MARKET PULSE

Asia Pacific Equity Research | Singapore
MARKET
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861.7
748.0
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1064.9
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10.7
0.5
4.5
2.3
2.9
-5.7
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% Chg
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0.5
18.9
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67.4
98.0
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-15.4
2.2
% Chg
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0.2
0.0
0.3
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0.3
0.6
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0.0
World Indices
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SET
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Morning Call
17 Nov 2014
Dyna-Mac Holdings: Enquiries remain high
Dyna-Mac Holdings reported an 18.9% YoY rise in revenue
to S$79.4m and a 43.6% increase in net profit to S$7.6m
in 3Q14, bringing 9M14 net profit to S$20.8m, accounting
for 72% of our full year estimate. Core PATMI met 75% of
our full year figure, in line with expectations. There is still
room for the Malaysian yard to grow, and a partnership
structure with Keppel in Brazil (similar to Keppel Subic in
the Philippines) is possible should there be local content
requirements. Looking ahead, the group is still upbeat on
order wins in 2015 despite lower oil prices, as it services
the production stage of the oil and gas value chain.
Enquiries also “remain high”, and we expect more firm
orders that will add to its S$223m net order book. With the
share price correction, we upgrade the stock to BUY with
an unchanged S$0.445 fair value estimate and forecasted
dividend yield of ~5.3%.
More reports:
-
Market Statistics (SG)
STI
No.
No.
No.
52-week range
of gainers
of losers
of unchanged
2,953
3,388
227
275
161
1.3
116.6
0.4
0.2
75.8
0.0
-0.3
0.0
0.0
1.6
Economic Statistics
S$/US$
Yen/US$
3-mth S$ SIBOR
3-mth US$ SIBOR
Crude futures (US$)
Research Team
(65) 6531 9800
e-mail: info@ocbc-research.com
Wheelock Properties (S) Ltd: Initiatives to rejuvenate
Scotts Square
- Hotel Properties Limited: Earnings dip due to condo
attaining TOP
- Olam International: Upgrade to HOLD with S$2.30 FV
- ECS Holdings: Cash offer for ECS
- Midas Holdings Ltd: 3Q14 earnings way below
Expectations
- Pacc Offshore Services Holdings: Soft 3Q14
- Libra Group Ltd: Strong order book momentum
- KS Energy: Uneventful quarter
News Headlines
 Capitaland has entered a JV with a subsidiary of Credo
Group, wherein each will hold 50% stake, to develop an
integrated development in Central Jakarta, Indonesia.
 SGX looks to launch an electronic trading platform for
regional corporate bonds next year, and is currently in talks
with banks and asset managers.
 Pacific Radiance has secured a long-term charter contract
worth over US$140m for vessel to be delivered in
2016/2017.
Sources: MasNet, Bloomberg, Business Times, Straits Times and other media
Please refer to important disclosures at the back of this document.
MCI (P) 006/06/2014
OCBC Investment Research
Market Pulse
17 Nov 2014
Dyna-Mac Holdings: Enquiries remain
high
group has also paid out dividends of
S$0.02/share per year in the past two years,
and we expect the same for FY14, translating
to an attractive dividend yield of about 5.3%.
(Low Pei Han)
 Enquiries remain high
 Forecasted div yield ~5.3%
 Upgrade to BUY
.
3Q14 results in line
Dyna-Mac Holdings reported an 18.9%
YoY rise in revenue to S$79.4m and a 43.6%
increase in net profit to S$7.6m in 3Q14,
bringing 9M14 net profit to S$20.8m,
accounting for 72% of our full year estimate.
Stripping out one-off items, core PATMI met
75% of our full year figure, in line with
expectations. Revenue was higher as more
projects were executed in the Singapore and
overseas yards, but gross margin was lower
at 22.2% in 3Q14 vs 30.2% in 3Q14 due to
higher recognition of costs from overseas
yards.
