Sources: MasNet, Bloomberg, Business Times, Straits Times and other media
Please refer to important disclosures at the back of this document. MICA (P) 039/06/2012
Morning Call 16 Aug 2012
MARKET
PULSE
Key Idea
Midas Holdings: Time to board the train
Midas Holdings (Midas) reported a dismal set of 2Q12 results, with PATMI plunging 97.5% YoY to RMB1.6m on the back of a 30.0% dip in revenue to RMB219.8m. Results were significantly below ours and the street’s expectations. Interim DPS was also lowered from 0.5 S cents in 1H11 to 0.25 S cents in 1H12. Nevertheless, there is growing optimism of a recovery in China’s high-speed railway (HSR) sector. We believe that FY12 would be a non-event for Midas as it is transitioning into a recovery in FY13. We upgrade Midas from Hold to BUY as we switch our valuation matrix to 0.8x FY13F P/B. This is premised on an
anticipated pick up in Midas’ orders win momentum and likelihood of a resumption of HSR passenger train car contracts by China’s Ministry of Railways in the near future, which would provide a catalyst for Midas’ share price. Our new fair value is S$0.41 (previously S$0.30).
More reports:
- ECS Holdings: Focusing on key initiatives - KS Energy: Slowly turning around
- Wilmar: HOLD with new S$2.90 fair value - ASL Marine: Progressing on all fronts
-Swiber Holdings: Continues to execute in 2Q12 News Headlines
• Demand for private residential homes excluding executive condominiums rebounded in Jul, with 1,943 units snapped up, 42% more than the 1,371 units sold in Jun.
• Singapore retail sales for Jun slipped 0.9% YoY, dragged down by motor vehicles. Excluding motor sales, retail sales were up 2.3%.
• Mr Oei Hong Leong raised his offer for a 29.9% stake in Intraco to S$0.70 per share, nudging past a rival bid by two cents. This values Intraco at about S$69m.
• Cordlife Group has entered into a share purchase agreement to buy a 10% stake in China Cord Blood Corporation for US$20.8m.
• Singapore Refining Company, the joint venture of oil giants PetroChina and Chevron, is set to embark very shortly on a US$500+m upgrading of its Jurong Island facility.
Key Singapore Indices
Close Chg % Chg STI 3062.1 -25.7 -0.8 Catalist 126.2 -0.5 -0.4 Finance 754.1 -5.8 -0.8 Property 689.5 -3.0 -0.4 Electronics 589.8 8.2 1.4 Vol(m) 1638.0 -711.0 -30.3 Val(S$m) 1400.8 -4025 -74.2 World Indices Close Chg % Chg Dow Jones 13164.8 -7.4 -0.1 Nasdaq 3030.9 14.0 0.5 S&P500 1405.5 1.6 0.1 FTSE 5833.0 -31.7 -0.5 KLCI 1653.8 0.9 0.1 Hang Seng 20052.3 -239.4 -1.2 Nikkei 8925.0 -4.8 -0.1 SET 1226.8 0.0 0.0 KOSPI 1957.0 24.5 1.3 TWSE 7467.7 -11.5 -0.2 Market Statistics (SG)
STI 52-week range 2,522 3,088
No. of gainers 176 No. of losers 332 No. of unchanged 179 Economic Statistics S$/US$ 1.2 0.0 Yen/US$ 79.0 0.0 3-mth S$ SIBOR 0.4 0.0 3-mth US$ SIBOR 0.4 0.0
Crude futures (US$) 94.3 0.0
Research Team (65) 6531 9800
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Midas Holdings: Time to board the train ●2Q12 PATMI dips 97.5% YoY
● Interim DPS of 0.25 S cents ● Orders momentum to pick up; upgrade to BUY
Dismal 2Q12 results, dragged by associate and higher costs
In line with its earlier profit guidance, Midas Holdings (Midas) reported a dismal set of 2Q12 results, with net profit plunging 97.5% YoY and 89.6% QoQ to RMB1.6m. Revenue for the quarter was RMB219.8m,
representing a 30.0% YoY and a 4.6% QoQ decline. The fall in net profit was attributed to higher operating expenses and finance costs, as well as a RMB14.1m share of loss from its associated company, Nanjing SR Puzhen Rail Transport (NPRT). For 1H12, revenue dipped 26.2% to RMB450.2m, or 46.0% of our FY12 forecast; net profit slumped 86.3% to RMB16.9m, forming just 14.8% and 13.9% of ours and the street’s full-year estimates, respectively. Another disappointment came from a cut in interim dividend to 0.25 S cents/share (1H11: 0.5 S cents/share). Current order book for Midas stands at RMB600m, while that of NPRT is RMB8b.
