DBSV S'pore Wired Daily 16 July 2013

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DBSV S'pore Wired Daily 16 July 2013

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Publish date: Tue, 16 Jul 2013, 10:45 AM

Today's Focus

Sheng Siong Group - Stable earnings base, consistent dividend payout and yield of 4.0%. Maintain BUY, TP S$0.78

First Resources - 2Q13 CPO output weaker than expected; lower 2Q13 earnings expectations

We hosted Sheng Siong Group's CEO and CFO for a conference in Singapore and a two-day roadshow in Hong Kong. We like SSG for its stable earnings base, consistent dividend payout and yield of 4.0%. Population growth, store expansion, margin improvement and e-commerce will be SSG's key growth drivers going forward. Maintain BUY with slightly higher TP of S$0.78 (Prev S$ 0.76).

2Q13 CPO output for First Resources was 126,797 MT (+10% y-o-y; +10% q-o-q) or 21% of our full year target of 592,151 MT, weaker than the 24% we were expecting. 2Q13 earnings expectations now reduced to US$45-50m from US$50-57m previously. Subject to changes to management guidance for 2Q13 results, we are maintaining our forecasts, TP of S$ 2.18 and Buy rating for the stock. At current price, the counter is trading at undemanding 9.4x FY14F earnings. Any near term weakness would be an opportunity to accumulate the stock.

Keppel Corp has secured fifth contract to build a jack up rig worth US$206m for Mexican drilling company, Grupo R, scheduled for delivery by 4Q15. The first four orders for similar vessels for Grupo were placed in March 2013 at similar pricing. The latest contract take Keppel's YTD order win to S$3,678m, making up 61% of our full year assumption of S$6bn. No change to our earnings, maintain Buy, TP S$13.00.

Keppel REIT reported a 6.1% rise in distributable income to S$52.8m (DUP of 1.97Scts, +1.5% y-o-y) on the back of a 3.1% increase in net property income to S$32.2m, in line with expectations. The better performance was attributable to increased rental income from OFC (through an increase in its effective stake to 99.9%, improved tax transparency status) coupled with higher occupancy at 77 King Street. Keppel REIT has also successfully refinanced borrowings due in 2014 amounting to S$425m (or 60% of debt expiring) and improved debt maturity profile. HOLD maintained, TP S$1.36 (Prev S$1.43).

SIA reported June operating statistics that were fairly weak, with passenger carriage up by 2.5% y-o-y to 8,230.2m p-km, on 4.4% y-o-y increase in capacity, leading to a 1.5ppt decline in load factor to 81.5%. Silkair's carriage rose by 8.9% y-o-y to 489.2m p-km but lagged behind capacity growth of 17.1% y-o-y, resulting in a 5.5ppt drop in load factor to 75.5%. SIA cargo meanwhile, reported a 6.3% y-o-y decline in carriage to 550m tonne-km on 5.6% y-o-y decline in capacity, and load factor dipping to 62.6%. This set of numbers highlight SIA's difficulty in operating as a premium carrier in a weak macro-economic environment, with their yields also likely to be under pressure. The only relief is that jet fuel prices are slightly lower y-o-y. Maintain HOLD.

Mencast Holdings has entered into a non-binding Memorandum of Understanding (MOU) with Takamul Investment Company, to co-operate in analysing downstream ventures within the Sultanate of Oman. The first potential project being examined under the MOU is the engineering, procurement, installation and commissioning (EPIC) of a downstream treatment plant.

Moody's Investors Service changed Singapore's banking system's outlook to negative from stable. This is due to rapid loan growth and rising real estate prices in both Singapore and regional markets where Singapore banks are active. These have increased the probability of credit quality deterioration under potential adverse conditions in future. While Singapore banks have improved their NPLs over the past few years, asset quality has potentially peaked both at home and in many of the regional markets in which these banks operate. A turning point in the credit cycle is likely to lead to a worsening of NPL ratios and higher credit costs. Although it is difficult to exactly predict turning points in banking credit cycles, Moody's believes the increased likelihood of monetary policy tightening in US - with a higher probability of QE tapering during the outlook period - is a potential trigger.

June primary home sales (excl ECs) rose 24% m-o-m to 1806 units and is a reflection of home take up prior to the introduction of the tighter debt servicing ratio by MAS. Total sales (excl ECs) in 1H13 amounted to 10159 units, 17% lower than the same period a year ago. The sales were dominated by mass market transactions with newly launched projects showing more popular take up. In all, transactions in the Rest of Central Region made up 93% of all sales.

Home sales continue to show a bias toward mass market projects, also a function of the location of availability of new projects. With the recent clampdown of financing with the introduction of the Total Debt Servicing Ratio capped at 60% since June 29 and the application of a 30% haircut on variable income in assessing mortgage affordability, we believe volume sales in the coming months could see a moderation as this move would likely dampen investment demand as well as marginal home buyers. ASPs are expected to remain relatively flat as developers continue to enjoy strong holding power and balance sheets. Our estimates for a 20% drop in volume and a -5% in home prices is maintained.

China's annual economic growth slowed to 7.5% in the second quarter of 2013, from 7.7% in 1Q, the second straight quarter of slower growth, in line with market expectations. In the first six months of 2013, the economy grew 7.6% from a year earlier. Other data released showed industrial output grew 8.9% y-o-y in June, versus expectations of 9.1%. Retail sales in June rose 13.3% y-oy versus an expected 12.9%. Fixed-asset investment grew 20.1% in the first half from a year earlier, versus an expected 20.2%.

China's economic growth faces relatively big downward pressure and the country will increase financial incentives to support small firms as part of efforts to stabilise growth, this according to the Chinese central bank governor. China's stance to keep monetary policy prudent was also reiterated.

US markets carved out modest gains with better-than expected earnings from Citigroup offsetting a disappointing June retail sales figure (actual +0.4%, consensus +0.8%). 10-yr treasury yields dipped 5bps to 2.54% in reaction to the weak retail sales number. Ben Bernanke' semi-annual Humphrey-Hawkins congressional testimony will take place on the 17 and 18 July. The event is not likely to spring new surprises as he had made his stand clear - QE tapering is data dependent mode and labour market improvement will be the primary focus with regards to timing. He will also likely stress that tapering is not tightening."

Source: DBSV

Sheng Siong (OV8)First Resources (EB5)Keppel Corp (BN4)Keppel Reit (K71U)SIA (C6L)Mencast (5NF)

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