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Wheelock Properties (S) Ltd: Initiatives
to rejuvenate Scotts Square
 3Q14 figures within expectations
 Rejuvenating Scotts Square retail
 SG resi headwinds persist
3Q14 results broadly in line
3Q14 PATMI came in at S$11.0m, down
7.2% YoY mostly due to lower progress
recognition from Ardmore Three, higher
admin expenses and FX losses during the
quarter. 3Q14 revenue decreased 17.4% YoY
to S$22.8m similarly due to the weaker
contributions from Ardmore Three. We judge
this quarter’s earnings to be within
expectations and 9M14 PATMI now makes up
92.0% of our full year forecast, including the
S$109.4 accounting gain in 2Q14 which
resulted from moving the group’s stake in
Hotel Properties Ltd (“HPL”) from AFS assets
to an interest in an associate.
Room for Malaysian yard to grow
The Malaysian yard, which is still under
development, saw a utilitisation rate of about
30% for the year, compared to almost full
utilisation rates for the two Singapore yards,
Chinese yard and the Philippines yard
(Keppel Subic). A similar partnership
structure with Keppel in Brazil is possible,
should there be local content requirements
for Brazil work.
Rejuvenating Scotts Square with
stronger brands
Wheelock Place continues to enjoy strong
occupancy (99.7% as at end 3Q14) and
positive rental reversion over the quarter,
with the blended monthly rent now ~S$13.50
psf per month. Scotts Square retail’s
occupancy remained flat QoQ at 93% as at
end 3Q14, though we note that average
monthly rent dipped marginally from ~S$22
psf as at end 2Q14 to ~S$21 psf as at end
3Q14. Management reports that the exercise
to rejuvenate the mall with stronger
international luxury labels and F&B concepts
is in process, and they will roll out
advertising and promotion initiatives over the
rest of the year to heighten awareness and
entice shoppers for festive shopping.
Still expecting to secure orders
Looking ahead, the group is still upbeat on
order wins in 2015 despite lower oil prices,
as it services the production stage of the oil
and gas value chain. Enquiries also “remain
high”. It has a net order book of S$223m
with deliveries till 2016, and the group has
also secured letters of intent (LOI) for the
construction of FPSO modules from repeat
customers. Two of the contracts are likely to
be inked by the end of this year, and we
estimate a combined contract value of about
S$100-150m. YTD, the group has secured
contracts of $92m, excluding the LOIs.
Persistent residential headwinds in
Singapore
We note persistent headwinds in the
domestic residential sector, particularly in the
high-end segment, and the sales status at
the group’s Scotts Square residential towers
remained stagnant over the quarter with
79% of total units sold (268 units sold out of
Upgrade to BUY
Dyna-Mac’s share price has corrected 14%
since our last hold rating on the company in
early Sep, and now with the potential upside
of more than 20% (this includes dividends)
to our unchanged fair value estimate of
S$0.445, we upgrade the stock to BUY. The
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OCBC Investment Research
Market Pulse
17 Nov 2014
338 total units). Management indicates that
their current focus is to lease unsold units,
and 33 units have been leased to date with
average rentals above S$5.2k pm. At
Ardmore Three, three units out of the total
84 units have been sold to date (ASP: S$3.2k
psf) while the 698-unit The Panorama is now
40% sold (282 units sold). Maintain BUY
with an unchanged fair value estimate of
S$2.38. (Eli Lee)
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Maintain BUY with unchanged S$5.32 FV
estimate
The group’s balance sheet remained firm as
at end Sep 2014 with S$129.3m in cash and
49.2% net gearing. Our investment thesis
continues to be underpinned by significantly
under-valued prime Orchard assets in the
group’s real estate portfolio portfolio which
are ripe for potential redevelopment. To
reflect the uncertainty of redevelopment
ahead, however, we opt to assign a punitive
a punitive 35% discount to HPL’s RNAV of
S$8.20 per share, which yields a fair value
estimate of S$5.32. Maintain BUY. (Eli Lee)
.
Hotel Properties Limited: Earnings dip
due to condo attaining TOP
.