Growing optimism on China’s high-speed rail transport industry
China’s Ministry of Railways (MOR) recently raised its railway infrastructure investment target by ~16% to RMB470b for 2012, boosting its total railway fixed asset
investment (FAI) goal to RMB580b. We see this as a huge positive for the whole sector, as it reaffirms the government’s commitment to develop its railway industry.
Near-term weakness to persist, slash estimates
We slash our FY12 and FY13 PATMI projections by 60.2% and 14.9%,
respectively. We now value Midas based on 0.8x FY13F P/B (1 SD below its historical average forward P/B), given that FY12 appears to be a non-event for Midas and there is a lack of earnings visibility in the near term.
Position for recovery in orders win, upgrade to BUY
But we are upgrading Midas from Hold to
BUY with a new fair value estimate of S$0.41 (previously S$0.30). We position
our buy rating on the premise of an expected recovery in its orders win momentum and the likelihood of a resumption of high-speed railway (HSR) passenger train car contracts by MOR in the near future, which would provide a catalyst for Midas’ share price.
(Wong Teck Ching Andy)
. . . . .
ECS Holdings: Focusing on key initiatives ●2Q12 core PATMI falls 23% YoY
● Expecting sequential improvement in 2H
● Cheap valuations, maintain BUY 2Q12 results below expectations
ECS Holdings (ECS) reported a 24.2% YoY decline in its 2Q12 PATMI to S$8.1m on the back of a 3.0% fall in revenue to S$823.6m. Excluding forex and other exceptional items, we estimate that core earnings would have decreased 23.1% YoY to S$7.4m. This set of results was below our expectations. For 1H12, revenue increased 2.0% to
S$1,725.2m, forming 44.3% of our FY12 forecast. Core earnings slipped 29.8% (reported PATMI fell 32.5%) to S$14.1m, or 40.3% of our full-year estimate. ECS’s gross margin declined 0.6ppt YoY to 4.5% in 2Q12, although this was an improvement vis-à-vis the 4.0% registered in 1Q12. The YoY decline can be attributed to intense competition in the ICT industry and a change in sales mix as there was higher revenue contribution from lower-margin media tablets and phone devices within its Distribution segment.
Focusing on new product launches and higher-margin business
ECS saw healthy revenue growth from products from Apple Inc, Oracle, ASUS and Lenovo in 2Q12. We believe that these major IT vendors would continue to be a key growth driver for ECS moving forward, given new product launches and the anticipated rollout of Microsoft’s new Windows 8 operating system in Oct this year.
Management is also seeking opportunities in mobility/social media and big data and would also focus on its higher-margin business such as enterprise servers, software and
networking products and professional IT services. Continued efforts would also be made to strengthen its working capital management. The group’s cash conversion cycle improved from 44 days in 2Q11 to 39 days in 2Q12.
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Stronger 2H expected, but macro uncertainties remain
While we continue to expect a sequential improvement in its 2H12 results, we pare our FY12/13F revenue and core PATMI forecasts by 7.1/8.9% and 13.8/14.9% respectively, given the still uncertain global economic backdrop. But we also roll forward our valuations to 5.8x blended FY12/13F core EPS. Our fair value estimate is lowered from S$0.555 to S$0.52. ECS is currently trading at FY13F PER of 5.0x and P/NTA of 0.51x, which is cheap, in our view. Maintain BUY.
(Wong Teck Ching Andy) . . . . . KS Energy: Slowly turning around ●Net profit after nine quarters ●Continued improvement
●Preparing funds for conv bonds 2Q12 turns in net profit
KS Energy (KSE) reported a 23.4% fall in revenue to S$151.6m and a net profit of S$692k in 2Q12 vs. a net loss of S$5.5m in 2Q11. Revenue was within our expectations, accounting for 22.3% of our full year
estimates. 1H12 revenue and gross profit accounted for 50.3% and 50.7% of our full year estimates, respectively. Net profit was also within our expectations. 2Q12 marks the group’s first quarterly net profit after nine consecutive quarters of net losses, and results were also not boosted by any significant one-off gains, unlike 1Q12.
Steady execution in both distribution and drilling
Revenue from the distribution business, which accounted for 71.1% of total revenue, saw a 26.3% QoQ increase in revenue in the last quarter, while the drilling division rose 11.8%. We understand that all of the group’s core assets are currently on hire and it is unlikely that any of them will be coming off-hire for the rest of this year.
