Brokers' recommendations on 14 Feb 2006
Summary
CH OFFSHORE, dbs remains a BUY with target price $0.58
CCT, ml maintain BUY
COSCO, jpm remains OVERWEIGHT with target price $1.35
COMFORT,
deutsche bank remains a HOLD with target price $1.61
jpm remains OVERWEIGHT with target price $2 (from $1.90)
DBS, gs maintain INLIN
EE&E,
smith barney remains a BUY with target price $3.30 (fro $2.80)
cl maintain BUY
F&N,
ml maintain BUY
cimb remains NEUTRAL with target price $17.50
smith barney remains a SELL with target price $16.95
GLOBAL VOICE, dbs remains a BUY with target price $0.26
HTL, ml maintain BUY
HUAN HSIN,
cimb downgraded to NEUTRAL from Outperform with target price$0.73 (from $0.865)
dbs downgraded to Hold from Buy with target price $0.67 (from$0.89)
ml downgraded to SELL
JAYA,
jpm remains OVERWEIGHT with target price $1.80
nomura remains a BUY with target price $1.49 (from $1.31)
MICRO-MECH, kim eng remains a BUY with target price $0.60
RAFFLES MDICAL,
cimb remains OUTPERFORM with target price $0.76 (from$0.66)
dbs remains a BUY with target price $0.68
SMT, cimb remains OUTPERFORM with target price $0.79 (from $0.815)
TAT HONG, dbs remains a BUY with target price $1.05
UOB, csfb upgraded from neutral to OUTPERFORM
UNITED ENVIROTECH, cimb remains OUTPERFORM with target price $0.60
WING TAI,
deutsche bank remains a HOLD with target price $1.37
smith barney remains a BUY with target price $1.67
SING BANKS, csfb maintain MKT WEIGHT
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CH OFFSHORE, dbs remains a BUY with target price $0.58- CHO's 2QFYJun06 earnings declined 21% y-o-y to US$2.8m. This was belowour expectations as we were expecting only two rather than threevessels to undergo Special Surveys. We expect 2H06 earnings to be muchstronger driven by the full six month contribution from the three newvessels delivered in 1H06 and absence of any Special Survey costs.With the three vessels delivered in 1H06 and another four 12,240 bhp AHTSvessels to be delivered between Aug 06 and Mar 08, this will lead to acorresponding increase in tonnage of 16%, 22% and 18% over FY06F-08Frespectively. There could be additional growth opportunities with Scominow a 29% shareholder. Maintain Buy with a target price of S$0.58.- 2Q hit by Special Survey costs. We had already warned that 1Q and2Q06 earnings would be weak due to costs incurred for Special Surveys.Despite loss of charter-hire revenue from three vessels undergoing SpecialSurvey, revenue rose 15% y-o-y to US$8.1m benefiting from a5,400bhp vessel delivered in Jul 05 and a 4,800bhp and 5,400 bhp that weredelivered in Oct 05. EBIT fell US$2.2m or 73% to US$0.8m due to costsincurred for the Special Surveys. During a Special Survey, each vessel isnormally off-hire for about 60-65 days incurs a fee of US$0.5-1m. For thefirst time, CHO is proposing to an interim dividend, and this is for 0.5Scents.- New shareholder comes on board. The outlook for the offshorevessel chartering market is strong underpinned by a high level of oiland gas exploration and production activity and this should support thefirming charter rates. Tonnage operated is expected to rise 16% and22% over FY06-07F on the back of seven vessel deliveries between FY06Fand FY08F. Balance sheet remains robust with a projected net gearingposition of only 14% in FY07F, giving CHO room to expand its vessel fleetfurther.- Maintain Buy. 2H06 earnings is expected to be around 50% strongercompared to 1H driven by the full 6-month contribution from the threenew vessels delivered in 1H and absence of any Special Survey costs. Ourtarget price is S$0.58 based on 15x FY07 earnings.
CCT, ml maintain BUY- We have reduced our FY06E DPU by 0.3 cps to 6.9 cps (from 7.2 cpspreviously) although have reduced FY07E DPU by 0.1 cps. The revisionsreflect our estimate for the impact from the redevelopment of Golden Shoecar park during 2006 (-0.1 cps) and rental reversions at 6 Battery Road(-0.2 cps) in 2005.- Outlook for acquisitions We expect CCT to undertake acquisitions during2006. Due to the difficulty in undertaking accretive acquisitions withinthe Singapore domestic market (asset yields are too low), we expect CCT to look offshore. Potential acquisitions could include Raffles City Shanghai and Capital Tower Beijing in China.- Buy recommendation maintained We retain our Buy recommendation and price objective of S$1.75 per share. In our view, CCT offers excellent exposureto the Singapore office market and potential access to other regionalproperty markets.
COSCO, jpm remains OVERWEIGHT with target price $1.35- Cosco has again turned in an impressive set of results for FY05, slightlyahead of our forecasts at pre-exceptional levels. Net profit surged by 2.5xto S$160mn while turnover increased more than 6x to S$873.1mn. Thesignificantly stronger earnings resulted largely from the inclusion and thefull year impact of the Cosco Shipyard Group (CSG). Shipping earnings werein line with expectations. On a net profit breakdown basis, the share ofshiprepair earnings expanded to 43% from 25% while shipping contracted to57% from 75% in the previous year.- We expect shiprepair to maintain its strong earnings momentum and itsbottom line to be lifted by; (1) stronger revenue per vessel as CSG securesmore double hull (from single) conversion jobs with each running up toaround US$10mn, significantly higher-than-average repair revenue of S$1.15mper vessel, (2) growing earnings from offshore-related work as it takes onmore higher yielding fabrication outsourcing jobs from Sembcorp Marine(PPL), (3) ongoing capacity expansion ? total yard capacity is set totriple by 2008-2010 from 2005.- We are maintaining our earnings forecasts and our target price of S$1.35.
COMFORT, deutsche bank remains a HOLD with target price $1.61- Good overseas growth but better profitability of domestic operations iskey. While growth overseas is impressive lower profitability of itsdomestic taxi operations and high fuel costs are weighing down Comfort's profitability. For now we do not see any real catalysts and expect muted growth over the next few quarters. Valuations are also full hence wemaintain our Hold rating and TP of S$1.61.- Overseas bus business drives sales growth. Comfort reported full-yearsales and profits mostly in line with our expectations. Sales came in atS$2.29 bn versus our expectation of S$2.28bn. Net income was S$202m versusour expectation of S$203m. Increased revenue from bus operations in the UKand China increased rail revenue, and higher diesel sales in Singaporecontributed to sales growth.- Raising estimates slightly. We have left our sales forecast for FY06 mostly intact but raised our net profit estimate to S$211m from S$206m. Thedifference comes mostly from aligning the cost structure in FY06 closer toFY05. We have lowered depreciation assumption but raised assumptions onconsumable and fuel.- Maintain Hold and TP of S$1.61. Our 12-month target price of S$1.61 is based on a dividend discount model (DDM), using a 7% discount rate andassuming a 3% terminal growth rate. Upside risks include asooner-than-expected breakeven by NEL, falling fuel costs and reducedcompetition in taxis in Singapore. Downside risks include regulatory risksinvolving overseas acquisitions and rising fuel costs.
COMFORT, jpm remains OVERWEIGHT with target price $2 (from $1.90)- Putting FY05's trials and tribulations behind. CD registered acommendable set of FY05 results in an exigent year, although earnings weremarginally below our estimates (in line with consensus). Main differencesstemmed from additional driver benefits expenses of S$14.4m incurred, whichwe had not factored in. FY05 revenue rose by 7.8% y/y due to (1) increasesin overseas bus revenue (existing and new overseas subsidiaries), (2) higher rail revenue, and (3) higher diesel sales in Singapore. Earningsgrew 1.3% y/y to S$201.9m despite the continued rise in fuel prices andcompetition within the local taxi industry in the first 9M05. The marginalincrease came from lower minority interests and tax expense, further aidedby cost cutting measures.- An exciting FY06E. With the tapering off of local taxi competition andseemingly high oil prices, a recovery trends looks evident going forwardinto FY06E. Management's commitment to growing its existing and overseascore businesses, continual search for attractive overseas acquisitions, andmaintaining strong cost controls, plus a possible capital management angle,could propel growth going forward.- We maintain Overweight and increase our Dec-06 target price toS$2.00/share (from S$1.90/share) by rolling over our sum-of-parts valuationinto FY06E. We still believe that CD's healthy overseas growth trajectoryplus the yield support it provides preserves the stock's attractiveness inFY06E and beyond.
DBS, gs maintain INLINE
According to an unconfirmed report in The Korea Economic Daily, DBS maymake a joint bid with Hana Bank to buy Korean Exchange Bank (KEB). We donot see KEB as a natural fit with DBS for the following reasons (1) DBS'core markets are ASEAN, China and India, and we see little reason for DBSto shift its focus now to Korea when there is still ample scope forexpansion in its core markets; (2) KEB is sizeable (the 6th largest bank inKorea with around US$67 bn in assets as of 3Q05 vs. US$112 bn for DBS), andhence likely involves execution/integration risks; and (3) it would beharder for DBS to extract synergies with KEB than for a Korean acquirer.However, if confirmed, we believe the potential partnership would have toaccrue significant benefits to DBS to make it worthwhile. We retain ourIn-Line rating on the stock and S$17.8 price target (1.5X 2006E P/B). Key risks pricey M&A, earnings disappointments.
E&E, smith barney remains a BUY with target price $3.30 (fro $2.80)-
Maintain Buy (1M) rating We see ~22% upside potential from current levelsgiven the strong set of results, higher than expected dividend payout andpositive outlook. Despite the ~24% rise in share price over the past 3mths,valuations remain undemanding (8.7x 07E P/E with improving ROE and yield).E&E remains a high-yield, low P/E play and is a key beneficiary of PCBoutsourcing in China. Our forecast remain intact but raise target pricefrom US$2.80 to US$3.30 by rolling fair value multiple from FY 06 to FY07.2QFY06 Review Net profit of US$13.8mn (+17% yoy, +7% qoq) came in line withour expectations. Revenue of US$126mn (+13%yoy, +6% qoq) was driven largelyby PC, Consumer (digital TVs) and Telco segments. Balance sheet remainshealthy, with ~34% net gearing (in-line with our FY 36% est.) while FCFsignificantly up to US$15mn (v/s ¨CUS$11mn in 2Q FY05) yoy.- Interim dividend of US$0.08 Mgmt declared US$0.08 dividend (v/s ourforecast of US$0.06), implying a 20% yoy increase. With FCF improving,E&E¡¯s div payout for FY06/07 can be higher than our est. 50% payout ratio.- Positive Guidance 1) Book to bill remains above 1x in March qtr, andrevenue momentum appears strong with slight rise in order backlog(US$43.8mn v/s US$42mn in Dec qtr) 2) Expects to gain more market sharewith Japanese customers (game consoles), and Dell (PCs) 3) Completion ofnew plant in Kaiping is on track and scheduled to commence production bySeptember quarter. 4 ) Gearing level should fall to30%- Valuations undemanding The stock remains attractively valued. E&E tradesat 8.7x FY07 P/E, offers 6.3% dividend yield.
E&E, cl maintain BUY- E&E.s 1H06 results were in line Revenues at US$126.3m (+13%YoY) and netprofit at US$13.8m (+26%YoY).- A shift in product mix towards higher-layer count (greater contributionfrom microvia) and improved utilisation rates raised gross margins by70bpYoY and 20bpQoQ.- Interim dividend has been raised to US8cts (from US6.7cts), or 53%payout. Going forward, strong operating cashflows (after capex), andmanagement.s commitment in maintaining a high dividend policy means thatour payout assumptions remain intact.- Looking ahead, a tight demand-supply situation is indicated by apositive PCB book-to-bill ratio, and the strong sales momentum is expectedto continue into the coming quarters.- Management is witnessing robust demand from customers in computing (forhigh-end servers) and consumer electronics (for LCD TVs, and handhelddevices), albeit the outlook for its communications segment remainscautious given rising capacities from Taiwanese competitors.- We have made slight adjustments to our earnings estimates, to accountfor higher interest expenses and provisions for mgt performance incentives,in aggregate lowering forecasts by 1-3% for FY06-07.- We continue to seefair value at US$3.76, or 10x PE. Valuations arecompelling given strong earnings cagr and ~7% div yield and rising. BUYmaintained.