 PATMI dip due to condo 1Q14 TOP
 3Q14 numbers broadly in line
 Hotels performance remain firm
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Olam International: Upgrade to HOLD
with S$2.30 FV
3Q14 PATMI down due to absence of
Tomlinson Heights contributions
Hotel Properties limited (HPL) reported 3Q14
PATMI of S$15.1m, down 70.0% YOY mostly
due to the absence of contributions from the
Tomlinson Heights condominium, which
achieved TOP over in 1Q14, and lower share
of results from associates/JV, which
decreased S$25.3m to S$0.3m as the
Interlace achieved TOP in Sep-13. The YoY
dip in 3Q14 earnings was also aggravated by
a S$12.6m non-recurring gain in 3Q13 from
the disposal of investment assets in
Kensington Square, London. That said, the
figures from the hotels and resorts division
remained healthy, with the Group’s resorts in
Maldives and Bali putting in higher
contributions over the quarter. In terms of
the top line, 3Q14 revenues dipped 18.9% to
S$146.0m, again due to the impact from
Tomlinson Height’s TOP earlier this year.
9M14 PATMI now makes up 88% of our full
year forecast and we judge 3Q14 figures to
be in line with expectations.
 1QFY15 NPAT below forecast
 More divestments in 2QFY15
 Valuations not as stretched
Muted start to FY15
Olam posted a muted start to FY15. While
1QFY15 revenue eased 0.5% YoY to
S$4298.6m, EBITDA fell 11.9% to
S$219.4m, it attributed the fall to adverse
price movement in its hazelnuts and dairy
business, coupled with execution challenges
in upstream dairy. Reported net profit edged
3.1% lower to S$44.3m; but operational
PATMI slipped 29.4% to S$32.2m. As a
whole, revenue met 20% of our FY15
forecast, but operational PATMI only met 7%,
which we deem to be below our expectations
(first quarter earnings typically make up
about 11% of full-year).
Weaker Food Staples & Packaged Food
By segments, Edible Nuts did better, aided
by strong performance from upstream
Almonds, US Peanuts; but it did see some
weather-related impact on its Hazelnuts
business, which may continue into 2QFY15.
Confectionary business was fairly stable, and
likewise for Industrial Raw Materials. But
Food Staples & Packaged Food turned in a
weaker showing (revenue, volume and
Soft marketing started for London units
Management noted that the group’s hotels
and resorts typically perform well in the last
quarter of the year, though possible
headwinds could appear through political
uncertainties and the potential escalation of
the Ebola outbreak. In London, the group has
commenced soft marketing of apartments at
Burlington Gate and Campden Hill and
income from these will be recognized on a
COC basis on completion. In Singapore,
however, the group highlights that
sentiments in the residential market remain
weak, with both transaction volumes and
prices declining.
EBITDA all slipped), impacted by sharply lower
milk prices and yields in Uruguay dairy farming.
And management notes that the execution
challenges in upstream dairy could continue
into 2QFY15.
More divestments expected in 2Q15
Going forward, Olam will continue to make
the divestments as outlined in its FY14-16
Strategy Plan. Three announced initiatives,
which are expected to be completed in
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OCBC Investment Research
Market Pulse
17 Nov 2014
2QFY15, are likely to release further cash of
~S$313.1m, generate a (one-time) P&L gain
of S$22.4m, and add S$118.8m directly to
its capital reserves. Olam still has a target of
being FCFF positive, although 1QFY15 FCFF
was a negative S$54.6m (FCFE was a large
S$160.3m negative due to the net interest
paid).
margin segment.
Unchanged FV; ACCEPT the offer
Taking into account its latest results, we
retain our forecasts and reinstate our
previously under review FV of S$0.68. The
cash offer of S$0.68 proposed by VST
represents a premium of 11.48% over its last
traded price on 22-Sep (last trading date
prior to suspension), and 9.15% to its 6month volume weighted average price up to
22-Sep. We believe the offer by VST presents
a good opportunity for investors to exit the
illiquid market for ECS shares. The average
daily trading volume for ECS during the 6month period up to 22-Sep was only
~102,297 shares, representing less than
0.04% of the total number of issued ordinary
shares. Furthermore, VST does not intend to
take any steps to restore public float to lift
the suspension of trading. Hence, with the
offer price of S$0.68/share meeting our FV
estimate, we think the offer is fair and
recommend shareholders to accept the
offer. (Eugene Chua)
Easing FV to S$2.30; upgrade to HOLD
We are paring our FY15F earnings by 4% to
account for the weaker 1Q showing; this also
reduces our fair value from S$2.38 to S$2.30
(still based on 12.5x FY15F EPS). However,
due to the fall in share price over the last
quarter, we think that valuations are not as
stretched as before. Hence we upgrade our
call to HOLD. (Carey Wong)
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ECS Holdings: Cash offer for ECS
 VST’s S$0.68/share offer for ECS
 Intends to delist ECS
 Accept the offer
.
