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CDL Hospitality Trusts (BUY; Target Price: S$2.04)

We think it is notable that the Singapore Tourism Board (STB) is targeting a possible doubling of tourism’s GDP contribution to 8 per cent. In 2011, tourism accounted for 4.1 per cent of GDP, substantially higher than the 3.6 per cent in 2010 and 2.4 per cent in 2009. In 1Q12, real GDP grew 1.6 per cent YoY while the Accommodation & Food Services sector (a rough proxy for tourism) grew faster at 4 per cent YoY. For 2012, STB is aiming for S$23-24 billion in tourism receipts, implying a 3.6-8.1 per cent YoY increase. The target growth rate, which STB has indicated could be revised upwards, is significantly higher than the official 2012 GDP growth forecast of 1-3 per cent and highlights the increasing importance of tourism. This emphasis will probably continue to benefit high-end hotel players like CDLHT. For 1Q12, tourist arrivals jumped 14.6 per cent YoY to 3.5 million. Based on preliminary figures, high-end Singapore hotels showed RevPAR growth of 14.5 per cent in 1Q12, outperforming budget hotels (+5.5 per cent YoY). The robust RevPAR growth for high-end hotels was supported by larger increases in rental rates. We believe that our 7.5 per cent RevPAR growth rate assumption for CDLHT’s Singapore hotels in 2012 is not aggressive.  Updating our in-house hotel database, we forecast that overall hotel room supply will increase by 3.7 per cent p.a. for 2012-2015, comfortably outstripped by hotel room demand growth of 6.4 per cent p.a. High-end hotel room supply will grow by 3.0 per cent p.a., slower than the 5.3 per cent p.a. for budget hotels. The temporary closing of Pan Pacific Singapore for renovations from April to August has also taken 778 high-end rooms off the market. – OCBC Investment Research


ComfortDelGro (HOLD; Target Price: S$1.53)

ComfortDelgro Corporation Limited (CD) is the second largest land transportation company in the world with a global network of over 46,300 vehicles spanning seven countries. Its main operating segments are bus and taxi, which contribute almost 80 per cent of revenue (1Q12) and 69 per cent of operating profits (OP). CD also has segments providing rail, vehicle inspection, automotive engineering and driving centre services. Geographically, its domestic operations constitute 59.3 per cent of revenue, with the rest coming from overseas ventures. From FY2003-11, CD’s revenue grew at a decent CAGR of 8 per cent, and its recent 1Q12 results also showed broad-based increases across most operating segments. With continuous support from increasing ridership levels on its bus and rail operations, boosted by greater fleet utilisation and increased cashless transactions in its Singapore taxi business, we expect CD’s top-line to continue on its upward trajectory, albeit at slower pace of 4.6 per cent in both FY12 and FY13. However, CD’s bus and rail segments in 1Q12 contributed only 7.2 per cent of the group’s OP despite having a 23 per cent share of revenue. We expect the Singapore bus and rail segments to be a drag on operating profit (OP) margins going forward as regulatory pressures and public sentiment related to the public transportation system will reduce the possibility of positive fare adjustments, operating expenses increase due to higher repair/maintenance and fuel/electricity costs on the back of increased service runs, and expansion costs related to the upcoming Downtown Line. – OCBC Investment Research


Elite KSB (Not Rated)

Elite KSB announced that it has entered into a conditional sales and purchase agreement with Kendo Trading for the disposal of its entire interests in its various meat processing entities. Elite is a leading importer and processor of chicken and pork in Singapore; its meat processing business is divided into the chicken, beef and lamb divisions under KSB Distribution, Jordan International, Soonly and SAFA. Elite, which has been in the poultry business since the 1950s, ranks as one of the largest chicken suppliers in Singapore. It imports live chickens from Malaysian farms and processed up to 25 per cent of Singapore’s daily demand for fresh chickens through its slaughterhouse, Soonly. The S$62 million price tag for its meat processing business is in excess of book value by S$40.4 million, and reflects a historical P/E of 10.5x. Elite will realise a net gain of S$37 million on completion, while NTA/share will rise from 21 S-cents to 51.4 S-cents. The company intends to use the proceeds of the sale for working capital purposes and new business opportunities, as well as to consider a special dividend to shareholders. Besides its meat processing business, Elite’s other key assets include its industrial property at 2 Senoko Way, valued at S$10 million, and its associate investments in various feedmill businesses in China. We estimate a sum-of-parts valuation of S$0.60/share for the stock on a breakup basis. At the last traded price, the stock is trading at a 37 per cent discount to its SOTP valuation. This latest transaction follows on the heel of another transaction in the F&B sector, ABR’s sale of its Cocoa Tree retailing and wholesaling business to its minority partners at a hefty 300 per cent premium to book value. We continue to see value in selected homegrown F&B names that have successfully craved out niches in their respective segments. – OSK-DMG


