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CapitaLand (BUY; Target Price: S$3.38)

PATMI (net profit) rose 31 per cent YoY to S$133.2 million on a 5 per cent hike in revenue. Stripping out fair value and portfolio gains, bottomline would have been S$78.4 million, down 5 per cent YoY. Better results came from Australand amidst a higher Australian dollar as well as improved earnings from CMA but this was eroded by a dip in Singapore and China residential profits. China reported a 36 per cent decline in EBIT to S$49 million with 165 completed units at Beau Residences vs 359 units a year ago. Despite higher revenue from Singapore residential, profits dipped on slower sales and lower development margins. Ascott benefited from a S$9.8 million settlement of an insurance claim, otherwise performance was dragged by income vacuum from divestments. Near term earnings are driven by CMA and residential activities. The recent launch of Sky Habitat saw 25 per cent of units (127) sold. This, in addition to the 57 homes sold in 1Q worth S$88 million and S$1.35 billion of sales locked in last year, will support growth in Singapore. Meanwhile, progressive delivery of 4,913 units in China from 2012-14, should boost income. Plans to launch more phases at The Metropolis and The Pinnacle and value homes in Wuhan should underpin income visibility in the medium term. Completion of RC Ningbo and Chengdu in 3Q12 should also boost recurrent income. With the acquisition of a retail site in South Beijing by CMA, new investments for the group amounted to S$11.5 billion. The impact of accretion from these projects will be felt in the coming years. – DBS Vickers

 

Hong Leong Finance (NEUTRAL; Target Price: S$2.42)

HLF reported 1Q12 net profit of S$16.7 million, down 37 per cent YoY. Whilst pre-provisioning operating profit was down a less severe 12 per cent YoY to S$21.3 million, provisions of S$1.2 million (versus 1Q11’s write-back of S$7.6 million) contributed to the severe earnings contraction. Loans rose 6.3 per cent QoQ or 22.3 per cent YoY to S$7.92 billion. Deposits rose 8.2 per cent QoQ or 14 per cent YoY to S$8.4 billion. The strong deposit growth is a positive, as it provides scope for further loan expansion going forward. HLF trades at a historical average P/B (price to book) of 0.95x. With the uncertain economic environment, we do not see any catalyst driving its share price to that level. The soft pricing for lending products will also reduce investors’ interest in HLF. Our target P/B of 0.65x is a premium to the 2009 global financial crisis low of 0.5x. We cut FY12 net profit forecast by 17 per cent to S$67.2 million to reflect the 1Q12 weakness, as well as expectations of continued weakness in net interest income, as pricing for lending products remained under pressure. On a positive note, loans expanded 6.3 per cent and deposits rose 8.2 per cent QoQ, reflecting the balance sheet growth. – OSK-DMG

 

Hyflux Limited (SELL; Target Price: S$1.15)

Even though first quarter numbers are not necessarily the best barometer for full-year performance, being seasonally weaker, we believe the numbers will disappoint the market, with reported net profit flat at S$7.7 million versus consensus expectations of 56 per cent YoY growth for FY2012. Revenue grew 60 per cent YoY to S$139 million, which was in line with ongoing project recognition for the S$890 million Tuas desalination project, but margins were lower than expected. Gross margin declined from 51 per cent to 38 per cent while net margin declined from 8 per cent to 7 per cent. Staff cost grew 54 per cent YoY as the rising wage cost in Singapore was cited as the key factor. This set of results support our earlier view that the loss of MENA projects will be difficult to replace, given that they likely have better EPC margins and project IRRs as well as attractive financing terms. Financing cost also increased 22 per cent YoY even while balance sheet debt quantum remained similar. This is not withstanding the fact that the S$400-million 6-per cent preference share issue in May last year will be used to fund Singapore/ China projects. This represents an additional outflow of S$24 million in dividend a year which does not flow to ordinary shareholders. We downgrade our FY12-FY14 earnings estimate again this quarter by 10-15 per cent on lower margin assumptions, expecting to see more earnings weakness over the next few quarters. We believe valuations are too rich; earnings may not hit 2010 levels within the next 2-3 years, even without taking into account preference share dividend outflow for ordinary shareholders. – Maybank Kim Eng Research

 

