Local Brokerages Stock Call 26 July 2013

From OCBC:
CapitaLand Limited: Building competitive scale
CAPL’s 2Q13 PATMI decreased 0.7% YoY to S$383.1m. We judge this to be within expectations; 1H13 PATMI now cumulates to S$571.3m which makes up 65% of our full year forecast. The group sold 736 Chinese residential units in 2Q13, which is respectable but somewhat slower than the 955-unit pace in 1Q13. Management guides that Chinese sales would likely fall to around 3.3k units for FY13, pointing to c.1.6k units in 2H13 – still healthy but below the 1.9k-unit pace in 2H12. In Singapore, residential sales slowed to 139 units in 2Q13 in the aftermath of a blowout 1Q13 (544 units sold) driven by discounts.  Mall subsidiary CMA continues to report firm operating statistics: same-mall NPI in China and Singapore in 1H13 is up 12.1% and 2.0% YoY, respectively. We believe CAPL’s strategy of growing competitive scale in six geographic clusters is sound and well thought out, and we continue to see value in CAPL shares at current levels. Maintain BUY with an unchanged fair value estimate of S$3.77.

Singapore Airlines: No re-rating yet
Excluding one-off items, Singapore Airlines’s (SIA) 1Q14 results came in below expectations. Revenue would have fallen slightly while PATMI was inflated by exceptional items and aircraft/parts disposal gains. ). SIA remains plagued by intense competition within the premium carrier space and passenger yields continue to stay depressed. With the outlook for FY14 still expected to remain lacklustre, we anticipate an extension of selling pressure on the counter for the interim. Based on a peg of 0.8x P/Book, we maintain SELL on SIA with a fair value estimate of S$9.50 (S$10.00 previously). 
 
SATS Ltd: Slightly off the mark
SATS’s 1Q14 results came in slightly under our expectations as revenue slipped 0.8% YoY to S$434.5m following declines in the food solutions segment and EBITDA fell 2.6% YoY to S$60.5m. Qantas’s move to Dubai and lower business volumes from TFK were the main culprits for this decline. Only with a write-back of prior-year’s tax provisions was the group able to record an 11.9% YoY improvement in PATMI to S$46.2m. For the coming quarters, we expect some softness in growth trends for passenger traffic and moderate our forecasts for the remainder of FY14 accordingly. While our fair value lowers to S$3.12 (S$3.15 previously) – suggesting limited upside at this juncture – we expect SATS’s defensive qualities i.e. earnings stability and healthy dividend attractiveness to provide some support for its share price. Maintain HOLD. (Lim Siyi)
Sembcorp Marine: Court of Appeal rules in favour of SMM
Sembcorp Marine (SMM) announced that the Court of Appeal has ruled in its favour with regards to its appeal filed in Jun 2012 relating to the High Court’s decision on SMM’s claims against PPL Holdings. Amongst other rulings, it has been ruled that certain provisions on the JV agreement between SMM and PPL Holdings premised on equal shareholding no longer applied when SMM increased its shareholding from 50% to 85% in PPL Shipyard. SMM is “pleased with the outcome”, and the group will now have complete control of PPL Shipyard’s board. The consortium (involving Yangzijiang Shipbuilding) that owns the remaining 15% in PPL Shipyard is likely to have little say over the management of PPL Shipyard. MaintainBUY with S$5.64 fair value estimate on SMM. (Low Pei Han)
CDL Hospitality Trusts: 2Q13 below street’s expectations
CDL Hospitality Trusts reported a 2.9% YoY decline in 2Q13 gross revenue to S$35.6m and a 4.4% YoY fall in net property income to S$32.6m. Income available for distribution contracted 6.4% YoY to S$29.4m. 2Q13 RevPAR for the Singapore hotels fell 8.5% YoY to S$193, affected by increased competition, weaker corporate demand, the absence of the biennial Food & Hotel Asia event in April, and a mild impact from the haze. The results were generally in line with our expectations, with 1H13 DPU of 5.41 S cents forming 50% of our FY13 estimate. We judge that the 2Q13 results missed the street’s expectations with 1H13 DPU forming only 47% of the mean FY13 estimate. We maintain a HOLD rating on CDLHT but place our FV of S$1.79 under review. 
 