F&N, ml maintain BUY- 1Q06 results; NPAT up 5% Fraser & Neave Limited (F&N) has reported 1Q06results with revenue and EBIT up 11% and NPAT up 5% from 1Q04. Whileoperating earnings grew strongly NPAT showed lower growth due to theslightly higher tax rate coupled with lower earnings from non-coreinvestments.- Property continues to shine F&N's domestic and international propertydevelopment operations continue to drive earnings. Development propertyrevenue and EBIT increased by 12% and 64% respectively, and investmentproperty saw revenue and EBIT increase 10% and 6% respectively.- Centrepoint REIT aiming for May/June 2006 The Centrepoint REIT isexpected to be IPO'd in mid 2006. The REIT has taken longer to be listedwhich we attribute to the softening in the Singapore REIT sector in thelatter part of 2005.- Recommendation We maintain our recommendation of Buy and have increasedour price objective to S$19.13 per share from S$17.75 per share previously.Our price objective is based on a 5% discount to our "post REIT" valuationof S$20.14 per share and the increase reflects the improving fundamentalswithin the property sector.
F&N, cimb remains NEUTRAL with target price $17.50- F&N's 1Q06 net profit of S$68m (+3% yoy) was in line with consensus andour expectations, and accounts for 24% of our FY06 net profit forecast. Theqoq slowdown in earnings is no cause for alarm as there wereextraordinarily strong residential sales in 4Q05, as compared with 1Q06.- 1Q06 saw weakness in the dairies and glass containers divisions. Dairiesnet profit was down to S$0.5m (-71% yoy), due to the collapse of margin onthe back of higher material costs. The glass containers division sawdisruption and plant closure dragging net profit down to S$0.8m (-33% yoy).- Property division continued to be a key contributor to the group.Development property did reasonably well with 255 units sold. Apart fromThe Azure in Sentosa Cove, which was fully sold, it also soft-launched theRaintree in 1Q06. Net profit surged to S$25m (+65% yoy).- Strong growth in Brewery was underpinned by regional sales and expansion.While volume in Singapore slowed by 5%, higher sales were achieved inIndochina and PNG, and China delivered double digit growth in sales. Chinabreweries are expected to be profitable in FY06 on the back of high salesvolume, while Hainan brewery is profitable, and there is positivecontribution from Kingway and Jiangsu DaFuHao breweries. Overall, Breweryrevenue was up 6%, with net profit of S$16m (+12% yoy).- Management is bullish on the outlook for the group, and expect it toachieve better profitability in FY06. We believe that breweries,development and investment property will remain key contributors to thegroup.- Maintain Neutral and target price of S$17.50, derived from a 5% discountto SOP valuation. The shares are trading at 14.5x FY06 and 14.1x FY07 coreP/E on a fully-diluted basis. We believe that downside risk is low, withhealthy yield support of 3.9% for FY06.
F&N, smith barney remains a SELL with target price $16.95- F&N reported a steady 3% progress in net profits to S$68m (23% of ourfullyear forecast), underpinned by its breweries and development propertyactivities- Asia Pacific Breweries reported a 16% progress in net profits supportedby strong operating profit growth at Papua New Guinea (+28%) and Indochina(+18%). Profits were flat in Malaysia and Singapore while China continuedto post losses although maintained at last year¡¯s levels.- Property development profits grew 64% as the group booked in profits frompresold projects like 8@Sophia, Tangerine Grove and contribution fromVision Century, its China subsidiary.- F&N Bhd meanwhile reported an 11% progress in profits with soft drinksdriving growth, cushioning the drag from glass manufacturing ,which wasaffected by plant disruption in Malaysia and closure in China.- We maintain our Sell rating for the stock on valuation grounds as theshares are trading above our target price of S$16.95.
GLOBAL VOICE, dbs remains a BUY with target price $0.26-
Global Voice (GV) has signed an MOU to acquire 50% of Viatel'slong-haul intercity network for a cash consideration of €25m and an assetswap of 5 pairs of GV's metro fibre worth €17m, for a total price of€42m. The move would be earnings accretive, adding c.€1.95m and €2.6m inFY06 and FY07 to net profit as GV takes over Viatel's existing customers.In the long term, this deal should create additional business opportunitiesas GV's customers would be offered intercity and last mile fibre accesswithin Europe. We continue to like the stock for its high gross marginsand potential strong cashflow generation abilities. Maintain BUY with aone-year target price of S$0.26 based on DCF.- GV buys network for €42m. In a move similar to its earlier purchase,GV expects to pay a €42m in cash and assets for 50% of Viatel's intercitylong haul fibre network that could well be valued at €1.2bn. The 6,800kmnetwork spans six countries and complements GV's existing metronetworks in Germany, Holland and London, linking 13 of the Group's 14metropolitan networks.- Enlarged footprint should enhance existing metro network. Prior to this,GV was confined to offering its customers fibre leasing and BCS servicesin only 14 metropolitan cities in Europe. With the enlarged network, itcan offer both corporate and Telco customers the ability to transferdata between their offices and exchanges in various cities across sixcountries in Europe. Telco customers looking to upgrade their legacycopper wire networks can also lease or buy dedicated strands of fibrefrom GV without having to incur heavy construction costs. Key riskscontinue to be a slow takeup in GV's fibre leasing and BCS services.While network utilisation has risen to 13% in Frankfurt and 10% inAmsterdam, it is still relatively low in other cities. If the Group isunable to ramp up its customer base quickly, it may lose out toincumbent telco's who are upgrading their networks to provide higher value-added services.- Maintain BUY with one-year target price of S$0.26 based on DCF valuations. We think the Group will use a mixture of debt and equityto fund the acquisition which should result in an enlarged share base ofapproximately 2,550m shares. We have adjusted our DCF estimates to modelfor a 2-stage growth phase and accounting for a long-term debt to equityratio of 10%. While the additional shares do dilute earnings somewhat,the use of debt and our growth adjustments continues to result a FY06 fairvalue of S$0.26. Maintain BUY.
HTL, ml maintain BUY- FY05 earnings of S$54mn beat our forecast Gross margin of 32% was betterthan expected as HTL charged higher prices for door-to-door delivery (but contained freight costs) and obtained better pricing by targeting theupper-mid end segment. HTL was also given tax rebates by the PRC governmentfor reinvesting profits in manufacturing facilities.- Free cash flow up as working capital management improves HTL's operatingcash flow rose to S$79mn (from S$30mn in FY04) as its investment in ERPsystems enabled it to improve the collection cycle and better manageinventories. This has enabled HTL to pay down borrowings by S$6mn, financethe S$36mn Domicil acquisition internally, and declare a 30% dividendpayout of S$16.2mn (3.3% yield).- No material contribution from Domicil until 2007 Domicil contributedS$13mn of sales in 4Q05 (2% of total) but suffered a S$430k net loss due tostartup costs. HTL plans to use 2006 to integrate Domicil and develop thecity and megastore concepts before launching the Domicil brand globally in2007.- Maintain Buy with S$1.93 price objective We have tweaked up our FY06 andFY07 estimates by 3% due to better pricing and adjusted our DCF-based priceobjective upwards slightly to S$1.93 (from S$1.88).
HUAN HSIN, cimb downgraded to NEUTRAL from Outperform with target price$0.73 (from $0.865)- Below expectations. Poor set of results as expected. 4Q05 net profit camein 64% below consensus and our estimate. The short fall was attributed tolower-than-expected gross margin and higher-than-expected opex ratio.- Sales surged 42% yoy and 35% qoq in 4Q05, driven by maiden contributionsfrom printer-related business (estimated to be about 21% of sales) andcontinuous growth in notebook casings (+18% yoy to 3.2m units in 4Q).- EBITDA margin decline 3.4% pts yoy and 1.2% qoq, hurt by a combination of1) greater contributions from low margin full turnkey projects; 2) marginpressure for notebook casings; 3) higher raw material prices; and 4)start-up costs for phase II Shangdong plant. Net profit excluding one-offgains in 4Q04 and 3Q05, declined by 59% and 28%, respectively.- Net gearing increased to 0.2x, up from 0.12x as at end-Sep. Cash cycledays improved by 15 days qoq to 105 days as a result of higher salescontributions from Samsung, which has shorter credit terms than TaiwaneseODMs. It declared a tax-exempt final dividend of 0.6 cts, down from 1.2cts a year ago.- Growth to come from printer-related business. We understand itsrelationship with Samsung has strengthened, and order from printer-relatedbusiness remains robust. Phase II expansion in Weihai has started, and itplans to expand tooling capabilities to offer a wider range of services toSamsung and other MNCs. Huan Hsin will also relocate its wire manufacturing operation and part of its notebook casing operation to Weihai to reduce costs. Notebook casing business will be driven by the projected 20-25% yoyshipment growth for notebook PCs and penetration into new ODM customers. Itwill also ride on market-share gains by its current four Taiwanese ODMcustomers.- Forecasts and target price lowered; downgrade to Neutral. We have shavedour FY06-07 EPS by 12-16% to factor in downward adjustments in gross marginassumptions and upward revisions in opex ratio. We have also introducedFY08 estimates. Accordingly, we have cut our target price from S$0.865 toS$0.73, still based on 10x CY06 P/E. Although share price offers 11%upside, we would prefer to re-visit the stock in mid-06 when visibilityimproves. Downgrade to Neutral.
HUAN HSIN, dbs downgraded to Hold from Buy with target price $0.67 (from$0.89)- HUAN's 4Q05 results were below our expections. Underlying net incomefell by 76% y-o-y and 28% sequentially to S$2.9m. Order momentum remainsintact as revenues saw a 42% increase y-o-y to S$211.5m, as orders fornotebook casings and laser printer cartridges continues to be drivetop-line. FY05 results have been affected adversely by start-up costs ofaround S$8-9m, and we expect this to continue into FY06. HUAN alsoannounced the restructuring of the Zhan Yun JV with Quanta, with apossible listing of the entity in the future. Overall results weredisappointing and we have downgraded HUAN to Hold, with a revised1-year target price of S$0.67, based on a PE of 8.9x FY07 earnings.- Disappointing 4Q05 results. 4Q05 results came in below our expectationsof S$6.0m (net of exceptionals) at S$2.9m. This was despite the higherthan expected 4Q05 revenues, which increased by 47% y-o-y and 36%sequentially. Even as order momentum from its customers remains strong,earnings have been hit by a combination of high raw material cost, aswell as start-up costs from 3 plants that have started operations in FY05. HUAN announced a final dividend of 0.6 Scts, bringing total dividend paidout this year to 1.6 Scts.- Additional start-up costs expected to continue into FY06. With thesecond Shandong plant that started partial operations in late 3Q05 stillin the process of construction, as well as other new plants that havestarted operations, we are expecting additional start-up costs of aroundS$5-6m in FY06. In FY05, total start-up costs were between S$8-9m. Wehave factored this into our forecasts, and revised FY06 and FY07earnings downwards by 28% and 29%, respectively. HUAN also announcedthe restructuring of the Zhan Yun JV with Quanta, which will effectivelydecrease their stake in the JV, to 42.5% from 51% previously.- Tough operating conditions. Even though order momentum remains intact,the operating environment for HUAN remains challenging with high oilprices, and continued pricing pressure from customers. 1H06 resultsare not expected to be exciting, as the bulk of start-up costs should beincurred in the first half of FY06. Downgrade to Hold with a 1-yeartarget of S$0.67, down from S$0.89 previously.
HUAN HSIN, ml downgraded to SELL- Downgrade to Sell Huan Hsin reported very disappointing FY05 resultswith revenue growth of 40% but net profit decline of 29% to S$22.8mn versusour estimates of S$27.8mn and consensus mean of S$27.2mn. The company'sfocus on top line growth at the expense of margins as well as the lack ofoperating visibility leaves us uncomfortable with its prospects.- Collapsing margins Gross margins recorded a fifth consecutive quarter ofdecline from 29% in 3Q04 to the current 17%. Operating margin for FY05 morethan halved that of the previous year, falling from 11.8% to 4.7%. Thiswere attributed to product mix shift towards high assembly content notebookdocking stations as well as start up costs of the various new plants.- Investing beyond its means Huan Hsin has been free cash flow negative forthe past 4 years and we expect it to remain so going forward. The companyhas funded its aggressive growth plans via share placements and gearing upthe balance sheet. Capex in 4Q05 was a record high of S$30.6mn while returnon invested capital has declined to 6.4% in 2005. We are concerned aboutthe rapid expansion that Huan Hsin is undertaking to cater to its keycustomers which leaves the company increasingly vulnerable to volatility ofkey customers' orders.- No longer cheap Huan Hsin currently trades at 11x FY06E EPS. Given theheightened risk profile, we feel that valuations are unattractive. Ournumbers are about 30% below consensus, we are not confident that Huan Hsinwill deliver significant growth this year and risk to Street estimates isto the downside.
