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ARA Asset Management (BUY; Target Price: S$1.74)

ARA’s reported a net income of S$20 million on top of a 26 per cent hike in revenues to S$34.3 million. The strong growth was attributed to a 5 per cent growth in recurring management fee income from an expansion in AUM due to increase in valuation of the property portfolios under REITs, including its recent acquisition from Fortune REIT; acquisition fees attributable to the managers of Fortune REIT and Cache Logistics Trust when its REITs acquired assets during the quarter; and net gain on disposal of REIT units that were paid as REIT management and acquisition fees. The higher net income was also contributed by higher income from fees earned as a REIT manager of Hui Xian REIT. We understand that ADF2 has started investing capital and will start accruing fees from 2Q12. Updates on the further pre-commitments however appear to be slightly slower than expected and total commitments still stand at US$400 million (similar to one quarter ago). Nevertheless, management remains confident of hitting their initial target of US$1 billion for Dragon Fund II (ADF2) by end of 2012. Given its stellar track record in generating positive returns for its PE funds over the past 2 years, we are positive that this target can be achieved. We continue to like ARA for its superior ROE, strong visible recurring fee income structure and multi earnings growth drivers over the next 2 years. Our target price is premised on 18x PE (price earnings) on their earnings from its AUM business and market prices of its various stakes in listed REITs. – DBS Vickers


City Developments Limited (HOLD; Target Price: S$9.45)

City Developments Limited (CDL) reported a 1Q12 net profit of S$156.8 million, down 44.5 per cent YoY. Excluding one-off items, core PATMI (net profit) decreased by 22 per cent YoY mainly due to lower development profit recognised. Coming in at approximately 17 per cent of our full-year estimate, CDL’s 1Q12 results are largely in line with expectations. While property development continues to account for the bulk of CDL’s earnings at 41 per cent of PBT, overall margins appear to be declining from 38.8 per cent in 1Q11 to 22.3 per cent in 1Q12 as high-margin projects such as One Shenton and Cliveden at Grange were completed in 2011. As of 1Q12, profits from H2O Residences, Buckley Classique, The Palette, Bartley Resdences, Blossom Residences and The Rainforest have not been recognised due to their early stages of construction. CDL is preparing to launch the 70-unit UP@Robertson Quay very shortly. Part of a mixed development with a 300-room lifestyle hotel called M Social, UP@Robertson Quay will have an array of smaller-sized riverside apartments. CDL will also be rolling out 96 units of terrace houses in the development known as HAUS@Serangoon Garden. We think that demand should be quite strong given its location and the limited supply of landed housing. As expected, CDL remains confident about its investments in Chongqing, as demand will continue to be driven by progressive urbanisation, strong economic growth and pro-business policies, even under new Party Secretary Zhang Dejiang. CDL will still continue to seek further acquisitions in China. We maintain our belief that the possibility of further property cooling measures in Singapore remains high and further upside in CDL’s share price is likely to be limited even if current valuations are inexpensive. – Maybank Kim Eng Research


Genting Singapore (BUY; Target Price: S$1.97)

Genting Singapore (GS) posted 1Q12 revenue of S$787 million, meeting 21.3 per cent of our full-year forecast. Revenue was slightly softer than expected, as overall revenue was affected by lower win percentage and lower business volume in the premium player business. But GS noted that overall casino gross revenue grew by 9 per cent QoQ as a result of higher business volume in all gaming business segments. Net profit came in around S$211.5 million (-30.9 per cent YoY), or 20.8 per cent of our FY estimate, affected by the lower revenue and higher depreciation expense as GS continues to expand the IR. However, this was mitigated by lower finance costs. USS saw daily visitor numbers of 8,200 with an average spend of S$88, with the successful launch of the Transformers the Ride in December 2011. Since the break-even point is 6,000-7,000 daily visitors, GS revealed that a number higher than that falls very quickly to the bottom line. Hence, GS will continue to focus on drawing visitors to USS. Additionally, GS is also positive on the issue of the IMA (International Marketing Agent) licences and revealed that one has started operating in the first week of May. While it does not expect to see any significant revenue boost in the near term, it is hopefully of seeing more approvals over the next 12-18 months, especially for some bigger and better-funded operators. – OCBC Investment Research


