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Singapore Airlines (OVERWEIGHT; Target Price: S$13.00)

Results beat our and market expectations as passenger biz turns around earlier than expected. 1Q FY13 (June quarter) net profit was S$78MM, up 74 per cent y/y, vs. S$38MM net loss in 4Q FY12 despite the higher fuel prices and lower passenger yields. The key swing factor was the turnaround in SIA’s passenger business which booked an operating profit of S$85MM vs. losses of S$10MM in 4Q FY12 and S$36MM a year ago. 79 per cent-owned SIA Eng reported net profit of c.S$70MM (up 3 per cent y/y and 6 per cent q/q). SilkAir’s operating profit fell 14 per cent y/y and 54 per cent q/q to only S$18MM which is a concern as June is schoolholiday season. Recurring annualized ROE was 2 per cent (vs. 3 per cent in FY12). Cargo biz still a drag: SIA Cargo’s operating loss widened by 2 per cent q/q and 250 per cent y/y to S$49MM. The mitigating factor is that SIA’s exposure has fallen 2ppts y/y to 16 per cent of total revenue, lower than Cathay/KAL/Taiwan airlines’ exposure. Lower fuel prices should help reduce losses from 2QFY13. Swelling net cash position raises probability of special DPS at the end of this financial year: Free cash flow rose 239 per cent y/y and 41 per cent q/q to S$370MM. Net cash rose 10 per cent q/q to c.S$3.9B (S$3.4/shr) or 31 per cent of current market cap. Recall SIA did capital management in FY07, FY09, FY11 and we are in FY13. Outlook still challenging but new strategy appears to be working: Mgmt highlighted pressure on yields, especially for long-haul flights to Europe and the US. However, SIA’s new strategy of trimming fares to simulate demand appears to be working as this helped to boost revenue growth compared to its previous strategy of keeping fares high which resulted in market share loss and weaker top line as the price elasticity of market demand has increased in recent years. End June-12 advanced sales rose 4 per cent q/q and 6 per cent y/y which is encouraging. – J.P. Morgan

SATS (BUY; Target Price: S$3.04)

1QFY3/13 showed robust revenue growth, TFK recovery. SATS reported a decent set of 1QFY3/13 results, posting a 3.8 per cent YoY improvement in underlying NPAT from continuing operations to SGD41.3m. This was contributed by a healthy 13.6 per cent increase in revenue to SGD437.9m. Revenue growth was led by both Gateway Services (+SGD11.6m, +8.1 per cent) and Food Solutions (+SGD40.7m, +16.9 per cent) segments. TFK saw a +40.7 per cent YoY recovery in revenue from the Japanese March 11 disasters to SGD83.7m. Profits were also boosted by a greater contribution from its Associates/JVs (+SGD0.3m,+2.6 per cent).  SATS stated that TFK was still not operating at its pre-March crisis capacity, and we believe further progress in TFK’s recovery could provide further earnings upside for the Group. In addition, we should see further growth on the domestic front underpinned by robust passenger and aircraft arrivals at Changi Airport. We maintain our optimism on SATS for its exposure to robust growth from domestic visitor arrivals and further TFK recovery. Its earnings resilience, strong cash-generating business and healthy balance sheet continue to support attractive forward dividend yields of 6-7 per cent. Management does not rule out paying another special dividend with their excess cash even after the most recent bumper dividend of SGD0.21* per share going Ex-Div on 31 Jul. Maintain BUY, with Target Price pegged to 17x FY3/13 PER, 1 SD above its historical mean.– Maybank Kim Eng


Frasers Commercial Trust (OUTPERFORM; Target Price: S$1.210)

