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Ascendas India Trust (BUY; Target Price: S$0.91)

Total property income and net property income were 10 per cent and 18 per cent higher YoY at S$34.3 million and S$19.4 million respectively. The better performance was mainly driven from portfolio expansion where the trust saw maiden rental income contribution from newly completed acquisition of aVance Business hub (not full month contribution) while (Zenith, Park Square ad Voyager) continue to ramp up. Distributable income however shrank by 2 per cent to S$11.2 million, from a stronger S$, higher interest costs from financing of its development activities and taxes, translating to a DPU of 1.46 S-cents. There was a revaluation gain of close to S$8 million, but NAV declined to S$0.71 due to unfavourable translation rates. Average portfolio occupancy was stable at 97 per cent, excluding the new buildings which are at 98 per cent (Zenith), 80 per cent (Park Square) and 82 per cent (Voyager) occupied respectively, with the balance actively marketed and we believe will soon be filled up. In addition, we note that a-itrust has added an additional 10 per cent space to the planned 540,000 sq ft multi-tenanted building at ITPB, implying the strong demand for quality space at that location. This building is expected to complete in December 2012 and should start contributing to earnings from FY15 onwards. – DBS Vickers

 

CapitaRetail China Trust (BUY; Target Price: S$1.48)

CRCT offers investors a pure play into the largest and fastest growing retail market in the world, China. We believe that investors should re-evaluate this stock as earnings growth is set to accelerate. The portfolio is maturing with growing shopper footfalls and rising tenant sales while tenancy remixing and asset enhancement activities over the past 24 months have also created a greater correlation between rising retail sales and rental reversions. It is trading at an undemanding 1x FY12F P/BV (price to book value) and offers attractive yields of 6.9 -7 per cent for both FY12 and FY13 – one of the highest amongst Asian retail REITs. Going forward, strong positive rental reversion will be likely supported by the opening of the basement 1 connection at Xizhimen mall to the subway interchange in December 2011. Leveraging on the increased footfall, the manager intends to widen its retail offering and transform it into a destination mall, which should attract strong leasing interest; a series of tenancy adjustments to the seven-storey block at Wangjing to drive footfall. This should help raise average rents, which is at a significant discount to market rents; and the execution of the AEI works at Mingzhongleyuan (MZLY). AEI works costing RNB74 million will improve the mall’s overall yield from 6 per cent to 8.4 per cent and generate an estimated incremental NPI of RMB8.0 million post the completion of the AEI works. In the longer term, we see significant value to be unlocked from the repositioning of its three single tenant malls to multi-tenanted buildings. Gearing at 28 per cent is one of the lowest in the REIT space and the trust has limited refinancing obligations this year. In addition, the S$500 million MTN facility established recently will enable the trust to tap into funds when necessary. – DBS Vickers

 

China Animal Healthcare (BUY; Target Price: S$0.28)

1Q12 adjusted net profit of RMB38 million was below our RMB42 million projection on lower GPM and higher interest expenses that were partially mitigated by higher revenue of RMB172 million. Hence, we revised our FY12-FY13 earnings estimates down by -5 per cent each to RMB223 million-RMB247 million respectively. CAL’s share price performance had been lacklustre over the past year as its earnings disappointed for four out of the five quarters since 1Q11. Given a lack of upside catalysts, we revise down our target multiple to 3.7x FY12F EV/EBITDA (previously 4.6x), which is at -0.5STD to its historical mean of 4.6x. Nonetheless, key re-rating catalysts could come from better use of its huge cash pile of RMB800 million e.g., through special dividends and/or share buy-back. – OSK-DMG

 

China Merchant Holdings (BUY; Target Price: S$1.12)

While losses from its property business widened to HK$11.5 million from HK$2.4 million a year ago, net profit contribution from the company’s toll road business jumped from HK$47 million in 1Q11 to HK$124 million. This was due to new contribution from Yongtaiwen Expressway (acquired in July 2011) and firm organic growth from its jointly controlled roads. The company expects its toll road business to continue performing well and for the first time in a couple of years, is turning more positive on the New Zealand property market. Yongtaiwen acquisition has indeed proven to be a transformation. The acquisition of Yongtaiwen Expressway last July has significantly boosted both top and bottomline, in addition to enhancing the quality of its road assets. We project core earnings to hit nearly HK$500 million in FY12, which is more than double from 2009. Meanwhile, organic earnings growth for its roads should be in the mid to high single digit. The company has finally turned more positive on its New Zealand property business, which could provide upside to our forecasts if it can make a positive contribution or perhaps could finally be disposed off at a decent price. The stock is trading at just 7.6x fully diluted FY12 core PE (price earnings) and offers a prospective net yield of 7.7 per cent. We believe the company could make further road acquisitions to enhance its earnings and growth prospects. This could act as a catalyst to help the stock further re-rate. – DBS Vickers

 

Micro-Mechanics (HOLD; Target Price: S$0.325)

