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CDL Hospitality Trust (BUY; Target Price: S$2.20)

CDL-HT’s strong set of results are mainly attributed to the organic growth of the trust’s portfolio and a boost of S$2.7 million in revenue from its Studio M Hotel. The organic growth of the trust is a combination of factors resulted from its completed refurbishments at Orchard Hotel and Clarke Quay, strong visitor arrivals during 1Q12 and record high 1Q RevPAR. Concurrently, the trust’s portfolio in Australia continues to perform strongly as it is bolstered by the buoyant natural resource sector and static supply of hotel rooms. Currently, with a low gearing ratio of 25.6 per cent and an internal maximum gearing rate of 40 per cent (which translates to an additional S$301 million of debt the trust can take on), there is much room for CDLHT to undertake future acquisitions in Asia. CDLHT has a BBB- rating from Fitch. As tourism in Singapore continues to remain robust, together with the impeccable management skills of CDL-HT and the ability to tap on potential pipeline of assets from both M&C and CDL, we expect CDL-HT’s performance will continue to remain solid. Given limited additional hotel supply in the coming years together with a growing range of new attractions and strong event calendar in 2012, we believe CDL-HT is well positioned to benefit from this stable demand. – OSK-DMG

 

DBS (SELL; Target Price: S$12.10)

Net profit rose by 16 per cent YoY, making up 30 per cent of our full-year forecast and consensus. Treasury income came in much stronger than expected while provisions were low during the period, with a credit charge rate of just 30 basis point vs. 38 bps in 4Q11. On the flip side, overheads beat expectations, up 16 per cent YoY. Management’s guidance for low-teens loan growth this year is maintained, with an expected moderation in China trade financing lines. These loans, nevertheless, are proving quite sticky and as such, trade financing continues to grow. Management also guided for stable NIMs hereon – having improved 4 bps QoQ, there is less room to push pricing on corporate loans at this stage. Management hopes to get MAS and shareholder approval over the next few months and Bank Indonesia’s (BI) approval sometime in 2H. However, BI’s governor said that the acquisition will not be approved until new ownership rules are in place in June and agreed with Singapore on reciprocity. While we believe the deal is still likely to go through, there are risks that the acquisition will drag on and DBS may not get the 80 per cent stake that it wishes (after paring down), which could complicate management’s plans of synergising the operations of the two entities in the future. – Maybank Kim Eng Research

 

Neptune Orient Lines (BUY; Target Price: S$1.38)

The Shanghai (Export) Containerised Freight Index (SCFI) climbed 4 per cent WoW in the week ended April 27, ahead of major shipping liners’ announced general rate increase of US$400/TEU in Asia-Europe freight rates on May 1. Shanghai to Europe freight rates gained US$180/TEU, or up 11 per cent WoW, while Shanghai to Mediterranean rose US$230/TEU, or +13 per cent WoW. Neptune Orient Lines’ (NOL) share price has fallen 17 per cent from its recent high of S$1.45/share on April 3, along with the weak broad market sentiments. The correction in NOL’s share price does not seem warranted. The SCFI is currently 43 per cent higher than this time last year and much of this increase can be attributed to the more than doubling of Shanghai to Europe freight rates. In addition, transpacific freight rates are also significantly higher than a year ago. According to Alphaliner, 455,000 TEUs have been added to the global container shipping capacity, while 93,500 TEUs have been scrapped YTD. For 2012, Alphaliner expects a total of 1,388,000 TEUs of new capacity vs. the scrapping of 200,000 TEUs. Lost amidst the concerns over increasing capacity is the fact that shipping liners, including NOL, are profitable at current freight rates, which should be reflected in their 2Q12 earnings. Shipping liners seem to have learnt their lesson after collectively losing at least US$6 billion in 2011 and are now using slow steaming to manage shipping capacity and refraining from price wars. It is especially encouraging to hear market share leader Maersk Line publicly saying it is now focused on restoring profitability. – OCBC Investment Research

 

Sheng Siong Group (NEUTRAL; Target Price: S$0.45)

Revenue growth of 4 per cent in 1Q12 was attributed to higher same-store-sales growth of 2 per cent, including contributions from new Woodlands Industrial Park and Thomson outlets (opened in November) but offset by the loss of sales from its Katong outlet which closed in August. On a QoQ basis, revenue rose 15 per cent largely due to Chinese New Year sales. As at 1Q12, the Group has 25 outlets spanning a total retail space of 348,000 square feet. The group has signed two leases to expand by 19,800 sf by 3Q12. This includes one at New World Centre (16,500 sf) which will most likely only open in 3Q12 and Toa Payoh (3,300 sf) in 2Q12, bringing the group’s total GFA to 367,800 sf, making up 97 per cent of our FY12F of 379,000 sf. We have lowered our gross margin estimates from 22.3 per cent/22.5 per cent to 22 per cent in FY12/13F as we expect margins to face further pressures from increased competition. This compares against 22.1 per cent gross profit margin in FY11. – OSK-DMG

 

SingPost (BUY; Target Price: S$1.14)

