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BreadTalk Group (HOLD; Target Price: S$0.51)

BreadTalk Group’s (BTG) 2Q12 results did not disappoint. It reported a 21.8 per cent YoY increase in revenue to S$104.8 million on the back of strong growth in its restaurant segment and a corresponding PATMI increase of 9.2 per cent YoY to S$3.0 million. In terms of its 1H12 performance, BTG’s results were well-within our expectations with a topline growth of 24.6 per cent YoY to S$210.9 million and a bottomline increase of 22 per cent YoY to S$4.5 million, which formed 50 per cent and 37 per cent of our FY12 estimates. BTG also announced a 0.5 S-cent interim dividend for the first time in its history. As previously envisioned, the general pullback in retail sales did have some impact on BTG’s bakery and food court segments as both experienced drop-offs in growth rates. Increases in wage costs in China and Singapore as well as refurbishments for its food courts in Wisma Astria and China also weighed down contributions. However, the restaurant segment proved to be an exception with its Din Tai Fung (DTF) restaurants in Singapore and Thailand remaining popular amongst consumers as encouraging growth in its new outlets in Marina Bay Sands, NEX etc and Thailand helped to offset unprofitable performances in its Ramen Play and Carl’s Junior (China) business. Aside from the anticipated increase in raw material costs in 2H12, BTG is also likely to face continued slowdowns in retail sales in both of its key markets of China and Singapore, which account for approximately 30 per cent and 50 per cent of its topline currently. Although retails sales in both countries are still up on a YoY basis, decreasing confidence in the global economy and unemployment concerns will push MoM figures down. According to some economic estimates, China is not expected to show improvements until at least 4Q. While we leave our FY12/13 projections unchanged retain our confidence in management’s ability to control costs, we assign a lower multiple of 11x (12x previously) to our blended FY12/13 earnings on account of the expected weakness in consumer demand, which may weigh negatively on valuations across the consumer sector. – OCBC Investment Research


China Fishery (BUY; Target Price: S$1.00)

China Fishery’s (CFG) 3QFY12 PATMI was down 44 per cent YoY to US$21 million, below our expectations mainly due to a one month delay in the start of the Peru fishing season. 3QFY12 PATMI accounted for 17 per cent of our full year forecast. We maintain our FY12 earnings forecast with expectation of stronger contribution from (1) Peru fishmeal operations, and (2) China Fishery Fleet operations (formerly termed South Pacific Fleet operations) in 4QFY12. 3QFY12 earnings were hit mainly due to a one month delay in the start of the first 2012 fishing season to May (compared to April in 2011). It is comforting to note that as of 31 July 2012, 100 per cent of allocated Peru fishmeal quota has been utilised, with the bulk of inventory expected to be sold in the coming quarter. Fishmeal prices have risen 37 per cent YTD and this should provide further support to earnings. Though China Fishery Fleet’s (formerly known as South Pacific Fleet operations) performance has been disappointing YTD (9MFY12 PAT losses of US$26 million), CFG will head to Fairo Islands for fish processing in 4QFY12. This was profitable for the group when executed in 2011 and is expected to contribute positively in FY12 as well. We think valuations still appear attractive with CFG currently trading at 4.7x FY13 P/E. Our target price is based on a FY13 P/E of 6x, which is a 40 per cent discount to its five year average forward P/E of 10.3x, and 30 per cent lower than peer average of 8.5x. We expect catalysts to come from earnings growth and key risk continues to stem from execution of the China Fishery Fleet operations which has not been performing up to expectations. – OSK-DMG


First Resources (BUY; Target Price: S$2.15)

