Towards Financial Freedom
DBS Equity Research: Wired Daily 14 Jan 2015
Singapore Land Transport - Smoother ride on cheaper oil. Preferred pick SMRT for stronger earnings recovery; upgrade ComfortDelgro to BUY
SPH - 1Q15 results weak on lower ads contribution. Maintain HOLD, TP: S$4.01.
With the recent fall in oil price to below US$50/bbl, the market seems to be unexcited of the positive effects on land transport operators. Comfort Delgro(CD) and SMRT are up by only 1% to 3%, though oil price has dropped by close to 50% in the past three months. Energy and fuel accounts for 9% to 14% of land transport operators' costs. While we initially had reservations on the extend of the benefits - noting the stronger USD and potentially lower fare increases, the further slump in oil should more than offset the mitigating factors.
We revised our oil price assumption to US$80/70 per bbl for 2015/2016. Correspondingly, we also adjusted for a stronger USD (vs SGD) and assumed a lower rate of fare increase to 2%, from 3%, in 2015. The resultant net impact is still positive and our forecasts are raised by 4% to 9% for FY15F/16F. Further declines in oil will provide further upside to our forecasts. We estimate that every US$5/bbl change in oil price could translate into 3% and 6% increase in earnings for CD (FY16F) and SMRT (FY17F) respectively, all else being constant. We upgrade CD to BUY, raised target price to S$2.93 (Prev S$ 2.71) on the back of higher net profit forecasts. We project earnings growth of 7%/15% in FY15F/16F. Our current top pick is still SMRT (BUY, TP: S$1.90, (Prev S$ 1.86)) given our expectations for it to post strong earnings recovery in this FY, after three years of decline.
SPH reported weak 1Q15 results. Recurring earnings was down by 12.4% to S$102.3m, largely due to a drop in contribution from its Newspaper and Magazine business. Property rental revenue posts modest growth. Going forward, print ads is expected to remain lethargic on uncertain economy. Fortunately, SPH's strong cash hoard remains a key attraction. We continue to expect DPS of 21 Scts for FY15F, similar to last year. This implies a yield of c.5.1%. Maintain HOLD, TP: S$4.01.
SATShas signed an MOU with Swiss WorldCargo and Cargologic AG to enhance cargo handling and information services. Swiss WorldCargo is the airfreight division of Swiss International Air Lines and Cargologic AG is its partner ground handling company. The MOU outlines future collaboration in areas including quality, e-initiatives, temperature-controlled transport management and specialized handling solutions. The MOU is preliminary and therefore we do not expect immediate impact to SATS.However should the MOU evolve into a formal arrangement for mutual exchange of resources, this could lead to higher productivity and more efficient operations in the future.
ST Engineering announced that its aerospace arm has secured new contracts worth $310m in the fourth quarter (4Q) of 2014. These new orders involve projects ranging from airframe, component and engine maintenance, to VIP completions and engine wash.
Global Logistic Properties has leased 14,000 sqm (150,000 sq ft) to one of the world's largest automotive companies in Southern Brazil. The customer is expanding to meet increasing demand for auto parts from its authorized dealers in the region. This lease marks the first collaboration between the customer and GLP.
King Wan Corporation has secured four new mechanical and electrical (M&E) projects in Singapore during the period from November 2014 to December 2014, worth a total of S$43.3m. These projects will commence within the next six months and are scheduled to be completed by 2018. Order book now stands at S$209m, with contracts lasting to 2018.
Ying Li announced that the Group has signed a Memorandum of Understanding (MOU) with Chongqing City Shuangfu New Area Administrative Committee and Chongqing Hardware & Electrical Industry Association Alliance (CHEIAA) to develop a new mixed-development property in Jiangjin District with a one-stop hardware and electrical appliances hub. Project is expected to kick-start in first quarter of 2015; construction to be completed in phases over 2-3 years.
YuuZoo Corporation has entered into a joint venture agreement with Hongkong-based Hamon Private Equity to develop a targeted social e-commerce network for investors, offering a wide range of financial products and services. The joint venture targets the fast-growing Asian investing community, in particular Chinese investors.
From 19 January 2015, the minimum lot size in the securities market will be reduced from 1,000 to 100. With smaller board lots, higher-priced stocks will become more affordable to investors. To reach out to new, active and inactive investors and to ignite their interest in investing, SGX announced that it will launch a campaign via public roadshows, investment fairs and digital marketing to educate the public on the benefits of smaller board lots.
The Urban Redevelopment Authority (URA) will not approve any new residential projects in a 14-hectare stretch of Geylang from Lorong 4 to Lorong 22 under a proposed rezoning exercise. URA is proposing to re-zone the section from the existing residential/institution use to the newly minted commercial, institution use group. The maximum plot ratio (ratio of maximum gross floor area to land area) will remain at 2.8. The rezoning is to better manage issues arising from conflicting uses in the locale.
The resale prices of private condos was up 0.1% in December, according to flash estimates of SRX Property. The rise in resale prices from a month ago was driven mainly by transactions in suburban areas (Outside Central Region or OCR), which posted a price rebound of 0.5% last month, after a sharp 2% decline in November. With the exception of this region, transactions in the city centre (Core Central Region or CCR) and city fringe (Rest of Central Region or RCR) registered price declines of 1.1% and 1.2%, respectively.
The World Bank lowered its global growth forecast for 2015 and next year due to disappointing economic prospects in the euro zone, Japan and some major emerging economies that offset the benefit of lower oil prices. It predicted the global economy would grow 3% this year, below a forecast of 3.4% made in June, according to its twice-yearly Global Economic Prospects report. World GDP growth will reach 3.3% in 2016, as opposed to a June forecast of 3.5%, before dipping to 3.2% in 2017, it said.
Source: DBS
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