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Biosensors International (BUY; Target Price: S$1.67)

There has been growing concern over where the ASP for drug-eluting stents (DES) in China is headed. Industry sources expect Beijing’s new DES tender process to lead to a 15 per cent price cut. We are lowering our price estimates as our previous assumption of about 5 per cent decline in FY3/13F may have been too conservative. We now assume a 15 per cent price decline in FY3/13F. We estimate China to account for 30 per cent of Biosensors’ total revenue in the same fiscal year. Management has previously said that volume increase would mitigate the impact of a price drop. Outside of China however, ASP pressures have moderated with Abbott and Boston Scientific stating in their recent results update that DES price declines are in the mid-single-digit range. Our assumption is for a 5 per cent decline in FY3/13F. The recent promotion of Dr Jack Wang to the position of chief executive officer could indicate a greater push ahead to transform Biosensors into a medical device platform company. From our understanding, this management change had been planned for much earlier. Biosensors’ share price has retreated recently. Even after making downward adjustments to our forecasts, we find that valuations are still attractive. Our FY3/13F-14F net profit estimates have been lowered by about 10-11 per cent after our adjustments. – Maybank Kim Eng Research

 

China Fishery Group (BUY; Target Price: S$1.32)

We turn from neutral to positive, as we are now projecting a sustained earnings growth in FY12F, after a disappointing FY11, which saw results missing expectations. We believe market expectations are now at more realistic levels with downward earnings revision over, presenting outperformance opportunities. We expect earnings growth in 1Q12 to continue and project 2Q12 net profit to grow 5-10 per cent YoY to US$48-50 million due to a stronger contribution from its fishmeal operations, as well as interest savings from an earlier refinancing of its senior notes. The counter is now trading at 6.5x/ 6.1x on FY12F/ 13F earnings, near -1 standard deviation below its average of 9.8x. At current levels, this puts it at a hefty 44 per cent discount to Carlyle Group’s entry price of S$1.85. Our FY12/13F forecasts are currently 4 per cent/14 per cent below consensus’ mean. We have raised our FY12F/13F net profit forecasts by 5.6 per cent/ 8 per cent respectively to reflect lower interest costs. We believe the share price should be supported by a healthy yield of 5 per cent for FY12F. Our target price is raised to S$1.32, based on 8x FY12/13F PE, equating to a total return of 33 per cent. In our view, there could be further upside when the group delivers on its operational performance, leading to a valuation re-rating to mean levels. This would equate to a price target of S$1.68, based on FY13F forecasts. – DBS Vickers

 

COSCO Corporation (HOLD; Target Price: S$0.98)

COSCO Corporation (Singapore) Limited (COSCO) is one of the largest ship repair and shipbuilding yards in China. It is also involved in dry bulk shipping and shipping agency operations. In recent years, it has made significant efforts to build up its offshore marine engineering capabilities such that the offshore segment accounts for more than 50 per cent of new orders in FY2011. The group’s shipyards provide a wide variety of services including ship repair, shipbuilding/conversion and marine engineering. This diversification helps COSCO lower its risk profile. For example, ship repair work is typically less cyclical, and therefore provides a stable base-load of work for its yards. COSCO is a new entrant to offshore engineering, and it is relatively inexperienced in building tender rigs, jack-ups, FPSOs and drillships. As productivity improvements usually result from numerous adjustments to work processes made over time, we think that the offshore segment could take a substantial period of time before it sees significant productivity improvements. As COSCO is currently scaling up the “learning curve” for its offshore business, its earnings could be highly volatile. Therefore, we feel that P/B (price to book) would be a more appropriate valuation methodology. We apply an industry-average P/B multiple of 1.6x to COSCO and obtain a fair value estimate of S$0.98. – OCBC Investment Research

 

Frasers Centrepoint Trust (BUY; Target Price: S$1.74)

Frasers Centrepoint Trust (FCT) delivered a strong set of 2QFY12 results that were ahead our expectations. NPI (net property income) and distributable income were up 30.4 per cent and 30.6 per cent YoY to S$26.2 million and S$21.3 million respectively, driven by positive rental reversions of 7.2-12.5 per cent (11 per cent on average), full-quarter contribution from Bedok Point, and strong uplift from Causeway Point (CWP). In addition, DPU rose by 20.8 per cent YoY to a record high of 2.50 S-cents, notwithstanding a distributable amount of S$0.7 million being retained for the quarter. As a result, 1HFY12 NPI came in at S$51.1 million (+31.9 per cent YoY), forming 53.4 per cent of our full-year forecast, while DPU hit 4.70 S-cents, meeting 50.2 per cent of our DPU assumption. This exceeds our expectations, considering that a total of S$2.3 million retained thus far may be distributed in the coming quarters. As at March 31, FCT’s portfolio occupancy was at 93.5 per cent. This represents a 10.6 ppt improvement from 82.9 per cent seen a year ago, but a 4.0 ppt decline from 97.5 per cent in the prior quarter. According to management, the fall was attributable to a temporary closure of the food court at Northpoint due to tenant changeover and the commencement of scheduled refurbishment works at levels 5 and 7 of CWP. When the food court reopens in May and the asset enhancement initiatives (AEIs) at CWP complete in December, we expect the occupancy at the respective malls to improve substantially. For 2HFY12, FCT anticipates its positive performance to be sustained, as it continues to benefit from positive rental reversions and stronger performance at its malls. While management now reveals that the injection of Changi City Point may not happen in the near future, it is exploring other ways to optimize yields, such as AEIs and joint developments with its sponsor. We note that FCT’s aggregate leverage is at a strong 30.9 per cent. This positions the REIT well to pursue its growth plans. – OCBC Investment Research

