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ASL Marine (BUY; Target Price: S$0.75)

ASL Marine reported a 32.3 per cent increase in revenue to S$113.8 million and a 1.0 per cent drop in net profit to S$8.0 million in 3QFY12 such that 9MFY12 revenue and net profit accounted for about 78 per cent and 80 per cent of our full year estimates, respectively. Results were slightly better than expected, and this was partly due to stronger margins in the shipbuilding segment. Gross profit margins in the three divisions remained mostly healthy – shipbuilding recorded a gross margin of 11.9 per cent vs 7.6 per cent in 3QFY11, whereas chartering registered a gross margin of 24.9 per cent, which was lower vs 25.3 per cent in 3QFY11. However, gross margin for repair fell from 15.4 per cent in 3QFY11 to 11.9 per cent in the last quarter, and this was due to unbooked additional costs for some repair jobs that were undertaken in 2QFY12. Excluding these costs, the margin would have been 16.3 per cent. After securing S$426 million worth of new contracts in 2HCY11, ASL has continued to win new shipbuilding orders worth about S$186 million YTD. This brings its outstanding shipbuilding orderbook to S$642 million (40 vessels) with deliveries till 2Q14, and this is the highest level that the group has seen since 3QFY09. ASL is seeing a healthy enquiry level for newbuilds especially those relating to offshore support vessels, and we expect more new orders for the group in the coming quarters. The substantial orderbook also provides enhanced earnings visibility. The stock has performed well since we upgraded it to BUY on February, rising by about 14 per cent vs the STI’s 2 per cent fall over the same period. We increase our gross margin assumption from 13.5 per cent to 14.0 per cent and roll forward our valuations to 12x FY13F core earnings such that our fair value estimate rises from S$0.68 to S$0.75. – OCBC Investment Research

 

Cache Logistics Trust (BUY; Target Price: S$1.11)

Cache Logistics Trust (Cache) is proposing to acquire Pandan Logistics Hub from sponsor CWT for a total consideration of S$66.0 million. Pandan Logistics Hub is a 5-storey ramp up warehouse located at 49 Pandan Road, built by the sponsor, CWT Limited. The warehouse is relatively sizeable, with total GFA of 329,109 sf and typical floor plate sizes of 58,000 sf. Together with accessible mezzanine office space, we believe the building caters well to single-user end tenants to base their operations. Upon completion of the purchase, CWT will leaseback the whole property on a triple net basis for 3 years. The first year rent is negotiated at S$5.2 million, with annual escalations of 2.5 per cent which we believe fair given its master lease structure. Upon the expiry of the master lease after 3 years, CWT has signed an agreement to extend leases for the first and fifth storeys for an additional 2-4 years, bringing the total weighted average lease for this property to 4.3 years. This will then allow Cache to engage the end tenants occupying the other parts of the warehouse and actively manage the property to optimise yields. Given the size of the acquisition and it is an interested party transaction, the manager will be calling for an EGM to seek unitholders approval. The purchase consideration implies a net property income yield of 7.6 per cent, which is higher than its current implied yield of close to 7.0 per cent, meaning that that the acquisition is expected to be accretive to the trust. The manager intends to fund the acquisition fully by debt, at an estimated interest cost of 4.0 per cent. Gearing is projected to head towards 31 per cent post completion of this acquisition (assuming 100 per cent debt). A widely anticipated and timely move, in our view, as we are looking for the manager to execute on acquisitions in order to maintain Cache’s upward distribution growth momentum. Minimal impact on our numbers as we have factored in S$60 million acquisitions in our forward estimates. Stock continues to offer an attractive FY12-FY13F distribution yields 8.3 per cent-8.5 per cent. – DBS Vickers

 

Ezion Holdings (BUY; Target Price: S$1.35)

