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Chaswood Resources (Not Rated)

Chaswood has received the exclusive rights to establish Bulgogi Brothers, a well-known South Korean BBQ restaurant, in Southeast Asia. It has also signed a non-binding MOU with Singapore’s Paradise Dynasty to develop and operate restaurants in Thailand this year. Chaswood has held the franchise rights to American casual dining chain TGI Friday since 1994 and Japan’s casual dining chain, Watami brand, since 2010. Chaswood owns 40 stores, of which 36 are in Malaysia and four in Singapore. It plans to expand to 50 outlets by yearend. Assuming the group uses RM1.9 million to start a store, it would be spending RM19.4 million for FY12 and around RM30 million pa to meet its goal of opening 100 outlets by 2015. With historically strong operating cash flow and fresh IPO proceeds, the group should have the means to fund its expansion. Chaswood is highly dependent on its TGI Friday franchise, which accounted for approximately 58 per cent, 60.7 per cent and 65.3 per cent of its revenue for FY08-10. Another possible risk would be an increase in rental or failure to renew leases. Chaswood intends to adopt a franchise model for its coffee café brand, The Tarik Place, and open up to 100 outlets in Malaysia by 2015. If this eventuates, the group could experience a large jump in sales and bottomline growth, a la BreadTalk. Currently, it owns six cafés in Kuala Lumpur and other parts of Selangor. Compared with other restaurant operators in Singapore, Chaswood’s valuations appear slightly rich, with a historical PER (price earnings ratio) of 18.6x and P/BV (price to book value) of 3.8x. For now, it may be wise to wait for its growth to materialise before taking any action. – Maybank Kim Eng Research


Metro Holdings (BUY; Target Price: S$0.89)

Metro recently announced the completion of the sale of its 50 per cent stake in Metro City Beijing, a suburban retail mall in Chaoyang district, Beijing. With the sale, the group will realise a pretax gain of S$87.4 milion, with a boost of 9 S-cents per share to its NAV (net asset value). The sale proceeds of RMB688.5 million will add to its already formidable cash pile, with net cash expected to increase from 36 S-cents/share to 51 S-cents/share. This transaction once again highlights Metro’s track record as a real estate investor in China, coming on the back of a string of earlier successful divestments including One Financial Street and Metropolis Tower in Beijing. Management continues to look for opportunities to invest in China’s real estate market but is cognizant that the competitive landscape is fraught with risk and keen competition. The group manages its risks by structuring deals to mitigate its downside exposure and tying up with reputable developers to co-invest and develop projects. Future projects could involve green/brown field projects with lower entry costs. Post-divestment, Metro will continue to have a sizable portfolio of prime real estate in China, including Metro City and Tower in Shanghai, EC Mall in Beijing and GIE Tower in Guangzhou, as well as various property joint ventures/investments with Tesco and Top Springs, a Hong Kong-based property developer. We continue to like the stock as a proxy for consumption growth in China, helmed by an experienced management team and anchored by a sound balance sheet. Our target price of S$0.89 is based on 30 per cent discount to its RNAV (revalued net asset value). – DMG-OSK


Sembcorp Marine (BUY; Target Price: S$6.00)

Sembcorp Marine (SMM)’s subsidiary PPL Shipyard has secured a new US$218.5 million contract from Gulf Drilling International to build a Pacific Class 400 jackup rig. The rig is expected to be completed in 1Q2013. New orders secured YTD has reached S$2.7 billion (including S$1b from Sete) and outstanding orderbook is now S$7.8 billion. We continue to see interest in newbuild jackup rigs and believe this is driven by higher charter rates and strong utilisation for newer rigs. Daily charter rates for premium jackup rigs like the KFELS B Class and Pacific Class are now ranging between US$140,000 to US$155,000 per day. The stock is now trading at 17x FY12 P/E (price earnings) and 15x FY13F P/E. – OSK-DMG

Singapore Exchange (BUY; Target Price: S$8.00)