FR’s 2Q12 FFB (nucleus) production was up 3.7 per cent QoQ to 426,704 tonnes, while 1H12 production of 838,069 tonnes met 45 per cent of our previous FY12 forecast. This is above our expectations considering the average 1H:2H production ratio in the last four years was 43 per cent:57 per cent. Meanwhile, MPOB’s spot CPO ASP has been flat QoQ at RM3,218/tonne. FR’s refinery continues to run at near full capacity given the good margins that Indonesian refiners enjoy presently. We expect its 2Q12 downstream EBITDA margin to be just as good, if not better, than the USD89/t recorded in 1Q12. FR has been producing mostly palm olein (i.e. cooking oil) and palm stearin in 1H12, while its biodiesel plant remains largely idle. Following the strong FFB output in 1H12, our earlier FY12 FFB growth assumption of 8.7 per cent appeared conservative. Hence, we raise this to 11.6 per cent or 2.116 million tonnes (a 2.7 per cent increase over our previous FFB output forecast). Correspondingly, we raise FY13-14 FFB output assumptions by 2.4 per cent and 2.2 per cent respectively. Our FY12/13/14 net profit estimates are now raised by 5.2 per cent/6.8 per cent/5.2 per cent, largely on the revised FFB output assumptions. Despite our raised net profit forecasts, our FY12-14 EPS forecasts were diluted by a marginal 1-2 per cent following the conversion of FR’s USD98.1 million CB into 114.34 million new FR shares (+7.8 per cent existing shares) during 1H12. We expect FR to report flat QoQ net profit of US$49 million (+33 per cent YoY) on flattish ASPs and FFB output. Even so, FR’s estimated 1H12 net profit of US$98 million (+46 per cent YoY) would have met 57 per cent of our former FY12 estimates. We now raise our FY12-14 net profit forecasts by 5.2-6.8 per cent to reflect higher FFB output assumptions. However, our target price is unchanged at S$2.15 as our earnings upgrades were offset by the surprise conversion of FR’s US$98.1 million in Convertible Bonds (CB) in 1H12, despite expiring only on 22 September 2014. – Maybank Kim Eng Research

Genting Singapore (BUY; Target Price: S$1.66)

Genting Singapore (GS) posted 2Q12 revenue of S$702.2 million, down 3 per cent YoY and 11 per cent QoQ, where overall revenue was affected by marginally lower casino business volume, which also translated into lower adjusted EBITDA of S$311.0 million. As a result, reported net profit slipped 31 per cent YoY and 21 per cent QoQ to S$166.7 million. For 1H12, revenue slipped 9 per cent to S$1,489.2 million, meeting 42 per cent of our FY12 forecast, while reported net profit fell 31 per cent to S$378.2 million, or 38 per cent of our full-year estimate. As guided, its EBITDA margin was also affected by the start-up costs associated with the West Zone (Marine Life Park is expected to have a soft launch towards the end of 2012). However, management believes that the adjusted EBITDA margin of 45 per cent is the worst it will see and is confident that it will improve by next year, staying between 45 per cent and 50 per cent once the West Zone reaches steady state. Nevertheless, GS recognises that the global economic outlook remains weak and it will continue to be prudent with the granting of credit. On the other hand, management believes that the weaker economic outlook also presents acquisition opportunities (will only be keen to look at sizable investments of over $500 million and can clear its hurdle rate of 15 per cent). GS is currently sitting on a cash balance of S$4.5 billion after recently raising S$2.3 billion from perpetual securities. GS also has some green-field targets, including Japan, but concedes that progress is slower than expected. Nevertheless, it will continue to seek out these opportunities around the region. – OCBC Investment Research


Golden Agri-Resources (BUY; Target Price: S$0.81)

Golden Agri-Resources (GAR) reported its 2Q12 results last Friday, with revenue falling 16.2 per cent YoY and 11.7 per cent QoQ to US$1,341.5 million, weighed by both lower CPO prices (YoY and QoQ) and lower sales volume (QoQ) due to delayed delivery of CPO. According to management, the delay had an EBITDA impact of US$50 million; otherwise, EBITDA would have been flat YoY and QoQ. Net profit subsequently fell 39.9 per cent YoY and 33.3 per cent QoQ to US$108.1 million. For 1H12, revenue slipped 6.6 per cent to US$2,860.7 million, meeting 52 per cent of our full-year forecast, while net profit dropped 34.2 per cent to US$270.1 million, or 50 per cent of our FY12 estimate. Going forward, GAR believes that the industry outlook remains resilient with robust demand growth for palm oil coming from both emerging and developed countries; prices are also likely to be supported by limited supply growth of other vegetable oils, especially soybean. GAR intends to focus on expanding both its upstream and downstream capabilities. Out of the projected US$500 million capex, US$250 million would be used to expand its palm oil plantation by 20,000-30,000 ha.  Another US$200 million would go to increasing its downstream processing capacity in strategic locations, while the remaining US$50 million for infrastructure to extend its distribution coverage and logistic facilities to enhance its integrated operations. As the interim results were in-line with our forecast, we opt to leave our numbers unchanged. As before, we note that our assumptions (CPO forecast remains at US$925/ton for this year) are already quite conservative and should have captured most of the downside risk. We further feel that a recovery of CPO prices is likely, given that CPO and soybean prices have a strong correlation of 0.85, suggesting CPO prices will likely mirror an increase in soybean prices quite closely. – OCBC Investment Research


Kingsmen Creatives (BUY; Target Price: S$0.85)