Convertible bonds may be redeemed in Mar next year
Recall that the group’s convertible bonds (principal ~S$100m) have an option by bondholders who may redeem the bonds in Mar 2013. Management is currently “working on various options to meet this funding requirement” should the redemption option be exercised. KSE has proven adept at raising funds from investors and partners such as Itochu of Japan, Dubai-based Dutco and private equity fund Actis. Hence we would not be surprised if there is news of further tie-ups in the near future.
Maintain HOLD
Business in the distribution is improving, and coupled with smooth execution in the drilling division, the group may break even in FY12F. However, we are conservatively forecasting a single-digit net loss of S$3.5m for now, which is a significant improvement from FY11’s S$78.8m net loss.
Rolling over our valuation to 1.1x blended FY12/13F NTA, our fair value estimate slips slightly from S$0.85 to S$0.83. Maintain
HOLD. (Low Pei Han)
. . . . .
Wilmar: HOLD with new S$2.90 fair value
●Slashing FY12 earnings estimate by 30%
● Near-term still challenging ● HOLD on valuation grounds Sharply lower 2Q12 results
Wilmar International Limited (WIL) reported a very disappointing set of 2Q12 results. Although revenue grew by 4.3% YoY to US$11,019.7m, driven by volume growth in its Palm & Laurics, Consumer Products and Sugar, reported net profit fell by a staggering 70.2% YoY to US$117.1m. WIL cites losses in Oilseeds & Grains and lower profits from Plantations & Palm Oil Mill; Sugar also posted higher losses while associates recorded lower contributions. Excluding non-operating items, core net profit declined 55% YoY to
US$172.3m. For 1H12, revenue rose 6.9% to US$21,490.7m, meeting 42% of our FY12 forecast, while core net profit fell 52% to US$378.0m, or 22% of our full-year forecast. WIL has declared an interim dividend of S$0.02/share, versus S$0.03 in 1H11.
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Near-term environment “challenging”
Management expects the near-term operating environment to remain “challenging” in China, due to excess capacity in oilseeds crushing. In addition, WIL also sees adverse impact from the weakening RMB against the USD; and it has taken steps to hedge its naturally long RMB position and also reduce any potential forex exposure. Meanwhile, its Consumer Products business could also see margin squeeze due to rising input prices (especially from soy beans), while ability to raise selling prices may need approval from the Chinese government.
HOLD with new S$2.90 FV
Management maintains that its long-term prospects remain positive, citing its sound business model. WIL adds it is well-positioned to capture growth in demand for agricultural commodities, especially in Asia and Africa. However, to reflect the dismal 1H12 performance and still-tough operating environment, we pare our FY12 earnings forecast by 30% (FY13 by 23%). Based on a more conservative 12.5x blended FY12/FY13F EPS, versus 13.5x FY12F EPS previously, our fair value drops to S$2.90 (from S$3.87 previously). Maintain HOLD as stock is already more than two standard deviations below its 3-year average P/B. (Carey Wong)
. . . . .
ASL Marine: Progressing on all fronts ●Results in line
● Busy yards, strong orderbook ● Poised for growth
Good 4QFY12 results
ASL Marine (ASL) reported a 26.3% increase in revenue to S$117.0m and a 42.3% rise in net profit to S$8.3m in 3QFY12 such that FY12 net profit (S$32.3m) accounted for 99% and 97% of ours and the street’s full year estimates, respectively. Gross profit margin was higher at 15.3% in 4QFY12 vs 14.7% in 4QFY11 and 14.0% in 3QFY12. We note that a provision of S$4.7m was made against an amount owing from subsidiaries of PT Berlian Laju Tanker after the customer ran into financial
difficulties; excluding this would boost PATMI to around S$37m (up 16% compared to FY11).
Enhancing offshore capabilities
For the repair and conversion division, the group will focus on securing more conversion and major repair and refurbishment jobs for FSOs, FPSOs and oil rigs (there are currently six older jack-up rigs that are under
repair/upgrade in ASL’s yards). The group has also expressed its desire to develop its
capabilities in offshore fabrication works.
Orderbook provides visibility
ASL’s shipbuilding order book from external customers stood around S$586m as at 30 Jun 2012, and 53% of this amount is expected to be recognized in FY13. This means that the group may book shipbuilding revenue of S$312m in FY13, a 40% increase over FY12. However, FY13 is likely to be a backend-loaded year for the shipbuilding division. Meanwhile, ASL also has an outstanding order book of about S$59m with respect to long-term ship chartering contracts.
Ups dividend to 1.75 S cents per share
The group has seen increased activity in the sale-and-purchase of offshore support vessels, in particular smaller PSVs and larger AHTS vessels. We adjust our estimates with the improved outlook, and our fair value estimate rises from S$0.75 to S$0.82 (based on 10x FY13F core earnings). Maintain BUY.
