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Adampak Limited (Not Rated)

Adampak suffered a small after-tax loss of S$0.2 million in 4Q11, which included S$2 million in impairment charges for damaged fixed assets and inventory, as well as idle production costs. December-quarter revenue tumbled by 27 per cent YoY as sales to the HDD (hard disk drive) and telecommunications segments were affected by the flooding in Thailand last year, resulting in full-year net profit plunging by 48 per cent. Adampak expects the HDD industry in Thailand to return to its pre-flood capacity only in 2H12. Its own production in Thailand is expected to be restarted only in April. However, provisions made in 4Q11 for flood-related costs should be written back in 2012. While its factory in Thailand was damaged, insurance money is expected to fully cover the damage. In our November 2011 note, we gave Adampak four out of five chillies when the stock was at S$0.24. It has since climbed to a high of S$0.34. Valuations currently are looking fairer. Even if earnings recover back to FY10 levels, the stock will still not be as cheap as before. We were slightly disappointed that Adampak paid S$0.01 t less in dividends for FY11, even though its cash flow improved significantly. – Maybank Kim Eng Research


Ezion Holdings (BUY; Target Price: S$1.05)

Ezion Holdings has secured a charter contract worth about US$65.7 million over a four-year period to provide a liftboat that will be used by a state-linked power generation enterprise in China. The unit is on bareboat charter, and it will contribute US$16.4 million in revenue and about US$9.4 million in net profit per year. Total project cost is around US$72 million with a 77 per cent-23 per cent debt-equity split. Estimated ROE is attractive at about 55-60 per cent, but there are certain risks in this project as well. We understand that the unit will be built in a Chinese yard, which is not surprising since the customer is a state-linked entity and the unit will be used to support energy generation in China. Depending on the yard chosen, there would be varying degrees of execution risk since Chinese yards have little track record in building liftboats. Should there be a delay in delivery, the compensation obtained from the yard may or may not be sufficient to cover Ezion’s penalty towards the customer of the charter contract. China’s offshore wind industry is gaining momentum and Ezion’s liftboat will be used for installation of wind turbines at an offshore wind farm. From our understanding, the top five power companies in China are China Huaneng, China Guodian, China Datang, China Huadian and China Power Investment Corp; we think the customer is likely to be China Datang. – OCBC Investment Research


Fraser & Neave (BUY; Target Price: S$7.55)

Singapore’s mass market residential property market has proven resilient, as evidenced by the January private home sales data released by the Urban Redevelopment Authority. Developer sales in the coming months are expected to still remain strong. Fraser and Neave (F&N) is thus in a sweet spot as a healthy take-up rate of its mass market projects will provide a secure earnings stream in the next three years. We estimate property development to account for about a quarter of F&N’s group pre-tax profit for FY12F. Singapore will be the key contributor, making up 50 per cent of development sales, with Australia and China contributing the remainder. F&N’s development earnings are secure for the next three years as its pre-sold projects in Singapore carry unrecognised revenue of S$1.4 billion. In addition, it has a supply of 2,785 unsold private residential units as at the end of last month. We believe that monetary liquidity, low interest rates and healthy demand for mass market projects will help F&N sustain its healthy take-up rates. F&N has about S$600 million in unrecognised revenue from its pre-sold units across various projects in China and Australia. It still has about 5,200 units in Australia and 8,200 units in China to be sold over the next 5-8 years. As home prices in major Chinese cities experience a reasonable decline, purchase restrictions imposed by the central government could be lifted in the medium term. If so, this would spur the sales of F&N’s residential units in China. Better-than-expected sales momentum for F&N’s residential property projects and enhanced earnings visibility prompt us to peg our target price at a lower conglomerate discount of 5 per cent to our SOTP (sum-of-the-parts) valuation. Our target price thus increases to S$7.55 from S$7.05 previously, which warrants a rating upgrade to BUY. – Maybank Kim Eng Research


Mapletree Logistics Trust (BUY; Target Price: S$1.18)

Mapletree Logistics Trust (MLT) announced earlier this week that it is considering the issuance of SGD-denominated perpetual securities. We view the initiative positively as it provides the much-needed ammunition for its acquisition plans. As the perpetual securities are expected to be fully accounted as equity, the issuance also has the effect of paring down MLT’s aggregate leverage. Based on our conversations during an investor presentation held on March 6, we estimate that the aggregate principal amount may fall in the range of S$300 million-500 million, with a five-percent handle for its distribution rate. Together with an expected positive revaluation of its properties in the coming March quarter, we believe its leverage may be brought down from 41.4 per cent as at 31 December 2011 to a more comfortable 36.5-38.5 per cent level. Management also took the opportunity to share with us its growth plans across different geographical locations during the presentation. In particular, MLT reiterated that it has been careful not to rush into investments but rather work closely with its sponsor on various overseas acquisitions – a prudent move in our view, given the current uncertain market conditions. The group also highlighted that there are S$300 million worth of pipeline assets from sponsor that are completed, and that it may acquire some of them during the course of the year. We are confident that MLT will be able to continue optimising its portfolio yield, given its disciplined approach towards acquisitions. We note that its acquisition of two properties in Malaysia just a week ago were made at attractive initial NPI (net property income) yields of 8.7-8.8 per cent, significantly higher than the implied yield of 7.1 per cent for its existing Malaysia portfolio. – OCBC Investment Research


Tiger Airways (NEUTRAL; Target Price: S$0.73)

Tiger Singapore will be moving from its current base at Changi’s Budget Terminal (BT) to Terminal 2 on 25 September 2012. The BT will be demolished to make way for a new larger terminal, Terminal 4. T4 will have a capacity of 16 million passengers per annum (mppa), more than double BT’s current 7 million. Construction will begin in 2013 and is targeted to be completed by 2017. Despite the 55 per cent higher passenger service fee of S$28 at the main terminals versus S$18 at the BT, we think the S$9 absolute increase is minimal and load factors will actually be boosted as passengers would prefer to travel via T2 versus the BT as it is better facilitated with a wider array of retail and F&B options. Rival AirAsia does not operate out of the BT but T1 where passengers pay main terminal fees of S$28 yet demand remains robust. We think the shift of the affected low cost carriers, i.e., Berjaya Air, Cebu Pacific, Firefly, South East Asian Airlines and Tiger will be a boost to their load factors as they steal market share from their full service peers. – DMG Research