DBS Equity Research: Wired Daily 29 Oct 2015

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Publish date: Thu, 29 Oct 2015, 02:37 PM

OSIM International - Weak outlook; downgrade to FULLY VALUED, TP cut to S$1.22

SMRT - Cut to FULLY VALUED; market has prematurely priced in rail reforms

3Q15 earnings for OSIM International were below expectation on weak topline and higher costs. We expect less positive outlook on weak demand. We have cut our FY15-17F earnings by 24%-29%. Downgrade to FULLY VALUED, TP cut to S$1.22 (Prev S$1.61).

We cut recommendation for SMRT to FULLY VALUED, TP S$1.24 as market has prematurely priced in rail reforms, in our view. We see limited upside from current level. 2Q16 results were in line; operating loss of $4m from rail ops, while buses turned profitable on lower diesel costs and higher ridership. Rail-related maintenance expense is expected to increase over the next few quarters.

3Q15 earnings for OCBC were dented by lower insurance income contribution, partially offset by higher trading income. Net interest margin (NIM) was flattish while loans were sluggish. Provisions and non-performing loans (NPLs) inched up as expected; regional operations stayed fairly robust. Slower earnings growth expected ahead; traction will depend on the recovery of regional economies. Maintain BUY, S$10.00 TP.

Mapletree Greater China Commercial Trust (MAGIC) delivered another pleasing set of results with 2Q16 DPU coming in at 1.808 Scts (+12.6% y-oy). The results were in line with expectations and represented 25% of our FY16F DPU. We maintain our BUY call with a revised TP of S$1.11 (Prev S$1.12). While acknowledging the concerns over the slowdown in the HK retail market, we believe this is overplayed near term, given the delivery of a 12.6% y-o-y increase in 2Q16 DPU to 1.808Scts, which was in line with expectations. Moreover, this risk is accounted for by the 17% discount to MAGIC's NAV per share of S$1.192.

CapitaLand Commercial Trust reported 3Q15 DPU of 2.14Scts (+2.4% y-o-y), in line with our estimates. Despite an uncertain office market outlook in 2016, CCT offers investors earnings certainty in the form of additional contribution from CapitaGreen. This should more than offset the risk of negative rental reversions and lower occupancies for the rest of the portfolio in the next few years. Upside will come from acquisitions given its low gearing of 30%. Looking ahead, we expect CCT to deliver 2-year DPU CAGR of 3.7%, driven by new contribution from CapitaGreen. Maintain BUY, TP of S$1.48. We believe that dividend yield of 6.2-6.5% is attractive given its large market cap and trading liquidity.

We believe the steep share price correction for Japfa YTD has more than priced-in Day Old Chicks (DOC) oversupply in Indonesia and softer raw milk prices in China. We expect Japfa's 3Q15 earnings to show a sequential improvement, given higher feed prices and relatively resilient broiler and DOC prices despite steeper translation FX losses from subsidiary Japfa Comfeed's US$225m bonds. We expect 3Q15 EBITDA to come in between US$70.9-76.0m (+20-28% y-o-y) and earnings (ex. fair value changes in biological assets) of US$7.4-10.1m (16-38% lower y-o-y). Maintain BUY,TP is S$0.46.

Koh Brothers Group has secured a S$1.12 bn project from Changi Airport Group (CAG), through an integrated 30:70 joint venture (JV) with Samsung C&T Corporation, for development works to effect three-runway operations at Changi Airport. With Koh Brothers' share of the project, its construction order book will increase to S$632m.

Singapore's consumer confidence remained on the downtrend for the second straight month in October, according to a monthly survey by ANZ and Australia-based market research firm Roy Morgan Research. The ANZ-Roy Morgan Singapore Consumer Confidence Index for October slipped 4.6 points month on month to 125, following a 0.9- point month-on-month drop in September. But the index remains above its long-term average of 123.5 and is 4.8 points higher than it was a year ago.

US stocks rose as the Federal Reserve's signal that it may raise interest rates as soon as December, which sent financial and commodities shares higher. Energy shares rose as oil price rebounded strongly.The economy is still expanding at a "moderate" pace and labor market indicators show slack has diminished since early this year, Fed officials said as they left interest rates unchanged. The Fed removed a line from September's statement saying that global economic and financial developments "may restrain economic activity somewhat," saying only that the central bank is monitoring the international situation.

Source: DBS

OCBC Bank (O39)Mapletree NAC Tr (RW0U)Japfa (UD2)Koh Bros (K75)

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