Towards Financial Freedom
DBS Equity Research: Wired Daily 31 Mar 2015
Super Group - Positives priced in, for now. Downgrade to HOLD, TP of S$1.46
We find that valuations for Super Group have tracked gross margin trends closely and are a loose indicator of Super's valuation. Super's gross margins are in turn driven by Robusta coffee prices. Coffee prices have fallen 14% from US$2,100/ton since 2H November 2014 on better supply expectations. We have raised our gross margin assumptions for FY15F/FY16F from 35.5% to 36% each. This results in 11%/9% increases to FY15F/FY16F earnings. Super's share price has risen by 24% since our last note. Stock is now trading at our target valuation of 22x blended FY15F/16F PE after earnings revision. We believe margin positives are already priced in unless we see even lower coffee prices. Downgrade to HOLD, TP of S$1.46 (Prev S$ 1.38).
China on Monday relaxed rules on downpayment requirements and housing tax for home buyers, as policymakers try to revive momentum in the slowing property market that poses risks to overall economic growth. The PBOC said on its website that the minimum downpayment requirement for buyers of second homes has been lowered to 40% from 60%. Separately, the finance ministry announced that homeowners who have held a property for at least two years (previously 5 years) will be exempt from paying business taxes. Further, the central bank said first-time home buyers who borrow from the housing provident fund need to make a minimum down payment of 20%. Second-home buyers using the same facility will have to pay a minimum down payment of 30%. Both ratios were lowered from the previous levels. The move is positive for property companies with China exposure such as Capitaland, Frasers Centrepoint Limited and Yanlord.
A-REIT has announced the acquisition of The Kendall at 50 Science Park Road (Science Park II) for S$112m. The vendor is its sponsor, Ascendas Group. The Kendall is a 6-storey multitenanted property with an NLA of 16,824 sqm and sits on a land lease with 64 years remaining. The property is also fairly young at five years of age. Tenants are mainly in the R&D industry and suits A-REIT's focus on growing exposure in high value-added industries. The acquisition is accretive to earnings, with first year yield of 6.8%, and compares favourably to the current implied yield of c.5.7%. Maintain BUY, TP revised to S$2.65 (Prev S$ 2.62). We continue to like A-REIT for its consistent delivery and market-leading position in the business park space.
Sembcorp Marine (SMM) has entered into an exclusive letter of intent (LOI) with Heerema Offshore Services B.V. for the engineering and construction of a new semi-submersible crane vessel (NSCV). When completed, NSCV will be the largest crane vessel in the world with a vessel length of 214m and a width of 97.5m. While newbuild price is not revealed, based on industry sources, the vessel could cost over US$1bn in total. Order flow has been slow and SMM has yet secured any firm contract YTD. We have assumed S$3bn order win for 2015 in our model. Maintain HOLD and TP of S$2.89.
Global Logistic Properties has signed three new lease agreements totalling approximately 50,000 sqm (538,000 sq ft) in Greater Tokyo. The customers are using the facilities to support distribution demand driven by rising domestic consumption.
Rotary Engineering has secured a main construction contract of about $25m from an oil major for the construction of its lubricant plant in Jurong, Singapore. This is the third lubricant project undertaken by Rotary and is expected to complete by April 2016.
Sino Construction has entered into share subscription agreements with 4 individuals to subscribe a total of 262m new shares at S$0.0248 for each Subscription Share. The Subscription Price represents a discount of approximately 9.8% to the last volume weighted average price. The net proceeds of approximately S$6.5m will be mainly used to fund modular power plants.
Versalink Holdings had secured several new orders worth a total of RM28.7m since the beginning of the calendar year 2015. Out of these orders, RM17.7m was contributed by project sales from the local Malaysian market, while the rest of the RM11m came from export sales for the international market.
The Monetary Authority of Singapore (MAS) is proposing to launch the Singapore Savings Bonds (SSB) in the second half of this year. The proposed bonds offer an unusual combination of features. The 10-year bonds may be redeemed at any time. Their coupon will step up every year such that the to-date average interest of the bond at any time will match a Singapore Government Security that was bought at the start of the bond and that matures in the current year. Only individual investors may buy the nontradable bonds, which will be sold in S$500 denominations, with a participation cap yet to be determined.
US stocks rallied amid corporate mergers and optimism central banks will support global growth. FED Chair Janet Yellen said last week the central bank will probably raise rates this year with subsequent increases taking place gradually, without following a predictable path. Meanwhile, China's central bank chief said the government can do more to support growth in the world's second-largest economy.
Source: DBS
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