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Ascendas REIT (BUY; Target Price: S$2.31)

Ascendas REIT (A-REIT) turned in a sturdy set of results as expected. 4QFY12 NPI (net property income) rose by 13.2 per cent YoY to S$95.1 million, while distributable income increased 27.2 per cent to S$71.9 million, due largely to the completion of development projects and acquisitions. This is in line with our NPI and earnings estimates of S$93.2 million and S$68.5 million, respectively. DPU of 3.50 S-cents is also consistent with our expectation of 3.24 S-cents, and represents a 7.0 per cent YoY growth despite an 11.2 per cent increase in unit base. For FY12, NPI and distributable income were up 8.5 per cent and 14.2 per cent to S$368.3 million and S$277.8 million, respectively. DPU, on the other hand, was up 2.5 per cent to 13.56 S-cents. In the coming year, A-REIT expects to maintain a stable performance, with acquisitions and developments completed in FY12 contributing positively to its income. Management also appears to be comfortable with the potential supply in industrial space over the next two years, but is more concerned with the impact of a broad-based slowdown in the economy and its accompanying volatility. However, A-REIT noted that the threat of such a downturn is low, and that the enquiries and viewing of its properties are still healthy. – OCBC Investment Research

 

CapitaLand (NEUTRAL; Target Price: S$3.03)

CapitaLand has launched the long awaited residential project, Sky Habitat (99-LH, 509 units) in Bishan over the weekend. To recap, the project site was acquired at a previous new high land price of S$869 psf for a suburban condominium site with CapitaLand clinching the site which drew a whopping 19 bids attributed to its good location in proximity to transport node Bishan MRT, Junction 8 retail mall and good schools. The project is also designed by renowned architect Moshe Safdie to feature a unique 3-D matrix design for this residential development. According to press reports, 125 units translating to 25 per cent of the project are sold over the weekend, at ASP S$1,642-S$1,747 psf for 4-room units to 1-room units. We believe the take up for the initial project launch is somewhat below our expectations given the good location of the project, and the initial achieved ASPs are also at the lower end of market expectations of S$1,700-S$1,800 psf. As such we think some weakness may be experienced by the stock. While we continue to like the longer term asset recycling story, we believe near term catalysts are lacking and advocate buying only on weakness for long term investors. – OSK-DMG

 

CDL Hospitality Trusts (BUY; Target Price: S$2.04)

According to the Singapore Tourism Board, for the first two months of 2012, RevPAR for Singapore hotels climbed 19.1 per cent YoY on the back of a 14.5 per cent YoY increase in room rates and an increase in occupancy rates. Lim Boon Kwee, senior vice-president of Millennium & Copthorne (M&C) International, said he expects that room rates at M&C’s five Singapore hotels will grow 5 per cent YoY from S$219 in 2011, while occupancies could climb by 2-3 percentage points from 87 per cent. Lim said that RevPAR for the M&C hotels increased by 10 per cent for the first two months of this year. M&C hotels (Orchard Hotel, Copthorne King’s Hotel, Grand Copthorne Waterfront Hotel, M Hotel and Studio M Hotel) are owned by CDLHT and M&C is the master leasee. CDLHT receives rent in the form of 20-30 per cent of the hotel revenue and 20 per cent of the hotel gross operating profit, subject to minimum fixed rents. The hotels constituted 60.5 per cent of CDLHT’s 2011 gross revenue. CDLHT has one other hotel in Singapore – Novotel Clarke Quay, which is managed by Accor and which we assume will perform similar to the M&C hotels. We are raising our RevPAR growth rate assumption from 5.5 per cent to 7.5 per cent for CDLHT’s Singapore hotels in 2012. Corporate guests account for 65 per cent of CDLHT’s guests in the Singapore hotels, thus MICE events are an important driver. – OCBC Investment Research

 

Healthway Medical (BUY, S$0.093, TP S$0.116)

Given the current economic climate, Healthway decided to tweak the formula used to carry out test of impairment of goodwill. The previous formula (which had been agreed with the auditors for the past years) would not have resulted in any impairment. Taking into account the current uncertain economic environment, Healthway used more conservative parameters to test for impairment. This resulted in an impairment loss of S$58.4 million and NAV/share was lowered to 7.1 S-cents (from 10.4 S-cents). Such an exercise does not have any impact on its ability to provide healthcare services to patients. Healthway also decided to defer recognition of S$1.5 million revenue due from its China clinics as the amount remained unpaid for services rendered over the past two years. It plans to recognise the revenue on a cash basis instead. Hence, S$1.5 million was reversed from FY11 revenue. The China clinics are expected to start making payment from this year, following which, the revenue will be recognised. We have not included this in our earnings estimates. This exercise resulted in an operating loss of S$2.4 million in FY11 (net loss of S$63.1 million). With improving patient load and continued strong demand for healthcare services, we think Healthway is on track for revenue growth of at least 10% in FY12. Assuming no impairment is made in FY12, we are maintaining our estimate of S$6.4 million (EBIT) and S$4.4 million (net profit). – OSK-DMG

 

Hi-P International (HOLD; Target Price: S$0.95)