JAYA, jpm remains OVERWEIGHT with target price $1.80- Jaya's 1H06 results were inline with expectations. Net profit jumped by48% to S$63.7m while turnover expanded by 1.2x to S$167m.- Shipbuilding was the biggest contributor (55%) to the group's net profitfollowed by offshore shipping (43%). Shipbuilding, which accounted for 78%of 2Q06 net profit, benefited from the ramping up vessel sales to externalbuyers. As a result, Jaya is able to recognize progressive contributionfrom these vessels which expanded to 12 in 2Q from 2 in 1Q. These vesselsales are in line with the group's strategy of retaining half of vesselsunder production for its own fleet chartering operations.- There are currently 35 vessels in the pipeline. With the continued strongdemand for these vessels (AHTS), we believe it is really down to balancingthe size of its chartering fleet and vessel sales. We expect the interestin Jaya to be more intense as we draw nearer to the October/November 06dateline for the put and call options. (see further for details)Strategically, we believe that it would make sense for Sime Darby to makeJaya a subsidiary as Jaya should enhance its bottom line while providingthe relevant skill sets. Tactically, Sime Darby's silence with regard toits strategic intention with Jaya since the initial acquisition isappropriate, in our view, as any hint of serious intent to eventuallyacquire more than 50% in Jaya would likely lead to a bigger price tag forJaya. We are maintaining our price target at S$1.80.
JAYA, nomura remains a BUY with target price $1.49 (from $1.31)- We remain upbeat on Singapore's offshore oil & gas sector, where highglobal rig utilisation rates underpin demand for offshore support vesselsfor sale and charter.- Jaya management expects "continued strong demand" for its offshorevessels, with customer enquiries prompting an expansion of the new buildprogramme ? 54 vessels in FY06-08F. To our view, Jaya remains in a sweetspot of the offshore cycle, and we reiterate our BUY rating.- Jaya on 13 February reported 2Q FY06 net profit of S$41.3m, a rise of39.7% y-y. Net profit in 1H FY06 was S$63.7m, up 48.1% y-y, on strongcontributions from the shipbuilding division (contributing net profit ofS$35.3m), as well as existing fleet sales (contributing S$20.1m).- Upbeat on its prospects, Jaya lifted its 1H FY06 interim gross dividendto 3.5 Singapore cents/share, from 2.5 Singapore cents in 1H FY05.- With some 150 Anchor Handling Tug/Supply (AHTS) vessels underconstruction, future vessel sale prices and charter day rates might beaffected should demand in the oil & gas sector wane. But with new supplyseen increasing only 4-6% pa over the existing offshore fleet, such risksappear modest in the light of current demand.- We lift FY06F EPS by 17.1% to reflect higher existing fleet sales. We cutFY07F EPS by 3.0%, factoring in lower charter income given fleet disposals.- Pegging earnings to the regional peer average for December 2006F PER of12.1x (previous December 2006F PER of 11.3x), our revised fair valueestimate is S$1.49/share (previous S$1.31/share). BUY reiterated.
MICRO-MECH, kim eng remains a BUY with target price $0.60- Interim results beat our expectation. Sales grew 14% yoy to $15.4m,higher than our projection of $14.9m, driven largely by the recovery of thesemiconductor industry and the in-roads made by its China operations. Netprofit grew 29% yoy to $3.7m, exceeding our forecast of $3.3m.- China was the major growth driver. With 30% revenue growth in China, thecountry has over-taken Philippines to become its second biggestgeographical market. This was achieved as the company set up manufacturingfacility in Suzhou and beefed up its sales force in the country to reachout to local chipmakers. It also saw strong revenue growth in Thailand,US and Malaysia.- Positive outlook ahead. Going forward, management is bullish as outlookfor the semiconductor industry remains positive. This is especially so inthe back-end test and assembly segment, which is experiencing capacitytightness. With more than 85% of its revenue derived from components usedin the assembly process, Micro-Mechanics should benefit from the industrystrength.- Excellent track record. Management has buikd up the track record ofdelivering consistent growth in the last few years. Revenue would haveincreased at a compounded annual rate of 20% over the last 3 years, whileearnings would have grown 37% annually. Despite significantly higherrevenue, it has been able to maintain gross margin at above 60%.- Maintain BUY. We have increased our full year forecast by 10% to $7.5m.Management has raised interim dividend by 25% to 1 cent, putting it ontrack to meet our full year dividend forecast of 3 cents. The stock iscurrently trading at an attractive valuation of 8.5x June 06 earnings andoffers a generous dividend yield of 6.5%. We have a 6-month target price of60 cents, translating to a 30% upside for share price.
RAFFLES MDICAL, cimb remains OUTPERFORM with target price $0.76 (from$0.66)- 4Q05 net profit was in line with consensus and our expectation. 4Q05 netprofit rose 27% yoy to S$3.7m, lifting FY05 net profit to S$12m (+26% yoy).- Hospital services operating profit surged 123% yoy to S$9.9m, onoperating margin of 16.5% (from 9.6%). The group saw a surge in patientadmissions, recording its highest number of patients ever. Some 34% of thepatients were foreigners. This reaffirms our view that the group willcontinue to see a surge in occupancy rates and better facility utilisationat Raffles Hospital. Coupled with the increased MediSave withdrawal limitfrom Apr 06, we believe that FY06 operating profit for the group will growsignificantly by 29%.- Healthcare Services revenue dipped 4% yoy mainly from the loss ofcontribution from SARS related projects. However, we expect operatingprofit to expand further with the group leveraging on its network ofclinics, as well as contributions from Health Insurance in FY06. We expectoperating margin for this segment to reach 11% in FY06.- Enlarging regional footprint. The group is converting its Jakartarepresentative office into a medical centre with day surgery and clinicalfacilities. This medical centre, which will be earnings accretive andprovide referrals to its Raffles hospital, will start operations in 2Q06.Clinical operations in Shanghai and Beijing are projected to come onstreamin 2006.- We have raised FY06 and FY07 EPS by 16% and 18% respectively for higherbed occupancy, stronger associate contributions, higher referraladmissions, positive health insurance contributions, and better patientloads via changes in medical regulations. We have also introduced FY08estimates. ? Maintain Outperform, upgraded target price to S$0.76 (fromS$0.66) due to earnings upgrade. Target price is pegged at 20x CY06 P/E, atthe lower end of industry average P/E of 20¨C25x. RMG trades at anundemanding 15.6x FY06 P/E with a prospective dividend yield of 5.3% forFY06. We believe an improved earnings outlook can support higher payouts.
RAFFLES MEDICAL, dbs remains a BUY with target price $0.68- It presented FY05 results that were in line with our expectations.Revenue grew by 11.3% y-o-y to S$112.9m, boosted by strong influx oflocal and foreign patient volume. Net profit grew 26.9% y-o-y to S$12.0mdue to the stellar performance from its hospital services growingby 134.4% y-o-y, backed by higher foreign to local patient mix ratioand increased operating efficiencies as the Group scales up its hospitaloperations. In contrast, we are slightly disappointed by the performance ofits healthcare services as it continues to be plagued by that of thehealthcare financing division. Nonetheless, we are optimistic for theGroup's growth to continue its pace. As such, we are reiterating Buy anda raised target price of S$0.68, based on our target 18x PE and rollover our valuations to FY07 earnings. This is a discount to itsclosest comparable, Parkway, that is trading at 22x FY07F PE.- Hospital services - key growth driver. The Group's hospital servicesgrew by 134.4% y-o-y brought on by higher foreign to local patient mixratio (we estimate an increase of foreign mix by 1ppt to 34% whilelocal patients makeup 66%) and increased operating efficiencies as theGroup scales up its hospital operations.- Committed to be Asia's leading integrated healthcare operator. TheGroup is actively pursuing opportunities to grow its healthcarebusiness in Singapore and in the region. The key risks of RFMD are (i)growth highly dependent on Singapore and regional economic growth; and(ii) excessive losses from the Group's healthcare financing division.- Declares a total dividend payment of 2.5 Scents. While we wereoptimistic by the stellar performance of the Group's hospitalservices, we are slightly disappointed by that of the healthcareservices' as it continues to be plagued by the performance of theGroup's healthcare financing division. Nonetheless, we are optimistic forthe Group's growth to continue its pace. As such, we are reiteratingBuy and a raised target price of S$0.68, based on our target 18x PE androll over our valuations to FY07 earnings. This is a discount to itsclosest comparable, Parkway, that is trading at 22x FY07F PE.
SMT, cimb remains OUTPERFORM with target price $0.79 (from $0.815)-
Reasons for muted sales growth in 3QFY06.According to SMT, this was dueto a combination of slower-than-expected pick-up in orders from somecustomers, and component delivery issues that resulted in less-than-optimalproduction yield. We suspect that sales were also affected by the fall infloppy disk drives (FDD) orders, evident from the yoy and qoq drop in salesto the Computer Peripherals sector. We understand that one of its majorcustomers, Samsung, is in the process of leaving the FDD business. The top5 customers accounted for 60% of sales. These include Clarion, Daikin, LG,Samsung, and Sony.- Profit growth capped by escalating costs. According to SMT, bottomlinewould have been better if not for the 12-15% yoy spike in direct labourcosts, caused by a revision in minimal wages by the Chinese government.Bottomline was further depressed by higher energy and raw material costs aswell as interest rates (borrowing rate more than doubled yoy to about 5%)during the quarter.- Re-engineering manufacturing processes to cope with rising costs. SMT isnow trying to re-engineer its manufacturing processes and production flow.All its factories will eventually introduce ¡°Lean & Green¡± manufacturingprocesses, and manual assembly lines will convert into ¡°Cell¡±configuration within 18 months. SMT has already started to see somebenefits for these efforts, where output was raised despite reducing thenumber of operators and manufacturing space.- Expanding existing facilities to support new and existing customers. InDalingshan, SMT has purchased a 130,000 sf warehouse to set up a centrallogistic centre and warehouse located opposite its existing plants, and isexpected to start operation in May 06. In Tangxia, phase II construction isexpected to be completed by 3Q06, and it has also rented 80,000 sf oftemporary warehouse and production floor space for 15 months. In Suzhou,the construction of a new factory willstart in late Mar 06 with completionexpected in end 06.- Geographical diversification in China.To further enhance its position asa leading EMS firm in China, SMT plans to set up a new plant each inChangchun and Tianjin to cover the North Eastern province and Bohai region,respectively. In Changchun, SMT has already signed a MOU with China FAWGroup to set up a 100,000 sf factory by end-06. FAW is one of the largestcar production companies in China with an annual output of about 1mvehicles. In Tianjin, SMT plans to acquire a 500,000 sf site and will startbuilding a 200,000 sf plant on it early 2007. The Tianjin plant is expectedto start operation in early 2008 and is targeted at supporting some of itsexisting Korean customers and new customers in the automotive, handset,home appliances, and computer industries. SMT expects to invest more thanH$200m over three years for these two facilities.- Earnings cut, maintain Outperform. We have cut our full year FY06 EPSforecasts by 6% to adjust for the lower-than-expected 3Q06 numbers, andslight downward adjust in forecast for 4Q06. We have also cut our FY07-08EPS by 12-14% after lowering our sales assumptions and lifting interestcharges expectations. Despite our cut in earnings, valuations of SMT remainundemanding relative to the 2nd-tier contract manufacturers (CMs) listed onSGX. Our lowered target price of 79 cts (previously 81.5 cts) is based on8x CY06 earnings instead of FY06. As such, we are retaining our Outperformfor its cheap valuations and decent dividend yield of 4.6%.
