DBS Equity Research: Wired Daily 12 Aug 2014

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Publish date: Tue, 12 Aug 2014, 11:58 AM

Singapore 2Q GDP grew 2.4% y-o-y, above flash estimate and market consensus

Dairy Farm - Acquiring a 19.99% stake in Shanghai listed Yonghui Superstores for RMB5.69b

The Singapore economy grew 2.4% in the second quarter of 2014, above the government's July estimate of 2.1% and market forecast of 2.3%. For 1H14, Singapore grew 3.5% y-oy. The government had also narrowed Singapore's full-year growth forecast to 2.5-3.5%, from an earlier range of 2-4%. After seasonal adjustments, GDP grew an annualised 0.1% qo-q in Q2. This beat both the flash estimate of a contraction of 0.8%, as well as the consensus market forecast of -0.3%. But this was still a slowdown from the 1.8% q-o-q growth in Q1, which was revised up from an earlier reported 1.6%.

The manufacturing sector grew 1.5% y-o-y in Q2 - a sharp slowdown from the 9.9% expansion in Q1, dragged down by a contraction in electronics output and slower growth in transport engineering production. Still, this was higher than the advance estimate of 0.2%. Growth in the services sector also moderated to 2.6% from 3.9% in Q1, amid a broad-based slowdown in the industry. This was a notch lower than the earlier estimate of 2.8%.

Dairy Farm is acquiring a 19.99% stake in Shanghai listed Yonghui Superstores via a new share placement. Dairy Farm will pay RMB5.69b (US$925m) financed by a combination of internal cash and loans. Currently, DFI has net cash of US$568m. Yonghui Superstores is a hypermarket and supermarket operator based in Fuzhou, Fujian and listed on the Shanghai Stock Exchange (market cap RMB24b). It operates approximately 288 stores in 17 provinces with >60% located in Fujian and Chongqing, and majority in Beijing, Anhui, Henan and Jiangsu. The acquisition is slightly earnings accretive and based on consensus earnings for FY15F, Yonghui is likely to contribute US$37m to DFI's pre-tax profit and lift DFI's FY15F US$533m earnings estimate by 5%. We are neutral on the acquisition since the purchase price is not cheap (FY15F consensus PE of 25x) and earnings accretion is low at 5%. Maintain HOLD.

3Q14 net profit of S$109.2m for Frasers Centrepoint Ltd in line with expectations. Australand take-over is ongoing, FCL has garnered close to 56.8% in acceptance. Proceeds from listing of FHT is expected to improve balance sheet metrics. YTD, the group has sold c.410 and 380 residential units YTD in Singapore and in Australia respectively. Locked-in and unrecognised revenues in these two countries are c.S$1.9bn and S$0.6bn respectively, which is expected to be recognised progressively in the coming years. Maintain BUY and S$2.08 target price. Valuations remain attractive at 0.8x P/BkNAV.

CSE Global's 1H14 profit of S$15.6m (-9% y-o-y) and interim DPS of 1.25 Scts were in line. Weak order backlog of S$195m (-29% y-o-y) continues to be a concern to us. Maintain HOLD with revised target price of SS0.70 (Prev S$ 0.65) as we rollover our valuation. CSE's strategy of focusing on smaller contract wins provides stability at the cost of growth in our view.

Sarine Technologies announced a strategic cooperation with Tiffany & Co. to develop a new automated system for the grading of a polished diamond's symmetry to new standards to be set by Tiffany. It is a totally new solution for ascertaining a polished diamond's proportions and symmetry and sets a new bar for polished diamond analysis and grading. The DiaMension™ Axiom measures the most minute diamond features, including facet junctions, facet misalignment and facet distortions, key to the symmetry grade.

A new airline jointly run by Singapore Airlines (SIA) and India's Tata Group and headquartered in Delhi is expected to start operations in October, marking a culmination of SIA's 20-year-long efforts to operate an India-based carrier. The move will give SIA a foothold in one of the region's largest aviation markets in the longer term. It also has implications for India's aviation sector in that it is expected to heat up competition among the subcontinent's already embattled airlines.

OSIM International said that it is in talks to expand its international franchise with stores in Turkey and Russia. OSIM's chief executive officer Ron Sim said that he hopes to reach a deal by the end of the year.

Resale volume in the private residential market remained flat last month, even as resale prices fell to a 21-month low, data released by the Singapore Real Estate Exchange (SRX) showed. Some 431 units changed hands during the month, compared with 427 in June. Year on year, sales have fallen 20.5%; year to date, they are down 46.6%. Resale prices fell 1.3% in July from the previous month, with the decline being broad-based, across all three regions. The high-end condo segment was hardest hit. The city area (core central region or CCR) led the decline with a 4% decrease. Prices in the city fringe (rest of central region or RCR) dipped 1.1%, and those in the suburbs (outside central region or OCR), by 0.6%.

Source: DBS

DFIRG USD (D01)Frasers Property (TQ5)CSE Global (544)Sarine Tech (U77)SIA (C6L)

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