OCBC Report 5 May 14

KEY IDEA
Thai Beverage PLC: Tomorrow’s regional F&B giant
Thai Beverage PLC (ThaiBev) is Thailand’s largest and leading beverage producer and distributor. Its four key product segments are Spirits, Beer, Non-Alcoholic Beverage and Food. Its current stronghold in Thailand will serve as a relatively steady income pillar as it expands beyond Thailand and into other product segments.ThaiBev, together with F&N, will have access to distribution networks inSingapore, Malaysia, Thailand and Myanmar. We think ThaiBev is well-positioned to penetrate the regional F&B markets with: 1) an enlarged distribution network waiting to be tapped upon, 2) more diversified products to capture different tastes and income level, and 3) a large war chest for marketing and capacity expansion as one of the biggest regional F&B companies. Using sum-of-the-parts, we initiate with a BUY at S$0.73 TP. (Yap Kim Leng)

MORE REPORTS

Sembcorp Marine: Still has upside despite lower FV
Sembcorp Marine (SMM) posted a 27% YoY rise in revenue to S$1.34b and a 3% increase in net profit to S$122.48m in 1Q14, both accounting for about 20% of our full year estimates, We judge this to be largely in line with expectations, mainly due to the lumpy nature of revenue recognition in rigbuilding. Looking ahead, we would continue to monitor closely the outlook of the ultra-deepwater and deepwater floater markets, which have seen a softening in dayrates. We have lowered our P/E for SMM (based on blended FY14/15F earnings) in our SOTP valuation from 16x to 15x due to the softer floater market, resulting in a lower fair value estimate of S$4.90 (prev. S$5.26). However, given the upside potential of about 24% (includes 3.2% dividend yield), we maintain our BUY rating on the stock. (Low Pei Han)

OSIM International: Soothing success
OSIM International Ltd (OSIM) has grown from strength to strength over the past several years, establishing a strong brands portfolio and delivering solid operational performance via management’s competent execution capabilities. Its latest flagship product is the OSIM uDiva, a triple enjoyment sofa-lounger-massager which is endorsed by popular Korean actor Lee Min Ho. Meanwhile, we expect the full conversion of OSIM’s convertible bonds (CBs) to occur before 5 Jul this year. This would propel OSIM into a solid net cash position of S$300.8m, based on our estimates. We trim our EPS forecasts by 6.8%/6.4% to account for the dilution. Nevertheless, given OSIM’s strengthened balance sheet and investment merits as highlighted earlier, we believe it deserves to command a higher PER target peg of 20x (previously 18x). Applying this to our blended FY14/15F EPS forecasts, we raise our fair value estimate from S$2.90 to S$3.18. Maintain BUY. (Wong Teck Ching Andy)

SMRT Corporation: Things to get better
Summary: SMRT reported 4QFY14 revenue of S$289.5m (+2.9% YoY) and PATMI of S$16.9m, with the latter a reversal from a net loss of S$11.9m suffered in 4QFY13. For FY14, revenue climbed 4.0% to S$1,163.9m. PATMI dipped 25.7% to S$61.9m but still exceeded our expectations by 11.9%. Looking ahead, we expect improvement from its loss-making Fare business, given the recently implemented fare adjustment exercise and efforts to manage its costs and bolster productivity gains. Although there is still a lack of details on the rail financing framework which has generated much hype, we believe there will eventually be an overall net benefit to SMRT. We increase our FY15 PATMI forecast by 6.7% and introduce our FY16 projections. Rolling forward our DDM valuation, we bump up our fair value estimate from S$1.06 to S$1.25. Given our belief that the worst may be over for SMRT, we upgrade the stock to HOLD. (Wong Teck Ching Andy)

Tiger Airways: Tamer tiger ahead
Tiger Airways Holdings’ (TR) 4QFY14 revenue declined 35.1% YoY to S$161.9m due to the exclusion of Tigerair Australia, which ceased to be a subsidiary. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m largely due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. Management will be focusing on managing capacity and optimising yield ahead, which includes: 1) grounding eight aircrafts in FY15, and 2) re-assessing its stake in Tigerair Mandala. However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30. (Yap Kim Leng)
Roxy-Pacific Holdings: No surprises in 1Q figures Roxy-Pacific’s 1Q14 net profit came in at S$15.0m, up 27% YoY due to stronger contributions from its core property development segment. 1Q14 net profit forms 17.5% of our full year forecast and is judged to be within expectations, as we expect FY14 to be a mostly back-loaded year with No. 8 Russell Street’s contributions rolling in over the fourth quarter. 1Q14 revenues increased 48% YoY to S$79.5m again due to higher progressive recognition from property developments, primarily Space@Kovan and the MKZ. Performance at the group’s key hotel asset, Grand Mercure Roxy Hotel, remained firm; average occupancy rate increased to 90.2% in 1Q14 from 79.2% in 1Q13, while average room rates dipped 3% YoY to S$190.5. While the group’s core development business will likely face continued headwinds from an uncertain domestic residential outlook, we like management’s strategy of growing recurring income and diversifying its portfolio geographically. Maintain HOLD with an unchanged fair value estimate of S$0.61 per share. (Eli Lee)


For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES

- US stocks closed slightly lower on Fri, capping weekly gains, as concerns over conflict in Ukraine outweighed an upbeat jobs report.

- Investors put new money into emerging market funds for the fifth straight week although the pace of equity inflows slowed sharply, banks said yesterday, citing data from EPFR Global.

- For Singaporeans still hoping to snap up overseas properties despite having their borrowing capacity curbed by the total debt servicing ratio, more may be considering offshore loans to finance their purchases.

- Lotte Shopping Co Ltd said it is postponing an up to US$1b REIT listing in Singapore due to unfavourable market conditions, the second large IPO to be pulled in Asia this week.

- Parkway Life REIT’s distributable income for 1Q14 rose 6.9% YoY due to contributions from newly acquired properties in Japan and higher rents in Singapore.