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Europe fears renewed
Markets were down this week (May 7-11) as news of fresh turmoil emerging in Europe dampened the small-cap rally on the local bourse. But interestingly, Singapore Telecommunications managed to gain 3.8% in value as investors sought refuge in the blue-chip stock.
On May 10, SingTel also announced a 4.2% yoy rise in revenue to $18.8 billion for the full year ended March 31, 2012, while earnings rose 4.3% to $3.9 billion over the same period. The telco’s results were boosted by mobile growth in Singapore and Australia.
However, SingTel expects Ebitda margins in both countries to dip in the quarters ahead, owing to higher subscriber acquisition and retention costs and warns that start-up losses incurred by mobile advertiser Digital Life could also weigh on margins.
As such, Kelvin Goh of CIMB suggests that investors switch over to StarHub instead, given its prospects for higher dividends. Singtel has recommended a final dividend of 9 cents per share, taking total dividends to 15.8 cents per share for the year.
Oversea-Chinese Banking Corporation was the last of Singapore’s three local banks to report its earnings for the period on May 11.
OCBC beat expectations with earnings hitting $832 million for the three months to March 31, 2012, up 32% from the same period last year. The strong performance was driven mainly by non-interest income, which grew 28% yoy to $790 million, on the back of a significant increase in life assurance profit from the insurance business.
OCBC also benefited from higher wealth management and loan-related fees, but that was partially offset by lower brokerage fees and investment banking income during the period. The bank also recorded a $56 million gain from the sale of property in Melbourne, Australia.
Meanwhile, net interest income grew 21% yoy to $951 million, with the largest increases contributed by housing loans, loans to the general commerce sector and to financial institutions. As a result, CIMB analysts Kenneth Ng and Daniel Lau have raised their FY2012-14 earnings per share (EPS) forecasts by 6%-7%, and now value the stock at $10.35 apiece, or 1.49 times book value. They now expect OCBC to outperform over the next 12 months.
Genting Singapore’s results came in below expectations, with revenue of $787 million during the quarter down 14.2% yoy. Its earnings were down by 30.6% to $211.5 million during the same period, owing to higher operating expenses and a lower win rate by the casino operator.
However, analysts note that Genting is well funded and poised to make an acquisition or two in the next 12-18 months with construction of the Westzone at Resorts World Sentosa nearing completion. “We expect future quarters to benefit from a ramp-up in hotel rooms,” writes Loke Wei Wern of CIMB, who expects the stock to outperform.
Real-estate developer City Developments (CDL) reported a muted set of 1Q2012 results, with earnings down 34% yoy to hit $196 million despite a 9.4% increase in revenue to $846.7 million during the period. The fall in earnings was due to higher cost of sales as margins for recently launched projects were much lower than launches that took place a year ago.
During the period, CDL launched The Rainforest Executive Condominiums (EC) in Choa Chu Kang, which is now 94% sold. However, its 702-unit Bartley Residences condominiums – which houses many downsized shoebox units – is just 41% sold. CDL’s other ongoing projects include The Palette, Blosson Residences and NV Residences, which are 73%-100% sold. New launches in 2H2012 include UP@Robertson Quay and Haus@ Serangoon Garden.
Donald Chua of CIMB expects the stock to underperform in the coming months owing to tight valuations and potential cooling measures on the property market by the government.
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Stock Recommendation & Price Target SG A-M.pdf Download this file
Stock Recommendation & Price Target SG N-Z.pdf Download this file
Stock Recommendation & Price Target HK MY US.pdf Download this file
Asia’s leading agribusiness group, Wilmar International, posted a 33.8 percent decrease in net profit to US$255.9 million despite a 9.8 percent gain in revenue to US$10.5 billion for its first quarter ended 31 March 2012. Despite the strong earnings growth from palm & laurics, consumer products, plantations & palm oil mills, earnings were dragged under by lower oilseeds & grains margins due to the difficult operating environment in China. Similarly, Wilmar’s associates also recorded lower contributions. Nevertheless, the strong volume growth achieved across all its key business segments reflected strong consumption growth and market share gains. As at 31 March 2012, total assets stood at US$39.95 billion while shareholders’ funds grew to US$13.54 billion. Net gearing ratio increased to 1.08x from 0.97x as at 31 December 2011 due to higher net loans and borrowings to meet Wilmar’s working capital and expansion needs.
