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Biosensors International Group (BUY: Target Price: S$1.88)

Raffles Medical Group (BUY; Target Price: S$2.58)

Under our Healthcare sector coverage for the recent 1QCY12 results period, Raffles Medical Group (RMG) reported PATMI which was slightly below our expectations, while Biosensors International Group’s (BIG) core earnings were in line with our estimates. Both companies continued to exhibit healthy growth trends for both topline and bottomline, while generating strong operating cashflows and maintaining a net cash position. We expect BIG to extend its market share gains as it continues to deliver strong clinical trial data which highlights the safety and efficacy of its drug-eluting stents (DES). Despite economic weakness emanating from the eurozone region, BIG still managed to achieve over 20 per cent sales growth from the EMEA region, while Asia-Pacific was also another key area of growth for the group. Management believes that it is able to sustain its current growth trajectory in these regions moving forward. The biggest risk stems from price cuts of DES in some countries such as China, which would dampen BIG’s gross margins. On the other hand, RMG remains poised to benefit from the thriving healthcare scene in Singapore from both local patients and medical travellers. Although competitive and wage pressures are on the rise, we believe that RMG has room to raise its ASPs given its competitive pricing vis-à-vis its peers, while an increased depth of sub-specialties on offer would aid its revenue intensity increment. We maintain our OVERWEIGHT rating on the Healthcare sector. YTD, the FTSE ST Health Care Index has declined 13.0 per cent versus the STI’s 4.8 per cent increase. This is due to the 21.7 per cent fall in BIG’s share price YTD, which we believe forms a significant weight of the index. Nevertheless, BIG remains our preferred pick in the sector, with a BUY rating and S$1.88 fair value estimate. We believe that its sell down in recent weeks has been overdone. Despite the street’s 7.4 per cent earnings cut for FY13F post its 4QFY12 results, the stock still trades at an attractive 11.5x FY13F consensus PER. This compares favourably with its peers’ average forward PER of 15.6x. We also reiterate our BUY rating and S$2.58 fair value estimate on RMG. – OCBC Investment Research


CapitaMall Trust (BUY; Target Price: S$2.20)

With UNIQLO’s 20,000-sq-ft shop as the main anchor, Bugis+ will be an extension of Bugis Junction, drawing the young and trendy that makes up its targeted captive market. By July, the bulk of the AEI works should be complete, and other offerings like the cineplex will help to attract even more shoppers when they open. Management estimates the yield-on-cost post AEI will be 5.8 per cent, taking it much closer to Bugis Junction and vindicating its acquisition. Even though Bugis+ is geared towards lifestyle discretionary spending, CMT’s portfolio of malls remains predominantly catered to necessity shopping, accounting for approximately 73.1 per cent of gross revenue as at end-2011. Apart from the normal rental reversion, DPU growth will also be supported by the incremental contributions from the AEIs at Clarke Quay and Atrium@Orchard when they are completed. The sale of Hougang Plaza to a JV comprising Oxley Holdings and Lian Beng Group for a consideration of S$119.1 million has been completed. The divestment of this non-core asset will net CMT a handsome gain of S$83.8 million, as the new buyers look to redevelop the property. The sale is a positive indicator that the REIT is open to divesting some of its non-core assets if the right offers come along. Notwithstanding global economic growth concerns, we believe that CMT can extend its steady growth in DPU, making it a “must-own” investment in our view. – Maybank Kim Eng Research


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

The weak global macroeconomic conditions have begun to take a toll on the short-term performance of the local hotel industry. April figures released by the Singapore Tourism Board show that visitor arrivals grew 9 per cent YoY, much less than the 14.6 per cent YoY growth for 1Q12. Indonesia showed a significant slip in growth rate for April (+10.3 per cent vs +16.0 per cent for 1Q). Australia, HK and the UK showed YoY declines of 4.0 per cent-14.4 per cent. Average RevPAR for April grew 10.3 per cent YoY versus the 14.7 per cent for 1Q12. We spoke to a hotel rooms wholesaler and got some impressions. While April performance for local hotels was alright, the start of May marked the beginning of a relatively quiet period for hotels, except during Herbalife Extravaganza event (24,000 people, 18-20 May). We estimate that occupancy growth for May was two-thirds of what was seen for January-April. 3-star hotels were different from the pack and had strong occupancies around 90%. Jun so far has been quite slow too. As an indication of the less upbeat conditions, hotels are more willing to engage wholesalers and use discounts. Even some 5-star hotels have been cutting rates by 50 per cent at the last minute. July and August are traditionally slow months for the hospitality sector. Hotel figures for July last year were very strong (highest occupancy month for all four hotel tiers) and could present a reasonable hurdle for this July to outdo. July figures currently do not look impressive but the short lead time means that the visibility is reduced. The integrated resorts were exceptions in 2Q and they continue to prove themselves as all-weather attractions, with their hotels clocking good occupancies through till August. The long-term growth prospects for the hospitality sector are still positive and we believe our 7.5 per cent YoY RevPAR growth estimate for CDLHT is achievable. – OCBC Investment Research