Goodpack Limited (BUY; Target Price: S$2.00)

Based on Bloomberg’s FY12 earnings forecast of US$46.9 million, the 2HFY12 PATMI (net profit) estimate is US$24.4 million which implies improvement in net margins to 26.3 per cent, from 25.8 per cent in 1HFY12. We believe such estimates are optimistic as margins should compress on the back of increased leasing costs. Further consensus 2HFY12 estimates equate to 52 per cent of full-year results versus average seasonal contribution of 49.3 per cent. This, too, is unrealistic as we expect continued deceleration of revenue growth in 2HFY12, due to the lingering destocking by Goodpack’s customers. We forecast 2HFY12 PATMI of US$20.7 million, net margins of 22.9 per cent and 2HFY12 seasonal weighting of 47.9 per cent. We understand the total number of IBCs (international bulk containers) stood at 2.6 million at end March 2012, similar to the fleet size at end December 2011. With a slower pace of new IBCs added year-to-date, we have trimmed FY12-14F profit by 1-2 per cent. For 3QFY12 results, to be released on 11 May 2012, we expect profits of US$9.5 million-10.5 million, down from US$10.6 million in 3QFY11, due to the impact of higher leasing costs. We are still bullish on Goodpack’s long-term outlook, especially given its recent automotive parts contract win with GM. However, with anticipated volatility in the share price on an expected downgrade of street estimates, investors should BUY Goodpack only after 3QFY12 results. – DBS Vickers


Kingsmen Creatives (BUY; Target Price: S$S$0.85)

Kingsmen Creatives kickstarts FY12 with a strong set of first quarter results. The group achieved sales of S$46.9 million, up 29.9 per cent YoY, and net profit of S$2.0 million, up 50.7 per cent YoY. Workflow was impressive this quarter and the orderbook looks solid for the coming year. Though illiquid, the group’s steady earnings stream and attractive dividend yield of 6.3 per cent is hard to stay away from. The Exhibitions and Museum division performed exceptionally well, rising 73.7 per cent YoY to S$22 million. This is largely attributed to various exhibitions showcased this quarter, from Art Stage, the Singapore Airshow and Asia Pacific Maritime among other exhibitions and events. The Interior division achieved the same numbers at S$20 million, suggesting workflow is still steady with revenue generated from key customers such as Aldo, Burberry and Coach. Gross margins fell 2.6 ppts to 27.2 per cent and net margin declined by 3 ppts to 4.2 per cent. This is mainly a seasonality issue as the quarter coincides with Chinese New Year, which means higher salary expenses and a salary adjustment period. We are impressed with the group’s ability to procure projects not only in Singapore but also several in other countries. The group has confirmed S$167 million in contract orders as of May 2012. This includes exhibitions and events, such as Food and Hotel Asia, Tax Free Asia Pacific, BMW event launches and Yeosu Expo 2012. Its existing projects are also progressing well, with projects at Garden by the Bay, Universal Studios, Sotheby’s Visitor Centre in Hong Kong and more. – Maybank Kim Eng Research


Macquarie International Infrastructure Fund (BUY; Target Price: S$0.64)