VST Holdings Limited to make cash offer
for ECS
Last Friday night, ECS announced that VST
Holdings Limited (“VST”), which has 89.5%
shareholdings in ECS, intends to make an
unconditional cash offer of S$0.68/share for
all the remaining ordinary shares it does not
currently own. Separately, VST also proposed
to pay holders of outstanding options a cash
amount by which the offer price
(S$0.68/share) is in excess over the exercise
price of the options, provided that the option
holders do not exercise their options by the
close of the unconditional cash offer. Note
that VST intends to delist and make ECS its
wholly-owned subsidiary. That is if entitled
to, VST will exercise its rights of compulsory
acquisition of the remaining ordinary shares.
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Midas Holdings Ltd: 3Q14 earnings way
below expectations
Midas Holdings Ltd’s (Midas) 3Q14 results
showed huge disappointment as it came in
way below our expectation. While revenue
grew 7.7% YoY to RMB324.2m on the back of
higher revenue from its Aluminium Alloy
Extruded Products Division, PATMI plunged
91% to RMB1.5m due to higher start-up and
finance costs arising from its new plants.
Midas’ 3Q14 administrative and finance
expenses jumped 42.1% and 117.0% to
RMB36.5m and 35.5m respectively, eroding
the 6.2 ppt gain in gross profit margin of
27.0%. A 96.9% drop in share of profits of
an associate, Nanjing SR Puzhen Rail
Transport Co Ltd (NPRT) further contributed
to a lower PATMI. 9M14 revenue rose 21.6%
to RMB957.3m while PATMI dropped by a
significant 19.3% to RMB21.3m, as they
formed 70.5% and 56.2% of our FY14
projections, respectively. We expect higher
start-up and finance costs to continue into
2H15 as we estimate commercial production
from the new plants will only gradually
commence from 4Q15. Pending a conference
call with management later in the morning,
we put our BUY rating and FV of S$0.50
under review. (Eugene Chua)
Latest 9M14 results update
For 9M14, ECS’ PATMI came in slightly below
our expectation as it formed 72.0% of our
FY14 projections while revenue was in-line at
74.1% of our FY14 projections. ECS’ 9M14
revenue declined 1.1% to S$3.1b while
PATMI grew 1.2% to S$26.2m as its strategy
to shift focus from the lower margin DT
segment to higher margin ES segment
appears to be paying off. Furthermore, we
think ECS is on track to meet our FY14’s
PATMI projection as we expect PATMI to
grow further with strategy to focus on higher
.
