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Thursday, July 4, 2013

Local Brokerages Stock Call 3 July 2013

From OCBC:
Fortune REIT: Affected by rising discount rates
The prospect of an early tapering of US Federal Reserve’s quantitative easing program has driven up bond yields and, as a result, high-yield counters such as Fortune REIT (FRT) have seen a correction in their prices. FRT’s unit price has fallen 15.1% since the peak of HK$8.43 on 15th May this year (but still up 12.4% YTD). We note that rising risk-free rates will not have much impact on cost of debt for FRT given that interest cost for ~76% of FRT's debt exposure has been hedged to fixed rates with effective interest cost at 2.76%. FRT has no refinancing needs till 2015 and has a weighted term to maturity of 2.7 years. FRT's gearing continues to remain low at 23%. Accounting for the higher HK 10-year government risk-free rate (which climbed from 0.8% at the beginning of May to 2.0% currently), we raise our cost of equity assumption to 7.5% from 6.6%. We also raise our LT nominal growth rate for dividends from 1.75% to 2.0%. Our FV falls to HK$7.51 from HK$8.64. We maintain a BUY rating on FRT.

OSIM International: 2Q13 results preview
OSIM International Ltd (OSIM) is scheduled to report its 2Q13 results on 30 Jul after trading hours. We forecast a 9.5% and 11.0% YoY growth in its revenue and PATMI to S$169m and S$25m, respectively. This would be driven largely by a full quarter of contribution from its recently launched uAngel Sofa-Tranzformer massage chair. We see OSIM as a beneficiary of China’s immense consumer market, underpinned by a rising middle-class population and affluence. The group has established a strong brand profile in China given its near 20 years of experience there. Its share price has also remained fairly resilient despite the recent global equities sell-down, supported by its solid financial performance and decent FY13F yield of 3.0%. Maintain our BUY rating and S$2.21 fair value estimate on OSIM. 

From UOB:
Genting Singapore (GENS)
Last price: S$1.38

Technically, GENS has rebounded from a level near
S$1.30 and could be resisted near S$1.42...
Singapore's casino gaming market declined 7.5% in
2012 to US$4.17b, in contrast to an earlier 62% yoy
growth in 2011. In our institutional research report
dated 28 Jun 13, we maintain our SELL
recommendation for GENS with the same target price
of S$1.17, pegged at 10x 2013F EV/EBITDA. We
expect 2Q13 rolling chip volume to have contracted
qoq, after having recovered for the third consecutive
quarter to about S$20.8b in 1Q13 (+38% yoy, +14%
qoq). Although rolling chip volume at Resorts World
Sentosa has bottomed out in 4Q11 and is set to
moderately recover 7% in 2013, we foresee sluggish
growth prospects in 2014.

Ascendas REIT (AREIT)
Last price: S$2.30

Technically, AREIT may continue its V shape rebound
towards S$2.40 after being supported at S$2.07.
On 21 Jun 13, AREIT announced that the proposed
divestment of 6 Pioneer Walk, Singapore to GKE
Private Limited for S$32m has been completed. In our
institutional research report dated 11 Jun 13, we
upgraded AREIT to a BUY recommendation with an
unchanged target price of S$2.86, based on the
Dividend Discount Model (required rate of return:
6.8%, terminal growth: 2.0%). Growth fundamentals
remain intact with DPU expected to grow 4% in FY14
and 8% in FY15 on the back of positive rental
reversions, completion of asset enhancements and the
completion of new developments. Business park
rentals are expected to remain resilient in light of the
bottoming of office rentals in 2013.

Wilmar International (WIL)
Last price: S$3.15

Technically, WIL is likely to be supported above
S$2.99 for further upside. The stock currently is being
resisted at S$3.38.
On 1 Jul 13, WIL plans to cut ties with Indonesian
suppliers that clear land with illegal fires after blazes
engulfed Singapore in a record haze. In our
institutional research report dated 1 Jul 13, we
upgrade the regional plantation sector to
our BUY recommendation on WIL with the same target
price of S$3.80, in view of the recovery in CPO prices
on the back of easing concern over high inventory
levels and a slower production growth in 2014. The hot
weather and the ringgit depreciation also provide
short-term support to CPO prices. We raise sector
valuation to upcycle valuation given the improving
CPO price uptrend momentum. We also maintain our
main CPO price assumptions of RM2,500/tonne for
2013 and RM2,950/tonne for 2014 and 2015.

Keppel Corp (KEP)
Last price: S$10.45

Technically, KEP could be supported above S$10.00
should it be resisted near S$10.80.
The Keppel Group of Companies plan to announce its
2Q13 & 1H13 financial results on the following dates:
K-Green Trust and Keppel REIT on 15 Jul 13, Keppel
T&T and Keppel Land on 17 Jul 13 and KEP on 18 Jul
13. In our institutional research report dated 19 Apr
13, we maintain our BUY recommendation for KEP
and raise our target price from S$12.55 to S$12.80,
based on a revised sum-of-the-parts valuation, which
still values Keppel’s O&M business at 18x 2014F PE.
We raise our O&M operating margin assumption by
0.5ppt from 12.5% to 13.0%. We also raise
infrastructure earnings but reduce investment gains.
Overall, we raise our 2013 and 2014 net profit
forecasts by 6.5% and 2.1% respectively, but maintain
our 2015 forecast. Our earnings forecasts have
factored in contract wins of S$5b for 2013 and S$6b
each for 2014 and 2015.