ST Engineering (BUY; Target Price: S$3.40)

ST Engineering announced the finalisation of agreements with Airbus and its parent EADS to collaborate on the A330 Passenger-to-Freighter (P2F) conversion project. The initial agreement had been announced during the Singapore Airshow earlier in February. Under the final agreement, ST Engineering will invest about EUR110.5 million for a 35 per cent effective stake in EADS EFW, the P2F conversion arm of EADS. EADS will hold the remaining 65 per cent and will also have a call option over STE’s 35 per cent stake during the engineering development phase of the A330P2F programme. The call option will expire when the engineering work is successfully delivered to EADS EFW. The engineering phase is expected to commence by end-2012. ST Aerospace, with its engineering design experience, will be the lead during the engineering and development phase, while EADS will be the lead in terms of actual modifications and marketing. Most of the conversion works will be done at EADS EFW’s facility in Dresden, Germany, with the remainder coming to a dedicated ST Aerospace facility. The first converted aircraft is expected to come into service by 2016, with airlines like Qatar Airways already showing an interest in the programme. The larger A330-300P2F will be targeted at cargo integrators, while the A330-200P2F will be optimised for higher-density freight and longer-range performance. If this programme is successful, ST Aerospace will be the first independent MRO to have expertise in Airbus A330 conversions, and potentially other members of the Airbus family in future. This adds to STE’s industry-leading range of P2F capabilities, on top of its successful MD-11, B757 and B767 P2F programs running currently. EADS EFW will also serve as ST Aerospace’s European MRO centre, which fills the only major gap in ST Aerospace’s global MRO footprint. While the investment is not likely to yield returns in the short term, STE’s strong balance sheet allows it the luxury to wait for associate profits to come in when the project is commercialised. EADS EFW has to date converted more than 170 freighters for 39 global customers. Its other projects include A300-600P2F and A310P2F. – DBS Vickers


Tiger Airways (HOLD; Target Price: S$0.67)

In FY12, Tiger Airways’ (TGR) revenue slipped 1 per cent to S$618 million and it swung to a net loss of S$104 million, from a net profit of S$40 million in FY11. TGR’s net loss was in line with our estimate of S$107 million, but was 12 per cent bigger than consensus net loss forecast of S$93 million. FY12 was a difficult year for TGR after the Australian aviation authorities imposed restrictions on its Australian operations and jet fuel prices remained persistently high. In Australia, TGR is on track to begin operations in Sydney as its second base from July 2012. Tiger Australia will then be able ramp up its operations to 64 sectors/day and optimise the utilisation of its 10 aircraft. Meanwhile, TGR’s strategy of forming regional JVs is taking shape and with the JVs absorbing part of the aircraft deliveries, Tiger Singapore can stop its forced capacity expansion. PT Mandala Airlines has returned to the skies and, according to management, early operating statistics are encouraging. Separately, TGR has revived negotiations on its proposed investment in the Philippines’ South East Asian Airlines (SEAir) by signing a revised term sheet to purchase a 40 per cent stake for US$7 million. Management guided that TGR’s fleet will grow to 43 by end-FY13, of which 19 are earmarked for Singapore, 11 in Australia, eight with Mandala and five with SEAir. This means Mandala and SEAir have to each absorb another five aircraft from TGR, failing which TGR’s core operations will again be saddled with having too many aircraft. – OCBC Investment Research


Wilmar International (HOLD; Target Price: S$3.87)

Wilmar International Limited’s (WIL) stock price took a big hit after posting a dismal set of 1Q12 results on May 10, when its core net profit tumbled 51 per cent YoY to US$206 million, meeting just 12 per cent of our FY12 forecast. From the previous day close of S$4.70, the stock closed 9 per cent lower on the day after its 1Q12 results announcement. And since then, the stock has fallen by another 13 per cent to hit a recent low of S$3.71. We note that the stock has also fallen 37 per cent from its 52-week high of S$5.99. As we had articulated in our February 22 report, the market seems to have priced in a much stronger recovery which did not materialise. Instead, WIL’s 1Q12 results suggest that the outlook for its prospects in China continue to be quite muted, especially on the oilseeds crushing segment. During its results briefing, management said it continues to see surplus crushing capacity in China, which may take as long as three years to clear, suggesting that depressed margins may persist into the foreseeable future. Following WIL’s 1Q12 results, we have already slashed our FY12 and FY13 core net profit estimates, which are now 9 per cent and 4 per cent respectively below consensus. Hence, there is little need to readjust our numbers again. At its current price, we note that WIL is trading around 12.2x consensus FY12 EPS (earnings per share), or around one standard deviation below its 5-year mean. During the previous subprime financial crisis, WIL’s PER fell to a low of 9.7x, or about -1.5x SD below its historical mean. Given that the market is still adopting a more risk adverse approach, we lower our fair value estimate from S$4.30 to S$3.87. – OCBC Investment Research