Ezion reported a good set of results which were within expectations. 1Q12 revenue rose by 42 per cent YoY to US$30.6 million while net profit grew by 23 per cent YoY to US$14.1 million, after adjusting for a US$11.1 million one-time gain on asset disposal last year. Charter revenue from liftboat unit 4 in the Java Sea and deployment of vessel in the Gorgon gas field contributed to the rise in revenue. Gross margin was lower at 44 per cent compared to 57 per cent last year due to lower margins from the time-charter contract for unit 4 liftboat. We expect stronger quarters ahead with deployments of additional liftboat and service-rig units from 2Q12, and the commencement of the QCLNG project in Queensland, Australia. Ezion was also awarded with a new contract to provide logistics and support services for the development of LNG facilities on Curtis Island in Queensland, Australia. This is the company’s third major LNG contract and the second one on Curtis Island. While Ezion is in discussions to finalise the scope of the contract, terms would likely be similar to the LNG project it secured in August last year, where the contract value was for an initial US$55 million over 18 months. The new project is expected to commence from 1Q13.  Ezion also established a S$500m multicurrency debt issuance programme with DBS as the issuer. Notes or perpetual securities could be issued but Ezion is likely to draw on the debt market first, if required, due to higher cost of perpetuals. Current net gearing has improved to 0.20x (from 0.35x) after its previous share placement, but gearing should increase again as Ezion would likely need more funds to continue to grow. This should not be taken as a negative sign. – Maybank Kim Eng Research

 

Hutchison Port Holdings Trust (BUY; Target Price: US$0.85)

Overall volume growth for HPH Trust’s portfolio came in at about 5 per cent YoY, largely thanks to 9.4 per cent throughput growth at HIT, driven by higher transhipment and Intra-Asia volumes. Container throughput at Yantian Port was down 0.4 per cent YoY, as export volumes to US and especially Europe remained weak. ASP grew by about 2-3 per cent at Yantian Port, and declined slightly at HIT in 1Q12, largely due to the change in volume mix towards transhipment cargoes. Though revenues fell 6 per cent short of management projections, savings at the operating level, lower interest expenses and taxes, and the larger contribution from 100 per cent-owned HIT meant that net profits attributable to unitholders were largely in line with estimates. This has been the trend in previous quarters as well and the 7 per cent YoY growth in revenues and likely similar growth in EBITDA implies that the Trust is on track to deliver on its DPU guidance for FY12. We believe a somewhat more sustainable YoY recovery in volumes could be noticeable from April 2012 onwards, as volumes had started to flatten out during that period in 2011. Management indicated that volumes have started to pick up in April and May, and export bookings to the US are looking better, though the European market still remains weak. We estimate that volumes at HIT and Yantian Ports should show modest low, single-digit growth of 2-4 per cent this year, though management still remains optimistic about the possibility of 5-7 per cent growth. We expect the Trust to meet its DPU guidance of 6.6 US-cents for FY12, as it can divert some cash reserves earmarked for growth capex if volume growth is not strong enough in the near term. In 1Q12, the capex outlay was indeed 51 per cent lower than projected. – DBS Vickers

 

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

Neptune Orient Lines (NOL) released its 1Q12 results and remained in the red with a net loss of US$254 million. Despite a 7 per cent YoY growth in Logistic revenue to US$394 million, group revenue in 1Q12 slipped 3 per cent YoY to US$2.4 billion. Liner revenue fell 4 per cent YoY to US$2.0 billion because average revenue per 40-foot unit (FEU) came in 7 per cent lower YoY at US$2,420, which more than offset its volume gain of 4 per cent. At its 4Q11 results briefing, management revealed its plans to achieve US$500 million of cost savings in 2012 by improving operational efficiencies under its Efficiency Leadership Programme (ELP). Management said the ELP is on track to achieve its objectives and the programme has helped to reduce total bunker consumption by 10 per cent even though volume increased by 4 per cent in 1Q12. However, cost of sales per FEU (COS/FEU) in 1Q12 increased by 3 per cent with bunker prices 31 per cent higher YoY. Without the higher bunker price, COS/FEU should have eased 3 per cent lower. Plagued by weak freight rates and high bunker prices, 1Q12 has proved to be very challenging for NOL. However, The Shanghai (Export) Containerised Freight Index has so far in 2Q12 averaged 33 per cent higher QoQ. In addition, the transpacific, Asia-Europe and intra-Asia shipping lanes are also averaging 24 per cent, 69 per cent and 36 per cent higher QoQ respectively. Furthermore, Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index is currently averaging 2 per cent lower QoQ, indicating that the previously unrelenting rise in bunker fuel prices has finally ended. – OCBC Investment Research