In 1H12, Kingsmen Creatives recorded sales of S$117.8 million, up 26.9 per cent YoY, and net profit of S$7.2 million, up 20.4 per cent YoY attributable to a successful delivery of exhibitions and events. The group declared an interim dividend of 1.5S-cents/share. In 2Q12, Exhibition and Museum section continues to outperform, achieving sales of S$30.5 million, up 43.5 per cent YoY. The group delivered projects at Art Stage 2012, Singapore Airshow 2012, Asia Pacific Maritime 2012 and various other events. Alternative Marketing segment also saw its sales more doubled to S$2.7 million. This is contributed by its services for marketing and promotional events from Asia Pacific Breweries, BMW Asia and CNB Singapore. The group is making good progress on its overseas project works in China and Hong Kong, while works at Universal Studios Singapore have also commenced. The group is confident in securing sizable projects in theme parks in China which will commence in 2013. As of 10th August, the group has been awarded contracts of approximately S$238 million for completion in FY2012. According to Singapore Tourism Board, Singapore has maintained its position as Asia’s top convention city for the 10th consecutive year in the International Congress and Convention Association. Venue operators are also differentiating themselves by offering additional services and introducing new or improved spaces to attract companies. In 2012, Singapore has added 12 new world congresses to its line-up of events from 2012-16. – Maybank Kim Eng Research


UOL Group (HOLD; Target Price: S$5.26)

UOL’s 2Q12 PATMI came in at S$171.7 million, down 19 per cent YoY mostly due to lower income from property development and higher marketing expenses. Excluding one-time gains, we estimate core PATMI at S$93.7 million – in line with our expectations and 1H12 core PATMI now makes up 49 per cent of our FY12 forecast. Topline for the quarter is S$298.8 million – falling 34 per cent YoY due to several projects attaining TOP in 2011 and 1Q12, and lower dividend income from UOB (no special dividends in 2Q12). HDB has awarded the Bright Hill site to the UOL/ Singapore Land JV, and management believes that average selling prices of S$1,300- S$1,400 psf are achievable. The en-bloc purchase of the St. Patrick Rd site was completed in July 2012 and the development would likely launch in 2013. Looking forward, UOL indicated they would favour land-bank in the mid-tier space, away from the mass-market sector which is overcrowded in their view. In the overseas segments, the Changfeng (Shanghai) development is slated for launch in 2013. In addition, the group is reviewing plans for the Jalan Conley site and applying for the title to be changed from residential to commercial. The hotel segment also put up steady numbers for the quarter as we saw an 6 per cent increase in RevPar, though revenues from hotel ownership only climbed 2 per cent YoY due to refurbishment activities. For the Upper Pickering site, the office segment is likely to attain TOP over August-September 2012, with the hotel soon after that. We like that management has managed to secure more land-bank; UOL’s limited exposure to a still healthy mass-market segment, however, points to a lack of catalysts in 2H12. – OCBC Investment Research


Yangzijiang Shipbuilding (BUY; Target Price: S$1.55)

2Q12 net profit dipped 9 per cent YoY to RMB878 million due largely to lower forex gain. Operationally, the shipbuilding segment continued to perform well with gross profits growing 25 per cent to RMB883 million, with gross margins steady at 24 per cent. 1H net profit amounted to RMB1.9 billion, forming 46 per cent and 49 per cent of our and consensus FY12F estimates. We will maintain our estimate for now given that 2H tends to be seasonally stronger and there could be potential one-off gains from the relocation of the old yard. The group delivered 30 vessels in 1H, on track to meet its target of 60 vessels for 2012. The operating environment for the shipbuilding industry continues to be challenging with slow contract flows and heightened default and cancellation risks given the weak shipping market. Yangzijiang terminated 8 shipbuilding contracts in 2Q, its first since listing, as some of its new customers failed to meet their financial obligations. We do not expect a significant impact from these as Yangzijiang forfeited the 15 per cent deposit collected and is likely to be able to recontract these vessels as demonstrated by its ability to recontract the three vessels that were cancelled. Despite such a challenging market, Yangzijiang has secured 4 contracts totalling US$89 million for smaller vessels – 2 units of 64k dwt bulkers and 2 units of 1,100TEU containerships (which come with 4 options). This brings YTD order wins to US$295 million; orderbook stands at US$3.8 billion. Yangzijiang has outstanding options for 26 units of 10k TEU containership worth US$2.6 billion with Seaspan and Peter Dohle, where some could materialise in 2H, though possibly at lower prices. We continue to like Yangzijiang as one of the most well run Chinese shipyards. In addition, Yangzijiang also offers an attractive dividend yield of 6 per cent. – DBS Vickers