3Q12 NPI was up 7 per cent yoy on the additional stake in Caroline Chisholm and higher income from China Square Central (CSC). DPU was up 23 per cent on flow-through of NPI increase. We expect upcoming quarters to remain stable qoq as interest cost savings from its SGD loan kicks in to mitigate loss of contribution from KeyPoint and potential downtime from the departure of Marsh & McLennan (occupying ~20 per cent of NLA at Marsh & McLennan) in Jun. 3Q12 was the first quarter of direct management of CSC. NPI from assets was 11 per cent above that from master lease on occupancy of 93 per cent just prior to the departure of Marsh & McLennan. Management has back-filled 15 per cent of the space previously occupied by Marsh & McLennan. While there could be some downtime, we understand that some major tenants are being sought. NPI margin of 65 per cent from direct-management of assets is a tad below our expectations but should improve as passing rents pick up. Signing rents are stable at S$6.5-7psf and should be well-supported with some upgrading works and the new Telok Ayer station in 2013. We expect FCOT to continue rerating as the market gives recognition to management’s efforts to unlock value and strengthen its portfolio. The use of KeyPoint divestment proceeds to redeem its CPPU can deliver DPU accretion >10 per cent, better than most acquisitions, with potentially more to come from divestment of Japanese assets and hotel site at CSC. – CIMB


CapitaRetail China Trust (BUY; Target Price: S$1.500)

CRCT reported 2Q12 income available for distribution of S$16.65m, up 23.5 per cent YoY. 2Q12 DPU is 2.41 S-cents per share. The results were slightly above our expectations; YTD DPU of 4.82 S-cents made up 52 per cent of our initial full-year forecast. 2Q12 revenue rose 18.2 per cent YoY to RMB190.2m and net property income climbed 15.0 per cent to RMB124.4m. CapitaMall. The increase was chiefly due to the contribution from CapitaMall Minzhongleyuan which was acquired on 30 June 2011, as well as higher rental growth at its multi-tenanted malls. Shopper traffic and tenant sales at CRCT’s multi-tenanted malls grew 26.4 per cent and 13.1 per cent respectively. Solid rental reversions of 15.2 per cent YoY for the portfolio were achieved (versus 13.0 per cent for 1Q12). CapitaMall Xizhimen in Beijing saw the highest rental reversion of 28.9 per cent on the back of a 52.1 per cent YoY increase in shopper traffic to approximately 85k-90k people per day, following the opening of a basement connection to the subway. CapitaMall Saihan in Huhot, Inner Mongolia,registered the highest NPI growth of 38.2 per cent. Since the completion of AEI at Saihan in 2010, which marked its transformation from a master-leased mall to a multitenanted mall, Saihan has experienced strong growth, with occupancy at 99.7 per cent as of Jun 2012. We maintain our BUY rating on CRCT and raise our fair value from S$1.44 to S$1.50. CRCT is offering a good FY12F dividend yield of 6.9 per cent. – OCBC Investment Research


Hi-P International (HOLD; Target Price: S$0.720)

Despite posting record sales of US$35bn (+ 23 per cent y-o-y) for the June quarter, Apple’s results fell short of the street estimate of US$37.5bn. Apple blamed the shortfall on muted consumer purchases in the Western European countries and the pullback in demand as consumers await the new iPhone model that many expect will be launched in September or October. Hi-P warned last week that it could only achieve breakeven at the operating level in the June quarter, compared to previous guidance for better profits. The company attributed the weaker performance to lower orders from existing customers in the quarter. Hi-P expects to report a bottomline loss after accounting for a S$2.2m provision arising from the closure of a subsidiary in Mexico. Given the profit warning, we expect operating profit of S$2.2m for Hi-P in 2Q12. If including all provisions, Hi-P’s bottomline in 1H12 would likely be S$1.5m, a drastic fall from the S$29m recorded in 1H11. As we had highlighted in our tech sector report “Overly optimistic consensus” dated 16 July, we foresee downside risks to consensus and even our revised forecast of S$54m (+20 per cent y-o-y) for FY12. We will review our earnings as well as TP (last @ S$0.86) post 2Q12 results due on 2 Aug. – DBS Group Research