Towards Financial Freedom
DBSV S'pore Wired Daily 26 February 2013
Today's Focus
Budget 2013 - Restructuring pains to continue, higher business cost adds to margin pressure. Prefer companies plugged to external growth.
ARA Asset Management - Downgrade to HOLD on valuation ground, TP S$1.76 (after 1-for-10 bonus)
Singapore's economic restructuring intensifies further with Budget 2013. The government's aim of raising productivity by 2-3% remains intact. Overall, we expect business cost to increase, specifically for industries with high labour content and reliance on foreign labour. Further hikes in foreign levies, tightening foreign labour supply and restoring employers' CPF rate contribution for older workers (from 11% to 16%) will add to operating cost, fuelling a cost push inflation. Sectors which will continue to face margin squeeze are construction, services, manufacturing and marine. We prefer the construction equipment and resources sector - Tat Hong and Pan United - which will benefit from strong demand for construction projects but face lesser pressure from labour cost.
We reiterate our preference for companies plugged to external growth, with low domestic cost or wage content. Singapore's GDP growth remains below potential with the official forecast of 1- 3% for 2013, after closing 2012 at 1.3%. Our stock picks are Ezion, Hutchison Port, ST Engineering and NOL which are global players with a niche or strong global positioning while Capitamall Asia, Perennial China Retail Trust and Capitaland are asset plays benefiting from the recovery in China.
4Q12 results for ARA Asset Management in line. Accompanying a final dividend of 2.7 Scts/share, ARA also announced a 1-for-10 bonus issue, of which the bonus units are entitled to this final dividend. ARA's managed REITs will continue to provide a steady base of recurring earnings while some to grow more aggressively, presenting near term earnings uplift. Our analyst has assumed S$2bn in asset under management (AUM) growth; of which earnings to fully contribute from 2014 onwards. In terms of valuations, ARA trades at a premium to global asset managers which average c17x-18x P/E. Downgrade to HOLD, TP adjusted to S$1.76 (S$1.94 pre 1-for-10 bonus) based on 18x P/E on FY13//14F income.
Nam Cheong delivered record quarterly results in 4Q12 with RM379m in revenues (up 172% y-o-y) and RM49.3m in earnings (up 87% y-o-y). Record results were driven by the high volume of vessel sale contracts secured in 4Q12. 4Q12 revenues and gross profit were in line with our estimates but net profit beat expectations on the back of a tax write-back. Overall FY12 net profit of RM136.6m was up 47% y-o-y, while revenue of RM876m was up 45% y-o-y. Stock has done well in the run up to this record set of results. Our Buy recommendation and TP of S$0.30 is put under review pending further guidance from management during analyst briefing today.
4Q/FY12 results for Raffles Medical within expectations. The group is looking to set up hospital in China. It has signed a non-binding Letter of Intent (LOI) with a subsidiary of China Merchants Group to collaborate in a >200-bed integrated hospital project in Shekou, Shenzhen. Maintain HOLD, TP nudged up to S$2.97 (Prev S$ 2.75) after shifting our valuation to 24x (+1SD) average FY13F/14F EPS. The long term prospects are positive for Raffles Medical, but this has been priced in with the counter trading at 28x/24x FY13F/14F PE, above its historical average of c.20x.
According to a company announcement, GIC is selling 595.7m shares or c13% of its stake in Global Logistic Properties at $2.60-2.66/share. This represents a 3-5% discount to the closing price of $2.75. Post sale GIC would still have a remaining 38% stake in the company. We believe this sale is more of an asset re-allocation exercise by the major shareholder. GLP continues to deliver strong results in its recent 3QFY13 financials. Organic growth in rentals at the group's completed China assets and a large land reserve in China would continue to underpin earnings and RNAV expansion. Meanwhile in Japan, post its GLP J-Reit listing, the group's NAV breakdown is now 50% exposed to China, 32% in Japan, 5% in Brazil and the remaining 13% in cash. This puts the group in a strong position to reinvest for its next phase of growth. We continue to like the stock with a TP of $2.93.
Cordlife has entered into strategic alliance agreements with Cordlabs Asia to co-operate in the provision of services related to cord tissue banking. This will enable Cordlife to widen the Group's suite of quality services in existing and new geographical regions. The geographical scope of the strategic alliance with Cordlabs Asia will extend to Singapore, Hong Kong, Malaysia, Indonesia, Philippines, Thailand and India.
Inflation in Singapore eased to 3.6% in January from 4.3% in December 2012 as a sharp rise in private transportation costs was offset by slides in all other major categories, partly because of base effects. On a month-to-month basis, inflation was 0.2%, down from the previous 0.7%. Core inflation, which excludes the costs of accommodation and private road transport, fell from 1.9% in December 2012 to 1.2% in January 2013, with lower contributions from all its major components. MAS core inflation is expected to average 2-3% this year.
China's manufacturing growth hit a four-month low in February but remained positive. HSBC's seasonally adjusted preliminary purchasing managers' index (PMI) stood at 50.4 for the month, down from a final 52.3 in January.
US markets gave up early session gains and tumbled lower on concerns that elections in Italy has led to a hung parliament, which will require another vote. The worries arose after European equity markets closed for trading last night, so we expect Europe stocks to react later this afternoon. The STI currently rests slightly above its 15-day EMA (at 3272), a level that is likely to fail today. Technically, we expect 3247 to be tested. If this level fails subsequently, the next support is at 3207 that is coincides closely with the 65-day EMA.
Source: DBSV
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