Our recent discussions with the management of Singapore Exchange (SGX) suggest that the bourse is putting a lot of effort into the retail market segment in a bid to grow this slice of the pie, whose latent potential is hard to ignore. We are positive on this development as it reinforces our argument that SGX has structural growth potential. SGX’s internal studies show that despite Singapore’s reputation as a financial hub, its retail market is underpenetrated compared to its regional peers. The Republic has only 350,000 active Central Depository (CDP) accounts out of a resident population of 3.79 million. This penetration rate of about 9 per cent pales in comparison to Hong Kong’s 35 per cent and Australia’s 43 per cent, not to mention that Singapore has a higher GDP per capita than the two markets. We estimate that about 18 per cent of the current SDAV (securities daily average volume) is generated by retail clients (based on the assumption that one-third of the 55 per cent trading value from contract sizes less than S$1.5 million is from retail clients). Our sensitivity analysis shows that SDAV should be at least S$2.1 billion today if local retail participation matches Hong Kong’s. This is excluding the knock-on effect of greater market buoyancy. In this scenario, the bottomline for SGX may hit S$390 million. Anecdotal evidence suggests that poor retail participation over the past 24 months may be partly attributable to more investments into real estate and the “casino effect”. However, with more property curbs being rolled out and the novelty of the two new casinos (which opened around mid-2010) wearing off, we think SGX may get more traction in its retail initiatives going forward. In turn, this will benefit SDAV. – Maybank Kim Eng Research


SMRT (BUY; Target Price: S$2.04)

Following our last report on SMRT after its 3Q12 results, market activity on the counter has been somewhat muted. Strong selling pressure as anticipated by more than half of the street failed to materialise with the counter trading tightly range-bound for slightly more than two months. During this period, SMRT has also kept to a lower profile with the announcement of work completion from its Internal Investigation Team as the only major development. Ahead of the upcoming earnings release at the end of the month, we continue to stress that SMRT is likely to see an upswing in fuel costs following the run-up in prices as well as the additional train runs commissioned in the face of higher ridership and public pressure. Coupled with higher staff costs related to seasonal merit increments and additional headcount to meet service requirements, we are likely to see the weakest quarterly performance for FY12. In terms of fall-out from the December 2011 service disruptions, we do not expect any incremental costs at this juncture as the more important COI inquiry has yet to be completed. While SMRT’s FY12 results are likely to stay uninspiring, the counter’s attractiveness as a dividend play remains its key selling point, which SMRT’s management has maintained and reiterated its commitment to maintain its dividend payout policy. Although its prospects going forward will be challenging – COI findings, no fare increments, SMRT’s “customer “base is still growing. Ridership levels continue to grow especially with support from the current trend in COE prices while rental and advertising yields are naturally competitive given the high foot traffic locations of their stations. With this backdrop and earnings support and stabilization in SMRT’s price, we continue to call for an attractive entry point for SMRT. – OCBC Investment Research


TEE International (HOLD; Target Price: S$0.28)

TEE International reported that its 3QFY12 revenue fell 60 per cent YoY to S$25.4 million, but PATMI (net profit) jumped 146 per cent YoY to S$1.8 million. The lumpy nature of its engineering work resulted in a bumper year in FY11, when a couple of TEE’s bigger projects were rushed to completion. Management confirmed that the lower revenue in 3QFY12 is the result of the completion of these projects. On the other hand, our calculations show TEE’s PATMI increase can be partly attributed to one-off gains of S$0.5 million, from one-off losses of S$0.2 million a year ago. With a chunk of its FY12 revenue brought forward to 4QFY11, TEE’s YTD financial performance has been disappointing. Although TEE remains confident of its outlook, especially with its engineering order book gaining S$37.6 million to S$245 million at end-3QFY12, TEE is unlikely to meet FY12 consensus estimates. TEE’s 9MFY12 revenue of S$104.1 million only met 53 per cent of our full-year estimate and 46 per cent of consensus full-year estimate, while its 9MFY12 PATMI of S$7.7 million only represents 38 per cent of both our and consensus full-year estimates. Consequently, we revised our estimates of TEE’s FY12 revenue and PATMI by 22 per cent and 41 per cent lower respectively to S$152.8 million and S$11.8 million. After lowering our revenue and PATMI estimates, we downgrade TEE to a HOLD rating with a new fair value estimate of S$0.28/share, from S$0.36/share previously. – OCBC Investment Research