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Biosensors International Group (BUY; Target Price: S$1.57)

Since our post FY13 results report, BIG’s share price has fallen 12 per cent from S$1.285. We believe the correction due to concerns is overdone. BIG now trades cheaply at 12x PE, well below the average of 14.5x PE, and 0.5x PEG. We believe that BIG’s share price fully reflects the impact of the price cuts. Our sensitivity analysis shows that earnings will still grow at 19 per cent in FY13F even after factoring a 20 per cent discount to our Interventional Cardiology segment revenue estimate. Furthermore, our analysis tells us that BIG’s Europe exposure is limited to 20 per cent of total revenues. BIG remains a market leader despite increasing competition. In our view, competitors would still need time to establish themselves as credible threats to BIG. Growth will be primarily be fueled by penetration into rural hospitals in China and 12 months of consolidation of JWMS’s and Terumo’s licensing. At the current 12x PE, we believe there is value in the counter, on the back of its leading product and continued market penetration. – DBS Vickers

 

First REIT (BUY; Target Price: S$0.96)

We conduct a scenario analysis on possible acquisition targets by First REIT (FREIT) from its sponsor Lippo Karawaci (Lippo) and highlight the resulting estimated DPU accretion to unitholders. We believe that any new acquisitions could occur in 3Q/4Q FY12, given that FREIT is already conducting feasibility studies on a number of properties. Our analysis works out to a possible DPU accretion ranging from 9-13 per cent in FY13 (when a full-year of contribution kicks in), assuming that two hospitals are acquired for S$88.9 million. We also see minimal dilution risk at this juncture, as any acquisitions in the foreseeable future would likely be fully-debt funded. Based on our estimates, the new acquisitions could raise FREIT’s leverage ratio (debt-to-assets) to 25.2 per cent, still within management’s comfortable gearing ratio range of 25-30 per cent. FREIT recently announced that it has secured a 4-year S$168 million transferable term loan facility (TLF). Approximately S$50 million would be used to refinance its outstanding debt which matures in June 2012, while the remainder would be used for new acquisitions. FREIT would henceforth not have any refinancing requirements until Jan 2015 (S$49.4 million). As interest on the TLF is based on a floating rate basis, FREIT is exposed to interest rate risk. The group has thus obtained an Interest Rate Derivative Facility on this TLF for a notional amount of up to S$100 million, which partly hedges its exposure to an upward increase in interest rates when utilised. Volatility in the macro economy and global markets is unlikely to dissipate in the near term, given concerns over the eurozone debt crisis and economic slowdown in the US and China. Hence investors looking to stay invested in equities can find merits offered by FREIT’s defensive income streams and stability from its long-term master leases, in our opinion. – OCBC Investment Research

 

Jardine Cycle & Carriage (Not Rated)

Investors have been pushing for more visibility on the stock, as it makes up a significant portion of the Straits Times Index. In addition, the recent 1:10 stock split of its subsidiary Astra International has given rise to the possibility of JC&C undergoing a stock split itself.

Jardine C&C trades at an average discount of 19 per cent (January 2010 to-date) to its 50.1 per cent holdings of Astra International, and this excludes its non-Astra businesses in Singapore, Malaysia, Indonesia and Vietnam. JC&C’s non-Astra businesses in Southeast Asia involve mainly automotive dealerships and after-sales services. While they are not very significant contributors to the group’s bottomline, they provide alternative avenues for growth and should not be ignored in a valuation model. Astra International recently underwent a 1:10 stock split, which resulted in its stock becoming 10x more affordable and within reach of many more retail investors. As Astra is controlled by the Jardine group, we are not ruling out the possibility of JC&C undergoing a stock split as well to increase trading liquidity and counter the prohibitively high prices currently. If this eventuates, it will likely be a positive catalyst for the stock. – Maybank Kim Eng Research

 

Raffles Medical (BUY; Target Price: S$2.67)

Raffles Medical hired more staff as it prepares for operations at Thong Sia (its Specialist Medical Centre) and its hospital extension. Its plans for Thong Sia are progressing on track, and partial operations are expected in mid-2013, when a significant number of current tenants move out. Its hospital extension project is progressing well and construction is expected to be completed in 2015. Management also recently adjusted the salaries of its doctors, which would also contribute to YoY higher staff costs from 2Q onwards. However, management is optimistic that they would be able to progressively revise its prices upwards and still maintain competitiveness, given that its charges are still much lower than the other private hospitals. It aims to keep staff cost to below 50 per cent of revenue (we are estimating 48 per cent). Raffles Medical remains interested in expanding its operations regionally. It remains keen in the China, Malaysian and possibly Vietnam markets, although management maintains that it would only proceed with the right partner. While it has a strong balance sheet and stable cash flows, management does not rule out the possibility of carrying out fund raising activities should there be a need. While Raffles Medical does not have a fixed dividend policy, management intends to keep the dividend payout ratio at 40 per cent. – OSK-DMG

