30% drop in net profit to RMB717.2m in 1Q13, accounting for 24% and 26% of our full year estimates, respectively. Results were in line with our expectations, and we note that gross profit margin from the shipyard operations remained healthy at 25.9% vs 26.4% in 1Q12 and 24.1% in 4Q12. Due to the difficult business climate faced by ship operators and an altered vessel delivery schedule with the cessation of previous orders, YZJ delivered nine vessels in 1Q13 vs 15 units in 1Q12. Still, the group entered into eight new shipbuilding contracts worth US$237m recently, bringing its order book to US$3.31b currently. Pending an analysts’ briefing later in the morning, we maintain our HOLD rating but put our fair value estimate of S$0.95 under review.

Ascott Residence Trust: Excluding one-off item, 1Q13 misses expectations
Ascott Residence Trust (ART) reported a 3% YoY decrease in revenue to S$69.2m for 1Q13 due to lower contributions from existing properties which decreased S$3.1m, outweighing the S$0.7m increase in revenue from the net effect of acquisitions less divestments. RevPAU fell 10% YoY to S$124 and gross profit fell 9% YoY to S$33.8m. However, unitholders’ distribution increased by 14% YoY to S$27.6m. Unitholders’ distribution included S$8.1m from the replacement of foreign currency bank loans using proceeds from the S$150m placement in Feb. Without this one-off item, unitholders’ distribution would have fallen by 19% YoY and we judge the results to be lower than ours and the street’s expectations. 1Q13 DPU increased 5% YoY to 2.25 S cents. We put our fair value of S$1.36 under review but maintain our HOLD rating on ART. 

From CIMB

Olam International

Taking a breather

UNDERPERFORM - Downgrade | S$1.67 - Tgt. S$1.56 Mkt.Cap: US$3224m | Avg.Daily Vol: US$10.26m | Free Float: 40.60%

In its strategy review, Olam has decided to sacrifice profit growth for free cash flow generation. We see room for earnings disappointment, but believe that the refined strategy could be more supportive of a sustainable, disciplined long-term growth approach. We cut our FY13-15 EPS by 12-18% to factor lower margins and downgrade our rating from Neutral to Underperform amid heightened risk of earnings disappointment. Our target price, based on 1x CY13 NAV, falls to S$1.56. In the absence of re-rating catalysts, we think Olam will underperform the STI.

Sheng Siong Group

Good start to the year

OUTPERFORM - Maintained | S$0.72 - Tgt. S$0.75 Mkt.Cap: US$796.1m | Avg.Daily Vol: US$1.26m | Free Float: 64.60%

A healthy ramp-up in sales from the new stores powered Sheng Siong to a good set of results. Earnings were further aided by the absence of price competition, which decimated gross margins this time last year. 1Q13 core net profit forms 26% of our and consensus full-year estimates. We make no change to our earnings estimates, or target price, which is still based on 23x CY14 P/E (at a 10% discount to Dairy Farm). We expect catalysts to come from new store openings and stronger-than-expected same store sales growth (SSSG). Outperform maintained  

Suntec REIT

Intensification of Suntec AEI

NEUTRAL - Maintained | S$1.98 - Tgt. S$1.96 Mkt.Cap: US$3602m | Avg.Daily Vol: US$12.83m | Free Float: 95.00%

 1QFY13 DPU was expectedly hit by the intensifying AEI works at Suntec City Mall, though its impact was softened by management tapping on the divestment proceeds from Chijmes. The stock has done well YTD, and could increasingly be pricing in a smooth AEI execution. 1QFY13 DPU was broadly in-line with consensus and our expectations at 24% of our FY13 forecast. We adjust FY13-15 DPUs as we update for leases up for rent reviews and renewals and cost of borrowing. Our DDM-based target price is also higher, on a lower discount rate of 7.5% (previously 7.7%). Maintain Neutral on valuations.

From UOB KH:
F&N – Valuation Support But Let The Dust Settle
Trading at a discount to RNAV; potential catalysts ahead? We
have a RNAV estimate of S$10.80/share. Based on a 10-20%
conglomerate discount, a potential valuation range for F&N is
S$8.60-9.70/share. 

Suntec REIT- 1Q13: Spectacular pre-leasings at Suntec City
(SUN SP/BUY/ S$1.98/Target: S$2.27)
FY13F DPU Yld (%): 4.6
FY14F DPU Yld (%): 4.8
Results in line with expectations. Suntec REIT reported a 1Q13 distributable income of S$50.3m (-8.4% yoy, -4.0% qoq) and a DPU of 2.228 S cents (-9.2% yoy, -4.2% qoq) on the back of Suntec City Mall’s AEI. DPU includes S$2.7m (0.12 S cents per unit)
capital distribution from the Chijmes sales proceeds which forms a minimal 5.4% of the total distribution. 1Q13 DPU is in line with our expectations, accounting for 24.8% of our full-year estimates.
Spectacular leasing of Phase 1 of Suntec City Mall AEI with 96.7% pre-commitments ahead of Jun 13 completion from 83% in the previous quarter. Some of the additional brands that have signed up for Phase 1 include Adidas, Aibi, Bread Society, BYSI, Cotton
On, ECCO, Fossil, Giordano, Gong Cha, Harvey Norman, HSBC, J. Lindeberg, Love & Co., M1, OSIM, Royal Selangor, Singtel, The Coffee Bean & Tea Leaf and Stargems.
Maintain BUY with a DDM-derived (required rate of return: 6.4%, terminal growth: 2.0%) target price of S$2.27 (from S$2.03).
We have lowered our required rate of return assumption by 50bps to factor in the improving outlook in the office sector and the anticipated higher growth dynamics going forward.