 

GMG Global (HOLD; Target Price: S$0.15)

GMG Global reported 1Q12 PATMI (net profit) of S$11.7 million, below our estimate of S$14-15 million. 1Q12 earnings made up 13 per cent of our FY12F profit of S$86.9 million. Profits were down YoY due to a 28 per cent decline in rubber ASP to S$4,510/MT. GMG missed due to higher than expected corporate tax rate, as we had underestimated export taxes on Ivory Coast rubber, and a 28 per cent YoY jump in admin expenses. Sales volumes and gross margins were in line at 62,000 MT and 13 per cent respectively. Sales volume jumped 38 per cent YoY, driven by the initial contribution from ITCA acquired in December 2011, ramp up in Teck Bee Hang’s processing capacity (volumes up 67 per cent YoY) and a 103 per cent YoY jump in sales volumes from TRCI to 9,500 MT. As GMG adds 140,000 MT of processing capacity this year and rubber prices increase throughout CY12 on the back of stronger expected economic conditions and restocking activities in 2H12, investors should see better earnings ahead. At the EGM on Friday, shareholders approved GMG’s plan to acquire a 35 per cent interest in Siat SA, a Belgium company engaged in the cultivation of natural rubber and oil palm in Africa for EUR192.6 million. The purchase price equates to FY11 PE (price earnings) of 10.1x. Based on our preliminary analysis, we see potential earnings upside of S$20-30 million for GMG. This is equivalent to a third of our existing earnings forecasts. – DBS Vickers

 

JEL Corporation (Not Rated)

JEL’s share price has jumped an incredible thirteen-fold in less than a month, featuring regularly on the top volume chart. This is while the company is still on the Singapore Exchange (SGX) watch list, although it may have done just enough to secure its survival as a listed company. JEL was placed on the SGX watch list on 3 March 2010. Pursuant to Rule 1314 of the listing manual, if a company is unable to achieve a pre-tax profit, excluding exceptional items, and average daily market cap of S$40 million over 120 days within 2 years, its shares may be suspended. JEL’s unaudited FY11 results showed positive pre-tax profit and the company has applied for a 12-month extension to the deadline. Following a 4-for-1, a share placement exercise this year and open market sales, founder Eric Tan now owns less than 5 per cent of the company, while new CEO Gilbert Ee has emerged as one of the controlling shareholders together with Sam Goi and Koh Boon Hwee. The board of directors will be proposing a name change to Global Strategic Holdings (GSH). We expect JEL to leverage on its presence in difficult-to-penetrate emerging markets to expand or diversify into new businesses. However, any business restructuring will likely take time to boost the bottomline. – Maybank Kim Eng Research

 

Suntec REIT (HOLD; Target Price: S$1.20)

Suntec REIT reported 1Q12 NPI (net property income) of S$49.0 million, making up 25.6 per cent of our FY12 NPI forecast. The YoY growth was mainly due to the consolidation of Suntec Singapore, which more than offset the income loss following the divestment of Chijmes. Income contribution from ORQ and MBFC Properties rose by 16.0 per cent YoY to S$26.9 million on the back of higher dividend income. However, net financing costs were 15.7 per cent higher. Consequently, distributable income came in at S$54.9 million, representing a 3.8 per cent increase. This translates to a DPU (dividend per unit) of 2.453 S-cents (+2.7 per cent), forming 26.8 per cent of our full-year projection. Suntec’s portfolio occupancy had held up steadily during the quarter. The committed occupancy at Suntec City Mall was maintained at 96.7 per cent, while that of its office actually strengthened by 0.3 ppt QoQ to 99.5 per cent. Management guided that only 7.5 per cent of its office leases are due to expire in 2012 and that the renewals achieved to-date were strong. As such, it is confident that its office portfolio would surpass its performance in previous year. Suntec also shed more light on Suntec City’s impending asset enhancement initiative in June, saying that 193,000 sq ft of retail NLA will be closed progressively in phases for Phase 1 works. Upon completion in 2Q13, the NLA is likely to increase to 380,000 sq ft. On its marketing front, Suntec had already secured pre-commitments for over 45 per cent of the enlarged NLA. In addition, the projected rental enhancement of 25 per cent and ROI of 10.1 per cent appear to be on track. This leads Suntec to give a somewhat more positive outlook, that is, to ponder utilising part of the proceeds from Chijmes sales to mitigate the temporary dip in DPU, only when necessary. We also note that Suntec may benefit from GST refund on income support, which may buffer the end of income support at ORQ. – OCBC Investment Research