Meanwhile, ASL has also declared a final cash dividend of 1.75 S cents per share, up from 1.5 S cents last year. (Low Pei Han)
. . . . .
Swiber Holdings: Continues to execute in 2Q12
●No surprises in results
●Bond issuance for refinancing ●More projects in pipeline 2Q12 results largely in line
Swiber Holdings (Swiber) reported a 27.1% YoY rise in revenue to US$229.6m and a 103.9% YoY increase in net profit to
US$15.1m in 2Q12, boosted by one-off gains such as disposals, fair value changes in financial derivatives and forex gains of about US$10m. 1H12 revenue and core net profit accounted for about 55% and 57% of our full year estimate, largely within our expectations.
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Gross profit margin fell slightly from 14.7% in 2Q11 to 14.2% in 2Q12. The group is also seeing traction from its associates and JVs which contributed US$4.1m in the quarter vs US$2.5m in 1Q12 and a loss in 2Q11.
Tapping debt market recently
The group has been active in the bond market in the past few months, issuing a total of S$320m worth of bonds since Jun. This is not surprising as S$170m of bonds will mature by end Oct this year, in addition to US$100m of convertible loan notes that may be redeemed on 16 Oct. As the conversion price of S$0.84 is more than 35% above the current price, the convertible notes are likely to be redeemed. We estimate that the group has tapped S$690m out of its S$700m MTN programme, but there should be room for more debt issuance after repayment of S$170m worth of bonds by end Oct. Meanwhile, current borrowings stood at US$373.0m with a cash balance of US$129.2m as at 30 Jun 2012.
Bidding for more projects
As of Aug 2012, the group’s order book stood at about US$1.6b and is expected to contribute to its performance over the next two years. Looking ahead, the group is still bidding for more projects in the pipeline given the positive industry outlook. We have fine-tuned our estimates and our fair value estimate has now increased to S$0.66 (prev. S$0.63). Given limited upside potential, we maintain our HOLD
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Calendar of key events
13-Aug-12 14-Aug-12 15-Aug-12 16-Aug-12 17-Aug-12 Noble 2Q12 Comfort Delgro 1H12 Design Studio 2Q12 Armstrong 2Q12 Penguin 2Q12 STE 2Q13 ECS/Wilmar/CDL 2Q12 WBL 3Q12 Ho Bee 2Q12 Global Logistics/SingTel 1Q13 US Jul Advance Retail
Sales
SG Jun Retail Sales US Jul CPI US Jul Industrial
Production
US Jul Housing Starts Global Logistics Properties 1Q13 (est)
Chosen FY12 SG Jul NODX China July Property
Prices (18th Aug) US Aug U of Michigan
Confidence
20-Aug-12 21-Aug-12 22-Aug-12 23-Aug-12 24-Aug-12
PEC FY12 (est)
SG Jul CPI US Minutes of FOMC
Meeting US Jul New Home Sales
SG Jul Industrial Production US Minutes of FOMC
Meeting (23rd Aug) US Jul Durable Goods
Orders
27-Aug-12 28-Aug-12 29-Aug-12 30-Aug-12 31-Aug-12
Viz Branz FY12 Karin Tech FY12
Olam FY12 US 2Q GDP SG Jul Bank Loans & Advances
SG Jul Money Supply China Aug Mfg PMI (1st
Sep) US U of Michigan
Confidence
03-Sep-12 04-Sep-12 05-Sep-12 06-Sep-12 07-Sep-12
US Aug ISM
Manufacturing US Aug Total Vehicle Sales US 2Q Nonfarm
Productivity
US Aug ISM Non Mfg
Composite Retail Sales (9th Sep) China Aug CPI/China China Aug Ind Production (9th Sept)
US Aug Change in Nonfarm Payrolls US Aug Unemployment
Rate
10-Sep-12 11-Sep-12 12-Sep-12 13-Sep-12 14-Sep-12
China Aug Exports US Jul Trade Balance SG 2Q Unemployment
Rate SG Jul Retail Sales US Sep FOMC Rate
Decision US Aug CPI US Aug Advance Retail
Sales US Aug Industrial
Production US Sept U of Michigan
Confidence
Notes: All US Tech results dates have been adjusted to Singapore dates. US Initial jobless claims are released every Friday;
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RATINGS AND RECOMMENDATIONS:
- OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.
- As a guide, OIR’s BUY rating indicates a total return in excess of 10% given the current price; a HOLD trading indicates total returns within +/-10% range; a SELL rating indicates total returns less than -10%.
- For companies with less than S$150m market capitalization, OIR’s BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.
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Carmen Lee Head of Research For OCBC Investment Research Pte Ltd