 

OUE (NEUTRAL; Target Price: S$2.36)

OUE registered 1Q12 revenue of S$97.2 million, +42.4 per cent YoY mainly attributed to  the addition of revenue from the acquisition of Crown Plaza Changi Airport (CPCA) for the hospitality segment (revenue of S$60.6 million) and higher contributions from OUE Bayfront for the investment property segment (revenue S$33.3 million). However with higher interest costs as well as admin expenses due to higher headcount expenses and costs from CPCA, PBT rose only +4.2 per cent YoY to S$26.1 million. With the absence of fair value gains of S$249.2 million attributed to completion of OUE Bayfront in 1Q11, net profit fell 92.0 per cent YoY to S$21.7 million for 1Q12. We are positive on OUE’s 32 per cent GAV exposure to the hospitality segment, mainly concentrated in OUE flagship hotel asset Mandarin Orchard with its 1,051 room capacity enjoying high occupancy and healthy room rates. Recent STB statistics continue to reflect positive outlook for the tourism industry with visitor arrivals of 1.2 million in March, +15.8 per cent YoY. We expect the outlook to remain positive buoyed by new attractions eg. Gardens by the Bay, commencement of the international cruise terminal as well as government’s S$905 million injection to boost tourism moving forward. Sales remain tepid for OUE’s sole residential development, high-end project Twin Peaks at Leonie Hill with no units sold for the quarter. This is line with the performance of other high-end residential developers in our coverage including SC Global (SELL) and Wing Tai (NEUTRAL), which again reinforces our negative view on the high-end segment. – OSK-DMG

 

Sembcorp Marine (HOLD; Target Price: S$5.12)

Sembcorp Marine (SMM) reported a 13.7 per cent YoY rise in revenue to S$942.6 million and a 24.9 per cent fall in net profit to S$113.1 million in 1Q12, such that net profit accounted for 15.6 per cent and 16.5 per cent of ours and the street’s full year estimates, respectively. The increase in revenue was due to the initial revenue recognition for several rigbuilding as well as ship conversion and offshore projects, compared to the same period last year. However, gross profit margin was lower due to the initial lower margin from new design rigs. The group saw a dip in gross margin to 16.7 per cent in 1Q12 vs 21.8 per cent in 4Q11 and 23.5 per cent in 1Q11. Operating margin was also correspondingly lower at 12.8 per cent in 1Q12. Management previously guided operating margins of 15 per cent or lower for FY12, and is still comfortable with this level as more higher margin projects should be recognised in the upcoming quarters. SMM has a net orderbook of S$7.4 billion with deliveries stretching till 2Q15, and this includes S$3 billion of orders secured YTD (excluding ship repair). According to management, enquiries for deepwater rigs remain strong and the earliest delivery slots for jack-ups and semis are 2014 and 2015, respectively. However, there is still the possibility of a 2013 jack-up delivery should the price be right. We lower our operating margin assumptions from 15.5 per cent to 15.0 per cent for FY12 given the soft 1Q12 results, while noting that subsequent quarters should see an increase in margins, starting in 2Q12 when the US$218.5 million rig for Gulf Drilling starts initial revenue recognition. We also update the market value of SMM’s stake in COSCO Corp. As such, our fair value estimate falls from S$5.70 to S$5.12. – OCBC Investment Research

 

ST Engineering (BUY; Target Price: S$3.50)

