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Allied Technologies (NEUTRAL; Target Price: S$0.067)

Allied’s 1Q12 net loss of S$1.3 million was wider than our expectation of S$0.9 million due mainly to the S$0.4 million forex loss, excluding this, net loss was in line with our expectation. 1Q12 sales inched up 2 per cent YoY to S$30.1 million due mainly to kick off of new projects in Suzhou and increase in sales from its Vietnam plant. The increase was partially offset by its Shanghai plant due to slower demand from its existing projects, whilst contributions from new projects have not started. EBITDA margins dropped 2.9 per cent points YoY but improved QoQ from negative 3.2 per cent to negative 1.1 per cent due to the temporary cessation of TCSH’s operation, lower utilisation rate, and higher staff costs. The group revised its net debt position from 0.6 per cent net gearing in the previous quarter to net cash of S$0.5 million at the end of March-2012 after improving its working capital and lower capex spending. In spite of this, we cut our FY12 estimates by 27 per cent but keep our FY13-14 number relatively unchanged as its TaiCang Shanfeng Hardward’s (TCSH) operation will only be ready in 3Q. TCSH has ceased to revamp to fulfill the requirements of the relevant authority since late last year. Though the repair is completed and having trial runs currently, the pollution discharge license from the environmental authority is expected to be issued only in the 3Q. As such, we expect Allied will continue making a slight loss in 2Q. – NRA Capital

 

Cambridge Industrial Trust (BUY; Target Price: S$0.605)

Earlier this month, CIT announced the desire to sell their industrial property at Lam Soon Industrial; a 230,915 sq ft freehold site located at Hillview Avenue. Under the 2008 master plan, the Lam Soon site is zoned for “residential” use with a gross plot ratio of 1.92. Although there are strong demands for light industrial space in Singapore, given that the vicinity of Hillview had been developed into a residential area, together with further infrastructure development including the upcoming Hillview MRT station scheduled to be completed by 2015, we expect the site to attract strong interest from residential developers. At the moment, we believe this site can be redeveloped into a 10-storey residential development comprising 370 apartments fetching an average of S$1,200-1,400 psf. With an estimated cap rate of 4.7 per cent on this building and assuming the transaction to be completed in 4Q12, we estimate a loss of approximately 1.6 per cent of CIT gross income from this sale. However, with the proceeds from this sale, it gives the trust a significant warchest of capital for future acquisition of higher yielding industrial buildings for its portfolio. – OSK-DMG

 

Ho Bee Investment (HOLD; Target Price: S$1.19)

Of its ongoing residential projects in Singapore, Ho Bee has 186 unsold units, translating to a take-up rate of 76 per cent for the projects already launched. Including the 302 units from the Pinnacle Collection at Sentosa Cove which have yet to be launched, the total number of unsold units from its projects at Sentosa Cove add up to 460. Against the backdrop of the Eurozone woes and the imposition of the Additional Buyer’s Stamp Duty, we expect the high-end property segment here to remain sluggish and developers like Ho Bee to make little headway in sales. Ho Bee has three JVs in China, namely in Qingpu in Shanghai, Nanhu Eco-City in Tangshan, and Tang Jia Wan in Zhuhai. These projects are being led by JV partner Yanlord Land Group, which tends to position its projects at a notch higher than the competitors. Given that the current regulatory environment in China is also not conducive for high-end property launches, these projects are unlikely to provide positive catalysts in the near term.  Until the macro-economic outlook shows more meaningful signs of recovery, or if the Singapore government lifts some of the cooling measures, we see little upside to Ho Bee’s share price, even though it is inexpensive. We have adjusted our target price to S$1.19, pegged at a 60 per cent discount to RNAV, following a transfer of coverage. – Maybank Kim Eng Research

 

KSH Holdings (HOLD; Target Price: S$0.25)

