Towards Financial Freedom
DBS Equity Research: Wired Daily 17 Nov 2015
HK Land - Near-term underpinned by inclusion into MSCI HK, support $7.20
Singapore Strategy - 3Q results: no respite from cut in earnings. Prefer companies with earnings visibility and beneficiaries of a stronger US$
It was announced last week that HK Land will be included in the MSCI HK Index, changes will take effect 1st December. From a trading perspective, we expect the stock to be underpinned over the next 2 weeks leading into the cut-in date. The stock has held up well despite market volatility over the past 2 trading sessions, we see technical support at $7.20. Short-term traders can look to bargain at $7.20 or slightly above, stop loss if the stock falls below $7.00.
3Q15 report card unveiled a 10% y-o-y drop and 21% q-o-q fall in earnings. It was the usual culprits that were the key drags - oil and gas, plantation and shipping sectors. Overcapacity, margin pressure, currency volatility and kitchen-sinking are key reasons depressing earnings. The momentum of earnings cut accelerated, as we take stock of rising risks which emerged over the past quarter. Earnings cuts of 4.6% and 6.4% for FY15F and FY16F respectively resulted in a 2% decline in earnings for 2015 and 6.4% growth for 2016 (based on STI index stocks).
Monetary policy decisions by central banks will continue to be a major influence on equities in the months ahead as corporate earnings fail to inspire and regional economies slow. Rather than relief, we think further delays to the first US rate hike may instead trigger frustrations and uncertainty about the global economy. A rate hike in December, followed by a dovish stance from FED, providing assurance that the interest rate normalisation process will take place at a very gradual pace may be the best antidote for equity markets.
Go for earnings visibility, US$ beneficiaries and value unlocking. Amid the challenging environment, we prefer companies with earnings visibility and yield support - Sheng Siong, Mapletree Greater China Commercial Trust (MAGIC), Venture, Riverstone, US$ beneficiaries (Venture and Riverstone) and companies with potential to unlock value (Capitaland, Frasers Centrepoint Ltd and Capitaland Retail China Trust). M&A and restructuring opportunities could gather momentum following the sharp correction in equity markets in 3Q. Challenging operating conditions could trigger consolidation in shipyards and companies in the aircraft maintenance sector while bargain hunters and private equity investors have been seeking opportunities in bombed out names in oil and gas sector.
3Q15 results for ComfortDelgro (CD) steady as expected. Net profit registered a 5.4% y-o-y increase to S$85.2m. Operating costs increased by a tad slower at 0.6% to S$919m, vis-à-vis topline growth of 1% y-o-y to S$1.05bn. We maintain our HOLD recommendation for CD with a TP of S$3.00, based on an average of PE and DCF valuations. CD's share price has outperformed the broader market YTD, which we believe has priced in positives from potential changes to policies.
Olam's 3QFY15 core profit (excluding exceptional and after perpetual dividends) fell 35% y-o-y to S$27.6m, which was below expectations. The underperformance was caused by weaker than expected food staples and packaged foods segment, with EBITDA falling by 55% to S$31m. We maintain our HOLD call with a lower TP of S$2.01. We believe investors will continue to remain on the sidelines until Olam delivers on its positive free cash flow targets by 2016 and successfully integrates its recent US$1.2bn acquisition of ADM Cocoa.
3Q15 headline net profit for Petra Food registered a net loss of US$20.7m, a stark reversal from a year ago. This was mainly due to a US$19.5m one-off charge relating to a dispute settlement with Barry Callebaut. Excluding this, core loss for 3Q15 stood at US$1.2m. The key downside surprise was from its Indonesian operations which slumped 16.5% in local currency terms. This was attributed to the weak consumer sentiment, which affected orders and inventory levels in the trade channels. While Petra's financial and stock price performances are playing out according to our earlier expectations, we still maintain our cautious stance on the counter. Maintain Fully Valued, with TP lowered to S$2.05.
Cosco Corp's3Q15 saw widened loss of S$82m, hit by cost overrun and impairment of trade receivables. Cosco is expected to remain in the red next year. Deferment and cancellation trend is worrying. Maintain HOLD on potential upside from parent's restructuring; TP S$0.42.
1Q16 revenues for Interplex grew 4% to US$234.8m despite weaker domestic demand in China and end-market demand for certain products. Net profit to shareholders nearly tripled to US$11.6m in 1Q16. Both revenue and earnings for 1Q16 are in line with our expectations, at 24% and 26% of our FY16 forecasts respectively. Maintain BUY on better earnings quality ahead, and lift TP to S$0.91 (Prev S$0.83) after rolling forward our earnings base to 7x blended FY16/17F PE.
Nam Cheong'sprofits at breakeven levels in 3Q15 as revenue recognition lags expectations. Nam Cheong has no order wins since 1Q15; orderbook dwindling. Further deferment of built-to-stock programme likely, we cut FY15/16 earnings by 57%/46%. Maintain HOLD with lower TP of S$0.15 (Prev S$0.17).
Fragrance Grouphas entered into a sale and purchase agreement to acquire 28.89% stake in LCD Global Investments Ltd (LCD) for S$74.2m cash. LCD is listed on the Main Board of the SGX-ST. Currently, the LCD Group has a presence in Asia and the United Kingdom and its portfolio of businesses includes owning and/or managing high-end hotels and serviced residences, and providing real estate consultancy services.
NauticAWT has been awarded a S$3.5m detailed engineering contract for the design of living quarters for an offshore platform from SMOE, a subsidiary of SembCorp Marine.
Non-oil domestic exports (NODX) in Singapore resumed their slide in October after two months of decline, as a decline in electronic shipments outweighed the increase on the non-electronic side. On a year-on-year basis, NODX shrank 0.5% last month, reversing from their brief 0.3% rise in September, and resuming the declines seen in July and August. And on a month-on-month seasonally adjusted basis, NODX rose by 1.1% from September. Total exports of electronic goods fell 3.2% in October, in contrast to the 5.7% rise in the previous month. Non-electronic shipments grew by 0.7% last month, after a 1.9% decline in September, led by pharmaceuticals (+44.6%), non-electric engines & motors (+192.2%) and aircraft parts (+29.1%).
Developers in Singapore sold 546 private non-landed homes in October, which represented a 60% rise from 341 in September, according to the Urban Redevelopment Authority (URA). The launch of two projects during the last weekend of the month - Principal Garden at Prince Charles Crescent and Thomson Impressions at Lorong Puntong - gave the October sales tally a shot in the arm as they made up 35.3 per cent of the month's new sales. Including executive condominiums (ECs), developers sold a total of 822 units in October, up 31% from 629 units in September. CDL's EC project The Criterion in Yishun started selling from Oct 10, with 41 EC units sold in the month at a median price of S$805 psf.
US stocks rebounded yesterday as investors are hopeful that any fallout from Friday's terrorist attacks in Paris will only have a limited economic impact. STI's intra-day rebound off 2890 yesterday is in line with our near-term view. Stocks are expected to start the session higher on the back of the overnight rise on Wall Street; near-term upside for the STI should be capped at the 2950-75.
Source: DBS
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