TEE International: FY13 earnings down 32% YoY
Summary: TEE International (TEE) reported 4Q13 PATMI of S$6.4m, down 45% YoY mostly due to a S$4.1m increase in administrative expenses. Tee reported that these expenses were incurred for marketing property development projects and also included administrative expenses for its newly acquired integrated turnkey material handling subsidiary. FY13 PATMI cumulates to S$13.1m which we judge to be somewhat below our full year expectations. We note, however, that FY13 topline increased 51% YoY to S$21.6m as the group recognized higher levels of contributions from engineering and property development projects. We would speak with TEE later regarding these results and, in the meantime, put our rating and fair value estimate under review. 

From UOB KH:
MTQ Corp (MTQ SP, M05) –
Technical SELL with +18.4% potential return
Last price: S$1.57
Resistance: S$1.65
Support: S$1.28
SELL with a target price of S$1.28 with tight stops
placed above S$1.65. The stock appears to turn down
should there be a follow through of the bearish engulfing
pattern formed in the last trading session. Its
Stochastics has formed a bearish crossover and its
MACD indicator looks poised to form one as well. Watch
to see if the stock could break below S$1.40 (near its
rising 50-day moving average) for further downside.

Asiamedic (AMAT SP, 505) –
Technical BUY with +9.8% potential return
Last price: S$0.123
Resistance: S$0.135
Support: S$0.115
BUY with a target price of S$0.135 with tight stops
placed below S$0.117. The stock has been supported
by its mid Bollinger band as prices continue to trend
higher and are above its rising 50-day moving average.
Its Stochastics has formed a bullish crossover and its
positive directional index may rise as its ADX currently
has a reading of 33. Watch to see if prices could break
above S$0.125 for further upside.

CWT (CWT SP, C14) –
Technical BUY with +9.5% potential return
Last price: S$1.46
Resistance: S$1.60
Support: S$1.38
BUY with a target price of S$1.60 with tight stops placed
below S$1.40. The stock has been trading along its key
rising trend line, which acted as a support and currently,
prices closed above its rising 200-day simple moving
average as well. Its Stochastics indicator has formed a
bullish crossover. Watch to see if the stock could break
above its declining 30-day simple moving average for
further upside. Our institutional research has a
fundamental BUY with a target price of S$1.25

CapitaLand- 2Q13: Setting new directions.
(CAPL SP/BUY/S$3.22/Target: S$4.35)
FY13F PE (x): 19.1
FY14F PE (x): 15.0
Results below expectations. CapitaLand reported 2Q13 net profit of
S$383.1m, bringing 1H13 earnings to S$571.3m, up 10.1% yoy driven by
strong revenue contribution from development projects in Singapore and
China, as well as rental income from the shopping mall business. Excluding
the impact of portfolio gains of S$108.5m, revaluation gains of S$232m,
S$10.5m in impairment charges and S$27.7m one-off loss booked in 1H13,
the core 1H13 operating profit of S$269m is below our expectations accounting
for 33.6% of our full-year forecast of S$801.5m (36.5% of consensus forecast
of S$736.7m).
Maintain BUY with a reduced target price of S$4.35 (-2.2% from S$4.45
previously). Our target price is pegged at a 15% discount to its lowered RNAV
of S$5.11 (from S$5.23/share) that mainly factors reduced target prices for its
listed entities on increased risk free rate and debt cost assumptions. The stock
is currently trading at a steep 35% discount to its RNAV (0.9 P/B).
 
SATS- 1QFY14: Earnings in line, but lack of info on TFK is a concern.
(SATS SP/HOLD/S$3.34/Target: S$3.13)
FY14F PE (x): 18.7
FY15F PE (x): 17.9
PBT was flat and in line with expectations. The decline in revenue was
offset by lower operating costs (raw material and depreciation costs). A 47%
decline in tax provision lifted net profit by 12%. Lower-than-expected revenue
due to lower revenue at food solutions, due in part to a 22% decline in TFK’s
revenue. Pricing on unit meals out of Singapore rose 5.8% yoy, offsetting
some of the 6.6% decline in unit meals. Revenue from gateways services rose
8% in line with the 9% rise in unit services.
Maintain HOLD unchanged target price of S$3.13. We continue to value
SATS based on a dividend discount model (required return: 7.0%, terminal
growth 1.2%). At our fair value, the stock will offer a dividend yield of 5.1%.
Entry price is S$2.90.