ECS Holdings (OVERWEIGHT; Target Price: S$0.80)

ECS’s 1Q12 net profit of S$6.2 million was 6 per cent below our expectation due to lower-than-expected margins. We believe ECS’s revenue should be improved sequentially as the New iPad was launched in mid-March. Further, Apple recently introduced all New MacBook Pro with retina display and we also expect the New iPhone should be launching in Q3 (ECS has distribution rights for iPhone in China). However, the worsening of the economic situation in the eurozone may affect China’s economic growth and intense competition in the ICT industry may also continue to affect its gross profit margins. This growth in revenue was mainly from Distribution segment (+16.3 per cent YoY), driven from phone devices, media tablets and desktops. However, Enterprise Systems segment declined by 3.4 per cent YoY mainly as a result of lower sales of networking hardware and servers. Geographically, revenue from North Asia grew 9.9 per cent YoY and South East Asia’s increased moderately at about 2.2 per cent YoY mainly from improved sales of notebooks in Thailand, servers and storage products in Singapore. The slide was driven by lower gross margin, which declined 1 bps YoY to 4.0 per cent in 1Q12, due to bigger sales contribution from distribution business with razor-thin margins. ECS generated a negative free cash flow of S$43 in 1Q12 due mainly to a reduction in its bill payable requirement. As a result, net gearing increased from 34 per cent at as December quarter to 48 per cent at end March. – NRA Capital


Sound Global (BUY; Target Price: S$0.86)

Sound Global has secured a RMB133 million BOT contract to build a wastewater treatment plant with a total daily treatment capacity of 100,000 tonnes in Nanshanpian, Quangang Petrochemical Industrial Zone of Quanzhou City in the Fujian Province. The concession period for this project is 30 years with basic water treatment tariff of RMB4.48/tonne. This contract, with EPC value of approximately RMB106 million based on 80-85 per cent of investment value, would lift YTD EPC new orders to about RMB350 million including some RMB200 million worth of unannounced contracts. This is roughly 20 per cent of our FY12 new win forecast of RMB1,700 million. Although the rate of new order win is slower than expected, we believe SGL will catch up in 2H12 based on a robust enquiry pipeline and contracts under negotiations. Moreover, recent credit loosening in China should speed up award of infrastructure projects in the country. Management does not expect this win to have a significant impact on FY12 performance but SGL’s earnings visibility remains clearly supported by its RMB 2.5 billion order backlog, which covers 1.3x FY12F sales. We believe our forecast of 12 per cent EPS growth for FY12 is conservative and see room for earnings upside if the company speeds up execution of its orderbook. – DBS Vickers


Technics Oil & Gas (Not Rated)

Technics recently announced a proposed acquisition of Vietnam Offshore Fabrication & Engineering Co Ltd (VOFE), which owns the biggest offshore fabrication and engineering complex in South Vietnam. The purchase consideration is not expected to exceed S$10 million. Technics is no newcomer to Vietnam’s oil and gas sector, having been involved since 1990. The proposed acquisition would give the company an edge when it vies for major projects that require local content and at the same time, improve its efficiency in project execution around the region. We believe that the acquisition of the yard would aid in driving the next stage of growth for Technics. Management emphasised that its business is less affected by short-term oil price volatility because its process modules and equipment are used mainly for oil production and storage applications. Oil majors also have a longer-term perspective when committing to capital-spending plans and would not be majorly affected by short-term fluctuations in oil prices. Technics is preparing to spin off two of its contract engineering subsidiaries for a separate listing on the Gretai Securities Market of Taiwan in June 2013 in hopes of better valuations. In view of its strong performance in the first half of the year, FY9/12 could well turn out to be a record year for Technics. Lending support would be its net orderbook of S$95.5 million. Furthermore, consensus is expecting a dividend per share of 8 S-cents, which would translate to an attractive yield of 8.9 per cent. Valuations are also relatively undemanding at consensus 8.5x FY12 PER. – Maybank Kim Eng Research