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ARA Asset Management (BUY; Target Price: S$1.72)

ARA’s reported 2Q12 PATMI (net profit) of S$15.4 million (+4 per cent YoY), bringing 1H12 PATMI to S$35.3 million, forming 48 per cent of our full year estimate. Earnings were largely recurrent in nature, with higher REIT and portfolio management fees coming from higher valuations of its REIT AUM, coupled with new contributions from completed acquisitions for Cache and Fortune REIT. The group also accrued portfolio management fees receivable from ADF11 upon commencement of its investment period in March 2012. Higher operational costs from higher staff related expenses, in line with expanding business operations, led to a slight decline in margins to 60.2 per cent. ARA proposed an interim DPS of 2.3 S-cents, in line with previous years. ARA gave investors some reasons to cheer with the launch of a new private fund – ARA China Investment Partners LLC (CIP) – with an initial capital of US$500 million with CalPERS (California Public Employees’ Retirement System) as a significant investor. The fund will have an initial term of 10 years with two extension options of 6 years and will pursue a core-plus investment strategy i.e. targeting high-quality, income producing office and retail properties in key cities in China (including Hong Kong). We note that ARA will also invest in CIP and we expect this fund to grow significantly over time. Also, the final closing of ADF 2 with total pre-commitments of US$441 million. This is just shy of its original target of US$1 billion, and has started deploying its capital. We understand that both CIP and ADF2 will complement each other in investing in China, with the former targeting stabilised assets compared to more opportunistic deals for the latter. Our earnings estimates are adjusted slightly to account for timing of contribution from the above two funds. – DBS Vickers


City Developments Limited (SELL; Target Price: S$10.30)

CDL reported a 2Q12 PATMI (net profit) of S$137.7 million and a 1H12 PATMI of S$294.5 million (-38 per cent and -42 per cent respectively). Excluding divestment gains, we estimate that core 1H12 PATMI actually declined by a gentler 6 per cent YoY to S$257.3 million, in line with expectations. As with previous quarters, property development was a major earnings contributor, accounting for 47 per cent of CDL’s 1H12 PBT. Profits from several projects have yet to feature in the bottom-line, including H2O Residences and The Palette. Profits from its two EC projects, Blossom Residences and The Rainforest, can only be recognised upon completion of construction, which we estimate to be in 2014 and 2015 respectively. The group sold 1,299 units in 1H12, mainly from the ECs and Bartley Residences. That, however, accounted for just 8 per cent of the industry-wide total sales of 16,070 units in 1H12. Looking ahead, the site at Alexandra Road (508 units) could be launch-ready by 4Q12, while Pasir Ris Parcel 5 (912 units) beside The Palette is slated for launch either end-2012 or early 2013. Millennium & Copthorne reported a 29 per cent YoY growth in its headline operating profit in 2Q12. RevPAR in London grew by 4.3 per cent in 1H12 while Singapore enjoyed a 6.1 per cent growth in RevPAR on a like-for-like basis. However, management warned of evident signs of softening due to the global economic malaise. Nevertheless, M&C has a very strong balance sheet and is also seizing the opportunity to reposition/refurbish several key hotels to drive future RevPAR growth. CDL is currently trading at 0.93x P/RNAV – above its 5-year mean of 0.84x P/RNAV. With management now adopting a markedly cautious outlook, current valuations appear rich. We downgrade CDL to SELL, with a target price of S$10.30 pegged at a 20 per cent discount to RNAV. – Maybank Kim Eng Research


Genting Singapore (HOLD; Target Price: S$1.17)

2Q12 EBITDA came in at S$311 million (-10 per cent YoY), bringing 1H12 EBITDA to 40 per cent of our and consensus’ full-year estimates. Drag came from: rolling chip contraction given cautious lending and absence of Chinese New Year impact; lower VIP win rate; and lower EBITDA margin with pre-opening expenses for Western Zone (likely to remain depressed until completion in 4Q12 and with rising foreign labour cost pressure). RWS’ overall GGR market share inched up 1 ppt to 49 per cent, mainly due to more favourable luck factor (MBS VIP win rate is only 2.4 per cent) as share of rolling chip and mass GGR fell to 48 per cent and 47 per cent respectively (from 50 per cent). Junkets impact has been negligible, as expected. While debt impairment has inched down by 1 ppt QoQ to 4 per cent of receivables, receivables remained elevated at one-third of gaming net revenue (43 per cent of VIP GGR). As VIP segment decelerates and local mass market remains stagnant (if not deteriorating marginally exacerbated by government restrictions), we agree with GENS’ strategy of focusing on overseas mid-market business (locals make up 1/3 of visitors while mass constitutes 51 per cent of GGR). GENS is also keen to expand its hotel footprint near RWS. GENS is seeking sizeable greenfield projects (over US$500 million) with minimum 15 per cent IRR hurdle which should at least cover interest cost for its perpetual bonds. Its 5 per cent stake in Echo remains a portfolio investment for now, although we do not discount the possibility of a full-blown tussle against Crown which would require US$1.5-3.5 billion to bring Genting Group’s cumulative 10 per cent stake to 50 per cent-100 per cent. Cut 2012-14F EBITDA by 3-6 per cent to factor in higher debt provision and labour cost. While partly in the price, there could be further negative knee-jerk reaction from: policy risk (proposed amendments to Casino Control Act will be tabled in Parliament by year end); and potential low yielding investments. – DBS Vickers