Singapore Airlines- 1QFY14: Parent airline surprises with profits but
books impairment charges on freighters.
(SIA SP/HOLD/S$10.25/Target: S$11.50)
FY14F PE (x): 37.2
FY15F PE (x): 18.9
Operating profit above expectations, despite weak yields. Parent airline
reported an operating profit of S$89m (+4.7% yoy) despite a 0.3 S cent yoy
decline in pax yields and 1.5ppt decline in pax load factor for the period. This
contrasts with our expectation of S$47m operating loss. The parent airline
profit could be attributable to higher belly hold cargo, which would have aided
profitability, given that two of its cargo freighters were grounded.
We maintain our HOLD recommendation with an unchanged target price of
S$11.50/share valuing the stock at 0.75x P/B (ex-SIAEC). Entry price is
S$10.00.

From DBS:
After a slow 2HFY13 (FYE Jun), Goodpack’s volume growth
momentum is set to accelerate from 1QFY14 underpinned by
additional demand of: 1) 15k boxes /month from new
synthetic rubber (SR) customer, Sibur in Russia; and 2) 8-9k
boxes/month from newly commenced SR plants of Lanxess
and Asahi in Singapore. This lays the ground for 8-10%
volume growth in FY14. In addition, Goodpack stands to
benefit from the lower handling and logistic costs on its
global tender exercise and leasing cost after the buyback of
300k leased boxes in FY13. Furthermore, Goodpack should
not be affected by any potential rate hikes as c.90% of its
debts are fixed rate. The recent price weakness is an
opportunity for long term investors to accumulate. Goodpack
trades at 12x FY14PE and 1.7x P/BV, which are 1 S.D. below
mean. Our DCF-based S$1.90 TP translates to 14.6x FY14F PE
and 2.1x P/BV or 6-19% discount to historical mean. Upgrade
to Buy, TP unchanged at $1.90.

SIA’s 1QFY14 net earnings of S$122m is in-line with
expectations but due mainly to lift from one-off items
amounting to over S$90m. Passenger yields continue to
weaken on a stronger S$ and weak demand, while cargo
operations continue to lose money. While lower fuel prices
should provide some relief for SIA, passenger yields are
expected to continue to be under pressure, with its cargo
operations also struggling for profitability. The risk for our
earnings projection is on the downside if the decline in yield
becomes even more pronounced. The stock is trading at 0.9x
P/B and we see little upside to our TP of S$11.50, which is
based on 1x P/B as its outlook is still weak. A net cash
position of over S$3.80 should however, hold the stock up
around current levels. Maintain HOLD with S$11.50 TP.

Capitaland’s results were slightly below expectations.
Revenue was 37% higher at S$1.18bn while PATMI was flat
at S$383m after factoring in lower portfolio and revaluation
gains and a S$28m one-off charge from repurchase of CBs.
Stripping out these items, operating profits would have been
S$108m, 20% higher than previously, to reach S$240m for
1H13. We expect 2H earnings to be better sequentially.
Another key takeaway was the result of the strategic review
of the group’s operations and its non-core investments. It
aspires to be a growth company underpinned by steady
recurrent earnings, derived from 1/3 development and 2/3
ready assets and would focus on integrated projects in its
core markets in Spore and China to deliver a target ROE of 8-
12%. We are retaining our Buy call with TP of S$4.36,
pegged to a 25% discount to RNAV. The stock is currently
trading at a steep 26% below its TP. We believe that the
share price gap to TP could close as the group continues to
drive ROE improvements towards it’s long term objective.
Maintain Buy with TP $4.36 (prev. $4.44).

Net profit for SATS grew 11.9% to S$46.2m while revenues
dipped 0.8% to S$434.5m. There was a S$3.8m tax
writeback in the quarter and it booked S$1.7m impairment
charge on assets held for sale. Excluding these items, net
profit would have registered lower 6.8% y-o-y growth to
S$44.1m. 1QFY14 earnings were in line at c.22% of our
FY14F profit, similar to the year-ago quarter. There is little
scope for share price upside in view of moderating passenger
traffic growth and declining airfreight volume. However, this
should be mitigated by its commitment to manage costs, as
well as relatively attractive yields. SATS is currently trading at
+1 SD of its historical PE band, in line with regional/global
peers’ average. Our target PE is the average of the values
derived from our DCF model (WACC 7.7%, t=1.5%) and PE
valuation model (16x FY14/15 EPS). Maintain HOLD, TP
$3.29.

Tat Hong issued S$100m 4.5% fixed rate note due 2018.
Funding will be used for working capital, capex and
refinancing of existing debt. This is slight negative to balance
sheet and earnings. Net gearing will increase from 0.6x to
about 0.63x. Interest cost will increase by 7%, resulted in a
1.7% reduction in earnings for FY14F. Consequently, TP is
adjusted down to S$1.41 from S$1.43. Maintain BUY.