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China Merchants Holdings (Not Rated)

CMHP recently reported a 150 per cent YoY increase in its 1Q12 earnings, mainly due to the contributions from Yongtaiwan Expressway. As stated in its 2011 annual report, the management has committed to paying dividends of at least S$0.055 per share over FY12-13. That translates to an attractive minimum yield of 8.5 per cent per annum. Excluding Yongtaiwen Expressway, which was acquired in last July, earnings from the other toll roads still grew by 10.9 per cent YoY, mainly due to the 52.2 per cent improvement in contribution from Guiliu Expressway on higher toll revenue, lower repair and maintenance cost and lower tax expenses. This is also despite the fact that CMHP is in the process of divesting its 60 per cent stake in Yuyao Highway, which is no longer equity accounted. The management has committed to a stable dividend policy and is targeting dividends of at least S$0.055 per share for FY12 and FY13 each, which translates to a minimum yield of 8.5 per cent at the current share price. We believe that the resilience of its earnings can underpin the sustainability of the dividends, which is a virtue in today’s uncertain markets. The group is seeking acquisition opportunities to grow its toll road portfolio. It targets to keep net gearing at below 0.6x (currently 0.4x) and has not ruled out equity fund raisings to finance future acquisitions and improve the stock’s liquidity. The stock is currently tightly held by substantial shareholders China Merchants Group. – Maybank Kim Eng Research


Hiap Hoe (BUY; Target Price: S$1.22)

Hiap Hoe’s 1Q12 earnings continues to power ahead (+75 per cent YoY), underpinned by progressive recognition of its residential projects. Revenue grew 46 per cent YoY to S$37.5 million, underpinned by progressive recognition of its residential projects, Skyline 360° and Waterscape at Cavenagh. The group has a balance of S$360 million of progress billings to be recognised over the next 2-3 years, primarily from Skyline 360° and Waterscape at Cavenagh. Meanwhile, construction is progressing ahead of schedule at its Zhongshan Park commercial site along Balestier Road, with the Days hotel and the retail space on track for completion in 1Q13. Media reports earlier highlighted that founder Teo Guan Seng had filed a lawsuit to wind up the family holding company, Hiap Hoe Holdings, and distribute the assets the individual shareholders. Notwithstanding the outcome of the lawsuit, we believe the company continues to have a stable management team, helmed by Teo Ho Beng (executive chairman) and Roland Teo Ho Kang (managing director). Stock price has been on a roller-coaster ride over the past two months on speculation of a breakup of the company due to the family dispute, rising to a high of 69 S-cents before retracing much of the gains. At current price, deep value is emerging once again with the stock trading at 59 per cent discount to its RNAV of S$1.22. – OSK-DMG


Midas Holdings (NEUTRAL; Target Price: S$0.29)

Midas announced two metro contracts worth RMB62 million. The first is worth RMB34 million for the supply of aluminium alloy extrusion profiles and certain fabricated parts for 22 train sets, or 132 train cars, for Ningbo Metro Line 1 project. The Ningbo contract is awarded by CSR Zhuzhou. The second is worth RMB29 million for the supply of aluminium alloy extrusion profiles for 21 train sets, or 126 train cars, for Nanjing Metro Line 10 project. The Nanjing contract is awarded by its 32.5 per cent JV, Nanjing SR Puzhen. Delivery for both orders are expected to take place progressively from 2012 to 2013. We estimate current orderbook to reach RMB710 million, which is expected to be fulfilled from now till 2015. To meet our FY12 and FY13 revenue forecasts, Midas would need to secure an average RMB370 million of new extrusion orders per year. We continue to expect bumpy earnings over the next few quarters, with an estimated 70 per cent YoY contraction in 2Q12 net profit to RMB18 million. – OSK-DMG


SATS Limited (NEUTRAL; Target Price: S$2.60)

With the disposal of its UK business in 3QFY12, SATS recorded a marginal decline in 4QFY12 PATMI (1.2 per cent YoY) to S$50.1 million. Excluding the UK business, SATS managed to achieve a 10.0 per cent YoY growth in 4QFY12 EBIT, even as revenue rose 7.8 per cent YoY. Revenue from SATS’ aviation business (excluding TFK) was rather stable over the past few quarters, registering flat QoQ growth. This was even as the global economy was going through much uncertainty during that period. Demand in the cargo segment is expected to remain weak over the next two quarters. With the growing popularity of LCCs and improving regional tourism, we are estimating flat growth in SATS’ Airport Services division (which includes ground handling services and cargo). Growth in its Food Solutions business, which includes the stable non-aviation related business, is likely to be helped by improvements at TFK. Given the global economic uncertainty, we are estimating FY13 earnings to grow 8.1 per cent to S$184.7 million. The ICT is expected to be operational in the next month, but positive contribution is only likely in FY14. We continue to like SATS for its stability and strong balance sheet (net cash of 28.3 S-cents/share). However, at S$2.60, SATS is trading at 15.6x forward P/E (price-earnings), compared to its historical average of 14.5x. – OSK-DMG