DBS Equity Research: Wired Daily 3 Nov 2015

kiasutrader

Publish date: Tue, 03 Nov 2015, 02:19 PM

Internet of Things & Smart Cities - Internet of things (IoT) will revolutionise businesses, like the Internet in the 1990s. Smart city programs will accelerate IoT adoption in Asia

NOL - Record low freight rates drag down earnings. Downgrade to HOLD with lower TP of S$1.00

Expect a rebound for the STI after 5 straight sessions of losses. The rebound is in-line with our expectation for the index to be range bound from 2950-3050 over the next 2 weeks. Within this 100pt range, we also observe resistance point at 3035. In US stocks posted good gains led by technology stocks as companies from Amazon.com Inc., Microsoft Corp. and Google parent Alphabet Inc. posted sales and profits that beat analyst estimates.

Internet of things (IoT) will revolutionise businesses, like the Internet in the 1990s. Smart city programs will accelerate IoT adoption in Asia. IoT will help product companies to transform into service companies. The first wave of Information Technology (IT) in the 1960s and 70s automated the value chain of enterprises. The second wave which was the Internet in the 1990s led to global supply chains. The third wave of IoT is creating smart, connected products. Service (not hardware) companies will grab over 80% of IoT spending. The lion's share of IoT spending will come from businesses with consumers paying < 25%.

In terms of stock picks, we like ST Engineering for its potential to secure contracts from Smart Nation project. Keppel DC REIT will benefit from demand for data centers. 800 Super, being one of the biggest players in waste management services, is poised to benefit from the government's drive towards automation to reduce manpower needs and improve productivity. VICOM could benefit from the replacement of the current Electronic Road Pricing (ERP) system by a new Global Navigation Satellite System-based technology (ERP II) by 2020. For Hong Kong listed companies, ZTE will benefit from smart cities in China. Kingdee will ride on adoption of cloud based ERP solutions while Wasion will benefit from growth of Smart Grid in China.

NOLreported wider-than-expected losses of US$96m in 3Q15 on the back of depressed freight rates across trade lanes. As new orders continue to gain steam in 2015, industry overcapacity is set to continue into 2017. We now expect NOL to remain in the red in 2016 as well. Downgrade to HOLD with lower TP of S$1.00 (Prev S$1.08).

Trading at 0.7x P/Bk NAV and 0.6x P/RNAV, UOL Group (UOL) is an attractive deep value play, supported by a portfolio of quality commercial properties and hotels, serviced residences which are located near or within the Central Business District (CBD) of Singapore. Our revalued NAV (RNAV) of UOL is S$11.29, of which the main bulk of the upside came from its hotel properties. Our TP of S$8.47 is pegged to a 25% discount to RNAV. BUY.

3Q15 DPU for Far East Hospitality Trust(FEHT) came in at 1.20 Scts (-9.1% y-o-y). This took 9M15 DPU to 3.43 Scts which represents 72% of our original FY15F DPU, below our expectations. FEHT continues to be plagued by challenging operating conditions on the back of increased hotel room supply as well as soft demand. This resulted in RevPAR for hotels and serviced residences falling 5.6% and 9.2% to S$151 and S$209 respectively.

Lower expenses lifted second-quarter earnings for aircraft maintenance firm SIA Engineering. Q2 net profit rose 5.7% y-o-y to S$44.5m despite a 6.7% drop in turnover to S$266m. An unchanged interim dividend per share of

S$0.06, which works out to a payout ratio of about 79% of its 1H earnings, was declared.

Atlantic Navigation has entered into an agreement to place 67.7m new shares at the subscription price of US$0.31 per Subscription Share, for an aggregate amount of US$21m. The company intends to utilise the net proceeds to substantially fund the cash portion for the purchase of three vessels.

Blumont Group is expected to report net losses for 3Q15 and nine months ended 30 September 2015. The expected losses primarily arose from the fair value readjustments of the Group's investments in transferable securities (financial assets), attributable to the recent volatility in the financial markets and global economy.

Source: DBS

ST Engineering (S63)Keppel DC Reit (AJBU)UOL (U14)Far East HTrust (Q5T)SIA Engineering (S59)Atlantic Nav (5UL)Southern Arch (A33)

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