KSH reported FY12 PATMI of S$18.3 million – down 16.8 per cent mostly due to lower contributions from the construction business, partially offset by higher profit recognition from property developments. FY12 PATMI came in above expectations mainly due to lumpiness in construction progress which surged in 4Q12 versus the previous three quarters. FY12 topline of S$170.6 million was down 35.1 per cent. The current orderbook stands at approximately S$467.0 million, which is still relatively strong in our view. KSH has also announced a final dividend of 0.5 S-cents, bringing total dividends for the year to 1.5 S-cents. In addition, an issue of one bonus share for every 10 existing shares has been proposed. Sales at KSH’s residential projects remain subdued over the last quarter, with sales at the Boutiq and Lincoln suites at 73 per cent and 79 per cent sold respectively as of April 2012 – little changed from 72 per cent and 78 per cent as of December 2011. In addition, the number of units sold at Cityscape also remained flat over the period at 22 per cent sold. We continue to expect headwinds in the residential segment given potential property curbs ahead and macro-economic uncertainties. We take a favourable view on KSH having taken JV stakes in the likely accretive en-bloc redevelopments of Hong Leong Garden Shopping Centre, Seletar Garden and 11 King Albert Park. In our view, an opportunistic and active stance from management for accretive acquisitions could offset, to an extent, a weaker outlook for the construction segment ahead. We continue to expect a weaker outlook YoY in terms of domestic private construction demand, with the BCA forecast unchanged at S$8-12 billion for CY12 versus S$16.8 billion. – OCBC Investment Research

 

SC Global Developments (HOLD; Target Price: S$1.11)

For its latest site acquired in Bali, SC Global hopes to replicate its Seven Palms product first introduced at Sentosa Cove. The site could potentially be developed into a villa resort and hotel either for sale or to be held as investment property. Our initial estimates suggest a potential 9 S-cents/share RNAV accretion, assuming an ASP of S$200 psf (land), which is the current average price of many villa developments in Bali. Units at SC Global’s luxury projects have hardly been flying off the shelves due to the global economic uncertainties and the introduction of the Additional Buyer’s Stamp Duty. Nonetheless, SC Global has been maintaining its pricing strategy and even managed to sell two units at the Hilltops in the month of April at S$3,581 psf and S$4,398 psf respectively. We have hence raised our ASP assumption for the remaining 203 units to S$3,420 psf (from S$3,040 psf). Even as SC Global seeks to diversify its business overseas, the bulk of its operations (and value) lies in its luxury properties in Singapore. Unfortunately, under current market conditions, earnings visibility is poor as luxury property sales show no signs of a meaningful recovery anytime soon. We have raised target price slightly to S$1.11, pegged at a 70 per cent discount to RNAV. – Maybank Kim Eng Research

 

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

ST Engineering (STE) announced that its subsidiary ST Kinetics (STK) has filed a writ petition with the High Court of Delhi in New Delhi, naming India’s Ministry of Defence and Ordnance Factory Board (OFB) as respondents. With the filing of the writ petition, STK is seeking to negate an OFB debarment order that prohibits STK from ‘further business dealings with the OFB for a period of 10 years.’ To recap, the OFB debarred a number of defence companies, including STK, from doing business in India after evidence of illegal gratification to officials, including Sudipto Ghosh, the former Director General of the OFB. Since news of the debarment broke out, STE has maintained its innocence and sought to clear its name of any shenanigan. In addition, STE disclosed that STK has never won any defence contract or exported defence sales to India, since developing defence export sales is usually a long process. Thus, STE has not included any expected sales to India in its FY12 guidance. Furthermore, STE’s recent S$880 million contract win to build patrol vessels for the Royal Navy of Oman, demonstrated its ability in winning defence contracts has not been compromised by the India debarment. With the vigorous insistence of its innocence, STE’s ability to win defence-related contracts is unlikely to be diminished and the likelihood of its share price taking a big hit from this issue is low. In addition, STE has explicitly said the debarment has no impact on its financial performance and maintains its FY12 guidance. However, STE’s attempt to reverse the OFB debarment order, even if successful, will require many years’ time and effort. – OCBC Investment Research