Roxy Pacific (BUY; Target Price: S$0.45)

ROXY reported 1Q12 PATMI (net profit) of S$9.0 million, down 10 per cent YoY mostly due to lower development numbers as we await revenue recognition from projects yet to begin construction. With this in mind, we judge 1Q12 results, marred by lumpy recognition, to be broadly on track for our FY12 forecast. 1Q12 topline came in at S$38.1 million, similarly down 24 per cent YoY due to the impact from the construction gap. Over the quarter, revenue was recognized at The Verte, Nova 88, Studios@Tembeling, Straits Residences, Spottiswoode 18 and Space@Kovan. ROXY recently acquired Jade Towers in Upper Serangoon, via an en-bloc process, for S$106.27 million. This translates to about S$816 psf GFA for the 92,000 sq ft freehold site with a plot ratio of 1.425. We expect ROXY to redevelop this site into a 170-unit residential project and estimate a breakeven cost of S$1,250 psf. We note nearby freehold Casa Cambio is selling in the range S$1,450 and similarly anticipate average selling prices of S$1,450 psf for the Jade Tower project. ROXY’s hotel segment put up healthy numbers during the quarter. On a YoY basis, average occupancy rates increased to 92.8 per cent from 91.6 per cent in 1Q11. Average room rates also came up 8.3 per cent YoY to S$201.5. Overall revenue per available room rose 9.8 per cent to S$187.0. We maintain a positive outlook for the hotel sector in FY12 and expect steady performance ahead. – OCBC Investment Research
Sino Grandness (NEUTRAL: Target Price: S$0.39)

1Q12 net profit of RMB57 million came in better-than-expected but it belied poor positive operating cash flow of RMB5 million. Revenue grew 61 per cent to RMB285 million and GPM (gross profit margin) added 3 ppt to 38 per cent. Nonetheless, receivables were higher at RMB332 million, resulting in negative free cash flow of RMB33 million and lower ending cash balance of RMB45 million. SFGI saw double digit growth from both its bottled beverages and canned vegetables segments. Beverage revenue doubled to RMB159 million and its GPM improved to 42 per cent. Canned revenue was up 30 per cent YoY to RMB127 million driven mainly stronger sales from China, while GPM remained stable at 32 per cent. We revise our FY12-FY13 earnings estimates up by 21 per cent-25 per cent to RMB148 million-RMB184 million respectively following a strong set of 1Q12 results. However, we adjust our target multiple down to 3.5x – its historical mean since listing in November 2009 – to reflect volatile margins observed since 1Q10 and surprise audit adjustments for higher expenses in 4Q11. With current share price offering less than 10 per cent downside potential, we are now NEUTRAL at a slightly higher target price of S$0.39 – OSK-DMG

 

Venture Corp (BUY; Target Price: S$9.41)

Venture Corp (VMS) reported a 13.7 per cent YoY decline in its 1Q12 PATMI (net profit) to S$35.5 million on the back of a 2.3 per cent drop in revenue to S$574.3 million. This formed 22.3 per cent and 20.6 per cent of our full-year forecasts, respectively. Results were within our expectations, as we are expecting progressive improvement in VMS’s operations, with FY12 likely to be a back-end loaded year. Sequentially, revenue fell 9.2 per cent, while PATMI slid 6.6 per cent, due mainly to seasonal factors. Net margin declined from 7.0 per cent in 1Q11 to 6.2 per cent in 1Q12, but showed a 0.2 ppt gain from 4Q11, staying within VMS’s target margin band of 6-8 per cent. Despite the slow start to the year, VMS remains fairly optimistic about its outlook for FY12, although there is still some level of uncertainty for 2Q. We expect conditions in 2Q to stay relatively sluggish, but foresee sequential improvement from 1Q. Sentiment from its customers remain encouraging, with contribution from new product launches and customers coming on stream more strongly in 2H12.  In particular, management sounded particularly upbeat about its Medical and Life Science business. VMS has gained traction in this field over the past 2-3 years, and sees good scalability moving forward. In addition, management opined that outsourcing for this segment is currently only in the early stage. Given that VMS has already established a first mover advantage by developing a solid customer base in this area, we believe that there is strong potential for robust growth ahead as the outsourcing trend picks up. – OCBC Investment Research