Micro-Mechanics Holdings (MMH) reported its 3QFY12 results which were in line with our expectations. Revenue declined 15.8 per cent YoY to S$9.4 million, or 2.9 per cent higher than our forecast. Net profit slumped 47.8 per cent YoY to S$0.9 million and was just 0.4 per cent above our projections due largely to a higher-than-estimated effective tax rate. Sequentially, revenue and net profit rose 7.2 per cent and 16.7 per cent, respectively, despite 3Q being a seasonally weak quarter. We believe this provides a positive signal that MMH could experience a gradual improvement moving forward, in line with the recovery in the semiconductor industry. For 9MFY12, topline fell 16.8 per cent to S$28.4 million, while bottomline dipped 47.6 per cent to S$2.9 million. Despite the challenging conditions, MMH managed to maintain its gross margin at 46.0 per cent in 3QFY12, versus 45.4 per cent in 3QFY11. This was attributed to a control in its production headcount and better product mix. While its Custom Machining & Assembly (CMA) division saw a 11.9 percentage points QoQ jump in its gross margin to 12.0 per cent, it remained mired in a loss. Nevertheless, its new 24/7 automated manufacturing system could prove to be a ‘game changer’ for the segment, given its ability to manufacture complex parts in an efficient manner. MMH is currently still carrying out the commissioning of the system, but we understand that initial feedback from its customers has been positive. Contribution could begin in 1QFY13. MMH’s management sounded more upbeat during the analyst briefing, highlighting an improvement in sentiment for some of its customers; although the group remains cautious on the uncertain global economic environment. We reckon that MMH would strive to further improve its product cycle time to increase its competitiveness and responsiveness to its customers. – OCBC Investment Research

 

OSIM International (BUY; Target Price: S$2.02)

OSIM is due to announce its 1Q12 results next Monday. We expect the company to kick off a strong year following its robust 2011 results, and set the tone for another stellar year in 2012 with revenue and profit growth in excess of 10 per cent and 20 per cent, respectively. We expect sales growth this year to be driven primarily by its outlets in China. Management has guided for a net store opening of 50 outlets in the country (currently about 270 outlets) despite an ongoing store rationalisation programme. On the whole, we expect revenue contribution from North Asia to increase by 15 per cent on the assumption of similar same store sales growth. The Chinese government recently pared the nation’s economic growth target to 7.5 per cent from the 8 per cent goal in place since 2005. We do not think this will have much of an impact on OSIM’s growth prospects as its key target market in China is the top 5 per cent income group, which is unlikely to curb spending habits because of the GDP cut. Besides, the lower target represents a goal to limit exports and capital spending in favour of domestic consumption. For this business, management will focus on store rationalisation this year, with the strategy concentrated on seven key cities. Much of the rationalisation cost has already been front-loaded in 4Q11, and we believe there is a possibility that the business will turn positive by end-2012. If so, it would demonstrate OSIM’s retail capability outside of its core massage chair business and would serve as an important stock catalyst, in our opinion. – Maybank Kim Eng Research

 

Sembcorp Marine (BUY; Target Price: S$6.20)

Sembcorp Marine (SMM) is due to announce its 1Q12 results next Wednesday. We expect flat YoY growth in quarterly core net profit to S$155 million. Lower margins should not be a cause for concern as they merely reflect a normalisation in terms of the orderbook being depleted of high-margin contracts secured prior to the global financial crisis. While we forecast EPS (earnings per share) to slide by 7.7 per cent YoY in FY12F, strong order wins should lift earnings in the subsequent years. After Sete Brasil signed an LOI with Keppel Corp last month for five semisubmersible orders, we believe that SMM would be next in line to be awarded its share of Petrobras related contract of five drillships, estimated at US$4 billion in value. SMM had already won one drillship contract worth US$792.5 million in February. We are now more confident that the contracts would be awarded to SMM and have incorporated this into our forecasts. SMM’s outstanding orderbook stood at S$5.1 billion as at end-FY11. To-date, it has secured S$2.7 billion in new contracts. We forecast S$11.5 billion in contract wins, including the Petrobras-related orders. If this eventuates, 2012 would mark a record year of contract wins for SMM. Phase 1 of SMM’s Integrated New Yard facility is expected to be operational by end-2013 with an additional 73.3 ha in land area. However, two of the four dry docks would be completed by 4Q12. This increase in capacity would come at a time when the sector is in its upturn and might give SMM an edge in terms of yard capacity availability. – Maybank Kim Eng Research

 

StarHub (HOLD; Target Price: S$3.10)

StarHub Ltd is due to report its 1Q12 results on May 4 after market hours. Based on its historical trend, we expect StarHub’s revenue to come in around S$600 million, which should represent 7.4 per cent YoY increase. Assuming that there is still strong lingering demand for the Apple iPhone 4S, where sales could keep cost up, we expect net profit to come in around S$78 million, or an increase of 13.3 per cent YoY. We also expect StarHub to maintain its S$0.05/share dividend for the quarter. Besides its mainstay telco business, we would also be looking for signs of whether its cable broadband business has been affected by the recent entry of more RSPs (Retail Service Providers) in the NGNBN space. We believe that StarHub should still be able to hold its own against these new entrants, aided by its “hubbing” strategy (where subscribers with two or more services enjoy discounts on services). On the Pay TV front, we would also like to get more updates on how has the response been for the upcoming Euro 2012 soccer tournament – this will also be the first exclusive content that is subject to the new cross carriage ruling. Last but not least, we would also be keen to find out more about StarHub’s capex plans, especially in light of the upcoming 4G spectrum auction. Note that StarHub had previously guided to spend some 11 per cent of its operating revenue as capex. Also keenly watched would be its dividend policy where it is currently paying out S$0.20 for the full year. However, if StarHub does not require additional capex spending, the street believes that it can afford to increase the payout amount, especially since the company also has ample room to take on more debt. – OCBC Investment Research