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Wilmar International (BUY; Target Price: S$4.80) 

Bloomberg had reported that authorities in China have asked cooking oil suppliers such as Wilmar to hold prices to avoid adding to inflation pressures “unnecessarily” (despite rising soy prices on the back of the very poor harvest in the US on dry weather). This is not new news and is as per normal, as approvals have been historically required prior to price hikes for bottled cooking oil. Wilmar’s stock price was unsurprisingly weak on Friday as investors fear that its weakness in oilseeds the last two quarters will extend into 2H12 and its consumer division will be weaker than expected. Using 2008 as a framework, we believe though that the real impact may be relatively better managed this cycle as China’s inflationary pressure is currently lower versus levels in 2008, authorities have historically allowed for price hikes to take place eventually as China remains reliant on imports for soybeans and thus needs to pay international prices eventually for these. Expectations have already been lowered given Wilmar’s patchy results the last six months. Wilmar’s consumer division (bottled cooking oil) contributed to 4 per cent of pretax profits in 2008. In 1Q12, its consumer division contributed to 13 per cent of pre tax profits. Wilmar’s low valuations (which led to our upgrade in the stock earlier in July) and weak share price performance means that a lot of bad news is already priced in. While this news flow will add further noise, we still believe earnings should show some recovery in 2H12 vs. 1H12 (i.e., some level of cyclical recovery within a structurally challenged industry) as the industry’s loss mitigation dynamics kick in, i.e., we believe the industry will not continue to grow crush volumes if losses continue to widen in 2H12. We value Wilmar at a target price of S$4.80, which is set at PER of 16.5x, the stock’s five-year mean. While we remain concerned about whether Wilmar can lift its long-term earnings growth to a higher plane, i.e. 5-10 per cent p.a. – vs an average of 3 per cent p.a. since 2008 – we believe that the stock has over-corrected on negative consensus earnings revisions of 25 per cent from peak levels at the end of 2011, compared with 15 per cent declines in negative revision cycles in the past. – Citigroup


Tiger Airways (BUY; Target Price: S$0.68)

Tiger Airways reported S$14m in net loss for the quarter, slightly ahead of our expectations. Revenue was up 1 per cent y-o-y and 13 per cent q-o-q to S$181m. The sequential improvement was driven by a 3ppt improvement in overall load factor to 83.3 per cent, and 7 per cent increase in capacity. Both yield (RPKM) and operating cost per ASK (CASK) remained largely flat q-o-q. We expect to see the impact of lower fuel prices only in 2QFY13.V. Tiger Australia’s operating losses was largely stagnant at S$21m (vs. S$23m in 4Q12) though load factors improved from 74 per cent in April to 82 per cent by June. However, the main bright spot was Tiger Singapore’s operations, which turned around and reported S$4m in operating profit, compared to S$6.7m operating loss in 4Q12. As we had highlighted earlier, demand has finally caught up with the significant capacity expansion in Singapore last year, pushing average load factor up to 85 per cent in the quarter. Jet fuel prices are about 12 per cent lower currently than the peak in early 2012, and this should help the carrier to move steadily towards profitability and we expect the group as a whole to be profitable by the last quarter of CY2012 (3QFY13). Maintain BUY and S$0.92 TP.  – DBS Group Research


Broadway Industrial Group (HOLD; Target Price: S$0.340)