TAT HONG, dbs remains a BUY with target price $1.05- 3Q06 results were very strong. Earnings grew 650% yoy to S$17m, boostedby strong operations as well as gains from dilution on listing ofits Australia subsidiary of S$8.8m. Revenue growth was broad-basedand increased by 33% yoy to S$100.7m in 3Q06. The Group is on trackfor a record year of earnings, with a robust outlook for the next 2-3years underpinned by the expected strength in infrastructure spendingin the Asia-Pacific and Middle East regions. We have raised our earningsforecast for Tat Hong for FY07-08 by 3-5% respectively and as such, haveadjusted our target price to S$1.05. Maintain BUY.- Results in line with expectations. YTD, 9M06 revenues are up 48%to S$309m, due to broad-based growth as well as the consolidation ofKingston Industries' numbers. Earnings as at 9M06 stand at S$33.6m - anincrease of 172% yoy. Stripping out exceptional gains on listing ofTutt-Bryant, earnings still doubled to S$25m over the same period from9M05. Margins continued to be on the rise, with gross margins in 3Q06 upto 29.7% from 28.1% in 3Q05 and 29.2% in 2Q06, as rental rates andfleet utilization improved. Operating margin improved from 10.2% in 9M05to 15.5% in 9M06 as the Group enjoyed some decent operating leverage.- Riding on infrastructure spending boom. With equipment supply tight inthe market, Tat Hong should continue to do well as spending oninfrastructure and energy projects in the Middle East and Asia Pacificregions increase. We are increasing our forecasts over FY07 andFY08 by 2.9% and 5.3% respectively to account for the stronger thanexpected gross margins we saw in 3Q06, due primarily to higher rentalrates and fleet utilization. We expect gross margins to remain firm giventhe robust demand for cranes and other heavy equipment in the Asia PacificRegion and the Middle East.- Maintain BUY, target price raised to S$1.05. The Group's share pricehas re-rated strongly in recent months but at 10.4x FY07 PER, decliningto 9x FY08 PER, valuations are not expensive. We maintain our BUY recommendation, with a raised target price of S$1.05, which is basedon 12x FY07/FY08 earnings.
UOB, csfb upgraded from neutral to OUTPERFORM- We are upgrading UOB to OUTPERFORM from neutral and its target price toS$17.50 from S$16.0 applying 1.9x P/B?f06E and 15.0x P/E?f06E, bothunchanged. Basically, we could have raised the target price earlier butkept it lower using subjective judgment.- UOB comes out as the overall winner in a new report analysing operationalgrowth and capital management in Singapore banks.- UOB's international operations, ~20% of profits currently, can turn upS$95-100 mn of incremental profits in FY06 simply from removal ofnon-recurring factors. ROEs show consistent uptrend, as OUB has announced ashare buy-back, which combined with a special dividend-in-specie andregular dividend could boost capital returned beyond 100% of the currentyear's profits.- Finally, UOB has either the cheapest or the most attractive valuationsamidst superior ROEs (1.5-2.0% higher than DBS and OCBC) and potential foran earnings surprise. With its total payout in FY06E matching orpotentially exceeding OCBC?fs ~80%, the stock deserves to be rerated, inour view.
UNITED ENVIROTECH, cimb remains OUTPERFORM with target price $0.60- Shaved FY05 EPS forecast by 25% to assume deferment in revenuerecognition. We understand that UENV¡¯s Huizhou Daya Bay¡¯s S$13.2mcontract, which was scheduled for completion toward end-05, has experienceda delay in the installation of its wastewater treatment system because thesite was not ready. As such, we reckon that at least 20% of the revenuebooking could be deferred in 2006. Also, we had expected contracts wins inDecember 2005, when UENV¡¯s largest petrochemical customer, Sinopec,typically rushed to fulfil their yearly environmental budget allocations.However, some interest realignments within Sinopec¡¯s scores ofsubsidiaries delayed this.- Retain S$0.60 target price, which is based on 9x CY06 P/E. Our FY06-07EPS forecasts, which have already factored in potential new contracts, arerelatively intact. With this latest S$14.6m contract, our FY06¡¯s revenueis now 55% backed by secured order book (from 30% previously) and 18% byrecurring revenue from its two wastewater treatment plants at Liaoning andShandong. Our 9x CY06 target benchmark is based on a 20% discount to theaverage multiples of the two other China-centric water stocks - Biotreatand Sinomem ¨C given UENV¡¯s shorter track record. We will revisit ourtarget price when there is further improvement in UENV¡¯s earningsvisibility.
WING TAI, deutsche bank remains a HOLD with target price $1.37- Benefits from stronger property market and a boost from a one-off gain.The strong 2Q results reflect a one-off gain and improvement in theSingapore residential market. The earnings recovery is on track and WingTai is a beneficiary of the improving luxury market, but this appears tofairly reflected in the tight 10% disc to RNAV. Maintain Hold.- 2QFY06 net profit of S$33m (up 3x from S$11m) boosted by one-off gains.Earnings were above expectations due to an est. S$20m gain from the sale ofa property by associate Winsor Properties. Accounting for a restatement of2QFY04 earnings from S$6m to S$11m, PATMI growth of 18% y-o-y in 2Q was notout of line with anticipated trends. Higher profit and revenue (up toS$154m from S$37m) was due to profit contribution from Kovan Melody and TheLight at Cairnhill. Gearing is reduced to 0.8X.- Maintain FY06 exceptional net profit of S$40m; does not include oneoff.At the pre-exceptional level, WIng Tai is on track to meet our S$40mforecast with sales of Draycott 8 likely to be booked in 2H. The resultsannouncement provided little detail or guidance, apart from a comment thatsentiment has continued to improve, and that the group is well positionedto tap this with new launches. We will review earnings after getting anupdate on recent sales,and more colour on the results.- RNAV maintained at S$1.61, target price at S$1.37. Our target price isset at a 15% discount to RNAV (on par with 18% discount in 1999) whichreflects a firm market outlook. A key downside risk is an external shocksuch as Avian Flu, which derails economic growth and real estate values inSingapore. Upside risks include a stronger-than-expected property marketrecovery.
WING TAI, smith barney remains a BUY with target price $1.67- 1H06 net profit S$42m (65% of FY06E). The result is in-line with ourexpectation. We like the company for the almost pure exposure to thehighend residential sector in Singapore. Maintain Buy with S$1.67 pricetarget.- 185% increase yoy is due to contributions from 27%-owned WinsorProperties selling Global Gateway (building in HK). 1H06 has also benefitedfrom write-backs from The Grange (~80% sold as at Dec 05) and Light @Cairnhill (~60% sold as at Dec 05) as well as recognition of profits fromKovan Melody (~70% sold as at Dec 05) and The Tomlinson (12 out of 29 unitssold as at Dec 05)- 2H06 should benefit from write-backs from Draycott Eight when it'sofficially launched (sold about 10% at ~S$1,600 psf recently, we believe).Interest expense fell 37% due to a lower net debt of S$820m following saleof Park Mall to Suntec REIT. Net gearing is now 80%, down from 100% before.- Over the past 6 months, company has raised prices by ~15% for some of itsprojects, e.g., The Grange, Light @ Cairnhill and The Tomlinson. With moreSingaporeans buying (a positive trend in our view), management is upbeat onthe residential market.
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SING BANKS, csfb maintain MKT WEIGHT- Capital management deals with the denominator in ROE which, in turn,determines the P/B multiples. Charts show a clear correlation between ROEand P/B for the Singapore banks.- Besides the ?esurplus?f capital currently available, banks are adding0.5-0.6% to Tier 1 capitalisation annually which gives them capacity toconduct buy-backs or acquisitions.- OCBC has demonstrated a clear commitment here. Its preferred mode, sharebuy-backs, has the effect of boosting ROEs as well as earnings per share.The stock has built up a premium rating compared to other two banks overthe past two years.- The bank with strongest ROE momentum in FY06E is likely to be DBS butthat will be earnings driven. DBS is likely to continue its aggressiveasset growth to use up the capital from operations.- UOB's recent initiative of a S$825 mn issue of preference capital,buy-back (announced S$600 mn), a potential dividend-in-specie and elevateddividends should lead to a positive ROE momentum.
SING PROP by deutsche bank- Improving macro drivers provides upside bias for property sector. Oureconomists have upgraded Singapore's GDP forecast from 5.5% to 6.5%, andexpect the domestic interest cycle to peak this year. Improving economicgrowth reaffirms our positive view on the property sector, and we see anupward bias to physical market and our RNAV estimates. Our 12-mth pickremains Capitaland, but laggards Keppel Land and City Developments mayoffer more short term upside on lower P/RNAV and more leverage to risingasset prices.- Our economics team upgraded 2006F GDP to 6.5%yoy from 5.5%. This issubstantially higher than the official 3-5% forecast. Recent data suggeststhat growth is becoming more broad based, e.g. manufacturing hasdiversified significantly to the biomedical/pharmaceutical and offshoresectors. For the first time since the Asian Crisis, there are signs ofinternally driven growth with falling unemployment, rising property pricesand up-tick in construction activity.- Currency to strengthen, interest rates to stabilize and reverse by yearend. The strong demand is feeding inflation, which will supportcontinuation of the MAS' tightening monetary bias. This implies anappreciation in the exchange rate against a trade-weighted index. DB has a12-mth forecast of SGD1.55/USD from SGD1.63/US and SGD1.71 last Dec. Theuncovered interest rate parity condition implies that this will causedomestic interest rates to stabilize shortly at around 3.6% and perhapsdrift down to 3.3% by early 2007.- Reaffirms our positive outlook; provides upside bias for physical market.Our baseline sector view already assumes firm GDP growth and peaking rates.Office take-up should be underpinned by strong GDP growth. With supplytightening and after robust 4Q rental growth, our S$6.60psf end-2006Prime-A office rent assumption is likely to be outstripped (vsS$5.70-5.90psf now). Home buyer confidence should be boosted by a morebroad based economic recovery and peaking interest rates. This could sparka long awaited recovery in the massmarket segment where we expect 4% higherprices vs 10-20% for the high-end.- Turn in interest rate cycle should help revive interest in the REITs.Robust economic growth will drive distributable income growth and declininginterest rates should help revive investor interest in the REITs.Valuations look attractive with SREITs yielding 5.4% (210bp over the 10-yrbond of 3.27%) and significantly higher than Hongkong. We like CapitaMallTrust and Suntec REIT.- We expect rising property prices will continue to drive RNAV expansion.The large cap property stocks are trading at RNAV. We expect to see RNAVupgrades from reporting season this month, and as the physical marketfirms. Our 12-mth pick remains Capitaland (CAPL SP, S$4.14, Buy) as itrestructures into a higher ROE, more capital efficient company. Stock hasreached TP; this will be reviewed post the results on Thurs. LaggardsKeppel Land (KPLD SP, Buy, S$4.10; best office exposure) and CityDevelopments (CIT SP, Buy, S$8.60; 2/3 domestic property) could offer moreST upside. A key risk for the sector is an external shock such as an AvianFlu pandemic which could derail economic growth.SING MARKETS by ubs- Budget & election. The budget is due 17 February, closely followed by aGeneral Election, which is widely expected to be in either March or May.Significant cash handouts are likely, with consumers the key beneficiaries.- Likely measures Potential measures might include (1) personal tax cut -the top tax rate could fall to 20% from 21% previously, with correspondingcuts across tax brackets; (2) a one-off 10-15% tax rebate; (3) details ofthe S$1bn funds to be distributed among low income workers; and (4) a cashtop-up for first-time buyers of HDB homes.- Consumption plays to benefit. We think domestic consumption plays wouldbenefit most from the election rally. The broad market PE at 15.2x, 2006Eis just some 5% below our fair value estimate of around 16x. Instead offurther PE re-rating, we would look for stocks with potential earningssurprises or trading at discounts to peers.- Stocks for election rally. We favour mid-cap property developers tradingat deep discounts to RNAVs - Allgreen (PTS$1.60), Singland (PTS$7), andGuocoLand (PTS$2.50). Other domestic consumption plays we like areSingPost, which is aggressively targetting and delivering growth acrossconsumer segments (PTS$1.30) and Suntec REIT which has been a laggard amongSREITs (PTS$1.26).SING STRATEGY, ml recommends- We believe macro fundamentals have been progressing well as expected, buthighlight the potential and rationale for expecting a steeper yield curvefor SGD interest bearing instruments.- We find the currency appreciation to be on path, with interest ratesabove historical trends. We continue to believe the MAS's modestappreciation path for the SGD is best for the currency given our 2.5% coreinflation expectation and thus would expect the current short-term ratesappear unusually high relative to US$ rates and highlight the potential forshort term interbank rates to moderate.- Biggest beneficiary if interbank rates were to moderate would be thebanking sector which on average could achieve 5-10bp improvements ininterest margins with a steeper yield curve. Banks also benefit from ourpositive macroeconomic view for Singapore and have lagged the performanceand valuations of the broader market.- Yield plays do not benefit from firm long term rates, though REITS haveenough growth to perform even without the benefit of an easing of long-termrates. We see long-term rates as remaining firm due to healthy domesticeconomic growth that is expected to be mildly inflationary.