ST Engineering (STE) 1Q12 revenue slipped 2 per cent YoY to S$1.5 billion but PATMI (net profit) jumped 21 per cent higher to S$134 million. This set of results is aligned with the market’s expectations, with both its 1Q12 revenue and PATMI meeting 24 per cent of consensus and our full-year estimates. STE’s Aerospace and Electronics segments displayed stable growth in 1Q12. Aerospace and Electronics revenues and grew 1 per cent and 2 per cent respectively to S$456 million and S$452 million, while their pre-tax profits 5 per cent and 4 per cent to S$60 million and S$34 million. However, STE’s Land Systems revenue and pre-tax profit contracted 11 per cent and 7 per cent respectively to S$317 million and S$24 million. This contraction was due to the completion of deliveries of Warthog vehicles to the British military in 1H11. On a positive note, Marine segment’s pre-tax profit rose 20 per cent to S$29 million, despite recording 10 per cent lower revenue of S$244 million. The Marine segment’s improved margin was the result of a more favourable sales mix, coupled with loss provisions made in 1Q11 to a Ropax ferry shipbuilding contract with Louis Dreyfus Armateurs. Management remains optimistic and maintained its guidance of revenue and pre-tax profit growth for FY12. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish, or even grow, its healthy orderbook of S$12.2 billion at end-1Q12. – OCBC Investment Research

 

United Overseas Bank (SELL: Target Price: S$15.50)

1Q12 results were above our expectations and consensus, largely as a result of higher-than-expected trading income and slightly higher net interest margins (NIM). Net profit up 12 per cent YoY, with positive momentum on net interest income (+15 per cent YoY) and non-interest income (+14 per cent) offset by higher overheads (+16 per cent) and a higher tax rate. Trading income surprised on the upside due to gains on investment sales while NIMs were better-than-expected on account of improved lending yields.  Annualised loan growth of 10 per cent was below the mid-teens guidance for the year. Key markets Singapore and Malaysia saw still healthy annualised loan expansion of 13 per cent and 21 per cent respectively but lending in Indonesia and Thailand contracted while Greater China annualised loan growth moderated to just 8 per cent from +59 per cent YoY in 2011. The focus has primarily been on preserving NIM and the positive is that NIMs improved 3 bps QoQ to 1.98 per cent, with expansion across most markets except Malaysia. Management is of the view that further improvements will be challenging.  Managing liquidity has been a priority and while the overall loan/deposit ratio (LDR) has crept up to 86 per cent from 83 per cent end-Dec, USD LDR has come off to a more comfortable 83 per cent presently as a result of USD funding raised during the quarter.  Forecasts raised 5-6 per cent, largely to incorporate higher NIM and trading income assumptions. The offset, however, is that expenses will likely continue to rise at a faster pace due to ongoing talent investment, while credit charge rates are expected to pick up in the following quarters. – Maybank Kim Eng Research

 

Wing Tai (NEUTRAL; Target Price: S$1.16)

Wing Tai’s 3Q12 results were down on lower development revenue. Revenue came in at S$128.1 million (-69 per cent YoY), mainly due to lower development contributions with the completion of Helios Residences. Driven by the lower topline, gross profit of S$66.5 million and operating profit of S$30.1 million fell 73 per cent YoY and 85 per cent YoY respectively. Contribution from associates were up 80 per cent YoY to S$32.2 million supported by contributions from The Floridian and Ascentia Sky as well as Wing Tai HK which contributed 3Q12 net profit of S$42.3 million, -74 per cent YoY. We maintain our view that tepid sales of its portfolio of high-end development projects is not unduly worrying as 0.26x net gearing is healthy and land bank replenishment in the high-end segment is likely to be challenging currently. Wing Tai also mitigates the stalemate in the high-end segment with activity in the mid-segment to support earnings. However we do not foresee significant share price re-rating in the near term with rising concerns of policy risks. – OSK-DMG