2Q12 improved q-o-q on low base effect. Reported net profit was S$5.8m. Excluding S$1m of unrealised mark-to-market gains and S$0.5m of insurance claims, core profit was S$3.6m (2Q11: -S$3.7m, 1Q12: S$2.7m). This was broadly in line with our S$3.3m forecast although revenue was higher than expected at S$173m (+21 per cent y-o-y, + 10 per cent q-o-q). HDD component shipment volume grew sequentially but core EBIT margin of 2.5 per cent (vs forecast: 4.3 per cent) was unexpectedly low due to lower yields, higher operating costs and start up expenses. At half time, HDD accounted for 69 per cent of full year sales and about 50 per cent of profits due to higher margin of Foam Plastics. In the next two quarters, Foam Plastics should lead growth, thanks to seasonal ramp for consumer electronics whereas HDD’s performance is likely to be muted. Although Hitachi’s volume looks to be holding up, Seagate’s volume should be lower q-o-q due to de-stocking in the industry. Broadway has been qualified by Western Digital but production volumes will only be meaningful towards the end of the year. As 1H12 profits only met 33 per cent of our FY12F and HDD revenue and margin recovery looks weaker than expected, we have trimmed our FY12F core earnings to S$17m from S$19m previously. We previously valued Broadway on P/BV basis when losses were reported (FY11). Now that Broadway is profitable and investors are focusing on growth, we peg our target price based on PE valuation. We derive a revised TP of S$0.38 based on peers’ average of 7.6x FY13F earnings. We have used FY13F for better representation of earnings as FY12 EPS is skewed by one-off items. Maintain Hold on limited upside. Catalysts will be better than expected volume and/or margin recovery. Broadway has raised 2012 capex to S$90m from S$60m to expand capacity in anticipation of stronger demand in 2013. – DBS Group Research


Raffles Medical Group (OUTPERFORM; Target Price: S$2.96)

RFMD has submitted its tender for a private hospital development in Hong Kong. While there are no details of tender pricing or capex guidance, we believe the move is a positive one as the healthcare dynamics in Hong Kong now favour new curative healthcare players. RFMD has submitted a tender called by the Hong Kong Government for the development of a private hospital on the Aberdeen Inland Lot No. 458 site. Tender results are likely be released in 4Q12. There are a few factors that favour new curative healthcare players in the Hong Kong market, including frequent long waiting lists for public hospitals causing a spillover to private sector and PRC patients choosing Hong Kong as a destination for their medical needs. All these are expected to drive the demand for private sector medical services in the territory. The site can accommodate a 300-500 bed hospital that will sit on a built-up of between 28,000–46,000 sq meters. Land premium is roughly 30 per cent of the weightage. Stay invested. With readjustments in its inpatients billings, we see ample room for RFMD to catch up with rates, albeit gradually initially (5-10 per cent in 4Q12). This provides scope for the company to close its pricing gap with its competitors. RFMD is still a laggard play in this sector; it has a strong balance sheet among peers in the region. ROEs have also been strong. Maintain Outperform. – CIMB


Sheng Siong Group (BUY; Target Price: S$0.520)

Sheng Siong’s 2Q12 results were in line with expectations; revenue was up 5.2 per cent YoY to SGD146.9m on the basis of higher same store sales and starting contributions from new outlets. Net profit was down 2 per cent YoY to SGD7m, attributed to increases in variable expenses at the new stores. Sheng Siong’s gross margin has recovered sequentially, from 20.8 per cent to 21.9 per cent, as the price war with competitors draws to a close, coupled with cost-saving incentives from the launch of its distribution centre. There is room for further margin improvement as a result of direct procurement and bulk buying. Going forward, new, smaller stores (<5,000 sq ft) will achieve better operating efficiency, in our view, thereby also contributing to enhanced margins. Sheng Siong’s active participation in bidding for new shop spaces has officially paid off. By 3Q12, the group will hold a total retail area of 386,000 sq ft, up 10.9 per cent since FY11. In July, the group debuted its first 24-hour store in Geylang. Reception, according to management, was overwhelming. The group declared an interim dividend of 1 cent. We continue to be positive on the group’s performance, and its attractive dividend yield of 6.0 per cent. Its e-commerce strategy is scheduled to commence in 1Q13 and expansion into Malaysia is under consideration. Our target price remains unchanged at SGD0.52, implying 18.8x FY13F PER (a 25 per cent discount to Dairy Farm International). Maintain BUY. – Maybank Kim Eng