Hutchison Port Holdings Trust - Sluggish Apr-May throughput in HIT
but attractive yield. Cut target price to US$0.88.
(HPHT SP/BUY/US$0.74/Target: US$0.88)

FY13F PE(x): 23.2
FY14F PE(x): 22.6
HIT’s Apr-May throughput saw 20% yoy decline, dragged down by the
strike. The strike at Hong Kong International Terminal (HIT) ended in
early-May and all subcontractors agreed to raise all workers’ salaries by
9.8%. As we have previously expected, the increase is unlikely to be
passed through to HPHT as it has already projected a 5-6% yoy increase
in services fee paid to subcontractors. However, throughput at HIT
weakened by almost 20% yoy in April and May due to the strike and
HPHT expects the yoy decline to narrow in 2H13.
Maintain BUY and cut target price to US$0.88. Based on the 3-stage
DCF model, we cut our target price to US$0.88 to reflect a potential yoy
decline in HIT in 2013. We expect the one-off decline in 2013 DPU to have
been priced into the recent share price weakness. Dividend yield becomes
attractive. Despite a lower-than-expected 2013F DPU, current year
dividend yield of 7% is still higher than most trust/REITs listed in
Singapore. Downside risk of DPU is quite limited from 2013 onwards given
a low base of HIT throughput in 2013 and consistent outperformance of

Super Group - Opportunity from price pullback; on track for solid
(SUPER SP/BUY/S$4.41/Target: S$5.60)
FY13F PE(x): 26.0
FY14F PE(x): 20.3
Solid Asian consumer proxy. Super remains on our BUY list with a PEGbased
target price of S$5.60 (unchanged). Despite the high valuation, we
believe its improving brand positioning, strong cashflow, solid execution
and market share in selective growth markets such as Myanmar and
Philippines as well as China venture puts its on a new growth trajectory.
Following its strong execution, we project its ROE to range 21-23% in
2013-14, a historical high since 2003. We see potential share price
catalysts from: a) better-than-expected earnings growth in 2013-14F, b)
accretive M&As, and c) continued downtrend in the prices of raw materials
(coffee and sugar).
Medium-term upside from China. The group has soft-launched its 3-in- 1
coffee in China in 1Q13, and early indications are positive. From a zero
base in 4Q12, 3-in-1 coffee already accounts for 2-3% of group consumer
branded sales in 1Q13. The official launch in China is targeted in 3Q13
and management is excited about the prospects. The instant coffee market
in China is estimated at US$1.5b/annum but upside is strong, given the
low consumption per capita. As an indication, China tier-1 city per capita
coffee consumption is 5 cups/year, which compares with 400-500 cups in

more established markets such as Thailand, Malaysia and Philippines. For
2013, management is targeting to achieve 9% of its consumer branded
segment sales from China (vs 2-3% as at 1Q13). The push into China
could raise its budget for advertising & promotion but Super is aiming to
maintain this at 13% of turnover. A worst case would be 15% but we think
this is unlikely.
Updates in other key markets. The unrests in Myanmar are beginning to
normalise and this is expected to lead to improving sales. As for Indonesia
(2% of consumer branded sales), consumers are beginning to exhibit signs
of promotional fatigue (price war) and this could hopefully lead to more
normalised competition and an easing price war. However, management is
upbeat on prospects in China and the Philippines, and hopes that growth
in these markets will help offset weakness in Indonesia and Myanmar.
Overall, the group hopes to deliver a 10-15% yoy top-line growth from the
consumer branded segment in 2013F.
Possible margin surprise from lower raw material costs? There could
be potential upside risk to margins should raw material costs trend down
further. As an indication, sugar prices are currently US$500/tonne
(compared with US$510/tonne in FY12) whereas Robusta coffee is
currently S$1,720/tonne (compared with US$2,200/tonne in FY12). So far
in 2013, the group has not raised prices for its 3-in-1 coffee but we think
that Super’s rebranding exercise in Jan 13 would build brand equity and
thus eventually improve pricing power in the medium term. In 2013, there
are no immediate plans to raise prices. Utilisation at its non-dairy creamer
capacity is 80% whereas for its soluble coffee capacity is 50%.

From Maybank KE:
CWT Ltd: Road Bumps For Commodity Trading; Maintain Buy, TP $1.90
CWT SP | Mkt Cap USD691.7m | ADTV USD1.2m

Maintain  BUY  with  reduced  TP  of SGD1.90. With the dampening of
demand  from  China,  we  now think our previous expectations on growth
execution  were  too  optimistic,  especially  in the near-term. We cut
FY13-FY15F  estimates  by 20%/13%/10%, but think the recent share price
correction is overdone.
Warehouse rental rates have risen by 8% and capital values by 34% in
the past 12 months alone. We believe our assumption on the value of its
warehouse portfolio is conservative. New warehouses coming on stream by
1Q14 will add to earnings.
We  see  this as a great entry opportunity, with low downside risk.
Our  new  TP  of  SGD1.90  reflects lower earnings estimates, but still
presents 30% upside from here.

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