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OCBC Investment Research
Market Pulse
17 Nov 2014
Pacc Offshore Services Holdings: Soft
3Q14
KS Energy: Uneventful quarter
KS Energy reported a 34.2% YoY rise in
revenue to S$58.5m and a net loss of
S$0.6m in 3Q14 vs. a net profit of S$0.2m in
3Q13. This brings 9M14 PATMI to S$46.4m
vs. our full year estimate of S$51.5m,
boosted by a rig sale in 2Q14. Core PATMI in
9M14 is estimated to be about S$3m vs. our
full year figure of S$8m. Profit after tax in
3Q14 was a respectable S$3.3m but PATMI
slipped due to the reallocation of profits to
shareholders from 80% of the profits of a
subsidiary to 50%. This arose due to the
payment of dividends by a subsidiary totaling
S$8.6m. If not for the dividend payment,
PATMI would have been S$1.9m. Pending
more details from management, we put our
Buy rating and fair value estimate of S$0.58
under review. (Low Pei Han)
Pacc Offshore Services Holdings (POSH)
reported a 3% YoY rise in revenue to
US$67.0m but saw a 30% fall in net profit to
US$14.6m in 3Q14, bringing 9M14 net profit
to US$63.2m. However, excluding one-off
items such as vessel disposal gains, we
estimate core net profit to be about US$3m
in the quarter, below expectations. This was
partly due to lower gross margins of 25.9%
in 3Q14 vs 41.1% in 3Q13 and 30.1% in
2Q14. Share of JV results was also a
negative US$5.7m, mainly due to the JVs in
Mexico. Looking ahead, the group’s SSAV,
POSH Xanadu, is expected to generate
revenue towards the middle of 1Q15, while
the other SSAV, POSH Arcadia, is scheduled
to be delivered in 2Q15 and efforts are
underway to secure employment. With the
change in analyst coverage and pending
details from management, we put our Buy
rating and fair value estimate of S$1.21
under review. (Low Pei Han)
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Libra Group Ltd: Strong order book
momentum
Summary: Last Friday evening, Libra
announced that it has been awarded S$9.5m
of M&E contracts, which brings its order book
up to an estimated S$94.4m year-to-date.
This is ~3.0x of last year’s revenues (FY13:
S$31.5m) and represents strong order book
momentum for the group which has
announced S$21.6m of new contracts over
the last two months. The latest awards
comprise a S$5.4m M&E contract for a
proposed condo project at Tampines St 86
(to be completed in Jul-16), and a S$4.1m
sub-contract for a teaching facilities building
(Block 8A) at Temasek Polytechnic (to be
completed in Aug-15). We believe the new
management team is gaining good traction in
terms of growing business volumes, while
leveraging on tailwinds from the firm public
construction outlook. Since our initiation on
Libra as our top pick in the small cap space
on 27 Oct, its share price has appreciated
7.5% to date and we continue to see value at
current levels given significant potential for
earnings and dividends growth ahead.
Reiterate BUY with an unchanged fair value
estimate of S$0.33. (Research Team)
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OCBC Investment Research
Market Pulse
17 Nov 2014
Calendar of key events
17-Nov-14
18-Nov-14
19-Nov-14
Swissco 3Q14
Willas-Array 1H15
King Wan 2QFY14
US Oct CPI
CN Oct Property Prices
US Nov Housing Starts
US Oct Existing Home
Sales
25-Nov-14
26-Nov-14
27-Nov-14
28-Nov-14
Xpec HY15
SG Oct Bank Loans and
Advances
Thai Bev 3Q14
20-Nov-14
21-Nov-14
SG Oct NODX
24-Nov-14
SG Oct CPI
US 3Q GDP
SG Oct Ind Production
US Nov Consumer Conf
Index
US Oct Durable Goods
Orders
SG Oct Money Supply
US Oct New Home Sales
01-Dec-14
02-Dec-14
03-Dec-14
04-Dec-14
05-Dec-14
US Nov ISM Mfg
US Nov unemployment Rate
CN Nov Mfg PMI
US Oct Chg in Nonfarm
Payrolls
08-Dec-14
09-Dec-14
10-Dec-14
11-Dec-14
12-Dec-14
CN Nov Exports
CN Nov CPI
CN Nov New Yuan Loans
US Nov Retail Sales Adv
CN Nov Money Supply
CN Nov Retail Sales (13th
Dec)
CN Nov Ind Production
15-Dec-14
SG 3Q Unemployment rate
16-Dec-14
17-Dec-14
18-Dec-14
SG Nov NODX
CN Nov Property Prices
SG Oct Retail Sales
Notes:
Sourced from Bloomberg
All US Tech results dates have been adjusted to Singapore dates.
US Initial jobless claims are released every Friday.
MBA mortgage applications are released every Wednesday.
6
19-Dec-14
OCBC Investment Research
Market Pulse
17 Nov 2014
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Carmen Lee
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For OCBC Investment Research Pte Ltd
Published by OCBC Investment Research Pte Ltd
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