SBI Offshore (BUY; Target Price: S$0.32)

SBI’s 1H results came in below our expectations, dipping slightly into the red. Revenue fell 34.1 per cent YoY to US$3.3 million as sales generated by RBV Energy (50 per cent owned JV), amounting to US$3.2 million can no longer be booked under the group level due to a change in accounting policy. Profitability was also impacted by the delay in commission recognition for its Aker drilling equipment sales. However, we remain upbeat over the group’s 2H performance and expect them to complete the tender rig project ahead of schedule, booking US$15 million to US$20 million in 2H12. Furthermore, driven by Sembcorp Marine’s big contract wins from Sete Brasil, demand for the group’s drilling equipment packages and other offshore equipment is expected to remain robust. As of June, It had an outstanding orderbook of US$42 million. We see this as a back-end loaded year and tweak our earnings forecasts for FY12 marginally by 6.3 per cent to factor in the losses in 1H. During the first half, Cosco ordered from SBI’s principal Aker two set of drilling equipment packages worth US$200 million for two of its cylindrical rigs building for Sevan Drilling. As Sevan Drilling changed to a back-end payment schedule, Cosco also delayed its payment to Aker, which in turn pushed back SBI’s US$2 million worth of commission fees. Nonetheless, we opine that the possibility for Sevan Drilling and Cosco to default is rare and expect SBI to receive this commission. Furthermore, 2H orders will be supported by Sembcorp Marine’s big contract wins of six drillships from Sete Brasil worth more than US$4.8 billion. SBI has successfully completed the bulk of the engineering work in the first half, meeting customer’s expectation. The group has successfully billed and collected more than US$10 million from its customer though no revenue can be yet recognised. Moving on, we expect the group to complete the project ahead of schedule, shipping most of the equipment by 1Q13. Upon successful completion, there is a high chance that the existing customer will award SBI another tender rig project. – OSK DMG


Singtel (SELL; Target Price: S$3.03)

SingTel reported underlying net profit of S$850 million, down 2.5 per cent in 1Q13. The main culprits were escalating subscriber acquisition and retention costs in Singapore, a poor showing by Optus in Australia due to structural changes in its business, and headwinds from regional currencies in particular the rupee, rupiah and Australian dollar. 1Q13 results included an exceptional gain of S$119 million from the sale of Far EasTone stake. SingTel has maintained its outlook of low single digit growth in revenue and flat EBITDA, implying a squeeze on margins, for both its Singapore and Australian businesses. In line with our expectations of muted performance for its associates, 1Q13 share of associates were flat YoY at S$506 million, about 40 per cent of group pretax profit. Better results from AIS, Globe, Telkomsel and Bharti Africa were offset by weakness in core Bharti markets. We expect free cashflow (excluding dividends from associate) to fall from S$2.5 billion in FY2012 to S$2.4 billion in FY2013 on the back of acquisitions, 4G network rollout in Singapore and Australia, rollout of cloud computing services for enterprises and a potentially expensive bid for BPL. There is potential downside to FCF as SingTel’s capex guidance does not include 4G spectrum auction costs in Singapore and Australia. Our target price for SingTel has risen on the back of higher target prices for Globe, AIS and Bharti in recent weeks. However, we prefer M1 for telco exposure as it offers a superior yield of 5.6 per cent at current levels. – Maybank Kim Eng Research


ST Engineering (BUY; Target Price: S$3.78)