CH OFFSHORE, dbs remains a BUY with target price $0.58
CCT, ml maintain BUY
COSCO, jpm remains OVERWEIGHT with target price $1.35
COMFORT,
deutsche bank remains a HOLD with target price $1.61
jpm remains OVERWEIGHT with target price $2 (from $1.90)
DBS, gs maintain INLIN
EE&E,
smith barney remains a BUY with target price $3.30 (fro $2.80)
cl maintain BUY
F&N,
ml maintain BUY
cimb remains NEUTRAL with target price $17.50
smith barney remains a SELL with target price $16.95
GLOBAL VOICE, dbs remains a BUY with target price $0.26
HTL, ml maintain BUY
HUAN HSIN,
cimb downgraded to NEUTRAL from Outperform with target price$0.73 (from $0.865)
dbs downgraded to Hold from Buy with target price $0.67 (from$0.89)
ml downgraded to SELL
JAYA,
jpm remains OVERWEIGHT with target price $1.80
nomura remains a BUY with target price $1.49 (from $1.31)
MICRO-MECH, kim eng remains a BUY with target price $0.60
RAFFLES MDICAL,
cimb remains OUTPERFORM with target price $0.76 (from$0.66)
dbs remains a BUY with target price $0.68
SMT, cimb remains OUTPERFORM with target price $0.79 (from $0.815)
TAT HONG, dbs remains a BUY with target price $1.05
UOB, csfb upgraded from neutral to OUTPERFORM
UNITED ENVIROTECH, cimb remains OUTPERFORM with target price $0.60
WING TAI,
deutsche bank remains a HOLD with target price $1.37
smith barney remains a BUY with target price $1.67
SING BANKS, csfb maintain MKT WEIGHT
*************************************
CH OFFSHORE, dbs remains a BUY with target price $0.58- CHO's 2QFYJun06 earnings declined 21% y-o-y to US$2.8m. This was belowour expectations as we were expecting only two rather than threevessels to undergo Special Surveys. We expect 2H06 earnings to be muchstronger driven by the full six month contribution from the three newvessels delivered in 1H06 and absence of any Special Survey costs.With the three vessels delivered in 1H06 and another four 12,240 bhp AHTSvessels to be delivered between Aug 06 and Mar 08, this will lead to acorresponding increase in tonnage of 16%, 22% and 18% over FY06F-08Frespectively. There could be additional growth opportunities with Scominow a 29% shareholder. Maintain Buy with a target price of S$0.58.- 2Q hit by Special Survey costs. We had already warned that 1Q and2Q06 earnings would be weak due to costs incurred for Special Surveys.Despite loss of charter-hire revenue from three vessels undergoing SpecialSurvey, revenue rose 15% y-o-y to US$8.1m benefiting from a5,400bhp vessel delivered in Jul 05 and a 4,800bhp and 5,400 bhp that weredelivered in Oct 05. EBIT fell US$2.2m or 73% to US$0.8m due to costsincurred for the Special Surveys. During a Special Survey, each vessel isnormally off-hire for about 60-65 days incurs a fee of US$0.5-1m. For thefirst time, CHO is proposing to an interim dividend, and this is for 0.5Scents.- New shareholder comes on board. The outlook for the offshorevessel chartering market is strong underpinned by a high level of oiland gas exploration and production activity and this should support thefirming charter rates. Tonnage operated is expected to rise 16% and22% over FY06-07F on the back of seven vessel deliveries between FY06Fand FY08F. Balance sheet remains robust with a projected net gearingposition of only 14% in FY07F, giving CHO room to expand its vessel fleetfurther.- Maintain Buy. 2H06 earnings is expected to be around 50% strongercompared to 1H driven by the full 6-month contribution from the threenew vessels delivered in 1H and absence of any Special Survey costs. Ourtarget price is S$0.58 based on 15x FY07 earnings.
CCT, ml maintain BUY- We have reduced our FY06E DPU by 0.3 cps to 6.9 cps (from 7.2 cpspreviously) although have reduced FY07E DPU by 0.1 cps. The revisionsreflect our estimate for the impact from the redevelopment of Golden Shoecar park during 2006 (-0.1 cps) and rental reversions at 6 Battery Road(-0.2 cps) in 2005.- Outlook for acquisitions We expect CCT to undertake acquisitions during2006. Due to the difficulty in undertaking accretive acquisitions withinthe Singapore domestic market (asset yields are too low), we expect CCT to look offshore. Potential acquisitions could include Raffles City Shanghai and Capital Tower Beijing in China.- Buy recommendation maintained We retain our Buy recommendation and price objective of S$1.75 per share. In our view, CCT offers excellent exposureto the Singapore office market and potential access to other regionalproperty markets.
COSCO, jpm remains OVERWEIGHT with target price $1.35- Cosco has again turned in an impressive set of results for FY05, slightlyahead of our forecasts at pre-exceptional levels. Net profit surged by 2.5xto S$160mn while turnover increased more than 6x to S$873.1mn. Thesignificantly stronger earnings resulted largely from the inclusion and thefull year impact of the Cosco Shipyard Group (CSG). Shipping earnings werein line with expectations. On a net profit breakdown basis, the share ofshiprepair earnings expanded to 43% from 25% while shipping contracted to57% from 75% in the previous year.- We expect shiprepair to maintain its strong earnings momentum and itsbottom line to be lifted by; (1) stronger revenue per vessel as CSG securesmore double hull (from single) conversion jobs with each running up toaround US$10mn, significantly higher-than-average repair revenue of S$1.15mper vessel, (2) growing earnings from offshore-related work as it takes onmore higher yielding fabrication outsourcing jobs from Sembcorp Marine(PPL), (3) ongoing capacity expansion ? total yard capacity is set totriple by 2008-2010 from 2005.- We are maintaining our earnings forecasts and our target price of S$1.35.
COMFORT, deutsche bank remains a HOLD with target price $1.61- Good overseas growth but better profitability of domestic operations iskey. While growth overseas is impressive lower profitability of itsdomestic taxi operations and high fuel costs are weighing down Comfort's profitability. For now we do not see any real catalysts and expect muted growth over the next few quarters. Valuations are also full hence wemaintain our Hold rating and TP of S$1.61.- Overseas bus business drives sales growth. Comfort reported full-yearsales and profits mostly in line with our expectations. Sales came in atS$2.29 bn versus our expectation of S$2.28bn. Net income was S$202m versusour expectation of S$203m. Increased revenue from bus operations in the UKand China increased rail revenue, and higher diesel sales in Singaporecontributed to sales growth.- Raising estimates slightly. We have left our sales forecast for FY06 mostly intact but raised our net profit estimate to S$211m from S$206m. Thedifference comes mostly from aligning the cost structure in FY06 closer toFY05. We have lowered depreciation assumption but raised assumptions onconsumable and fuel.- Maintain Hold and TP of S$1.61. Our 12-month target price of S$1.61 is based on a dividend discount model (DDM), using a 7% discount rate andassuming a 3% terminal growth rate. Upside risks include asooner-than-expected breakeven by NEL, falling fuel costs and reducedcompetition in taxis in Singapore. Downside risks include regulatory risksinvolving overseas acquisitions and rising fuel costs.
COMFORT, jpm remains OVERWEIGHT with target price $2 (from $1.90)- Putting FY05's trials and tribulations behind. CD registered acommendable set of FY05 results in an exigent year, although earnings weremarginally below our estimates (in line with consensus). Main differencesstemmed from additional driver benefits expenses of S$14.4m incurred, whichwe had not factored in. FY05 revenue rose by 7.8% y/y due to (1) increasesin overseas bus revenue (existing and new overseas subsidiaries), (2) higher rail revenue, and (3) higher diesel sales in Singapore. Earningsgrew 1.3% y/y to S$201.9m despite the continued rise in fuel prices andcompetition within the local taxi industry in the first 9M05. The marginalincrease came from lower minority interests and tax expense, further aidedby cost cutting measures.- An exciting FY06E. With the tapering off of local taxi competition andseemingly high oil prices, a recovery trends looks evident going forwardinto FY06E. Management's commitment to growing its existing and overseascore businesses, continual search for attractive overseas acquisitions, andmaintaining strong cost controls, plus a possible capital management angle,could propel growth going forward.- We maintain Overweight and increase our Dec-06 target price toS$2.00/share (from S$1.90/share) by rolling over our sum-of-parts valuationinto FY06E. We still believe that CD's healthy overseas growth trajectoryplus the yield support it provides preserves the stock's attractiveness inFY06E and beyond.
DBS, gs maintain INLINE
According to an unconfirmed report in The Korea Economic Daily, DBS maymake a joint bid with Hana Bank to buy Korean Exchange Bank (KEB). We donot see KEB as a natural fit with DBS for the following reasons (1) DBS'core markets are ASEAN, China and India, and we see little reason for DBSto shift its focus now to Korea when there is still ample scope forexpansion in its core markets; (2) KEB is sizeable (the 6th largest bank inKorea with around US$67 bn in assets as of 3Q05 vs. US$112 bn for DBS), andhence likely involves execution/integration risks; and (3) it would beharder for DBS to extract synergies with KEB than for a Korean acquirer.However, if confirmed, we believe the potential partnership would have toaccrue significant benefits to DBS to make it worthwhile. We retain ourIn-Line rating on the stock and S$17.8 price target (1.5X 2006E P/B). Key risks pricey M&A, earnings disappointments.
E&E, smith barney remains a BUY with target price $3.30 (fro $2.80)-
Maintain Buy (1M) rating We see ~22% upside potential from current levelsgiven the strong set of results, higher than expected dividend payout andpositive outlook. Despite the ~24% rise in share price over the past 3mths,valuations remain undemanding (8.7x 07E P/E with improving ROE and yield).E&E remains a high-yield, low P/E play and is a key beneficiary of PCBoutsourcing in China. Our forecast remain intact but raise target pricefrom US$2.80 to US$3.30 by rolling fair value multiple from FY 06 to FY07.2QFY06 Review Net profit of US$13.8mn (+17% yoy, +7% qoq) came in line withour expectations. Revenue of US$126mn (+13%yoy, +6% qoq) was driven largelyby PC, Consumer (digital TVs) and Telco segments. Balance sheet remainshealthy, with ~34% net gearing (in-line with our FY 36% est.) while FCFsignificantly up to US$15mn (v/s ¨CUS$11mn in 2Q FY05) yoy.- Interim dividend of US$0.08 Mgmt declared US$0.08 dividend (v/s ourforecast of US$0.06), implying a 20% yoy increase. With FCF improving,E&E¡¯s div payout for FY06/07 can be higher than our est. 50% payout ratio.- Positive Guidance 1) Book to bill remains above 1x in March qtr, andrevenue momentum appears strong with slight rise in order backlog(US$43.8mn v/s US$42mn in Dec qtr) 2) Expects to gain more market sharewith Japanese customers (game consoles), and Dell (PCs) 3) Completion ofnew plant in Kaiping is on track and scheduled to commence production bySeptember quarter. 4 ) Gearing level should fall to30%- Valuations undemanding The stock remains attractively valued. E&E tradesat 8.7x FY07 P/E, offers 6.3% dividend yield.
E&E, cl maintain BUY- E&E.s 1H06 results were in line Revenues at US$126.3m (+13%YoY) and netprofit at US$13.8m (+26%YoY).- A shift in product mix towards higher-layer count (greater contributionfrom microvia) and improved utilisation rates raised gross margins by70bpYoY and 20bpQoQ.- Interim dividend has been raised to US8cts (from US6.7cts), or 53%payout. Going forward, strong operating cashflows (after capex), andmanagement.s commitment in maintaining a high dividend policy means thatour payout assumptions remain intact.- Looking ahead, a tight demand-supply situation is indicated by apositive PCB book-to-bill ratio, and the strong sales momentum is expectedto continue into the coming quarters.- Management is witnessing robust demand from customers in computing (forhigh-end servers) and consumer electronics (for LCD TVs, and handhelddevices), albeit the outlook for its communications segment remainscautious given rising capacities from Taiwanese competitors.- We have made slight adjustments to our earnings estimates, to accountfor higher interest expenses and provisions for mgt performance incentives,in aggregate lowering forecasts by 1-3% for FY06-07.- We continue to seefair value at US$3.76, or 10x PE. Valuations arecompelling given strong earnings cagr and ~7% div yield and rising. BUYmaintained.
