Local Brokerages Stock Call 6 August 2013

From OCBC:
United Envirotech: Decent 1QFY14 start
Summary: United Envirotech Ltd (UEL) reported 1QFY14 revenue of S$44.1m, +37.5% YoY (but -5.9% QoQ), meeting 14.2% of our FY14 forecast, while net profit slipped 2.6% YoY and 18.9% QoQ to S$5.7m, or about 12.5% of our full-year forecast. We deemed it to be a decent start as its fiscal first quarter tends to be seasonally softer. Going forward, management remains upbeat about its prospects in China, where the Chinese government has a planned investment on CNY4t in water resources by 2020; it adds that China is consistently tightening the effluent discharge standards. But we are tweaking our FY14 estimates slightly lower (revenue by 7.4%, earnings by 5.1%) to account for a likely smaller EPC pipeline. Our fair value also eases slightly from S$1.03 to S$0.975, still based on 13x FY14F EPS. Given the limited upside after the recent outperformance, we downgrade it to HOLD. 

Valuetronics Holdings: Discontinuing coverage 
Summary: Valuetronics Holdings Limited (VHL) will begin FY14 on a fresh page, as it will no longer incur losses on its Licensing business following its decision to terminate operations in 2QFY13. Any recovery in VHL’s earnings will likely translate into higher dividends for its shareholders, in our view, as VHL had a relatively stable dividend payout ratio of 37-42% from FY10-13. This is also supported by VHL’s strong net cash position. Looking ahead, we believe that VHL will focus its attention largely on its LED lighting OEM business, given the robust industry growth prospects and its largest customer’s market leadership position in this field. However, given the continued lack of trading liquidity in VHL’s stock and a reallocation of resources, we are CEASING COVERAGEon the stock. Our last rating was a ‘Hold’ with a fair value estimate of S$0.195.

City Developments Limited: 2Q13 PATMI up 48% YoY
Summary: CDL’s 2Q13 PATMI increased 48% YoY to S$203.8m, mostly due to disposal gains from several industrial property assets. 1H13 PATMI now cumulates to S$341.5m which makes up 49% of our full year forecast. We judge this to be mostly in line with our expectations. Residential sales performances remain firm, with 2013 launches D’Nest, Bartley Ridge and Jewel@Buangkok showing healthy sell-through rates to date. In 2H13, the group expects to launch a mixed use JV project at the junction of Upper Serangoon Rd and MacPherson Rd near Potong Pasir MRT. Hotel subsidiary Millennium and Copthorne Hotels’ (M&C) 2Q13 PATMI decreased 17.7% YoY as 181k net rooms were taken out of the supply due to enhancement works. 1H13 global REVPAR, however, was up 4.1% to GBP71.27; AOR and ARR increased by 0.7 ppt and 3.1%, respectively. The group also announced a special interim dividend of 8 S-cents per share. Maintain HOLDon CDL with our fair value estimate of S$12.04 (15% RNAV disc.) under review. 

From Maybank KE:
 Yongnam Holdings: Still In With A Chance; Maintain Buy, TP $0.465
 YNH SP | Mkt Cap USD305.0m | ADTV USD4.6m
 2Q13  results were mostly within expectations, including a one-off SGD5.1m
 provision. Excluding this item, net profit was up 13% yoy and 19% qoq.
 Profit  growth  was  driven  by  revenue  which grew 48% on recognition of
 projects.   We   expect   gross   margins  to  improve  going  forward  on
 better-priced  contracts  and  a higher revenue mix from civil engineering
 (strutting) which has higher margins.
 Both  the  Myanmar  airport  projects  have  yet to be officially awarded,
 despite  ongoing  speculation.  We  believe current share price represents
 good opportunity to accumulate. Maintain BUY.