ST Engineering (STE) reported 2Q2012 NPATMI (net profit) of S$143.1 million, a 10 per cent increase YoY on the back of revenues that grew 6 per cent. Results were in line with our expectations, as 1H2012 Revenue and NPATMI comprised 49 per cent and 48 per cent of our FY2012 estimates respectively. An interim dividend of 3.0 S-cents/share was declared, payable on September 13. Commercial sales in 2Q2012 comprised 65 per cent or S$1.0 billion of revenue. Bearing in mind that S$1.6 billion of revenue was recognised this quarter, the increase of S$0.5 billion in STE’s orderbook from 1Q2012 to a record S$12.7 billion in 2Q2012 was commendable. From a profitability standpoint, the aerospace segment led the way with a 20 per cent growth in PBT YoY, although growth would have been a more moderate +10 per cent if a S$7 million gain on disposal of property were excluded. Other profit growth segments of note were ST Electronics and ST Marine. Management guided that the group expects to achieve higher revenue and comparable PBT in 2H2012 (vs1H2012). ST Aerospace is expected once again to lead the way with higher revenue and PBT in 2H2012 compared to 1H2012. It expects to continue its development of aircraft interior modification and completion centre capabilities for 2H2012, together with the commencement of hangar construction at its Guangzhou and Seletar facilities. We maintain our forecasts and roll forward our 19x P/E valuation to FY2013 EPS, raising our target price to S$3.78. STE’s record orderbook of S$12.7 billion gives evidence of its momentum in contract wins, and provides clear earnings visibility which in turn supports attractive forward dividend yields of 5-6 per cent. – Maybank Kim Eng Research


UOL Group (BUY; Target Price: S$5.96)

UOL’s 2Q12 net earnings dipped 15 per cent YoY to S$171.7 million as revenue declined 34 per cent to S$298.8 million. This was largely due to slower residential development profits, lower dividend income as well as smaller S$82.4 million revaluation gains (S$121.8 million previously). There was also a S$15 million reversal of tax provisions following the resolution of certain tax issues with the authorities. This dip in residential operations was partly offset by a slight uptick in hotel operations with Revpar rising 6 per cent to S$136 in 2Q12 and improved leasing income with occupancy at its buildings in the high 90+ per cent. Going into 2H12, we expect Meadows @ Pierce and Double Bay Residences to receive TOP while profit recognition from the Archipelago (86 per cent sold) should commence. The impact of Katong Regency (100 per cent sold) should be felt from next year. In terms of new launch pipeline, the group is expected to market its St Patrick’s Garden enbloc site next year while the recent award of the Bright Hill Drive site by HDB would also further extend development earnings visibility. The latter plot was acquired at S$720psf ppr. The group remains on the lookout for more landbank but would continue to adopt a cautious and selective stance in its choice of sites. Rental income remains robust supported by niche demand for office and retail space in the Novena area. Hotel operations should also pick up in 2H with the re-opening of the Pan Pacific Hotel. Pan Pacific Hotel Group’s 363-room Parkroyal on Pickering Street and office block is expected to open by the year-end while the development of the 180-unit Pan Pacific Serviced Suites Beach Rd is slated for completion in 1Q13. This would provide additional boost to hotel and leasing income going forward. We have nudged up FY12 earnings to S$527.6 million to factor in the portfolio revaluation gains and retain our BUY call with a higher target price of S$5.96 based on a 15 per cent discount to RNAV of S$7.02 as we update the value of its investment holdings to our latest target prices. We continue to like UOL for its multi growth engines that provide stability to RNAV as well as management’s prudent approach in the residential sector. – DBS Vickers


Ying Li International (BUY; Target Price: S$0.50)

Ying Li International announced its 2QFY12 results. Net profit came in at RMB40 million in 2Q12 vs a loss of RMB17 million in 2Q11. The growth is mainly driven by the sale of IFC office units as well as rental income growth. RMB125 million of revenue was recognised from the sale of IFC office units in 2Q12 vs RMB108 million in 1Q12. Ying Li is on the track of meeting its sales target of 20,000 sqm in this year with ASP expected to be around RMB25,000/sqm. Ying Li IFC’s leasing activity is also going smoothly. It has already secured several big international and domestic tenants such as Deloitte, CapitaLand, DBS, GIC, Goldman Sachs, Kang Tai Insurance. Construction on International Plaza is on schedule and the whole project expected to complete in 2014. Block 3 was launched for sales in late July and well-received by the market. 75 per cent of total units have been sold and RMB200 million pre-sales have achieved already. Their remaining Block 1 and 2 will be open to market in 4Q12. Pre-sales from International Plaza will support the revenue for 2013 and 2014. Although net gearing rose to 58 per cent in 2Q12 mainly due to the borrowing for International Plaza project and loan repayment, we are confident that the continuous sales of IFC and launch of International Plaza Block 1, 2 and 3 will generate sufficient cash flow to cover the debt burden. We derived our target price based on 40 per cent discount to our RNAV forecast. Given the prime location and very high-end profile of Ying Li’s assets, we believe this stock deserve a higher valuation than current level. – Maybank Kim Eng Research