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China Fishery (BUY; Target Price: S$1.20)

China Fishery’s (CFG) 2QFY12 PATMI was up 5 per cent YoY to US$48 million, and came in slightly below our expectations mainly due to higher than expected costs/tax for its Peru operations. 2QFY12 PATMI accounted for 34 per cent of our full year forecast but we note that seasonally 2Q had always been a stronger quarter. Though South Pacific fishing season is from March to November, and can therefore expect better results from this segment in 2HFY12, we may have been too optimistic in our South Pacific catch expectations. CFG plans to deploy three to four trawlers to Mauritania, Senegal and Namibia, and though this is expected to further boost volumes, we note that there will be absence of contribution from Fairo islands this year (accounted for 60 per cent of South Pacific catch in FY11). We therefore lower our FY12 South Pacific catch assumptions by 10 per cent to 90,000 tonnes. CFG has commenced its Surimi production and this is expected to boost margins given that its ASP is about twice that of Alaska Pollock. We increase our Peru costs assumptions and lower our South Pacific catch forecast. Our FY12 earnings estimates are consequently lowered by 13 per cent to US$121 million. Potential positives to expect from 2HFY12 could come from Surimi product to boost North Pacific margins. – OSK-DMG


City Developments (HOLD; Target Price: S$10.76)

City Dev reported a 45 per cent drop in net profit to S$156.8 million despite revenue rising 9 per cent to S$846.7 million due to an absence of divestment gains of commercial properties. This was partially offset by profits from the sale of investment in financial assets of S$40.9 million. Stripping off the non-recurring items, bottomline would have risen by 15 per cent YoY. 1Q12 bottomline accounted for 24 per cent of our full year numbers. Residential profits made up 41 per cent of PBT and came from ongoing projects such as Volari, NV Residences, 368 Thomson, Hundred Trees, Glyndbourne as well maiden contributions from Hedges Park. While the company continued to benefit from the strong locked-in presales at the topline, the effect of narrowing margins will likely impact profit growth going forward. Hotel performance benefited from strong Asian performance and cost management initiatives while rental income was relatively stable (ex divestment gains). Looking ahead, City Dev plans to market two new projects – UP@ Robertson Quay, a 70-unit development at Robertson Quay, which is part of an integrated hotel/residential project as well as Haus @ Serangoon Garden, a 96-unit landed development at Serangoon Way. The company acquired the sites last year and we estimate it could achieve margins of 10 per cent when marketed at ASPs of S$1,800 psf and S$1,000 psf respectively. In China, gradual development of its existing sites in Suzhou and Chongqing will impact profits in the medium term. In addition, the company will continue to selectively landbank. While we like City Dev for its ability to generate strong cashflows from its residential landbank and quick asset turn strategy as well as unlocking value from its older commercial property portfolio, current valuations are not compelling vs its peers in the sector. The stock is trading at a slight discount to RNAV of S$11.25 and close to our target price of S$10.76. Hence we maintain HOLD with target price of S$10.76, premised on a 5 per cent discount to asset backing. – DBS Vickers


ComforDelGro (BUY; Target Price: S$1.85)

ComfortDelGro’s (CDG) 1Q12 earnings of S$54.0 million were in line with forecasts, given that this was a seasonally weak quarter. Encouragingly, revenue was 7 per cent higher YoY due to growth from almost every business segment. Earnings derived from overseas operations comprised 49 per cent of total operating profit, up from 41 per cent, partially caused by the fact that its Singapore bus operations (SBS Transit) made an operating loss of S$4.0 million excluding advertising and rental revenue. Despite challenges faced within the local public transport scene, especially with no mandated fare increases for 2012, we believe that its overseas operations can more than pick up the slack, as evidenced by current 1Q12 results. Buses and taxi operations remain the key component of revenue growth, with revenue increases of 5 per cent and 9 per cent YoY respectively. On the profitability front, CDG’s bus profit growth was derived primarily from the UK (+S$4.9 million) and Australia (+S$4.3 million). In contrast, Taxi profitability improvement was derived mainly from China (+S$1.7 million). From this perspective, CDG’s strategy of geographical diversification across its business segments seems to be paying off. As a global transport operator within multiple modes of land transport, we believe that CDG will be one of the few transport operators with the ability to emerge profitably amidst the backdrop of escalating operating costs. Its near-term growth will likely be spearheaded by its overseas operations. – Maybank Kim Eng Research


Midas Holdings (HOLD; Target Price: S$0.33)

In line with its profit guidance issued on May 8, Midas Holdings reported a poor set of 1Q12 results, with revenue and net profit plummeting 22.3 per cent and 74.7 per cent YoY, respectively. Sequentially, revenue rose 9.2 per cent while net profit dipped 58.3 per cent. This was below our expectations even though we had already factored in a significant YoY decline in its financial performance. 1Q12 topline formed 20.6 per cent of our full-year projections (21.1 per cent of consensus), while bottomline made up just 7.5 per cent (8.2 per cent of consensus) of our FY12 estimates. Outstanding orderbook stands at RMB650 million as at 31 March 2012, versus RMB800 million in the preceding quarter. Midas’ weak set of results were attributed to various factors, including higher operating expenses and finance costs, as well as a RMB4.6 million share of loss from its associated company Nanjing SR Puzhen Rail Transport (NPRT). In contrast, Midas recorded a share of profit of RMB4.1 million from NPRT in 1Q11. We slash our FY12 earnings estimates by 34.3 per cent given Midas’ weak 1Q12 results. China’s Ministry of Railways (MOR) has yet to re-ignite contract tenders for high-speed rail train cars, despite repeated reaffirmation of its long-term commitment to the sector. In addition, contract wins will also take time to filter down from its customers to Midas, even after MOR resumes its contract tenders. We estimate this whole process could take 6-9 months. Hence, we expect the group’s financial performance to remain tepid in FY12. Nevertheless, with Midas currently trading at a trough P/B of 0.6x, we believe that the market has already factored in most of the negatives. We expect Midas to post a recovery in FY13 and hence, roll forward our valuation to 11x blended FY12/FY13F EPS (earnings per share). – OCBC Investment Research