 Sarin Technologies: More Potential Rewards Await; Maintain Buy TP $1.86
 SARIN SP | Mkt Cap USD414.0m | ADTV USD0.2m
 2Q13  results  were  ahead  of our expectations with net profit of SGD8.1m
 (+26%  YoY,  +3%  QoQ). 1H13 net profit makes up 53% of our previous FY13F
 forecast.  Sarin  also  declared  higher-than-expected dividends of 4.0 US
 cts/sh.  We see the possibility of even higher dividends in 2H13, implying
 FY13F yield of 6.5%
 Sales  of GalaxyTM were exceptionally high in 2Q13 due to pent-up purchase
 which  was  put  off  in  end  1Q13 by India customers. Sarin is generally
 upbeat  on  long-term  prospects,  but  cites  possible weaker 3Q13 due to
 macroeconomic  challenges  in China and India, as well as the narrowing of
 spread between rough and polished diamond prices.
 We  see  the  possibility of even higher dividends in 2H13, implying FY13F
 yield  of  6.5%.  We  roll  forward  our  valuations  to blended FY13F/14F
 earnings maintaining a 15x PER multiple. Consequently, our TP is raised to
 SGD1.86, implying a 21% share price upside 

From DBS:
Yongnam’s 2Q13 results were below expectations on weak
margins. Delay in Yangon Airport tender results weakens
stock catalyst. Weaker outlook as margins remain muted and
order book shrinks. We have cut FY13F/FY14F earnings by
44%/25%. Downgrade to FULLY VALUED, TP S$0.28 (Prev S$
0.41).

Sales for United Envirotech in line, but net profit fell short due
to lower Treatment margin. Capacity utilization is on track to
meet our full year expectation, but EPC wins are behind
target. We have cut FY14/15F earnings by 13%/15% to
reflect lower Treatment margin and EPC revenues. Maintain
HOLD rating, nudged down TP to S$0.90 (Prev S$ 0.97).

 

Local Brokerages Stock Call 5 August 2013

From OCBC:
Golden Agri-Resources: Downgrade to SELL; poor 2Q13 showing
Summary: Golden Agri-Resources (GAR) saw 2Q13 revenue jumped 25.4% YoY and 17.6% QoQ to US$1682.3m, but weaker margins on the back of softer CPO prices led to core earnings tumbling 52.3% YoY and 50.0% QoQ to an estimated US$55.1m. 1H13 revenue grew 8.8% to US$3112.4m, meeting 49.7% of our FY13 forecast, while net profit tumbled 41.5% to US$158.1m; core earnings slipped 40.9% to US$165.2m, or just 33.7% of our full-year forecast. In view of the worse-than-expected showing and likely more margin compression ahead, we opt to slash our FY13 core earnings forecast by 19%; this in turn drops our fair value from S$0.57 to S$0.465, now based on 11x blended FY13/FY14F EPS. We also downgrade our call from Hold to SELL.

Global Premium Hotels: 2Q13 in line
Summary: The 2Q13 results for Global Premium Hotels (GPH) were generally in line with our expectations. Revenue climbed 1.0% YoY to S$15.m and gross profit rose 1.1% to S$13.m. Administrative expense fell 19.4% to S$5.5m mainly due to one-off recognition of IPO expenses of S$1.4m in 2Q12. Interest expense was 9.8% higher at S$1.9m due to the restructuring exercise undertaken by GPH pursuant to the IPO in 2Q12. 2Q13 net profit climbed 36.2% to S$4.9m. 2Q13 hotel room revenue increased 1.3% YoY to S$15.1m. RevPAR was 2% higher at S$95.7, chiefly due to higher average occupancy rate of 93.1%, up 3.4 ppt. We expect 2H13 to be slightly better than 1H13 because we understand from industry sources that the sector as a whole has seen some stabilisation in Jul and Aug. Using a 10% discount to RNAV, we maintain our fair value of S$0.33 and BUY rating on GPH. 
 
Singapore Post: In Post we still trust
Summary: Singapore Post (SingPost) reported a 32.8% YoY rise in revenue to S$201.3m but saw a 2.0% decrease in net profit to S$37.3m in 1QFY14, such that the latter accounted for 25.3% of our full year estimates. Underlying net profit fell slightly by 0.9% to S$36.2m in the quarter, in line with our expectations. Margins continued to normalise as expected, while the group’s cashflow generation remained strong. In line with its usual practice, SingPost has proposed an interim quarterly dividend of 1.25 S cents/share. We look forward to the group’s transformation as it seeks more growth opportunities, but till then, we see limited upside potential unless earnings growth from its acquisitions proves better than expected. Still, we expect the share price to be supported by investors seeking yield (~4.8% FY14F). Maintain HOLD with S$1.32 fair value estimate. 
 