The fund generated net dividend income of S$21.3 million, up 181 per cent YoY, largely owing to the higher 47.5 per cent stake in Taiwan Broadband Communications (TBC), compared to 20 per cent last year. Even if we strip out the impact of a larger stake, dividends from TBC grew 6%, in line with organic growth at the asset last year. To note, 1Q dividend income is derived only from TBC (half-yearly payout) as the other two assets – Changshu Xinghua Port (CXP) and Hua Nan Expressway (HNE) – only pay dividends once a year in the 3rd quarter of the year. Operational performance at TBC in 1Q12 continued to be healthy with EBITDA growth of 6 per cent YoY, as growth in digital cable TV subscribers surpassed expectations. HNE also surprised on the upside, delivering 14 per cent EBITDA growth in 1Q12, driven by higher traffic volumes benefiting from traffic feed from newly opened Guanghe Expressway. At CXP, revenue grew 9 per cent YoY but EBITDA fell 10 per cent owing to margin pressures and one-off costs. Operational performance at HNE and CXP is expected to remain healthy. The key risk is a possible toll rate reduction at HNE Phase I, as the Guangdong government will be introducing uniform toll road standards in 2012. Our numbers already reflect a toll rate cut at HNE Phase I of about 20 per cent by mid-2012, but this could be further delayed, as there has been no communication yet from local authorities. The fund bought back 13.7 million shares in 1Q12 and we expect share buyback activities to continue, given the share price discount to fund NAV and the lack of suitable acquisition opportunities in the near term. – DBS Vickers


Noble Group (BUY; Target Price: S$1.67)

1Q12 was generally in-line with market expectations. Although headline net profit showed a 46 per cent YoY decline to US$110 million, this was largely due to a US$78 million swing in nonrecurring asset profit. Excluding this, recurring net profit was US$136 million, which was a 10 per cent decline YoY but a good improvement from 4Q12. Profitability appears to be back on track to its usual quarterly run-rate of US$150 million-US$200 million. The US$26 million loss for supply chain assets relates mainly to its long-term equity portfolio as well as miscellaneous charges. For the same quarter last year, there was a US$53 million gain from disposal of its fleet management business. This is more commendable taking into account an addition seasonal effect at its agricultural business. Going forward, we are likely to experience weaker 1st quarters given the addition of its two newly acquired sugar mills in Brazil. This set of results is more commendable taking into account an addition seasonal effect at its agricultural business. Going forward, we are likely to experience weaker 1st quarters given the addition of its two newly acquired sugar mills in Brazil. Production season is usually April-December. As a result of this as well as continued weak margins for soybean crushing, the agriculture segment showed weakness with a 63 per cent YoY decline in gross profit. Other businesses showed healthy profitability. Noble has remained at conservative VaR levels since late last year, which we believe helped protect profitability in this period of market volatility. The due diligence process for the Gloucester and Yancoal has been recently completed, and now awaits a Gloucester shareholder meeting to vote through, this is expected to add about 5 per cent to its book value and free up A$412 million. – Maybank Kim Eng Research


Parkway Life REIT (BUY; Target Price: S$2.07)

PREIT achieved 1Q12 DPU of 2.6 S-cents, representing 26 per cent of our FY12 estimates. NPI was up 5.6 per cent YoY, which was mainly attributed to full-quarter contribution from acquisitions made during 1Q11 and higher rental income from Singapore properties. PREIT acquired three nursing homes in Japan in end 1Q12. These nursing homes would start making full-quarter contributions to earnings from 2Q onwards, while its Malaysia properties would start contributing from 3Q. PREIT is negotiating to acquire heathcare assets in Australia and/or Malaysia where the demand for quality healthcare services in these two markets remain strong. Between July and December 2011, the average CPI was 5.5 per cent. From January to March 2012, CPI on average was 5 per cent. Should the CPI for April – June 2012 be 0 per cent, rental at its Singapore properties can be expected to be 5 per cent higher (based on CPI+1% formula) for the new lease term (beginning August 12). This would contribute to revenue growth. – OSK-DMG


SingTel (BUY; Target Price: S$3.68)