Olam International- Re-balancing Growth And Cashflow
(OLAM SP/BUY/S$1.67/Target: S$1.98)FY13F PE(x): 12.4
FY14F PE(x): 8.5
Management unveils its latest strategic review, which seeks to balance growth and cashflow. Though its growth targets will be scaled back, investors may welcome its move to reduce gearing and prioritise cashflows.
Four new priorities. The group highlighted four new priorities including: a) accelerating free cash flow generation, b) reduce gearing, c) reduce complexity, and d) promote better understanding of its businesses.
Maintain BUY. Our target price of S$1.98/share remains unchanged pending its 3QFY13F results. Despite the scaling back of management’s profit target (of S$1.0b by FY16), we believe this has been partially priced in as FY14F PE (year to June) of 8.5x is
trading below its -1SD PE of 12.4x and mean of 15.6x (since 2010 – post financial crisis). In addition, we believe the market would welcome the concrete steps by management to address concerns over its gearing and enhanced stakeholder communication. The latter would include more details on investment performance of its various segments, a calendar of field visits to its operations and “investor days” for segment presentation. 

Global Logistic Properties (GLP SP, MC0) -
Technical BUY with +12.7% potential return
Last price: S$2.75
Resistance: S$3.10
Support: S$2.66
BUY with a target price of S$3.10 with tight stops placed
below S$2.66. The stock looks poised to form a new 52-week
high should it be well supported above its rising 50-day
moving average. Its MACD continues to trend higher above
its centreline and RSI indicator has turned up above a
reading of 40.

Wilmar International (WIL SP, F34) -
Technical BUY with +7.5% potential return
Last price: S$3.35
Resistance: S$3.60
Support: S$3.25
BUY with a target price of S$3.60 with tight stops placed
below S$3.25. The stock appears to be supported near its
resistance-turned-support level near S$3.25 and looks poised
to break above its downward sloping trendline. Its
Stochastics has moved out of its oversold region and its
MACD indicator has formed a bullish crossover.
Our institutional research has a fundamental BUY with a
target price of S$3.80.

Jardine Strategic Holdings Ltd (JS SP, J37) -
Technical SELL with +7.9% potential return
Last price: US$39.12
Resistance: US$40.85
Support: US$36.00
SELL with a target price of US$36.00 with tight stops placed
above US$40.00. The stock appears to form a top and a
retracement from here could find support near its rising 200-
day moving average. Its Stochastics indicator appears to
form a bearish crossover and its RSI indicator appears to turn
down below a reading of 60. Watch to see if its MACD could
trend below its centreline. 

From DBS:
1QFY13 net profit of HK$128.4m (+14% y-o-y) for China
Merchants Hldgs (Pacific) is in line with expectations; makes up
27% of full year core profit. Revenue growth of 27% y-o-y to
HK$436m was driven largely by consolidation of Ningbo-
Beilun Port Expressway. We remain positive on CMHP’s
earnings growth prospects, which are driven by both organic
traffic growth in China as well as acquisitions. Maintain BUY,
and S$1.12 target price. The stock offers an attractive
prospective yield of 6.3%.

Sheng Siong Group’s revenue was 5% below expectations,
but earnings beat our estimates by 12% on lower than
expected operating costs. FY13F earnings were raised by 5%.
We trimmed revenue growth rate but factored in better
operating margins. Maintain HOLD, TP raised to S$0.72 (Prev
S$ 0.68).

Results for Suntec REIT were impacted by Suntec Mall AEI
works. Operations remain robust; strong pre-commitment
levels at Suntec Mall mitigate leasing risks and reaffirms
earnings sustainability. Maintain Hold, TP S$1.99 (Prev
S$ 1.70). The stock is trading at 4.7% FY13 and FY14 yields.
Earnings for CapitaMalls Asia in line, gross margin
improvement and divestment gains boosted results.
Bedok Residences is expected to contribute from 2Q, six new
malls are also scheduled to open this year. Maintain BUY, TP
S$2.38 (Prev S$ 2.30).

Olam announced that it will be reducing capex in FY14-FY16
by S$1bn to US$1.2-1.6bn and releasing S$1.5bn cash
through balance sheet optimization and unlocking of intrinsic
value, leading to earlier achievement of positive free cash flow
by FY14. Net gearing levels will be kept below 2.0x vs 2.5x
previously. The delivery of these plans and fruition of previous
acquisitions are re-rating catalysts. However, recent weakness
in commodity prices may be a near term drag. Maintain HOLD