 

Sheng Siong Group (BUY; Target Price: S$0.52)

Sheng Siong is scheduled to open its new store in Geylang in July. It will be the group’s third outlet this year. The group’s efforts in opening a total of 5 stores since IPO should allay fears of saturation in the Singapore market. We believe that Sheng Siong is on track to meet its target of 40 outlets overtime. Following its IPO debut last August, Sheng Siong has gained publicity for itself and won the confidence of suppliers, giving it access to an additional advertising channel via newspapers. These advertisements are essentially financed by suppliers as the ad space is mainly devoted to promoting their products, but Sheng Siong gets to push its name out in the same space – for free. Chinese New Year festive promotions at the start of the year were unavoidable for the group. But with the end of the first quarter and price wars petering out, we believe that its gross margin has bottomed out and should recover. Moreover, its two new outlets at New World Centre and Toa Payoh received favourable responses and have already started contributing positively to the topline. The Housing Board has selected six blocks of flats in Woodlands for the Selective En Bloc Redevelopment Scheme (SERS). One Sheng Siong outlet will be among those affected. However, it has another 4 years until 2016 when it has to vacate the premises. We believe this should give management more than enough time to find a new store location. The 44,441-sq-ft store contributed approximately 9.5 per cent of sales in FY11. Robust free cash flow and a net cash position of S$149 million make Sheng Siong a strong defensive play with a pure-Singapore retail exposure. – Maybank Kim Eng Research

 

StarHub (NEUTRAL: Target Price: S$3.30)

Starhub prefers to grow its dividends progressively as to provide sustainable returns over the longer-term. While management acknowledged the potential for capital management due to the under-leveraged balance sheet, it prefers to keep its ‘gunpowder’ dry due to regulatory uncertainties, the upcoming bid for the BPL and the intense mobile competition where device subsidies remained high. The telco has reaffirmed its 20 S-cents/share dividend commitment for FY12 which translates into a decent net yield of 6 per cent. Starhub continues to be the only telco that pays out quarterly dividends. We think it is a matter of time before Starhub responds to Singtel’s earlier move to lower its data cap on its 3G plans to better monetize data traffic. The incumbent’s move has raised the ire of some of its high usage data subscribers, benefitting Starhub and M1. We think Starhub will be in a better position to introduce a new set of data plans given that is already capitalising on the lower data cap on its multi-SIM plans which have been well received. We expect the group to expand its LTE coverage to more areas outside of the CBD in 2013. Starhub is evaluating all options including submitting a joint bid for 2013-2016 BPL season which starts in September. We expect the group to bid rationally, having learnt from the bitter experience in 2009 where it lost out to Singtel and with the benefit of the cross carriage ruling which requires that all content secured on an exclusive basis be shared. In the worst- case scenario that Starhub is not able to procure the BPL content directly (Singtel maintains exclusivity), it is still able to offer BPL to its pay-tv customers via the cross carriage arrangement with Singtel. Starhub does not rule out domestic M&As if the business proposition makes sense and is synergistic to its existing quad play model. We think some acquisition activities may present itself within the broadband segment and content space, allowing Starhub to enhance its market position and competitive advantage. – OSK-DMG

 

Tiger Airways (BUY; Target Price: S$0.76)

The SGD-adjusted jet fuel price (JETKSIFC Index) is currently trading at 10 per cent below the average of jet fuel prices in the current quarter, which is in turn 7 per cent QoQ lower than in 4QFY12. After remaining stubbornly high for more than a year, jet fuel prices have finally soften significantly. Tiger Airways (TGR) is likely to benefit from the current respite in jet fuel prices, especially with fuel cost contributing to more than 40 per cent of its operating costs. Based on our estimation, TGR should be able to achieve S$5 million of savings in fuel cost in 1QFY13, given the 7 per cent QoQ fall in average jet fuel prices. Tiger Australia is on track to begin operations in Sydney as its second base in 2QFY13. Tiger Australia will then be able ramp up its operations to 64 sectors/day and optimise the utilisation of its 10 aircraft. Meanwhile, Tiger Singapore will be moderating its capacity expansion in FY13. In FY12, Tiger Singapore expanded capacity rapidly, after the group’s deliveries of new aircraft were directed to Singapore as a result of TGR’s flying restrictions in Australia. With Tiger Australia flying more sectors and lowering its unit fixed cost and Tiger Singapore more focused on improving yields and load factors, TGR’s profitability is poised to considerably improve in FY13. TGR’s strategy of owning regional JVs is taking shape after its 40 per cent-stake investment into South East Asian Airlines (SEAir) was finalised earlier this month, and encouraging early operating statistics from its 33 per cent-owned PT Mandala Airlines (Mandala). These JVs are earmarked to absorb most of TGR’s aircraft deliveries in FY13, allowing Tiger Singapore to stop its forced capacity expansion. – OCBC Investment Research