F&N, ml maintain BUY- 1Q06 results; NPAT up 5% Fraser & Neave Limited (F&N) has reported 1Q06results with revenue and EBIT up 11% and NPAT up 5% from 1Q04. Whileoperating earnings grew strongly NPAT showed lower growth due to theslightly higher tax rate coupled with lower earnings from non-coreinvestments.- Property continues to shine F&N's domestic and international propertydevelopment operations continue to drive earnings. Development propertyrevenue and EBIT increased by 12% and 64% respectively, and investmentproperty saw revenue and EBIT increase 10% and 6% respectively.- Centrepoint REIT aiming for May/June 2006 The Centrepoint REIT isexpected to be IPO'd in mid 2006. The REIT has taken longer to be listedwhich we attribute to the softening in the Singapore REIT sector in thelatter part of 2005.- Recommendation We maintain our recommendation of Buy and have increasedour price objective to S$19.13 per share from S$17.75 per share previously.Our price objective is based on a 5% discount to our "post REIT" valuationof S$20.14 per share and the increase reflects the improving fundamentalswithin the property sector.
F&N, cimb remains NEUTRAL with target price $17.50- F&N's 1Q06 net profit of S$68m (+3% yoy) was in line with consensus andour expectations, and accounts for 24% of our FY06 net profit forecast. Theqoq slowdown in earnings is no cause for alarm as there wereextraordinarily strong residential sales in 4Q05, as compared with 1Q06.- 1Q06 saw weakness in the dairies and glass containers divisions. Dairiesnet profit was down to S$0.5m (-71% yoy), due to the collapse of margin onthe back of higher material costs. The glass containers division sawdisruption and plant closure dragging net profit down to S$0.8m (-33% yoy).- Property division continued to be a key contributor to the group.Development property did reasonably well with 255 units sold. Apart fromThe Azure in Sentosa Cove, which was fully sold, it also soft-launched theRaintree in 1Q06. Net profit surged to S$25m (+65% yoy).- Strong growth in Brewery was underpinned by regional sales and expansion.While volume in Singapore slowed by 5%, higher sales were achieved inIndochina and PNG, and China delivered double digit growth in sales. Chinabreweries are expected to be profitable in FY06 on the back of high salesvolume, while Hainan brewery is profitable, and there is positivecontribution from Kingway and Jiangsu DaFuHao breweries. Overall, Breweryrevenue was up 6%, with net profit of S$16m (+12% yoy).- Management is bullish on the outlook for the group, and expect it toachieve better profitability in FY06. We believe that breweries,development and investment property will remain key contributors to thegroup.- Maintain Neutral and target price of S$17.50, derived from a 5% discountto SOP valuation. The shares are trading at 14.5x FY06 and 14.1x FY07 coreP/E on a fully-diluted basis. We believe that downside risk is low, withhealthy yield support of 3.9% for FY06.
F&N, smith barney remains a SELL with target price $16.95- F&N reported a steady 3% progress in net profits to S$68m (23% of ourfullyear forecast), underpinned by its breweries and development propertyactivities- Asia Pacific Breweries reported a 16% progress in net profits supportedby strong operating profit growth at Papua New Guinea (+28%) and Indochina(+18%). Profits were flat in Malaysia and Singapore while China continuedto post losses although maintained at last year¡¯s levels.- Property development profits grew 64% as the group booked in profits frompresold projects like 8@Sophia, Tangerine Grove and contribution fromVision Century, its China subsidiary.- F&N Bhd meanwhile reported an 11% progress in profits with soft drinksdriving growth, cushioning the drag from glass manufacturing ,which wasaffected by plant disruption in Malaysia and closure in China.- We maintain our Sell rating for the stock on valuation grounds as theshares are trading above our target price of S$16.95.
GLOBAL VOICE, dbs remains a BUY with target price $0.26-
Global Voice (GV) has signed an MOU to acquire 50% of Viatel'slong-haul intercity network for a cash consideration of €25m and an assetswap of 5 pairs of GV's metro fibre worth €17m, for a total price of€42m. The move would be earnings accretive, adding c.€1.95m and €2.6m inFY06 and FY07 to net profit as GV takes over Viatel's existing customers.In the long term, this deal should create additional business opportunitiesas GV's customers would be offered intercity and last mile fibre accesswithin Europe. We continue to like the stock for its high gross marginsand potential strong cashflow generation abilities. Maintain BUY with aone-year target price of S$0.26 based on DCF.- GV buys network for €42m. In a move similar to its earlier purchase,GV expects to pay a €42m in cash and assets for 50% of Viatel's intercitylong haul fibre network that could well be valued at €1.2bn. The 6,800kmnetwork spans six countries and complements GV's existing metronetworks in Germany, Holland and London, linking 13 of the Group's 14metropolitan networks.- Enlarged footprint should enhance existing metro network. Prior to this,GV was confined to offering its customers fibre leasing and BCS servicesin only 14 metropolitan cities in Europe. With the enlarged network, itcan offer both corporate and Telco customers the ability to transferdata between their offices and exchanges in various cities across sixcountries in Europe. Telco customers looking to upgrade their legacycopper wire networks can also lease or buy dedicated strands of fibrefrom GV without having to incur heavy construction costs. Key riskscontinue to be a slow takeup in GV's fibre leasing and BCS services.While network utilisation has risen to 13% in Frankfurt and 10% inAmsterdam, it is still relatively low in other cities. If the Group isunable to ramp up its customer base quickly, it may lose out toincumbent telco's who are upgrading their networks to provide higher value-added services.- Maintain BUY with one-year target price of S$0.26 based on DCF valuations. We think the Group will use a mixture of debt and equityto fund the acquisition which should result in an enlarged share base ofapproximately 2,550m shares. We have adjusted our DCF estimates to modelfor a 2-stage growth phase and accounting for a long-term debt to equityratio of 10%. While the additional shares do dilute earnings somewhat,the use of debt and our growth adjustments continues to result a FY06 fairvalue of S$0.26. Maintain BUY.
HTL, ml maintain BUY- FY05 earnings of S$54mn beat our forecast Gross margin of 32% was betterthan expected as HTL charged higher prices for door-to-door delivery (but contained freight costs) and obtained better pricing by targeting theupper-mid end segment. HTL was also given tax rebates by the PRC governmentfor reinvesting profits in manufacturing facilities.- Free cash flow up as working capital management improves HTL's operatingcash flow rose to S$79mn (from S$30mn in FY04) as its investment in ERPsystems enabled it to improve the collection cycle and better manageinventories. This has enabled HTL to pay down borrowings by S$6mn, financethe S$36mn Domicil acquisition internally, and declare a 30% dividendpayout of S$16.2mn (3.3% yield).- No material contribution from Domicil until 2007 Domicil contributedS$13mn of sales in 4Q05 (2% of total) but suffered a S$430k net loss due tostartup costs. HTL plans to use 2006 to integrate Domicil and develop thecity and megastore concepts before launching the Domicil brand globally in2007.- Maintain Buy with S$1.93 price objective We have tweaked up our FY06 andFY07 estimates by 3% due to better pricing and adjusted our DCF-based priceobjective upwards slightly to S$1.93 (from S$1.88).
HUAN HSIN, cimb downgraded to NEUTRAL from Outperform with target price$0.73 (from $0.865)- Below expectations. Poor set of results as expected. 4Q05 net profit camein 64% below consensus and our estimate. The short fall was attributed tolower-than-expected gross margin and higher-than-expected opex ratio.- Sales surged 42% yoy and 35% qoq in 4Q05, driven by maiden contributionsfrom printer-related business (estimated to be about 21% of sales) andcontinuous growth in notebook casings (+18% yoy to 3.2m units in 4Q).- EBITDA margin decline 3.4% pts yoy and 1.2% qoq, hurt by a combination of1) greater contributions from low margin full turnkey projects; 2) marginpressure for notebook casings; 3) higher raw material prices; and 4)start-up costs for phase II Shangdong plant. Net profit excluding one-offgains in 4Q04 and 3Q05, declined by 59% and 28%, respectively.- Net gearing increased to 0.2x, up from 0.12x as at end-Sep. Cash cycledays improved by 15 days qoq to 105 days as a result of higher salescontributions from Samsung, which has shorter credit terms than TaiwaneseODMs. It declared a tax-exempt final dividend of 0.6 cts, down from 1.2cts a year ago.- Growth to come from printer-related business. We understand itsrelationship with Samsung has strengthened, and order from printer-relatedbusiness remains robust. Phase II expansion in Weihai has started, and itplans to expand tooling capabilities to offer a wider range of services toSamsung and other MNCs. Huan Hsin will also relocate its wire manufacturing operation and part of its notebook casing operation to Weihai to reduce costs. Notebook casing business will be driven by the projected 20-25% yoyshipment growth for notebook PCs and penetration into new ODM customers. Itwill also ride on market-share gains by its current four Taiwanese ODMcustomers.- Forecasts and target price lowered; downgrade to Neutral. We have shavedour FY06-07 EPS by 12-16% to factor in downward adjustments in gross marginassumptions and upward revisions in opex ratio. We have also introducedFY08 estimates. Accordingly, we have cut our target price from S$0.865 toS$0.73, still based on 10x CY06 P/E. Although share price offers 11%upside, we would prefer to re-visit the stock in mid-06 when visibilityimproves. Downgrade to Neutral.
HUAN HSIN, dbs downgraded to Hold from Buy with target price $0.67 (from$0.89)- HUAN's 4Q05 results were below our expections. Underlying net incomefell by 76% y-o-y and 28% sequentially to S$2.9m. Order momentum remainsintact as revenues saw a 42% increase y-o-y to S$211.5m, as orders fornotebook casings and laser printer cartridges continues to be drivetop-line. FY05 results have been affected adversely by start-up costs ofaround S$8-9m, and we expect this to continue into FY06. HUAN alsoannounced the restructuring of the Zhan Yun JV with Quanta, with apossible listing of the entity in the future. Overall results weredisappointing and we have downgraded HUAN to Hold, with a revised1-year target price of S$0.67, based on a PE of 8.9x FY07 earnings.- Disappointing 4Q05 results. 4Q05 results came in below our expectationsof S$6.0m (net of exceptionals) at S$2.9m. This was despite the higherthan expected 4Q05 revenues, which increased by 47% y-o-y and 36%sequentially. Even as order momentum from its customers remains strong,earnings have been hit by a combination of high raw material cost, aswell as start-up costs from 3 plants that have started operations in FY05. HUAN announced a final dividend of 0.6 Scts, bringing total dividend paidout this year to 1.6 Scts.- Additional start-up costs expected to continue into FY06. With thesecond Shandong plant that started partial operations in late 3Q05 stillin the process of construction, as well as other new plants that havestarted operations, we are expecting additional start-up costs of aroundS$5-6m in FY06. In FY05, total start-up costs were between S$8-9m. Wehave factored this into our forecasts, and revised FY06 and FY07earnings downwards by 28% and 29%, respectively. HUAN also announcedthe restructuring of the Zhan Yun JV with Quanta, which will effectivelydecrease their stake in the JV, to 42.5% from 51% previously.- Tough operating conditions. Even though order momentum remains intact,the operating environment for HUAN remains challenging with high oilprices, and continued pricing pressure from customers. 1H06 resultsare not expected to be exciting, as the bulk of start-up costs should beincurred in the first half of FY06. Downgrade to Hold with a 1-yeartarget of S$0.67, down from S$0.89 previously.
HUAN HSIN, ml downgraded to SELL- Downgrade to Sell Huan Hsin reported very disappointing FY05 resultswith revenue growth of 40% but net profit decline of 29% to S$22.8mn versusour estimates of S$27.8mn and consensus mean of S$27.2mn. The company'sfocus on top line growth at the expense of margins as well as the lack ofoperating visibility leaves us uncomfortable with its prospects.- Collapsing margins Gross margins recorded a fifth consecutive quarter ofdecline from 29% in 3Q04 to the current 17%. Operating margin for FY05 morethan halved that of the previous year, falling from 11.8% to 4.7%. Thiswere attributed to product mix shift towards high assembly content notebookdocking stations as well as start up costs of the various new plants.- Investing beyond its means Huan Hsin has been free cash flow negative forthe past 4 years and we expect it to remain so going forward. The companyhas funded its aggressive growth plans via share placements and gearing upthe balance sheet. Capex in 4Q05 was a record high of S$30.6mn while returnon invested capital has declined to 6.4% in 2005. We are concerned aboutthe rapid expansion that Huan Hsin is undertaking to cater to its keycustomers which leaves the company increasingly vulnerable to volatility ofkey customers' orders.- No longer cheap Huan Hsin currently trades at 11x FY06E EPS. Given theheightened risk profile, we feel that valuations are unattractive. Ournumbers are about 30% below consensus, we are not confident that Huan Hsinwill deliver significant growth this year and risk to Street estimates isto the downside.
