DBS Equity Research: Wired Daily 27 May 2015

kiasutrader

Publish date: Wed, 27 May 2015, 02:34 PM

Silverlake Axis - Too rich valuations, downgrade to FULLY VALUED with revised TP of S$1.08

We downgrade Silverlake Axis to FULLY VALUED with revised TP of S$1.08 (Prev S$1.35). The stock is trading at 18% premium to its global peers, which could disappear going forward in our view. Silverlake Axis is over-reliance on related party revenues. c. 24% of SILV's revenues in FY14 came from related party transactions, which is relatively high. Relatively high operating margins of c.55% versus 20-40% by large global peers, may be difficult to maintain in the long term. In a recent article, SILV was named among Asian companies that may have engaged in irregular financial reporting in the past. In a briefing held on 26^th May, management rejected those allegations while the article has also been taken down.

ISOTeam announced the placement of 9m new shares at S$0.58 per share. The transaction will raise approximately S$5.04m in net proceeds which the Group intends to use to fund its capital expenditures, inorganic business expansion and general working capital.

KTL Global has commenced negotiations to acquire part of the issued and paid-up share capital of a company registered in the Republic of Korea which is engaged in the supply of lifting equipment.

Healthcare firm Singapore O&G (SOG) has launched its initial public offering (IPO) for a listing on the Catalist board of Singapore Exchange at 25 Singapore cents per share. This values the group at S$54.5m post-IPO. Of the 43.6m new shares being offered, 2.2m are being offered to the public while 41.4m are being offered by way of placement. The group plans to use the net proceeds of approximately S$9.2m for investments in healthcare professionals and synergistic businesses, expanding its business operations as well as for working capital purposes.

The decline in Singapore's manufacturing activity worsened in April, with output falling 8.7% compared to the same month a year ago on lower production in the volatile pharmaceutical cluster. This also means that factory activity has contracted for three consecutive months, having fallen 5.5% in March and 3.6% in February. Excluding the volatile biomedical manufacturing cluster, output declined by a lesser 1.9% y-o-y in April. The electronics sector, which accounts for a third of total production, reported that output grew 1.2% y-o-y in April. Growth came from higher export demand in the other electronics modules & components (41.7%), data storage (24.9%) and computer peripherals (18.4%) segments. On a seasonally adjusted month-on month basis, manufacturing output decreased 5.8% in April compared to March. Excluding biomedical manufacturing, output fell 2.2%.

The key 3-month Sibor or Singapore interbank offered rate has fallen almost 20% from the year's high of 1.027% on April 9. On Tuesday the 3-month Sibor, which is used to price home loans and other consumer lending, stood at 0.830%. But this is likely to be a brief respite for home buyers, as economists think the strength of the US dollar is intact, and that when US interest rates are hiked in the second half of this year, as is expected, local interest rates will zip higher again.

The Singapore bond market continues to roar, with new issuances up 20% in the first three weeks of May against the same period last year. It may end the month with S$3 bn worth of issues as investor appetite remains strong amid growing expectations that US interest rates will rise later in the year. But 2015 year-to-date volume has still not caught up with that of last year. Year to May 21, there were 76 issues totalling S$9.08 bn, lower than the S$10.74 bn raised from 66 deals in the same period last year as the first two months of 2015 had a slow start due to volatile market conditions.

In US, Dow dropped 190pts on a strengthening US dollar. The dollar rose sharply against the euro and other currencies following better than expected US economic data and worries over increasingly cash-short Greece's talks with creditors. Yesterday's economic data surprised modestly on the upside. New home sales rose by 7-odd percent over March and 26% over one year ago. Durable goods orders were stronger than expected.

Source: DBS

Silverlake Axis (5CP)ISOTeam (5WF)KTL Global (EB7)

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