DBS Equity Research: Wired Daily 23 Oct 2015

kiasutrader

Publish date: Fri, 23 Oct 2015, 12:06 PM

Keppel's 3Q15 results in line. SMM was a big miss, due largely to reversal of profits for five deferred jackups, associate losses and mark-to-market adjustment for its Cosco shares.

Keppel Corp's 3Q15 results were in line but SembCorp Marine's3Q15 was a big miss with net profit tumbling over 70% due largely to reversal of profits for five deferred jackups, associate losses and mark-to-market adjustment for its Cosco shares. We maintain our cautious stance on the rigbuilders. Our earnings, TP and recommendation are under review. SMM's result disappointment would likely trigger sell-off, and this could have a spillover effect on Keppel as well.

Keppel Corp's 3Q15 results were in line. Weak O&M performance was offset by the strong property earnings. Keppel reported net profit of S$363m in 3Q15, bringing 9M15 bottomline to S$1.1bn, which made up c.76% of our full-year estimates. O&M net profit dropped 34% y-o-y and 4% q-o-q to S$166m due to revenue decline resulted from project deferments and margin contraction of 2.7ppt to 12%. Infrastructure segment also saw a 11% decrease in net profit to S$34m. Property segment was the silver lining, registering net profit growth of 11% y-o-y and 40% q-o-q led by promising overseas property sales, predominantly in China and Vietnam. Management cautions the challenging operating environment in view of the macro headwinds and low oil prices. Order book dwindled from S$11bn as of end Jun to S$10bn currently, with a dismal YTD wins of S$1.7bn. More updates to follow.

SembCorp Marine's (SMM) net profit plunged 76% y-o-y and 71% q-o-q to a dismal S$32m, in a seemingly kitchen sinking quarter as SMM reversed prior profit recognised for the five deferred jackup rigs to Oro Negro and Perisai. EBIT margin shrunk 5.6ppt q-o-q to 6.6%. Shipping repair revenue also disappoints, falling 17% y-o-y and 21% q-o-q. In addition, SMM booked S$17m impairment for mark-tomarket adjustment of its shareholding in Cosco Corp. Net gearing rose from 0.5x as of end Jun to 0.6x. Order book inched up by S$0.7bn to S$11.6bn, thanks to the S$1.4bn fixed platform contract secured in the quarter. More updates to follow.

Singapore Exchange reported 1Q16 net profit of S$99m (+28% y-o-y); revenue +30% to S$220m, in line. A 5-Sct DPS was declared. Securities revenue increased 14% y-o-y to S$55.9m and accounted for 25% of total revenue, compared to 29% in 1Q15. Derivatives revenue increased 69% to S$90.9m, and now accounts for 41% (32% in 1Q15) of total revenue. Outlook for Securities remains challenging. SGX is diversifying its business mix to reduce reliance on Derivatives. Maintain HOLD, TP S$7.80.

Tigerair reported its 2Q FYE Mar16 results this morning that were slightly below our expectatio006Es, with a net loss of S$12.8m (-93% y-o-y) versus our expectations of break-even earnings. The miss was primarily due to higher costs, especially maintenance charges. At half-time, Tigerair has booked revenue of S$336.2m (+5% y-o-y) and an operating loss of S$9.9m, which is much improved from a loss of S$41.7m a year ago. Looking ahead into the second half of its financial year, we expect much lower all-in fuel costs to drive earnings recovery for the carrier.

Mapletree Commercial Trust(MCT) offers investors exposure to resilient retail and office assets amid industry and economic headwinds. MCT owns VivoCity (c.65% of NPI), Singapore's largest mall, which has by and large bucked Singapore's overall retail sales slowdown. It is one of the best performing malls in Singapore by virtue of its popularity with families and close proximity to Sentosa. In addition, the low level of office lease expiries until FY17/18 minimises potential volatility in rents and occupancy when a large supply of office space enters the CBD in the next 1-2 years. Upgrade to BUY, TP S$1.40. At current price, the stock offers 6.2% dividend yield for FY15/16, which is attractive in our view, and total potential returns of 12%.

Property conversions are expected to cause headwinds to occupancy rates for Cambridge Industrial Trust (CREIT). Property conversions (from single-tenanted properties to multi-tenanted ones when the leases expire over FY15-16F account for c.18.6% of revenues. This may mean downside to top line in the near term, given the expected loss of property efficiency and higher vacancy rates when these conversions take place. As such, we forecast CREIT to deliver c.1% CAGR in DPU over FY15-17F. With gearing at 37.2%, we believe its capacity for further acquisitions is likely to be capped and thus we have not priced in any further acquisitions in our forecast. Maintain HOLD call with TP of S$0.61.

While revenue growth for Interplex Holdingsis projected to be fairly modest due to a mixed outlook for its various segments, we expect greater operational efficiencies to lift net margins from 4.5% in FY15 to 6.1% in FY18, driving core net earnings at 14.9% CAGR. At just 5.9x FY16 PE, we rate Interplex Holdings a BUY with 19% upside to TP of $0.83, based on 7x FY16 PE. A decent prospective yield of 5.1% is also on offer.

Sim Lian Group is expected to record a significant reduction in profit before income tax and a net loss for 1Q16, as compared with the same period in 1Q15, mainly attributable to loss on foreign exchange.

In property news, prices and rentals of industrial space continued to soften in the third quarter of 2015, pressured by a weak manufacturing outlook and weak exports, on top of an existing supply glut. According to JTC statistics released yesterday, overall industrial prices fell 0.3% over the preceding quarter and the previous year. Rents fell 0.8% over Q2, and fell 1.6% over the past year. Occupancy rates dipped 0.2 percentage point over the preceding quarter, and 0.1 percentage point over the preceding year to 90.8% in Q3.

US stocks rallied after ECB President Mario Draghi said policy makers will investigate fresh stimulus measures to thwart downside risks to the growth and inflation outlooks, which ignited optimism of more QE before year-end. Strong corporate earnings from bellwethers such as McDonald's Corp, Ebay, and Dow Chemical also underpinned sentiment. Of the S&P500 companies that have reported earnings so far, 44% have topped sales estimates and 74% have beaten profit projections, this according to data compiled by Bloomberg. After the bell, Microsoft and Amazon reported earnings that beat consensus estimates.

Source: DBS

Keppel Corp (BN4)Sembcorp Marine (S51)SGX (S68)Mapletree PanAsia Com Tr (N2IU)ESR-LOGOS REIT (J91U)

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