StarHub – Offers S$300 rebate for new BPL customers
Summary: StarHub Ltd has announced its “Surf & Watch” bundles specifically aimed at welcoming BPL fans home. Priced from S$47.37/month with a 24-month contract, subscribers (new and those without a contract) will get 25Mbps cable home broadband, its Deluxe HD Pack (82 channels) and a S$300 rebate; note that subscribers will have to pay SingTel S$59.90/month directly for the BPL content. According to StarHub, the rebate will be part of its Marketing & Promotions expense, and will not affect the Pay TV cost. However, as the bundle involves its older cable broadband, there could be limited appeal versus the newer NBN fibre network. We also see limited traction for existing SingTel subscribers who can continue to pay S$34.90/month for BPL. For now, we maintain SELLon StarHub with an unchanged S$3.82 fair value.

United Envirotech: Decent 1QFY14 start
Summary: United Envirotech Ltd (UEL) this morning reported 1QFY14 revenue of S$44.1m, +37.5% YoY (but -5.9% QoQ), meeting 14.2% of our FY14 forecast, while net profit climbed 3.5% YoY (down 13.8% QoQ) to S$6.1m, or 12.5% of our full-year forecast. According to management, the higher revenue came from a 23.3% YoY jump in Engineering revenue to S$31.2m, while recurring Water Treatment revenue surged 89.7% to S$12.9m. Note that its fiscal first quarter tends to be seasonally softer. Going forward, management intends to grow its recurring treatment income further and focus on securing more industrial wastewater treatment projects in China. We will speak more with management for further updates. For now, we place our Buy rating and S$1.03 fair value under review. 

From DBS:
Light trading activity is likely in this holiday shortened week
that could exaggerate price action even as the 2Q results
soldiers on. To date, slightly less than half of the stocks in our
portfolio have reported their quarterly earnings. 71% came in
within while 24% was below expectations. However, we
have cut FY13F and FY14F earnings by 1.2% and 0.6%
respectively. Results on tap next week include ARA on
Monday; City Dev, Genting, Wilmar, StarHub and SembCorp
Inds on Tuesday and Biosensors, Ezion, UOL and NOL on
Wednesday.

OCBC reported strong revenues ex-GEH. 2Q13 earnings were
in line with our expectations but below consensus. Loan
growth was strong at 7% q-o-q /15% y-o-y; this prompted
higher general provisions. Indonesian and Malaysian
operations improved q-o-q largely from strong loan growth.
However, guidance remains cautious. We have assumed a
conservative run rate of 1% loan growth per quarter (1H13
YTD: 10%), raising FY13F loan growth to 12% (FY14-15F at
9% per year). OCBC has declared 17 Scts DPS, no scrip
dividend applied. Upgrade to BUY, TP raised to S$12.40 (Prev
S$ 11.50), as we rolled valuation base to FY14.

1Q13 underlying profit for Singapore Post of S$36.2m (-0.9%
y-o-y, +13.8% q-o-q) was slightly below estimate due to
forex losses; declared S$1.25 Scts interim DPS, in line. We
have trimmed FY14F/15F earnings by 3%. SingPost is
transforming into a major E-commerce player in Asia, where
it can ride on last mile delivery network of postal peers in
various countries. Maintain BUY with a revised TP of S$1.50
(Prev S$ 1.56). SingPost has S$146m net cash for more
acquisitions.

Golden Agri (GGR) booked 2Q13 core earnings of US$45m (-
60% q-o-q, -58% y-o-y), significantly below our expected
range of US$110-126m. 2Q13 earnings thus brought 1H13
earnings to US$158m (-41% y-o-y), or 37% of our initial
FY13F earnings of US$423.8m. Compared to FY12 consensus
expectations of US$417mm the group's earnings were also
below on annualised basis. The poor results were dragged by
drop in CPO prices, drop in output and higher than expected
operating expenses. We lowered our FY13F/FY14F/FY15F
earnings by 20%/20%/16% to US$332.5m / US$388.6m /
US$485.4m, respectively. This consequently lowers our DCF
valuation on the stock to S$0.45/share, or 15% lower than
our previous estimate of S$0.53. Counter is NOT RATED.

