DBS Equity Research: Wired Daily 13 Jan 2015

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Publish date: Tue, 13 Jan 2015, 12:13 PM

Sheng Siong Group - Positive on store openings, margins and long-term potential. Maintain BUY with higher $0.82 TP

SPH REIT - 1Q15 results in line

We remain positive on Sheng Siong Group (SSG) for three reasons: 1) more stores are expected to open, starting with SSG's new Tampines store, which is scheduled to open this month; 2) margins have further room to improve through increased bulk handling activities (currently 60% of volume); and 3) the planned opening of its first store in Kunming, China, and e-commerce business offer longer-term growth opportunities. SSG is strengthening position in the mass market segment. We raise FY15F and FY16F earnings by 5% on higher gross margin expectation. Valuations are below historical and peer average, maintain BUY with higher $0.82 (Prev S$ 0.78) target price.

SPH REIT reported 1Q15 revenue of S$51m (+2% y-o-y) and net property income (NPI) of S$38m (+5%), largely driven by savings in property expenses for utilities, marketing and maintenance. DPU rose 2.9% y-o-y to 1.33Scts, comprising 25% of our FY15 forecasts. Portfolio reversions were healthy at 12.4%, largely stemming from Paragon, where 6% of the mall's NLA achieved 12.5% rental reversions. At current price, SPH REIT offers investors a yield of 5.25%, which is fair, in our opinion.

Malaysia's end-Dec14 palm oil stockpile was 12% below, as output plunged 22% m-o-m due to floods. Palm oil output is expected to rebound 9% m-o-m to 1.492m MT in Jan15, as flood water recedes, but still 1% lower y-o-y. We tweaked Malaysia FY15F palm oil output to 20.1m MT on lower expected FFB yields. We are reviewing our current forecasts of RM2,300/MT and RM2,530/MT for FY15F and FY16F respectively on account of lower Brent prices as well as weaker Ringgit and Rupiah.

Lowrys Farm, a Japanese casual wear fashion brand targeting young working adults, has decided to exit the Singapore market, closing all its eight stores. Incompatible 'climate' and 'fashion taste' led to final decision. While consolidation among retailers seems inevitable, given cost and sales pressures, we believe that Lowrys Farm's complete market exit is a one-off occurrence rather than a harbinger of things to come. However, we believe that the next 1-2 years will be a critical period for landlords, as they begin negotiations with new or replacement tenants. We believe that well-located malls with good operational track record and proactive management will tend to outperform.

Global Logistic Properties has signed a new lease agreement of 20,000 sqm (215,000 sq ft) with Suning Commerce, one of China's largest retailers and ecommerce companies, in Southern China. Suning will use facilities at the park, which is 100% preleased, to cater to e-commerce customers across Southern China.

Keppel veteran Choo Chiau Beng has been appointed M1's chairman and non-executive director. Mr Choo's appointment comes after the death of M1's previous chairman, fellow Keppel veteran Teo Soon Hoe in December last year.

Tigerair Singapore operating statistics for December 2014. For the month of December 2014, Tigerair Singapore recorded a 1.8% y-o-y decline in traffic to 889 million revenue passenger-kilometres (RPK), while capacity decreased by 10.6% to 1,033 million available seatkilometres (ASK). Consequently, y-o-y passenger load factor increased by 7.8 percentage points to 86.1%. The number of passengers carried fell by 5.3% y-o-y to about 468,000. For the 12 months to December 2014, Tigerair Singapore's traffic increased by 8.9% y-o-y to 9.8 billion RPK, while capacity increased by 8.0% to 12.2 billion ASK. Consequently, passenger load factor was 0.7 percentage point higher at 81.0%. The number of passengers carried grew by 7.4% to 5.3 million, compared to 4.9 million in the previous corresponding period.

DeClout has entered into a sale and purchase agreement to acquire 100% shareholding of OSINet Communications for a consideration of approximately S$14.2m to be satisfied through the issuance and allotment of 63m DeClout shares.

OSINet is an Information & Communication Technology (ICT) company specialising in internet broadband and network connectivity, managed services, hosting and data centre services in Singapore. The acquisition allows DeClout to own its own ISP licence to provide end-to-end cloud and managed services.

Financially troubled Technics Oil and Gas is selling its leasehold property at 72 Loyang Way Singapore for S$100m in cash as part of a sales-and-leaseback transaction, in a bid to unlock cash from its assets for its existing businesses and working capital. This comes after its auditor last Friday raised a concern about the group's ability to continue as a going concern.

Business optimism in Singapore tumbled to nearcontractionary levels in the first quarter of 2015 amid mounting concerns over an intensification of global political headwinds and softer regional demand in the externaloriented sector. According to the Singapore Commercial Credit Bureau's (SCCB) latest Business Optimism Index (BOI) study, BOI tumbled from +10.79 percentage points in the fourth quarter of 2014 to +1.11 percentage points in Q1 2015. This marks the second lowest BOI score in two years since Q1 2013 when BOI fell into the contractionary region at -0.82 percentage point. On a year-on-year (y-o-y) basis, overall BOI score fell sharply from +13.13 percentage points in Q1 2014 to +1.11 percentage points in Q1 2015.

US markets ended lower as the continuing selloff in crude pulled down energy shares before the start of corporate earnings. Oil price continued its decline on continued concerns about supply glut even as the UAE said it will stick to its plans to increase output capacity. Meanwhile, the 10-year treasury yield fell 4bps to 1.91% after declining oil price crimp the outlook for inflation and fuelled speculation the Federal Reserve may delay an interest-rate increase. Tiffany & Co. shares fell after the jewellery retailer lowered its annual forecast as sales declined during the holiday season. SanDisk Corp fell after reporting preliminary results below its own estimates. Alcoa Inc. shares gained in late trading after reporting 4Q profit that surpassed analysts' estimates.

Source: DBS

Sheng Siong (OV8)SPHREIT (SK6U)

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