Nam Cheong (Not Rated)

Largest OSV builder in Malaysia Nam Cheong is the largest OSV shipbuilder in Malaysia, with 75 per cent market share in Malaysia and nearly 7 per cent of the regional market. The OSV market is on an uptrend, spurred by E&P spending and resilient oil prices. Offshore activities remain robust, with high rig utilisation rates. We expect this uptrend to continue. As the largest OSV builder in Malaysia and close ties with Petronas, Nam Cheong is poised to benefit from the increase in Petronas’ capex budget to RM300 billion in the next five years. The stock currently trades at 7.1x FY12F PE, which is slightly below peers’ average of 8.7x. Given our conservative earnings forecast versus earnings upside risk, we believe 8.5x FY13F PE is fair. We derive a fair value of S$0.25 per share, which translates to an upside of 40 per cent from the current price. Demand for OSVs is expected to be strong. Moreover, its build-to-stock business model enables the company to meet demand faster. The outsourcing arrangement with China yards provides the company with increased capacity and flexibility. Key risks for Nam Cheong are mainly related to macro risks. Other risks include excessive inventories as a result of the build-to-stock business model. – DBS Vickers


SATS Limited (BUY; Target Price: S$3.04)

SATS reported FY12 results that were in line with expectations at S$171 million. As a more meaningful comparison, its 4Q12 net profit from continuing operations of S$48.0 million was flat YoY, while on a full-year basis, profit declined marginally by 4 per cent to S$178.0 million, which was a creditable performance against the year’s challenging operating environment. TFK has seemingly turned a corner after the Japanese earthquake disaster in March 2011 which severely affected its operations. TFK has shown four consecutive quarters of improvement since then, culminating in a turnaround from an S$1.6 million loss in FY11 to a S$0.3 million profit in FY12. We expect further recovery in TFK’s performance as a key growth driver for the group going forward. SATS has historically been sitting on a healthy net cash position. The group has a 5-year ordinary dividend payout ratio of 70 per cent. We think that based on its strong cashflow and large net cash position, there is justification for a payout ratio closer to 100 per cent, which would still leave sufficient cash for potential acquisitions in the non-aviation-related space. SATS continues to remain a company with solid fundamentals, with growth drivers largely intact. We believe that its resilient earnings amidst a volatile economic climate and possibly higher dividend payouts justify a valuation upgrade to 17x FY13 PER (price earnings ratio). – Maybank Kim Eng Research


Swiber Holdings (HOLD; Target Price: S$0.61)

Swiber Holdings reported a 29.1 per cent YoY rise in revenue to US$194.4 million but saw a 10.6 per cent fall in net profit to US$8.6 million in 1Q12, accounting for 27.0 per cent and 27.4 per cent of our full year estimates, respectively. Gross profit margin decreased from 21.0 per cent in 4Q11 to 19.8 per cent in 1Q12 but remains in the upper range of management’s guidance of 15-20 per cent. Current borrowings stood at US$372.8 million with a cash balance of US$139.3 million as at 31 March 2012. The former includes US$128 million of bank loans, US$133 million of bonds and convertible loan notes which have a notional amount of US$100 million and may be redeemed on October 16 this year. The conversion price is S$0.84, more than 40 per cent above the current stock price. We would be focusing on any developments on the convertible notes front to see if there is any possibility of reaching an agreement with the bondholders to extend the put date. Swiber’s outstanding orderbook of about US$1.2 billion is expected to contribute to results over the next two years. The group has secured contracts worth more than US$500 million YTD and is likely to continue to win more work given the positive industry outlook. However, this also means more funds would be needed for working capital. Along with the refinancing needs that may come up this year, we think that the high net debt situation is a risk in the current volatile market. As such we lower our peg to 10x core FY12/13F earnings, resulting in a lower fair value estimate of S$0.61 (prev. S$0.75). – OCBC Investment Research


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

It was just announced that the Chairman of Wing Tai, Mr Cheng Wai Keung (through vehicle Ascend Capital) is launching a voluntary conditional cash partial offer to acquire 15 per cent of the outstanding shares of Wing Tai not currently owned by the Cheng family or treasury shares, which translates to 8.7 per cent of Wing Tai’s share base. The offer price of the partial offer is S$1.39 per share, representing a premium of 18.3 per cent over the last closing price of S$1.175 before the trading halt. The controlling shareholders would own 50.6 per cent of Wing Tai subsequent to likely full take-up of the partial offer. While the rationale of the partial offer stated in the offer documents articulate management motivations to gain statutory control of the company, we note that management have been acquiring shares of Wing Tai of late (8.5 million shares acquired in June 10 in the price range of S$1.52-S$1.62) as well as 975,000 shares acquired in September 2011 recently at an average price of S$1.366). We believe the management is of the view that the share price is currently under-valued, trading at 0.51x P/B and is signalling to the market of this view. Management is not likely to seek a delisting or privatisation of the company moving forward. While the share price performance may remain firm in the near term attributed to the partial offer, we are maintaining our target price S$1.16 based on 50 per cent discount to RNAV. This is in view of our expectations of gradual moderation in private residential prices moving forward, 41 per cent GAV exposure to the high-end segment in which we are less sanguine, as well as rising policy risks leading to sustained share pricing re-rating is unlikely moving forward. However we see limited downside for the stock trading at 0.51x P/B and 0.55x P/RNAV. – OSK-DMG