Instead of a flat revenue YoY, Hi-P now expects 1Q12 revenue to grow on higher than expected traction from a wireless customer towards late March. Higher sales coupled with tight cost controls will also result in a small net profit instead of a loss as previously guided. While positive, the impact to FY12F earnings is marginal. We are currently projecting net profit of S$66 million for 2012. Given that this is a backend loaded year with new capacities/processes only contributing proportionately more in 2H, the earnings split is S$14 million for 1H12 and S$52 million for 2H12. Therefore, even if 1Q12 registers a small profit of S$2-3 million, versus our previous projection of S$2 million loss, impact on full year estimates is immaterial. There would be more comfort if Hi-P earnings picked up momentum in 2Q12 to post growth YoY over the S$11.3 million profit that was recorded in 2Q11. As of now, customers’ order projections look healthy but management believes demand pull could still be volatile given mixed macro signals. Apart from higher sales, we hope to see a sustainable recovery in margins. Based on our channel checks, we believe robust demand from Apple has been pushing up topline for Hi-P even though RIM sales remain muted. Margins have yet to hit optimal levels as Hi-P has been incurring expenditure to address the more stringent specifications and rush orders for Apple products. As Hi-P’s new processes and automation mature and impact of critical mass kick in, margin recovery in 2H12 should be healthy, in our view. – DBS Vickers

 

Singapore Exchange (HOLD; Target Price: S$7.00)

Singapore Exchange (SGX) posted a set of 3QFY12 results which were in line with market expectations, buoyed by the rally in global equities during the quarter. Net earnings came in at S$77.8 million, up 16 per cent YoY and 18.9 per cent, and just a slight tad below consensus estimate of S$78 million. Securities Revenue remained the core contributor or almost 40 per cent of revenue, followed by Derivatives at 26 per cent. For 9MFY12, net earnings grew 7 per cent to S$215.4 million. It declared an unchanged base dividend of 4 S-cents per share for this quarter, with book closure on 3 May 2012 and payable on 16 May 2012. While the IPO market was very quiet in the last quarter, with only one IPO and one reverse takeover, sentiments have definitely improved in the current quarter with the recent listing and favourable take-up rates for Bumitama Agri and Civmec Ltd. Early indications point to a healthy pipeline of potential IPOs which could come into the market in the coming months, including several prominent names. Other initiatives such as trying to attract more high-frequency trading (HFT) and Asian connectivity are positive, but we do not expect any near term impact. Since its results were in line with our expectations and taking into account the slower start to 4QFY12, we are leaving our full year estimates intact. This means full-year earnings of S$300.5 million or 4Q earnings of S$70 million. As we head into a quieter quarter, there is also a resultant lack of price drivers for the medium term. In addition, the stock has already appreciated by about 10 per cent since our report in January, and at current price, we see limited upside to our unchanged fair value estimate of S$7.00. – OCBC Investment Research

 

ST Engineering (BUY; Target Price: S$3.60)

ST Engineering’s (STE) marine arm, ST Marine, has bagged its largest order in recent years – an S$880 million contract to design and build four patrol vessels for the Royal Navy of Oman. This was welcome news, coming on the back of ST Kinetic’s recent blacklisting by India for its alleged involvement in a bribery scandal. It also confirms that STE’s reputation as a defence engineering specialist is untarnished. ST Aerospace, STE’s largest revenue contributor, also reported significant contract wins in 1Q12 that amounted to S$550 million. The increase in defence expenditure by the government and its push for a more efficient public transportation system should augur well for ST Electronics and ST Kinetics as well. Taken together, these factors would continue to drive STE’s growing orderbook, thereby providing earnings visibility for the near future. STE has a strong history of dividend payment, even in the absence of a formal policy. It typically pays out approximately 90 per cent of its earnings. We do not expect any major change to this assumption and believe that its yield of 5 per cent is sustainable. We believe that the latest contract win by ST Marine reaffirms STE’s reputation as a global defence engineering specialist. Its multi-pillar strategy should also offer comprehensive support for growth, prompting us to raise our forecasts to account for a more visible earnings outlook, especially from ST Marine. Our target price thus goes up from S$2.88 to S$3.60, pegged at the historical PER (price earnings ratio) mean of 19x FY12 earnings and providing upside of 16 per cent. – Maybank Kim Eng Research

 

Tiger Airways (Not Rated)

Tiger’s operating statistics for the month of March continued to disappoint on a YoY basis. The budget airline carried 19 per cent fewer passengers in March 2012 compared to a year ago, and 8 per cent fewer when viewed on a trailing 12-month basis (12 months to March 2012 vs March 2011). With corresponding lower load factors and rising fuel costs, this data likely portends another set of poor 4QFY Mar12/FY Mar12 results, which are scheduled to be announced in mid-May. In our regional aviation report, we highlighted rising fuel cost as a primary headwind facing airlines. Tiger’s fourth-quarter fuel bill is expected to balloon to about S$80 million from S$76 million in 4Q, and exacerbate losses for the quarter by 25 per cent. This analysis excludes the impact of the weak load factors and seems set to deepen the red ink on Tiger’s financials. Much of Tiger’s troubles started when Australia’s Civil Aviation Safety Authority began investigating the airline in April last year. By early July, all its flights in Australia were grounded over safety concerns. The suspension lasted more than a month, resulting in its Australian operations recording a loss of almost S$5 million during the quarter.  Although Tiger’s new JVs (SEAir in the Philippines, Mandala in Indonesia) may prove to be strong drivers for its earnings growth in the region, they are still in their infancy. For FY13 at least, a significant earnings contribution is unlikely. – Maybank Kim Eng Research