DBS Equity Research: Wired Daily 8 April 2015

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Publish date: Thu, 09 Apr 2015, 10:26 AM

Singtel - To buy cyber security company Trustwave for US$810m

Singtel will acquire a 98% equity interest in US-based Trustwave, a leading specialist in managed security services at en enterprise value of US$850m (~S$1.15bn). Trustwave Chairman and CEO, Robert J McCullen, will hold the balance 2% equity interest. SingTel will be paying 3.9x 2015 revenue which looks reasonable compared to average of over 6x for acquisitions made in the space by other companies. SingTel expects the transaction to be EBITDA accretive in the second year and EPS accretive in the third year.

Trustwave is the largest independent managed security services provider in North America with presence in Europe and Asia Pacific. It serves three main areas - threat management, vulnerability management and compliance management. Delivered through the unified cloud-based TrustKeeper® platform, Trustwave's services help customers from a wide range of industries protect their IT infrastructure, applications and networks and respond to cyber threats. According to Gartner, Cyber Security market size was US$13.9bn in 2014 and is expected to grow at 15% CAGR over 2014-18. Trustwave wants to increase its Asia-Pac business riding on Singtel's client base while Singtel gets to invest in a growth company in the digital space.

We continue to see value in Wing Tai at 0.54x P/Bk NAV and 0.6x P/RNAV but remain cautious after its eye-catching share price rally. We wonder if the stock is rising for the right reasons. We believe that the rumoured de-listing of the company will not happen as: 1) High cost of delisting deters owners; 2) De-listing to avoid QC charges for Nouvel 18 is not a straightforward route; 3) Block sale of its unsold inventory? A plausible catalyst is the potential block-sale of its unsold property units at Le Nouvel Ardmore and/or Nouvel 18 to private equity funds/investors.

Recent media reports and market talk have centred on the potential reversal of property curbs. While we are of the view that the Government will relax measures sometime in 2015, the timing however, is not now. Why? 1) Prices remain elevated. Prices dipping by 6% from the peak in 2013 is not likely to result in an early intervention by the authorities. We believe that any policy actions will likely come towards the end of 2015 and targeted towards the mass market where the pressure is coming from increased supply completion. 2) Earlier than expected policy tweaks? However, any potential earlier lifting of curbs is likely to hinge on (i) significant price correction (c.7-10% in one year) or (ii) significant stress in system (buyers affordability) due to unexpected rise in interest rates.

OCBCis poised to divest a portfolio of more than 30 shophouses and strata shop units across Singapore which market watchers estimate could be worth around S$150-200m. The shophouses are in locations such as Havelock, Geylang, Upper Thomson and Upper Serangoon roads, while the strata shop units are in places such as Jalan Besar Plaza, Hoa Nam Building along Foch Road, Balestier Point, Sixth Avenue Centre and Upper Serangoon Shopping Centre. The bank reviews its overall property holdings from time to time, for opportunities to unlock value.

Ntegrator has been awarded a S$25.6m contract from a local provider of fibre infrastructure. This contract is for a period of three years from March 30, 2015 to March 29, 2018, and involves the supply of services for the installation, operation and maintenance of the Next Gen NBN in Singapore. Including the latest contract, the Group has won a total of eight contracts in the year-to-date, including customers from Myanmar, Singapore and Vietnam. This brings the cumulative value of the Group's order wins in 2015 to approximately S$50.8m.

With headwinds continuing to exert pressure on the local tourism industry, the Singapore Tourism Board (STB) is launching a S$20m global marketing campaign to boost visitors arrivals, in a year when arrivals and tourist spend are both expected to post flat-to-modest growth. Visitor arrivals are expected to languish in the 15.1-15.5 million range this year, and tourism receipts, at S$23.5-24bn. These figures represent a far more muted pace of growth than in past years. In the decade between 2005 and last year, visitor numbers surged 70% to 15.1 million, and tourism revenue more than doubled to S$23.6bn. Already, for the first two months of this year, there has been a 5% decline in arrivals, translating to 2.4 million visitors.

Private equity (PE) deals inked in the Asia-Pacific region hit an all-time high of US$81 bn last year, topping the previous mark of US$77 bn in 2007, according to Bain & Company. The number of deals grew 14% to 742, and average deal size expanded to US$110m, from US$77m in 2013. Singapore investment company Temasek Holdings claimed the region's biggest deal with its US$5.7 bn investment for a near 25% stake in Hong Kong's health and beauty retailer AS Watson Group. Bain estimated that in the region, there are some US$132 bn of capital raised but not yet invested, that may translate to 2.3 years of future investments.

US indices gave up early session gains to end lower amid declines in consumer and utility shares ahead of the release of Federal Reserve meeting minutes and the start of the results season on Wednesday. Earnings season unofficially kicks off when Alcoa Inc. reports quarterly results. Profits for S&P 500 companies probably fell 5.8% in CY1Q15, according to analysts' estimates compiled by Bloomberg. They also project a slump in the next two quarters.

Source: DBS

Singtel (Z74)Wing Tai (W05)OCBC Bank (O39)Ntegrator Intl (5HC)

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