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CDL Hospitality Trusts (BUY; Target Price: S$2.06)

Genting Singapore (BUY; Target Price: S$2.05)

Latest data from the Singapore Tourism Board (STB) for April 2012 provides us with a glimpse of how 2Q12 hospitality numbers could turn out. Tourism arrivals in April remained high at 1.2 million visitors (+9 per cent YoY), a new record. YTD visitor arrivals have hit 4.8 million, representing 33 per cent of STB’s higher end target of 13.5-14.5 million for 2012. With the industry approaching the seasonally high tourism season of June-July, we are optimistic that the industry could potentially exceed the projections set by STB. The strong visitor numbers, fuelled by major MICE events like Food & Hotel Asia held in April, have led to strong demand for rooms, and thus room rates have remained on a firm uptrend on a QoQ basis. Hotel performance remains robust, with occupancies hovering at a high of 87 per cent. Average room rates at S$261/night, translating to a RevPAR of S$227/night, represent a 12 per cent YoY jump, surpassing the S$216/night. We expect hoteliers to report sequentially stronger RevPAR in the coming quarters. Hospitality data should continue to remain robust given the expected strong lineup of MICE events in the coming months and the seasonally peak tourist holiday season in June-July. In addition, supply is expected to remain tight, especially in the core city area given the closure of Pan Pacific Singapore (790 rooms, representing close to 1.5 per cent of total room supply in Singapore) for renovations and is expected to re-open only in September in time for the Formula one race. We continue to like CDL Hospitality Trust, given its leverage into the robust tourism sector in Singapore. The stock offers FY13-14F yields of close to 6.1 – 6.5 per cent. GENS should also benefit from expected stronger visitation at Resorts World @ Sentosa during the coming holiday season. – DBS Vickers


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 3Q (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 Southeast 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. We have cut our FY12-13 earnings estimates by 10-18 per cent to reflect lower-than-expected earnings. We also lowered our fair value from S$0.84 to S$0.80, as we roll forward from FY12 to FY13 but pegged at 7x PER (price earnings ratio) now instead of 8x. In a show of confidence, the group CEO recently purchased its shares in the open market, at prices between S$0.485 and S$0.50, so we believe the downside risk is limited. – NRA Capital


Kreuz Holdings (Not Rated)

Kreuz recently won a series of contracts worth a total of US$142 million in value, almost equivalent to its revenue for the entire year of FY11. This would add on to its last reported orderbook figure of US$120 million as at 1Q12. The contracts came from Swiber Group for subsea installation works and from a third-party client for the provision of Remotely Operated Vehicle services. Swiber has granted Kreuz a first right of refusal for provision of subsea services for the former’s contracts and also for chartering its key subsea assets. Contracts from Swiber and related parties accounted for 46 per cent of its FY11 revenue. Kreuz’s contract wins came days after Swiber secured a series of orders worth over US$830 million in value, bumping the latter’s orderbook to above US$1.8 billion. Swiber’s strong order win momentum should bode well for Kreuz. What is more noteworthy is that Kreuz is gaining traction in securing third-party contacts, which would reduce its reliance on its parent. The proportion of third-party contracts grew from 39 per cent of total revenue in FY10 to 54 per cent in FY11. In terms of absolute figures, this was a four-fold jump from US$21.4 million in FY10 to US$83.1 million in FY11. Kreuz recently spent S$7.9 million to purchase a diving support vessel. The money was part of the S$16.6 million raised from its share placement exercise in April. The company plans to grow its own fleet to shield itself from fluctuating charter rates in vessel leasing. The stock currently trades at consensus FY12F PER (price earnings ratio) of only 4.3x, close to its book value, and generates relatively high ROE (return on equity) of 24 per cent. The slew of strong orders secured should lend support to its FY12F and FY13F results. In the light of this, current valuations seem unjustified. – Maybank Kim Eng Research


Suntec REIT (HOLD; Target Price: S$1.23)

Suntec REIT announced last Friday that BFC Development Pte Ltd (BFCD PL), which owns MBFC Properties, had been successfully converted from a private limited company to a limited liability partnership with the name BFC Development LLP (BFCD LLP). Suntec REIT had held one-third interest in BFCD PL. Following the conversion, the REIT now holds one-third interest in BFCD LLP as a partner. As a limited liability partnership is tax transparent for Singapore tax purposes, this means that Suntec REIT will enjoy tax transparency on its share of income from MBFC Properties going forward (adjustments are not retrospective). This is positive for unitholders as the distributable income is likely to be higher now that the income generated will no longer be subject to corporate tax. We understand that dividend income (cash flow) and share of profits will benefit from the conversion, whereas income tax for income support will still be ongoing. Based on our estimates, FY12-13F DPU may get a boost of 0.11-0.17 S-cents, or 1.2-1.9 per cent increase. This, together with the GST refund from income support expected in the coming quarters, will likely cushion a temporary dip in DPU from the asset enhancement works at Suntec City, which began at the start of June. We factor in the DPU uplift from higher contribution from MBFC Properties. This in turn raises our fair value to S$1.23 from S$1.20 previously. We note that Suntec REIT’s unit price has outshone both the STI (+6.7 per cent) and S-REIT Index (+12.7 per cent) with a 23.3 per cent gain YTD as a result of better-than-expected financial performance and excellent execution by management. At current level, however, we believe that Suntec REIT is fairly priced on a total return basis. – OCBC Investment Research


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

Wilmar International Limited (WIL) recently saw its share price hit a new 52-week low of S$3.41 on 14 June 2012, down 32 per cent from 30 December 2011, likely still spooked by the continued uncertainty over the global economic outlook and also weak economic data coming out of China. At its 52-week low, the stock is down 27 per cent since the release of its disappointing 1Q12 results on 10 May; it is also 43 per cent off its 52-week high of S$5.99. Since then, the stock has managed to put on a rebound of just 3 per cent recently, likely buoyed by hopes that China would introduce more measures to simulate the sluggish domestic economy. Recent economic data suggests that the economic growth is slowing much faster than expected, leading many to expect Beijing to introduce measures to revitalize the economy. Nevertheless, industry experts do not expect China to dish out a massive stimulus package, which it did to the tune of RMB4 trillion during the previous global financial crisis. Instead, the emphasis would be more on a structural overhaul of the economy; this is also to avoid driving up inflation as was the case previously. With inflation likely to remain tame, WIL should also have slightly more leeway to raise the ASPs (average selling prices) of its cooking oil products in China. And given the recent dip in CPO (crude palm oil), margins at its Consumer Pack division should continue to recover. Having said that, channel checks suggest that weak crush margins in China are likely to persist over the next few quarters. Previously, management also said it expects the over-capacity situation to persist in the next two to three years. In a nutshell, while WIL may have been a tad oversold after its 1Q12 results, with current valuations looking pretty inexpensive, we do not see any immediate price catalyst. – OCBC Investment Research