From DMG:
Hi-P’s strong 2H performance seen. HIP’s 2QFY13 results were
 in line with our estimates as PATAMI swung from negative a year
 ago to SGD10.9m on the back of revenue of SGD285.0m 
(+13.2% y-o-y). As its existing clients are ramping up their new 
programs, Management is upbeat on its 2H performance. 
Management is now guiding for a better 2H performance (compared
 to 1H) in view of the new programs ramp-up by its existing customers.
 As we highlighted in our previous reports, we believe HIP will play 
an important role in the production chain of upcoming mid-end 
smartphones such as Apple’s new lower-priced iPhone. Management
 also said the group is now able to achieve decent yields from these
 projects despite the steep learning curve. In view of HIP’s strong 
operating cash flow and net cash pile of SGD85.2m, we see a 
possibility of the group buying back its own shares, similar to what
 it did a few days after it released its 1QFY13 results. In the last 
buyback, it bought a total of 7.5m shares amounting to SGD6.1m,
 with the highest price being SGD0.845/share. This will provide 
downside support to its share price. Reiterate BUY, with an
 unchanged SGD0.96 TP, based on a blended 13.5x FY13/FY14 P/E,
 -1 SD on the stock’s 3-year historical forward P/E.

Selldown Unwarranted As Share Sale Misconstrued. 
NeraTel’s CEO, Mr Samuel Ang recently sold off all shares under 
his name and the market reacted extremely negatively to the news.
 On the contrary, our checks show Mr Ang effectively increase stakes
 as the parent PE fund Northstar allowed him to hold more stakes 
of the company in order to incentivise and retain the CEO. Northstar, 
the current parent of NeraTel, is an Indonesian USD1.2bn private 
equity firm with a long solid track record, partnering with institutional
 giants such as GIC and TPG. Recent deals include the Indonesian
 national bank TPN’s exit, where sources confirmed that Northstar 
stood to gain a 7x return. Similarly, Northstar also set a target for 
NeraTel to achieve, doubling profits in three years’ time. As such,
we opine that NeraTel’s future is a bright one. Reiterate BUY with
a higher TP of SGD0.93 based on 11.4x blended FY13/14 PE 
(+1 S.D 5-year historical forward P/E).

From Maybank KE:
OCBC: MTM Losses A Drag in 2Q13; Maintain Hold TP $10.90
OCBC SP | Mkt Cap USD28.9b | ADTV USD34.5m
OCBC’s 2Q13 results were below our expectation at 44% of our
full-year forecast, but generally within consensus. The variance was
due primarily to MTM losses for the insurance division.
Expectations are for the yield curve to steepen further and
earnings volatility is likely to persist awhile longer for the group.
Our earnings are cut by about 11-12% for FY13-15.
Our TP is reduced to SGD10.90 from SGD11.30 on rolling
forward valuations to 2014 and on a lower P/BV of 1.4x (1.5x
previously) to factor in higher market volatility risk.
 
Cordlife Group: Rumoured relaxation of China’s one child policy; Buy TP
$1.29 CLGL SP | Mkt Cap USD192.3m | ADTV USD6.8m
According to a Chinese press report, there is a strong rumor
that China may relax its one child policy by the end of 2013 and fully
implement the policy in 2015. China’s baby stocks have reacted
positively on this.
If realized, this will be great news for Cordlife as it holds 10% stake in 
China Cord Blood Corp, the largest cord blood player in China with 
operations in 4 provinces which in aggregate account for 73% of China’s 
newborn population.
To sum up, Cordlife is in a good stead to reap the benefits
of the high potential China cord blood market. We maintain our positive
view on the stock and reiterate BUY with TP of SGD1.29 (23x FY14F PER).
 
Singapore Land: Slow and Steady, But Lacks Catalysts; Hold TP $9.75
SL SP | Mkt Cap USD3.0b | ADTV USD0.7m
SingLand’s 2Q13 core PATMI came in at SGD48.3m (-3% QoQ;
+14% YoY), taking 1H13 core PATMI to SGD97.7m (48% of our full-year
estimate) and in line with expectations.
Recurrent income remained largely stable, but we see little
immediate upside from office rental reversion and hotel operations.
Residential sales have also been weak at Mon Jervois.
SingLand still remains a potential privatisation candidate
(free float down to 11.5%), but it is currently trading close to our TP
of SGD9.75. Maintain HOLD.