Towards Financial Freedom
DBS Equity Research: Wired Daily 29 June 2015
UOB - Conservatism prevails. Maintain HOLD call but target price raised to S$25.50
Stocks are set the start the week lower as the possibility of "Grexit" takes a big spike up over the weekend. First, Greece has call for a referendum to be held this weekend whereby the people will decide whether they want to accept the bailout terms of the creditors so as to unlock the bailout funds and remain in the Eurozone. Next, Greece has imposed capital controls to prevent a rout on banks after the ECB cut emergency funds. The banks remain closed at least for a week until after the referendum.
On a more positive note, PBOC announced Friday it would cut 1-year lending rate by 25bps to 4.85% and 1-year deposit rate by 25bps to 2%, effective 28 Jun, and also reduce RRR for qualified lenders by 50bps. The rate cuts are aimed at reducing funding cost for the real economy and financial institutions, and to stabilize economic growth during economic restructuring.
Regional indices have started the week more than 1% lower. Expect the 3270 support level for the STI to be tested. This s also a hectic week for US economic data releases that culminates with the closely watched June job numbers scheduled for release on Thursday. Consensus expects a 227k (previous month 280k) change to non-farm payrolls with the unemployment rate dipping to 5.4% (previous month 5.5%).
UOB has been known for its conservative growth but we believe the market may have overlooked the lack of its fee income differentiation as well as Greater China presence. We believe over time, regionalisation beyond ASEAN would need to improve to prompt a re-rating for the bank. In addition, a stronger traction in non-interest income away from loan-related activities could add a re-rating sentiment. We maintain our HOLD call but target price raised to S$25.50 (9% upside) (Prev S$ 23.10).
Ascott Residence Trust (ART) announced the acquisition of three serviced residences and four rental housing properties in Australia and Japan for S$298m (inclusive of associated debt), on an estimated FY15 EBITDA yield of c.5.5%. We are positive on the transaction as it provides exposure to the growing Melbourne hospitality market, where RevPAR is projected to increase by 7.3% in 2015. We also like the Japan hospitality market exposure which will benefit from rising tourist arrivals (up 45% y-o-y for 5M15). Given the c.S$100m investable funds in hand and ART yet to fully benefit from the acquisitions made last year, we believe ART's earnings remain in an up cycle. We reiterate our BUY call and TP of S$1.34.
SIA Engineering announced the renewal of its Services Agreement with SilkAir. The new agreement covers a broad spectrum of maintenance, repair and overhaul (MRO) and fleet management services for SilkAir's fleet of A319/A320 aircraft. The agreement is firm for five years, with a one-year extension option. The total value of the contract is $197m.
mm2 Asia has entered into a convertible note subscription agreement to issue up to S$2.875m in aggregate principal amount of convertible notes due 30 June 2017 with Phillip Asia Pacific Opportunity Fund Ltd (PAPOF). PAPOF currently holds 9.315% of the issued share capital of mm2 Asia. The Notes will not be listed and quoted on Catalist or any other exchange. The conversion price of S$0.4892 is 112.5% of the average volume-weighted average price for the previous 15 trading days prior to, but excluding, 27 June 2015. mm2 Asia intends to use 100% of the net proceeds of the proposed convertible notes issue for investment or acquisition purposes.
Otto Marine secures new contracts worth US$131m so far in Q2FY2015. The substantial increase in new chartering contracts was attributable to the Group's strategy to improve the utilization rate of the fleet, in view of the potential cost that idle vessels will incur. Utilization rate for the Group's chartering business has improved for Q2FY2015 against the last few quarters.
Lippo Malls Indonesia Retail Trust (LMIR Trust) has entered into agreements to acquire Lippo Plaza Batu, a three-level (including one basement level) retail mall with a net lettable area of 12,324 sq m, and Palembang Icon, a five-level (including one basement level) retail mall and a sports centre with a net lettable area of 35,797 sq m, located in the city of Palembang, South Sumatera, Indonesia. The total cost of the acquisitions is estimated to be approximately S$110.8m, to be financed by issue of new units and cash.
Tianfang Hospitality Management Pte is planning an initial public offering for a trust backed by three hotels in China that could raise about S$500m. The Singapore listing could take place as early as September, according to sources. The real estate investment trust's portfolio consists of the Ritz-Carlton Hotel and Tianmu Hot Spring Resort Hotel in the northern city of Tianjin, as well as the InterContinental Sanya Haitang Bay Resort Hotel on tropical Hainan island.
Singapore's manufacturing sector contracted for the fourth straight month in May, with industrial output falling 2.3% yo-y through broad-based declines in all clusters, save chemicals. While still in negative territory, the latest factory output reading marked an improvement from April's sharp 9.1% drop, revised from an earlier estimate of an 8.7% decline. It was also better than consensus expectation of a 2.6% drop. Excluding biomedical output, which fell 2.6% in May but was still a bounce from April's 29.4% plunge, industrial production would have contracted 2.2%. After adjusting for seasonal factors, industrial production went up 2.4% m-o-m in May. Excluding biomedical manufacturing, output would have grown 1.1%.
In property news, JTC Corporation awarded the tender for an industrial site at Tampines Industrial Drive (Plot 4) to Sim Lian Construction, the highest tenderer, at S$5.9m. The tender price works out to S$68.85 per square foot per plot ratio (psf ppr) - about 12% more than the second-highest bidder, Precise Development, who put in a price of S$5.28m (or S$61.62 psf ppr). The tender only attracted three bids.
Source: DBS
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