SingTel reported its 4QFY12 results this morning, with revenue rising 3 per cent YoY to S$4,780 million. Revenue was 6.1 per cent ahead of our forecast, lifted by the 4 per cent YoY strengthening of the AUD against the SGD. Core net profit came in around S$1,023 million, up 2.5 per cent YoY, but smack on our forecast. For FY12, revenue gained 4.2 per cent to S$18,825 million, or 1.5 per cent ahead of our estimate, while core net profit fell 3.3 per cent to S$3,676 million, again smack on our forecast. Going forward, the group will continue to transform its business to sustain competitiveness, innovation and growth. It has also reorganised itself by customer segments to exploit growth opportunities globally. From the analyst teleconference, we got a sense that management is particularly upbeat about the mobile advertising market, which it had earlier described as “nascent”, and has great potential in the emerging markets in Asia. Back to specifics, SingTel expects consolidated revenue in FY13 to grow at a low single-digit level and EBITDA to remain stable; although this implies potential EBITDA margin pressure, which could arise from initial start-up costs associated with its Group Digital Life segment. Meanwhile, free cash flow is estimated to be around S$2.6 billion, after allocating S$950 million of capex in Singapore and A$1.1 billion in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70 per cent. – OCBC Investment Research

Singapore Airlines (HOLD: Target Price: S$10.85)

In our last report on February 2012, we highlighted that Singapore Airlines’ (SIA) FY12 PATMI (net profit) will likely miss consensus estimate. True enough, SIA’s FY12 net earnings came in at S$336 million, which was 25 per cent and 17 per cent respectively lower than the street’s and our forecasts. Management said tension in the Middle East during 4QFY12 pushed fuel cost up by 15 per cent, which caused profit margins to contract. Furthermore, SIA in 4QFY12 recorded S$79 million of one-off losses, of which S$51 million was a disposal loss arising from the early withdrawal of the last of Boeing 747 aircraft within the SIA fleet. Most of SIA’s business segments were less profitable in 4QFY12 than a year ago. The parent airline recorded an operating loss of S$9 million, from a profit of S$93 million a year ago, after passenger yields fell while fuel prices remained high. SilkAir’s operating profit slipped 3 per cent YoY to S$39 million while SIA Cargo swung from a small profit to an operating loss of S$48 million. SIA Engineering provided some cheers by recording a 6 per cent YoY growth in operating profit to S$33 million. For the year ahead, management guided that capacities of the parent airline, SIA Cargo and SilkAir will increase by 3 per cent and 22 per cent respectively. Capex in FY13 is budgeted to be S$1.6 billion. Advance bookings in the current quarter are higher YoY but air travel in 1QFY12 was notably disrupted by last year’s earthquake in Japan. Passenger yields will likely come under further pressure though fuel prices are expected to remain high. Demand for air freight is unlikely recover before 2HFY12. – OCBC Investment Research


UE E&C (BUY; Target Price: S$0.71)

UE E&C reported its 1Q12 results last evening. 1Q12 revenue and net profit fell by 35 per cent and 19 per cent YoY to S$56.6 million and S$4.0 million respectively, mainly due to lower contribution from existing projects. That said, we note that revenue recognition of construction contracts are lumpy in nature, and may not be an accurate reflection on the progress made on DBSS/EC projects. During the quarter, administrative cost also fell by 13.1 per cent YoY to S$2.6 million due to an absence of listing expenses. Other income jumped to S$1 million from fair value gains on investments. Revenue recognition on construction contracts typically follows the percentage-of-completion (POC) method. However, INT FRS 115 requires the use of completion-of-construction (COC) method for DBSS and EC projects. This inevitably leads lumpy recognition of revenue (and profit) after a DBSS/EC project obtained TOP. To illustrate, UEEC’s FY11 net profit doubled to S$64.4 million (9 months: S$30.2 million) after its DBSS project, Park Central @ AMK, had obtained TOP in 3Q11. Looking ahead, we expect UEEC to begin work on its latest EC project in Pasir Ris (‘Watercolours’) in 2H12 and complete it by 2015. This also implies that the construction work done on the project may not be fully recognised until 2015. Besides the Pasir Ris EC project, UEEC is also working on the Austville Residences, National Continuing Education & Training Campus and MGM Grand Ho Tram projects. Although overall gross margin improved slightly to 15.1 per cent (1Q11: 14.0 per cent), we fear that labour costs could rise given the stricter foreign manpower quota for the construction industry. Therefore, we eased our gross margin assumption to 17-18 per cent. – OCBC Investment Research