Towards Financial Freedom
DBS Equity Research: Wired Daily 16 June 2015
Singapore Travel & Hospitality - What if MERS hits Singapore?
Singapore Property - YTD home sales volume down 13% y-o-y. Picks: Capitaland, Frasers Centrepoint Ltd and UOL
If MERS appears in Singapore, we expect travel and hospitality stocks such as the airlines SIA and Tigerair, hospitality trusts and gaming stocks such as Genting Singapore to be first hit. A SARS-like situation would see wider impact on retail, F&B and even land transport stocks. Though the risk of MERS turning into a SARS-like situation is very low, safe haven stocks would include healthcare and related stocks. Drawing from 2003, stocks that performed well include healthcare and healthcare related stocks, whilst telco stocks proved to be resilient. Notably, the badly affected stocks in travel and hospitality and consumer did rebound post-SARS once the situation was under control.
After a bumper performance in Apr-15 from several major launches, home sales normalised in May-15, dropping 31% m-o-m to 845 units. The only major launch in May-15 was the 480-unit Westwood Residences EC at Jurong West, which moved 118 units, bringing total EC sales for the month to 207 units. YTD, sales volume was down 13% y-oy. Two more EC launches in the pipeline; sales performance could differ in our view. Buyers are expected to remain pricesensitive. Recent price declines have brought average P/NAVs to 0.85x, which we believe is attractive. Our picks for property developers are Capitaland, Frasers Centrepoint Ltd and UOL.
Midas announced that its joint venture Nanjing SR Puzhen Rail Transport won three train contracts worth RMB2.1bn, which are to be delivered in 2016 and 2017. These include two metro supply contracts for the Hefei Rail Transit Line 2 and Shanghai Metro Line 8 Phase 3 projects, as well as a tram supply contract for Suzhou National New & Hi-Tech Industrial Development Zone Tramline 2. This is positive for Midas as it will help contribute at the JV contribution line, as well as result in orders for more aluminium alloy extrusion train profiles and train parts for its core business. We maintain our target price of S$0.49 and BUY recommendation.
Mapletree Greater China Commercial Trust (MAGIC) announced the acquisition of Sandhill Plaza, a business park property for RMB1,888.1m (S$412.2m) and on an estimated proforma FY15 NPI yield of 3.9%. However, adjusting for the lower effective occupancy of 73% in FY15 versus 96.2% currently, and expected positive rental reversions (passing rents are 10% below comparable properties), we estimate that the property was purchased on a FY16F NPI yield of between 5-5.5%. Maintain BUY but target price lowered to S$1.12 (Prev S$ 1.15) on account of higher beta on increased China exposure.
In May 2015, Singapore Airlines'systemwide passenger carriage decreased 4.2% against last year, with a 2.6% reduction in capacity. Consequently, passenger load factor (PLF) dropped 1.3 percentage points to 73.6%. PLF improved for East Asia due to stronger demand, while PLF improved for South West Pacific primarily on the back of capacity consolidation. On the other hand, PLF on Americas and Europe routes declined due to weaker passenger demand. Overall cargo load factor was 1.3 percentage points lower as cargo traffic declined 1.0% against 1.0% growth in capacity.
KrisEnergy announced a S$169.5m rights issue through the issuance of 440.1m new shares on the basis of 42 rights shares for every 100 existing shares, to support its strategy of growing oil and gas production in its existing fields, as well as near-term development projects. The rights shares will be issued at S$0.385 each, representing a discount of approximately 13.5% to the last closing price. KrisEnergy is developing the Nong Yao and Wassana oil fields in the Gulf of Thailand, both of which are expected to commence production in the second half of this year. It is also targeting to drill two development wells beginning in the fourth quarter of this year to increase production in the onshore Bangora gas field in Bangladesh.
JEP Holdings has recently entered into a non-binding memorandum of understanding to explore the possibility of acquiring a trading company that markets cutting tools including indexable carbide inserts, tool holders, milling cutters, boring bars and drill bits to the aerospace, mould & die and oil and gas industries. The parties are currently in the process of preliminary due diligence and negotiations on the terms of the proposed acquisition.
Singapore's April retail sales rose 5% y-o-y, lifted by motor vehicles sales growth (+56.4%), with the total retail sales value for April reaching S$3.3bn compared to S$3.1bn last year. Ex-vehicles, sales for the month were down 0.7%, this according to the Department of Statistics. Elecommunications apparatus & computers, department stores and watches & jewellery also posted higher y-o-y sales. Meanwhile, sales from petrol service stations, F&B and recreational goods fell on a y-o-y basis.
Singapore's labour market remained tight in the first quarter of 2015 as total employment shrank for the first time in five years. The overall unemployment rate fell to 1.8% amid fewer redundancies, down slightly from 1.9% three months ago. The unemployment rate fell over the quarter for residents (Singaporeans and permanent residents) from 2.7% to 2.5%; for citizens, the fall was from 2.7% to 2.6%.Come April 1, 2017, 2G users, who represent around 3% of Singapore's mobile phone connections, will have to upgrade to a 3G or 4G connection as the Infocomm Development Authority of Singapore (IDA) has approved a request by the three mobile network operators (MNOs) - M1, Singtel and StarHub Mobile - to close their 2G networks.
US stocks fell after weekend negotiations between Greece and its creditors broke down and factory data came in weaker-than-forecast. Greek equities fell and the country's bond yields jumped. The next attempt to reach a deal is Thursday. The 2-day FOMC meeting starts later tonight. Interest rates are expected to stay unchanged while improving economic reports have pushed the probability for a September increase to 5%, this according to data compiled by Bloomberg. Investors will be assessing Janet Yellen's post FOMC press conference.
Source: DBS
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