KEY IDEA
Yangzijiang Shipbuilding: Sailing steadily in choppy waters
Yangzijiang Shipbuilding (YZJ) reported a 24% YoY rise in revenue to
RMB3.55b and a 11% increase in net profit to RMB799.2m, such that 1Q14
revenue and net profit accounted for about 25% and 29% of our full-year
forecasts, respectively. This was due to a higher-than-expected gross
profit margin of 29.5% in the quarter vs our expectations of 28%, as
well as a lower tax rate of 21%. For the next few quarters, management
prefers to be more circumspect on the outlook for margins, while there
should be a tax credit in 2Q14 to bump up earnings. Looking ahead,
management’s focus will be on order execution. Rolling forward to 9x
blended FY14/15F core earnings, our fair value estimate rises from
S$1.21 to S$1.29, and with the relatively weak stock performance YTD, we
now see an upside potential of about 21% (includes 3.6% dividend
yield). Upgrade to BUY. (Low Pei Han)
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Soilbuild REIT: Strength despite cautious backdrop
Soilbuild Business Space REIT (Soilbuild REIT) delivered a strong set of
1Q14 results, with NPI of S$14.2m and DPU of 1.562 S cents coming in
5.3% and 6.1% higher than its respective prospectus forecasts. We note
that the portfolio occupancy has reached 100% following the expansion of
space by one tenant and new take up by another tenant at Eightrium
during the quarter. In addition, positive rental reversions were
achieved. Looking ahead, management believes that it is well placed to
deliver on the forecasts set out in its prospectus. As announced in Mar,
Soilbuild REIT has entered into an agreement to acquire 39 Senoko Way,
an industrial property in Woodlands. With the deal expected to be
yield-accretive, we believe its earnings profile will be further
enhanced upon its expected completion in 2Q. We maintain BUY with a
marginally higher fair value of S$0.88 on Soilbuild REIT. (Kevin Tan)
COSCO Corp: Still “difficult and challenging”
COSCO Corp reported a set of in-line results, with a 42% YoY rise in
revenue to S$1.04b and a 30% increase in net profit to S$12.6m in 1Q14.
We note, however, that an accounting change led to an increase of about
S$9.39m in pre-tax profit in the quarter. Arbitration for the drillship
is still ongoing, and the group is in talks with potential buyers of the
vessel. Meanwhile, COSCO has secured new orders of about US$210m YTD vs
our full year estimate of US$2b. Management continues to expect
“difficult and challenging” business and operating conditions this year,
which does not augur well for a company with a net gearing of 1.1x and
is still scaling the offshore learning curve. Maintain SELL with S$0.61
fair value estimate. (Low Pei Han)
Venture Corp: Decent start, but still a slight miss
Venture Corp (VMS) reported 1Q14 revenue of S$591.0m (+11.4% YoY) and
constituted 24.1% of our FY14 forecast. PATMI rose 9.8% YoY to S$30.8m,
and was slightly below our expectations, forming 21.1% of our full-year
forecast. Encouragingly, all of VMS’s product segments recorded a
positive YoY revenue increase, but we believe this growth also came off
the back of a low base in 1Q13. VMS highlighted that the business
sentiment of most customers has generally been positive. However, there
are still underperforming customers within each of its business segments
and hence management cautioned that it is still too early to project a
broad-based sustainable recovery. We trim our FY14 PATMI forecast
slightly by 2.4% but opt to keep our FY15 projections intact.
Consequently, our fair value estimate is lowered from S$7.98 to S$7.78
(15x FY14F EPS). Downgrade VMS to HOLD as upside potential appears
limited at this juncture. (Wong Teck Ching Andy)
UOB: Better-than-expected 1Q14 results
UOB released its 1Q14 results after the market close last Wed, with net
earnings up 9.2% at S$788m. This is ahead of our quarterly earnings
projection of S$724m (consensus: S$742m). The improved performance was
driven by strong net interest income (+15.2% YoY) and lower taxes from
the write-back of prior years’ income tax. This more than offset the
slack in its fee and commission income (-8.6%) and other non-interest
income (-10.6%). Net interest margin for the quarter improved 3bps YoY
to 1.73% (4Q13: 1.74%). Management said that its asset quality continued
to remain strong, with the non-performing loan ratio stabilizing at
1.1% from 4Q13 and better than 1Q13 ratio of 1.3%. We maintain our HOLD
rating and S$22.40 fair value estimate on UOB. (Carmen Lee)
SMRT Corporation: 4QFY14 earnings exceeded our expectations
SMRT reported a 2.9% YoY growth in its 4QFY14 revenue to S$289.5m. PATMI
of S$16.9m was a reversal from a net loss of S$11.9m in 4QFY13. Even if
we exclude a one-off S$17.3m impairment of interest in an associate in
4QFY13, SMRT’s 4QFY14 PATMI would still have grown by 215.2%. For FY14,
revenue climbed 4.0% to S$1,163.9m, in line with our forecast of
S$1,166.7m. PATMI dipped 25.7% to S$61.9m but still exceeded our
expectations by 11.9% due largely to higher-than-expected ‘other
operating income’. SMRT raked in an operating loss of S$25.0m in FY14
from its Fare business (FY13: operating profit of S$32.3m) but this was
mitigated by a 12.4% growth in operating profit from its Non-Fare
business to S$106.4m. A final DPS of 1.2 S cents was declared, bringing
FY14 dividends to 2.2 S cents/share. This was lower than the 2.5 S cents
DPS paid out in FY13 but ahead of our 1.8 S cents/share forecast.
Looking ahead, SMRT believes conditions for its Fare business will
remain challenging, but expects impending changes to the rail financing
and bus operating model which will address the sustainability of its
Fare business in Singapore. We will seek more clarity on this during the
analyst briefing, as we believe this issue has been the main reason
driving its 20% share price surge over the past week. Our Sell rating
and S$1.06 fair value estimate comes under review. (Wong Teck Ching
Andy)
Global Premium Hotels: 1Q14 in line with expectations
Total revenue fell 5.4% YoY to S$13.8m and gross profit dipped 3.7% to
S$12.1m. Net profit also fell 8.7% to S$4.0m. 1Q14 net profit
constitutes 17.5% of our full-year estimate, which are in-line with
expectations as we anticipate a back-loaded year from the second Parc
Sovereign hotel’s contributions in 2H14. Due to competitive conditions
in the hospitality sector, we continue to see pressure on the group’s
occupancy and room rates; average occupancy rate (AOR) decreased from
89.6% in 1Q13 to 86.0% in 1Q14 and revenue per available room (RevPar)
also decreased from S$91.4 in 1Q13 to S$91.0 in 1Q14. Our fair value
estimate is unchanged at S$0.33. Given that the current share price is
at our fair value, we downgrade our rating to a HOLD on valuation
grounds. (Eli Lee)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- The US stock market ended Thursday generally lower as traders stuck to
the sidelines ahead of the key jobs report due Fri morning.
- The Singapore government is throwing its full support behind the
tripartite effort to extend the re-employment age in Singapore beyond
65.
- OCBC Bank has unveiled a first-of-its-kind collateral-free loan that
provides startups as young as six months old with expedited access of up
to $100,000.
- Several senior resignations in recent weeks at Keppel T&T and its
data centre business could raise questions over its highly anticipated
listing of the unit.
- Soilbuild Construction Group's net profit for 1Q14 rose 4% to S$3.9m,
while revenue rose 28% from S$68.1m a year ago to S$87.3m.
- Fragrance Group has reported a near 38% jump YoY in its 1Q14 net profit to S$24.26m.
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