Singapore Post (SingPost) reported a 2.2 per cent rise in revenue to S$578.5 million but saw an 11.8 per cent fall in net profit to S$142.0 million in FY12, accounting for 101 per cent and 95 per cent of our full-year estimates, respectively. On a segmental breakdown, the logistics and retail divisions posted improved revenues in 4QFY12, while mail turnover remained steady as growth in international mail and philatelic revenue offset the decline in domestic and hybrid mail contributions. Besides acquiring stakes in companies to grow its businesses, SingPost invested S$9.7 million in the upgrading of talent, IT systems and processes in FY12. The group is pursuing a transformation programme for its future but we do not see this impacting the group’s dividend payouts. We note that SingPost’s free cashflow payout ratio has been in the comfortable range of 60-80 per cent since FY07, and are forecasting a 78.6 per cent ratio for FY13F, based on an expected full-year dividend of 6.25 S-cents. SingPost’s perpetual securities will be classified as equity for accounting purposes, but we understand it will be treated as debt from a tax perspective. The perps should not result in higher interest expense in the income statement, as the preferred dividends are paid post-tax. If, however, some of the proceeds are used to pay off debt, interest expense may even be lower. Meanwhile, the group’s gearing will be lower from a bank’s perspective. Similar to last year, SingPost has declared a final dividend of 2.5 S-cents per share, bringing the total dividend for the year to 6.25 S-cents. The stock price has risen by about 9.0 per cent since we upgraded it from HOLD on January 5, but we still see an upside potential of 17.3 per cent based on our fair value estimate of S$1.14. – OCBC Investment Research

 

Tat Hong (HOLD; Target Price: S$1.08)

As one of the largest crane companies in the world, Tat Hong is well positioned to ride on Asia’s robust construction activities, notwithstanding the economic slowdown. We expect earnings CAGR of 19 per cent in FY12-14F, underpinned by improving utilisation and rental rates. Fleet utilisation should continue to recover from less than 60 per cent in FY10-11 to 70 per cent in FY12 and 80 per cent by FY14. During the boom years, utilisation had hit 90 per cent. Strong demand for cranes is expected in the next two years. Australia – key contributor at more than 50 per cent of Tat Hong’s revenue – is seeing rising crane demand for post flood construction as well as from the booming resources and oil & gas sector. Singapore market (20 per cent of revenue) is experiencing a pick-up in construction activities driven by infrastructure spending and a healthy private sector. Other markets like Hong Kong, Malaysia and Thailand have a slew of major projects in the pipeline. We have raised FY13F earnings by 11 per cent. Accordingly, our target price is adjusted up to S$1.08, still pegged to 12x FY13F PE (price earnings), which is in line with Tat Hong’s average PE. This translates to a fair P/BV (price to book value) multiple of 1.2x against 8 per cent ROE (return on equity). The stock price has surged more than 50 per cent since November, reflecting Tat Hong’s improved earnings visibility. Stronger than expected earnings growth is required to drive further PE re-rating. – DBS Vickers

 

Venture Corporation (BUY; Target Price: S$9.65)

We expect 1Q12 earnings to have been S$36-37 million. Though lower QoQ and YoY, this was mainly due to seasonal weakness and nothing to be alarmed about. Barring further shocks, 2012 should see a turnaround from last year’s macroeconomic-driven shortfall. For now, we expect only single digit growth, but successful execution of its long-term strategies should pave the way for higher growth in the next three years. Venture is in a good position to choose only the best customers, either market leaders or scrappy second-liners intent on playing catch-up with the leader. While this strategy may take a bit longer than usual to play out and bear fruit, Venture’s target is to achieve double-digit growth rates in the next three years. But by focusing only on high-quality customers, it will be able to sustain its industry-leading net margins of 6-8 per cent. Despite occasional earnings shortfalls, Venture has consistently managed its working capital requirements well. Its always low capex has never been at the mercy of customers due to its focus only on high-quality customers. In fact, Venture consistently generates free cashflow that is well in excess of dividend requirements. In this respect, its fixed dividend policy is a strong reflection of management’s belief that cashflow generation will never be compromised. – Maybank Kim Eng Research

 

Yangzijiang Shipbuilding (SELL; Target Price: S$1.04)

YZJ’s US$2.5 billion order win target in 2012 is heavily dependent on the options granted to Seaspan for 18 units of 10,000 TEU containerships. YZJ is confident that Seaspan will exercise the options in 2H12 but management is less optimistic on the LOI for eight 10,000 TEU signed with Peter Dohle. Other non-shipbuilding update: Investment in HTM financial assets should stay around RMB10 billion until end of 2012; YZJ is eyeing a banking license. They may divest Wuxi Runyuan Technology Microfinance to allocate more resources into Jiangsu Runyuan Rural Microfinance. Management believes that there is a potential that the government may award banking licenses to some of the bigger micro-financing companies and is positioning Jiangsu Runyuan for that. We value the stock using sum-of-the-parts : core shipbuilding business at 7x FY12 P/E; and adjust for net debt, financial assets and amount due to customers as of end 1Q12. At our target price, the stock is valued at 5.6x FY12F P/E and 6.7x FY13F P/E. – OSK-DMG