Significance: Kuok Khoon Hong, Chairman and CEO of Wilmar expects the company’s key business segments, especially palm & laurics, to continue to perform satisfactorily for the rest of the year although oilseeds crushing margin in China is expected to remain challenging due to excess capacity.
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NoticeofEGM25May2012.pdf Download this file
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NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will be held at Anson III, Level 2, M Hotel, 81 Anson Road, Singapore 079908 on 25 May 2012 at 10 a.m. for the purpose of considering and, if thought fit, passing with or without modifications the following Ordinary Resolutions.
(a) for the Company to undertake a renounceable non-underwritten Proposed Rights Issue and, in that connection, the Directors be and are hereby authorised to provisionally allot and issue up to 422,117,874 Rights Shares in the capital of the Company, or such other number of Rights Shares as the Directors may determine, at an issue price of S$0.24 for each Rights Share, on the basis of four (4) Rights Shares for every five (5) existing Shares held by the Shareholders of the Company as at the Books Closure Date, on such terms and conditions as the Directors may think fit;
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Wing Tai Announcement.10may12.pdf Download this file
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Hyflux, Venture and Myanmar plays
The earnings reporting season in Singapore is once again in full swing and on May 3, technology services provider Venture Corporation and water treatment company Hyflux announced their results for the first three months of FY2012.
Venture Corp reported a 2.3% yoy fall in revenues to $574.3 million for the period ended March 31, 2012, owing to a seasonal fall in demand, while earnings were down 13% to $35 million.
Although unexciting, Venture’s results were more or less within analyst expectations. In fact, demand for tech solutions among Venture’s customers in the medical and life sciences, networking, test and measurement, industrial and retail sectors is expected to improve in the coming quarters, which should boost the company’s FY2012 revenue.
Gregory Yap of Maybank Kim Eng is maintaining his buy recommendation on the stock. “1Q2012 profits were a bit shy of expectations, [but] this is not enough for us to change our full year forecast,” writes Yap. We retain our view that 2012 should be a better year for Venture, with sequential improvement expected every quarter.”
The analyst expects to see a pick-up in business in 2H2012, when new customers such as Verifone begin contributing to revenue. “While we are forecasting only modest growth for the company this year, we believe this could turn out to be a conservative forecast given the new opportunities opening up for Venture this year, to be followed up on a larger scale in 2013.” The analyst values the stock at $9.65 apiece, representing an upside of up to 22%.
Venture will pay a final FY2011 dividend of 55 cents per share on May 18.
Meanwhile, Hyflux reported a 60% rise in 1Q2012 revenue to $138.9 million, driven by rising municipal demand in China, which contributed some 40% to revenues during the period.
However, earnings for period grew by a narrower 26% yoy to $9.2 million, owing to high raw material and staff costs -- up 96% yoy and 54% yoy respectively. In addition, financing costs were up 22% during the period as Hyflux invested in expanding its pipeline of projects in India and Singapore.
In March, Hyflux announced that it was in partnership with Hitachi and Itochu Corporation to develop a 336,000 cubic metres/day desalination plant in Gujarat, India worth US$600 million ($745 million). Hyflux will provide engineering, procurement and construction services to the project amounting to US$420 million.
The investment comes after Hyflux was forced to abandon its projects in the Middle East and Africa (MENA) region after the political unrest last year. As a result, Hyflux saw gross margins dip to 38% for the quarter compared to 51% in 1Q2011.
“This set of results support our earlier view that the loss of MENA projects will be difficult to replace, given that they likely have better EPC margins and project [returns] as well as attractive financing terms,” writes James Koh of Maybank Kim Eng. The analyst has downgraded his FY2012-14 earnings estimates for Hyflux by 10%-15% on lower margin assumptions and recommends a sell with a target price of $1.15 apiece from $1.21apiece previously.
What to look out for
FJ Benjamin, Osim International, Wilmar International, Noble Group, Fraser & Neave, Sembcorp Marine and Sembcorp Industries are due to announce their 1Q2012 results next week.
Also, watch out for Myanmar-related stocks such as UPP Holdings, which had just announced its restructuring plans. UPP plans to shift away from paper and pulp manufacturing and look for new businesses -- which could include power plants, construction materials and property development -- in the country and elsewhere in Southeast Asia.
On May 4, UPP said it had signed a memorandum of understanding with Myan Shwe Pyi Ltd (MSPL) to set up a joint venture company to be incorporated in Myanmar. The joint venture firm will buy assets in quarry operations and engineering services for around $18.9 million from MSPL.