JAYA, jpm remains OVERWEIGHT with target price $1.80- Jaya's 1H06 results were inline with expectations. Net profit jumped by48% to S$63.7m while turnover expanded by 1.2x to S$167m.- Shipbuilding was the biggest contributor (55%) to the group's net profitfollowed by offshore shipping (43%). Shipbuilding, which accounted for 78%of 2Q06 net profit, benefited from the ramping up vessel sales to externalbuyers. As a result, Jaya is able to recognize progressive contributionfrom these vessels which expanded to 12 in 2Q from 2 in 1Q. These vesselsales are in line with the group's strategy of retaining half of vesselsunder production for its own fleet chartering operations.- There are currently 35 vessels in the pipeline. With the continued strongdemand for these vessels (AHTS), we believe it is really down to balancingthe size of its chartering fleet and vessel sales. We expect the interestin Jaya to be more intense as we draw nearer to the October/November 06dateline for the put and call options. (see further for details)Strategically, we believe that it would make sense for Sime Darby to makeJaya a subsidiary as Jaya should enhance its bottom line while providingthe relevant skill sets. Tactically, Sime Darby's silence with regard toits strategic intention with Jaya since the initial acquisition isappropriate, in our view, as any hint of serious intent to eventuallyacquire more than 50% in Jaya would likely lead to a bigger price tag forJaya. We are maintaining our price target at S$1.80.
JAYA, nomura remains a BUY with target price $1.49 (from $1.31)- We remain upbeat on Singapore's offshore oil & gas sector, where highglobal rig utilisation rates underpin demand for offshore support vesselsfor sale and charter.- Jaya management expects "continued strong demand" for its offshorevessels, with customer enquiries prompting an expansion of the new buildprogramme ? 54 vessels in FY06-08F. To our view, Jaya remains in a sweetspot of the offshore cycle, and we reiterate our BUY rating.- Jaya on 13 February reported 2Q FY06 net profit of S$41.3m, a rise of39.7% y-y. Net profit in 1H FY06 was S$63.7m, up 48.1% y-y, on strongcontributions from the shipbuilding division (contributing net profit ofS$35.3m), as well as existing fleet sales (contributing S$20.1m).- Upbeat on its prospects, Jaya lifted its 1H FY06 interim gross dividendto 3.5 Singapore cents/share, from 2.5 Singapore cents in 1H FY05.- With some 150 Anchor Handling Tug/Supply (AHTS) vessels underconstruction, future vessel sale prices and charter day rates might beaffected should demand in the oil & gas sector wane. But with new supplyseen increasing only 4-6% pa over the existing offshore fleet, such risksappear modest in the light of current demand.- We lift FY06F EPS by 17.1% to reflect higher existing fleet sales. We cutFY07F EPS by 3.0%, factoring in lower charter income given fleet disposals.- Pegging earnings to the regional peer average for December 2006F PER of12.1x (previous December 2006F PER of 11.3x), our revised fair valueestimate is S$1.49/share (previous S$1.31/share). BUY reiterated.
MICRO-MECH, kim eng remains a BUY with target price $0.60- Interim results beat our expectation. Sales grew 14% yoy to $15.4m,higher than our projection of $14.9m, driven largely by the recovery of thesemiconductor industry and the in-roads made by its China operations. Netprofit grew 29% yoy to $3.7m, exceeding our forecast of $3.3m.- China was the major growth driver. With 30% revenue growth in China, thecountry has over-taken Philippines to become its second biggestgeographical market. This was achieved as the company set up manufacturingfacility in Suzhou and beefed up its sales force in the country to reachout to local chipmakers. It also saw strong revenue growth in Thailand,US and Malaysia.- Positive outlook ahead. Going forward, management is bullish as outlookfor the semiconductor industry remains positive. This is especially so inthe back-end test and assembly segment, which is experiencing capacitytightness. With more than 85% of its revenue derived from components usedin the assembly process, Micro-Mechanics should benefit from the industrystrength.- Excellent track record. Management has buikd up the track record ofdelivering consistent growth in the last few years. Revenue would haveincreased at a compounded annual rate of 20% over the last 3 years, whileearnings would have grown 37% annually. Despite significantly higherrevenue, it has been able to maintain gross margin at above 60%.- Maintain BUY. We have increased our full year forecast by 10% to $7.5m.Management has raised interim dividend by 25% to 1 cent, putting it ontrack to meet our full year dividend forecast of 3 cents. The stock iscurrently trading at an attractive valuation of 8.5x June 06 earnings andoffers a generous dividend yield of 6.5%. We have a 6-month target price of60 cents, translating to a 30% upside for share price.
RAFFLES MDICAL, cimb remains OUTPERFORM with target price $0.76 (from$0.66)- 4Q05 net profit was in line with consensus and our expectation. 4Q05 netprofit rose 27% yoy to S$3.7m, lifting FY05 net profit to S$12m (+26% yoy).- Hospital services operating profit surged 123% yoy to S$9.9m, onoperating margin of 16.5% (from 9.6%). The group saw a surge in patientadmissions, recording its highest number of patients ever. Some 34% of thepatients were foreigners. This reaffirms our view that the group willcontinue to see a surge in occupancy rates and better facility utilisationat Raffles Hospital. Coupled with the increased MediSave withdrawal limitfrom Apr 06, we believe that FY06 operating profit for the group will growsignificantly by 29%.- Healthcare Services revenue dipped 4% yoy mainly from the loss ofcontribution from SARS related projects. However, we expect operatingprofit to expand further with the group leveraging on its network ofclinics, as well as contributions from Health Insurance in FY06. We expectoperating margin for this segment to reach 11% in FY06.- Enlarging regional footprint. The group is converting its Jakartarepresentative office into a medical centre with day surgery and clinicalfacilities. This medical centre, which will be earnings accretive andprovide referrals to its Raffles hospital, will start operations in 2Q06.Clinical operations in Shanghai and Beijing are projected to come onstreamin 2006.- We have raised FY06 and FY07 EPS by 16% and 18% respectively for higherbed occupancy, stronger associate contributions, higher referraladmissions, positive health insurance contributions, and better patientloads via changes in medical regulations. We have also introduced FY08estimates. ? Maintain Outperform, upgraded target price to S$0.76 (fromS$0.66) due to earnings upgrade. Target price is pegged at 20x CY06 P/E, atthe lower end of industry average P/E of 20¨C25x. RMG trades at anundemanding 15.6x FY06 P/E with a prospective dividend yield of 5.3% forFY06. We believe an improved earnings outlook can support higher payouts.
RAFFLES MEDICAL, dbs remains a BUY with target price $0.68- It presented FY05 results that were in line with our expectations.Revenue grew by 11.3% y-o-y to S$112.9m, boosted by strong influx oflocal and foreign patient volume. Net profit grew 26.9% y-o-y to S$12.0mdue to the stellar performance from its hospital services growingby 134.4% y-o-y, backed by higher foreign to local patient mix ratioand increased operating efficiencies as the Group scales up its hospitaloperations. In contrast, we are slightly disappointed by the performance ofits healthcare services as it continues to be plagued by that of thehealthcare financing division. Nonetheless, we are optimistic for theGroup's growth to continue its pace. As such, we are reiterating Buy anda raised target price of S$0.68, based on our target 18x PE and rollover our valuations to FY07 earnings. This is a discount to itsclosest comparable, Parkway, that is trading at 22x FY07F PE.- Hospital services - key growth driver. The Group's hospital servicesgrew by 134.4% y-o-y brought on by higher foreign to local patient mixratio (we estimate an increase of foreign mix by 1ppt to 34% whilelocal patients makeup 66%) and increased operating efficiencies as theGroup scales up its hospital operations.- Committed to be Asia's leading integrated healthcare operator. TheGroup is actively pursuing opportunities to grow its healthcarebusiness in Singapore and in the region. The key risks of RFMD are (i)growth highly dependent on Singapore and regional economic growth; and(ii) excessive losses from the Group's healthcare financing division.- Declares a total dividend payment of 2.5 Scents. While we wereoptimistic by the stellar performance of the Group's hospitalservices, we are slightly disappointed by that of the healthcareservices' as it continues to be plagued by the performance of theGroup's healthcare financing division. Nonetheless, we are optimistic forthe Group's growth to continue its pace. As such, we are reiteratingBuy and a raised target price of S$0.68, based on our target 18x PE androll over our valuations to FY07 earnings. This is a discount to itsclosest comparable, Parkway, that is trading at 22x FY07F PE.
SMT, cimb remains OUTPERFORM with target price $0.79 (from $0.815)-
Reasons for muted sales growth in 3QFY06.According to SMT, this was dueto a combination of slower-than-expected pick-up in orders from somecustomers, and component delivery issues that resulted in less-than-optimalproduction yield. We suspect that sales were also affected by the fall infloppy disk drives (FDD) orders, evident from the yoy and qoq drop in salesto the Computer Peripherals sector. We understand that one of its majorcustomers, Samsung, is in the process of leaving the FDD business. The top5 customers accounted for 60% of sales. These include Clarion, Daikin, LG,Samsung, and Sony.- Profit growth capped by escalating costs. According to SMT, bottomlinewould have been better if not for the 12-15% yoy spike in direct labourcosts, caused by a revision in minimal wages by the Chinese government.Bottomline was further depressed by higher energy and raw material costs aswell as interest rates (borrowing rate more than doubled yoy to about 5%)during the quarter.- Re-engineering manufacturing processes to cope with rising costs. SMT isnow trying to re-engineer its manufacturing processes and production flow.All its factories will eventually introduce ¡°Lean & Green¡± manufacturingprocesses, and manual assembly lines will convert into ¡°Cell¡±configuration within 18 months. SMT has already started to see somebenefits for these efforts, where output was raised despite reducing thenumber of operators and manufacturing space.- Expanding existing facilities to support new and existing customers. InDalingshan, SMT has purchased a 130,000 sf warehouse to set up a centrallogistic centre and warehouse located opposite its existing plants, and isexpected to start operation in May 06. In Tangxia, phase II construction isexpected to be completed by 3Q06, and it has also rented 80,000 sf oftemporary warehouse and production floor space for 15 months. In Suzhou,the construction of a new factory willstart in late Mar 06 with completionexpected in end 06.- Geographical diversification in China.To further enhance its position asa leading EMS firm in China, SMT plans to set up a new plant each inChangchun and Tianjin to cover the North Eastern province and Bohai region,respectively. In Changchun, SMT has already signed a MOU with China FAWGroup to set up a 100,000 sf factory by end-06. FAW is one of the largestcar production companies in China with an annual output of about 1mvehicles. In Tianjin, SMT plans to acquire a 500,000 sf site and will startbuilding a 200,000 sf plant on it early 2007. The Tianjin plant is expectedto start operation in early 2008 and is targeted at supporting some of itsexisting Korean customers and new customers in the automotive, handset,home appliances, and computer industries. SMT expects to invest more thanH$200m over three years for these two facilities.- Earnings cut, maintain Outperform. We have cut our full year FY06 EPSforecasts by 6% to adjust for the lower-than-expected 3Q06 numbers, andslight downward adjust in forecast for 4Q06. We have also cut our FY07-08EPS by 12-14% after lowering our sales assumptions and lifting interestcharges expectations. Despite our cut in earnings, valuations of SMT remainundemanding relative to the 2nd-tier contract manufacturers (CMs) listed onSGX. Our lowered target price of 79 cts (previously 81.5 cts) is based on8x CY06 earnings instead of FY06. As such, we are retaining our Outperformfor its cheap valuations and decent dividend yield of 4.6%.