The two largest shareholders of UPP are billionaire former broker Peter Lim and Malaysian tycoon Tong Kooi Ong. Among Tong’s business interests is The Edge Media Group, which owns The Edge Singapore. Shares in UPP should resume trading by May 7.
Meanwhile, Yoma Strategic Holdings has obtained approval to go ahead with a 4 for 5 rights issue at 24 cents each to fund the $91 million acquisition of a 70% stake in Star City, a new residential and commercial development near Thanlyin City on the outskirts of Yangon.
AREIT_Launch_of_Private_Placement_Announ
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DBS hits high note with record 1Q profit
On Apr 27, DBS Group Holdings sprang a surprise on the market at around 7.20 a.m. in the morning. It announced that for the 1Q ending March, earnngs were up 16% y-o-y and 28% q-o-q to $933 million, a record for a local bank. It was also way above consensus estimates which ranged from $730 million to $755 million. “With ROE at 12.8% I’m very pleased because we’ve delivered at substantially above our cost of capital,” notes DBS CEO Piyush Gupta at the results briefing. “It is gratifying that every line is at a record high,” he adds.
Net interest income rose 4% q-o-q and 19% y-o-y to $1.3 billion; loans were up 3% and deposits up 4% on the quarter, lowering the loan-to-deposit ratio to 85% as at Mar 31 from 86.3% a quarter ago. Fee income was down 2% on the year (because of a large IPO in 1Q11) but up 19% q-o-q, and treasury income reached a new high of $662 million, up 25% y-o-y, and 49% q-o-q.
Even the bank’s Hong Kong operations have finally delivered results. Earnings rose 46% q-o-q (flat y-o-y) to $190 million. “The Hong Kong business is coming through,” Gupta says. “When we bought Dao Heng Bank, our whole thrust was to use it to bring up China. We had not been successful in doing that for much of the last decade, but we’ve been successful in the last two years,” he adds.
“We’ve used our business in Hong Kong to anchor the growth in China. We’ve grown our RMB business by 45% y-o-y. It is now 24% of our Hong Kong business. RMB loan volume out of Hong Kong is up 27 times, our deposit volume is up 10 times, our corporate deposit base up by multiples [of 530 times] but from a low base,” Gupta recounts.
Regional earnings outside of Singapore and Hong Kong rose 50% q-o-q and 12% y-o-y to $196 million. Singapore accounted for 59% of earnings, with the rest from Hong Kong and what Gupta terms DBS's high growth markets of China, India and Indonesia.
On prospects, Gupta maintains that the loan pipeline continues to be healthy. “Loan growth in the low teens is do-able” he says of this year. “Trade loans are proving to be quite sticky. We’ve been able to replace them when they come due,” he adds.
What analysts say
Leng Seng Choon, an analyst at OSK DMG, is forecasting loans growth of 11% for FY12, for DBS. “Assuming the acquisition of Danamon is completed before end-2012, we are forecasting 2012 loan expansion of 19.2%,” Leng adds.
In addition to loan growth and the trade finance business -- where DBS benefited from the exit of European banks -- Gupta reckons that the bank is set to profit from corporates switching from bank loans to tapping the capital markets. DBS has a 45% market share of the bond market where it’s been involved in almost every perpetual that’s been issued in SGD.
Where analysts are uncertain is DBS’ trading income. For 1Q12, the bank’s net trading income doubled to $325 million. “We do not expect the strength in net trading income to persist at the same pace, but have upgraded our FY12 net trading income numbers to reflect the 1Q12 strength,” Leng says in a results update. He has a neutral rating on the stock, and but has raised his FY12 net earnings forecast by 12.6% to $3.2 billion due to the upward revision for the trading income estimate. Leng has a target of $14.60 based on 1.5 times FY12 book.
Sharnie Wong, analyst at Barclays, says “we believe the pending acquisition of PT Bank Danamon (still subject to the relevant shareholder and regulatory approvals) will limit share price performance in the near term. Moreover, persistently tight liquidity in Hong Kong will constrain margin improvement, in our view.” She too has a neutral rating on the stock.
However, DBS is the top pick at CIMB. “This strong set of results adequately reflects success in its initiatives and cements DBS as our top pick in the sector. Its recent underperformance (now at 1.07 times price to book) following its Danamon bid offers further upside potential than its peers, in our opinion,” says Kenneth Ng in a results update. He is forecasting earnings of $3.17 billion for this year, and has assigned a target of $15.10 for the stock.