TAT HONG, dbs remains a BUY with target price $1.05- 3Q06 results were very strong. Earnings grew 650% yoy to S$17m, boostedby strong operations as well as gains from dilution on listing ofits Australia subsidiary of S$8.8m. Revenue growth was broad-basedand increased by 33% yoy to S$100.7m in 3Q06. The Group is on trackfor a record year of earnings, with a robust outlook for the next 2-3years underpinned by the expected strength in infrastructure spendingin the Asia-Pacific and Middle East regions. We have raised our earningsforecast for Tat Hong for FY07-08 by 3-5% respectively and as such, haveadjusted our target price to S$1.05. Maintain BUY.- Results in line with expectations. YTD, 9M06 revenues are up 48%to S$309m, due to broad-based growth as well as the consolidation ofKingston Industries' numbers. Earnings as at 9M06 stand at S$33.6m - anincrease of 172% yoy. Stripping out exceptional gains on listing ofTutt-Bryant, earnings still doubled to S$25m over the same period from9M05. Margins continued to be on the rise, with gross margins in 3Q06 upto 29.7% from 28.1% in 3Q05 and 29.2% in 2Q06, as rental rates andfleet utilization improved. Operating margin improved from 10.2% in 9M05to 15.5% in 9M06 as the Group enjoyed some decent operating leverage.- Riding on infrastructure spending boom. With equipment supply tight inthe market, Tat Hong should continue to do well as spending oninfrastructure and energy projects in the Middle East and Asia Pacificregions increase. We are increasing our forecasts over FY07 andFY08 by 2.9% and 5.3% respectively to account for the stronger thanexpected gross margins we saw in 3Q06, due primarily to higher rentalrates and fleet utilization. We expect gross margins to remain firm giventhe robust demand for cranes and other heavy equipment in the Asia PacificRegion and the Middle East.- Maintain BUY, target price raised to S$1.05. The Group's share pricehas re-rated strongly in recent months but at 10.4x FY07 PER, decliningto 9x FY08 PER, valuations are not expensive. We maintain our BUY recommendation, with a raised target price of S$1.05, which is basedon 12x FY07/FY08 earnings.
UOB, csfb upgraded from neutral to OUTPERFORM- We are upgrading UOB to OUTPERFORM from neutral and its target price toS$17.50 from S$16.0 applying 1.9x P/B?f06E and 15.0x P/E?f06E, bothunchanged. Basically, we could have raised the target price earlier butkept it lower using subjective judgment.- UOB comes out as the overall winner in a new report analysing operationalgrowth and capital management in Singapore banks.- UOB's international operations, ~20% of profits currently, can turn upS$95-100 mn of incremental profits in FY06 simply from removal ofnon-recurring factors. ROEs show consistent uptrend, as OUB has announced ashare buy-back, which combined with a special dividend-in-specie andregular dividend could boost capital returned beyond 100% of the currentyear's profits.- Finally, UOB has either the cheapest or the most attractive valuationsamidst superior ROEs (1.5-2.0% higher than DBS and OCBC) and potential foran earnings surprise. With its total payout in FY06E matching orpotentially exceeding OCBC?fs ~80%, the stock deserves to be rerated, inour view.
UNITED ENVIROTECH, cimb remains OUTPERFORM with target price $0.60- Shaved FY05 EPS forecast by 25% to assume deferment in revenuerecognition. We understand that UENV¡¯s Huizhou Daya Bay¡¯s S$13.2mcontract, which was scheduled for completion toward end-05, has experienceda delay in the installation of its wastewater treatment system because thesite was not ready. As such, we reckon that at least 20% of the revenuebooking could be deferred in 2006. Also, we had expected contracts wins inDecember 2005, when UENV¡¯s largest petrochemical customer, Sinopec,typically rushed to fulfil their yearly environmental budget allocations.However, some interest realignments within Sinopec¡¯s scores ofsubsidiaries delayed this.- Retain S$0.60 target price, which is based on 9x CY06 P/E. Our FY06-07EPS forecasts, which have already factored in potential new contracts, arerelatively intact. With this latest S$14.6m contract, our FY06¡¯s revenueis now 55% backed by secured order book (from 30% previously) and 18% byrecurring revenue from its two wastewater treatment plants at Liaoning andShandong. Our 9x CY06 target benchmark is based on a 20% discount to theaverage multiples of the two other China-centric water stocks - Biotreatand Sinomem ¨C given UENV¡¯s shorter track record. We will revisit ourtarget price when there is further improvement in UENV¡¯s earningsvisibility.
WING TAI, deutsche bank remains a HOLD with target price $1.37- Benefits from stronger property market and a boost from a one-off gain.The strong 2Q results reflect a one-off gain and improvement in theSingapore residential market. The earnings recovery is on track and WingTai is a beneficiary of the improving luxury market, but this appears tofairly reflected in the tight 10% disc to RNAV. Maintain Hold.- 2QFY06 net profit of S$33m (up 3x from S$11m) boosted by one-off gains.Earnings were above expectations due to an est. S$20m gain from the sale ofa property by associate Winsor Properties. Accounting for a restatement of2QFY04 earnings from S$6m to S$11m, PATMI growth of 18% y-o-y in 2Q was notout of line with anticipated trends. Higher profit and revenue (up toS$154m from S$37m) was due to profit contribution from Kovan Melody and TheLight at Cairnhill. Gearing is reduced to 0.8X.- Maintain FY06 exceptional net profit of S$40m; does not include oneoff.At the pre-exceptional level, WIng Tai is on track to meet our S$40mforecast with sales of Draycott 8 likely to be booked in 2H. The resultsannouncement provided little detail or guidance, apart from a comment thatsentiment has continued to improve, and that the group is well positionedto tap this with new launches. We will review earnings after getting anupdate on recent sales,and more colour on the results.- RNAV maintained at S$1.61, target price at S$1.37. Our target price isset at a 15% discount to RNAV (on par with 18% discount in 1999) whichreflects a firm market outlook. A key downside risk is an external shocksuch as Avian Flu, which derails economic growth and real estate values inSingapore. Upside risks include a stronger-than-expected property marketrecovery.
WING TAI, smith barney remains a BUY with target price $1.67- 1H06 net profit S$42m (65% of FY06E). The result is in-line with ourexpectation. We like the company for the almost pure exposure to thehighend residential sector in Singapore. Maintain Buy with S$1.67 pricetarget.- 185% increase yoy is due to contributions from 27%-owned WinsorProperties selling Global Gateway (building in HK). 1H06 has also benefitedfrom write-backs from The Grange (~80% sold as at Dec 05) and Light @Cairnhill (~60% sold as at Dec 05) as well as recognition of profits fromKovan Melody (~70% sold as at Dec 05) and The Tomlinson (12 out of 29 unitssold as at Dec 05)- 2H06 should benefit from write-backs from Draycott Eight when it'sofficially launched (sold about 10% at ~S$1,600 psf recently, we believe).Interest expense fell 37% due to a lower net debt of S$820m following saleof Park Mall to Suntec REIT. Net gearing is now 80%, down from 100% before.- Over the past 6 months, company has raised prices by ~15% for some of itsprojects, e.g., The Grange, Light @ Cairnhill and The Tomlinson. With moreSingaporeans buying (a positive trend in our view), management is upbeat onthe residential market.
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SING BANKS, csfb maintain MKT WEIGHT- Capital management deals with the denominator in ROE which, in turn,determines the P/B multiples. Charts show a clear correlation between ROEand P/B for the Singapore banks.- Besides the ?esurplus?f capital currently available, banks are adding0.5-0.6% to Tier 1 capitalisation annually which gives them capacity toconduct buy-backs or acquisitions.- OCBC has demonstrated a clear commitment here. Its preferred mode, sharebuy-backs, has the effect of boosting ROEs as well as earnings per share.The stock has built up a premium rating compared to other two banks overthe past two years.- The bank with strongest ROE momentum in FY06E is likely to be DBS butthat will be earnings driven. DBS is likely to continue its aggressiveasset growth to use up the capital from operations.- UOB's recent initiative of a S$825 mn issue of preference capital,buy-back (announced S$600 mn), a potential dividend-in-specie and elevateddividends should lead to a positive ROE momentum.
SING PROP by deutsche bank- Improving macro drivers provides upside bias for property sector. Oureconomists have upgraded Singapore's GDP forecast from 5.5% to 6.5%, andexpect the domestic interest cycle to peak this year. Improving economicgrowth reaffirms our positive view on the property sector, and we see anupward bias to physical market and our RNAV estimates. Our 12-mth pickremains Capitaland, but laggards Keppel Land and City Developments mayoffer more short term upside on lower P/RNAV and more leverage to risingasset prices.- Our economics team upgraded 2006F GDP to 6.5%yoy from 5.5%. This issubstantially higher than the official 3-5% forecast. Recent data suggeststhat growth is becoming more broad based, e.g. manufacturing hasdiversified significantly to the biomedical/pharmaceutical and offshoresectors. For the first time since the Asian Crisis, there are signs ofinternally driven growth with falling unemployment, rising property pricesand up-tick in construction activity.- Currency to strengthen, interest rates to stabilize and reverse by yearend. The strong demand is feeding inflation, which will supportcontinuation of the MAS' tightening monetary bias. This implies anappreciation in the exchange rate against a trade-weighted index. DB has a12-mth forecast of SGD1.55/USD from SGD1.63/US and SGD1.71 last Dec. Theuncovered interest rate parity condition implies that this will causedomestic interest rates to stabilize shortly at around 3.6% and perhapsdrift down to 3.3% by early 2007.- Reaffirms our positive outlook; provides upside bias for physical market.Our baseline sector view already assumes firm GDP growth and peaking rates.Office take-up should be underpinned by strong GDP growth. With supplytightening and after robust 4Q rental growth, our S$6.60psf end-2006Prime-A office rent assumption is likely to be outstripped (vsS$5.70-5.90psf now). Home buyer confidence should be boosted by a morebroad based economic recovery and peaking interest rates. This could sparka long awaited recovery in the massmarket segment where we expect 4% higherprices vs 10-20% for the high-end.- Turn in interest rate cycle should help revive interest in the REITs.Robust economic growth will drive distributable income growth and declininginterest rates should help revive investor interest in the REITs.Valuations look attractive with SREITs yielding 5.4% (210bp over the 10-yrbond of 3.27%) and significantly higher than Hongkong. We like CapitaMallTrust and Suntec REIT.- We expect rising property prices will continue to drive RNAV expansion.The large cap property stocks are trading at RNAV. We expect to see RNAVupgrades from reporting season this month, and as the physical marketfirms. Our 12-mth pick remains Capitaland (CAPL SP, S$4.14, Buy) as itrestructures into a higher ROE, more capital efficient company. Stock hasreached TP; this will be reviewed post the results on Thurs. LaggardsKeppel Land (KPLD SP, Buy, S$4.10; best office exposure) and CityDevelopments (CIT SP, Buy, S$8.60; 2/3 domestic property) could offer moreST upside. A key risk for the sector is an external shock such as an AvianFlu pandemic which could derail economic growth.SING MARKETS by ubs- Budget & election. The budget is due 17 February, closely followed by aGeneral Election, which is widely expected to be in either March or May.Significant cash handouts are likely, with consumers the key beneficiaries.- Likely measures Potential measures might include (1) personal tax cut -the top tax rate could fall to 20% from 21% previously, with correspondingcuts across tax brackets; (2) a one-off 10-15% tax rebate; (3) details ofthe S$1bn funds to be distributed among low income workers; and (4) a cashtop-up for first-time buyers of HDB homes.- Consumption plays to benefit. We think domestic consumption plays wouldbenefit most from the election rally. The broad market PE at 15.2x, 2006Eis just some 5% below our fair value estimate of around 16x. Instead offurther PE re-rating, we would look for stocks with potential earningssurprises or trading at discounts to peers.- Stocks for election rally. We favour mid-cap property developers tradingat deep discounts to RNAVs - Allgreen (PTS$1.60), Singland (PTS$7), andGuocoLand (PTS$2.50). Other domestic consumption plays we like areSingPost, which is aggressively targetting and delivering growth acrossconsumer segments (PTS$1.30) and Suntec REIT which has been a laggard amongSREITs (PTS$1.26).SING STRATEGY, ml recommends- We believe macro fundamentals have been progressing well as expected, buthighlight the potential and rationale for expecting a steeper yield curvefor SGD interest bearing instruments.- We find the currency appreciation to be on path, with interest ratesabove historical trends. We continue to believe the MAS's modestappreciation path for the SGD is best for the currency given our 2.5% coreinflation expectation and thus would expect the current short-term ratesappear unusually high relative to US$ rates and highlight the potential forshort term interbank rates to moderate.- Biggest beneficiary if interbank rates were to moderate would be thebanking sector which on average could achieve 5-10bp improvements ininterest margins with a steeper yield curve. Banks also benefit from ourpositive macroeconomic view for Singapore and have lagged the performanceand valuations of the broader market.- Yield plays do not benefit from firm long term rates, though REITS haveenough growth to perform even without the benefit of an easing of long-termrates. We see long-term rates as remaining firm due to healthy domesticeconomic growth that is expected to be mildly inflationary.
posted by Starfish at 2/14/2006 10:28:00 PM
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