CentraLand: S$0.48 Unrated - J-Expo Exploration

source:DMG

We recently visited J-Expo, CentraLand’s first commercial development in the nucleus of Zhengzhou City, Henan province. Spanning 65,890 sm, the building comprises of six levels of 2,560 retail units and seven storeys of 192 office units. Although Zhengzhou is a lower tier and developing city, we were pleasantly surprised by the reasonable standards of J-Expo’s architecture, as well as its well-diversified and well-organized tenant mix. Further, as J-Expo represents CentraLand’s maiden foray into commercial properties, we believe that it is a commendable effort. At present, 93% of J-Expo’s 1,792 retail units for sale have already been snapped up and the 768 retail units for rental have a decent occupancy rate of ~ 90%. The robust demand is unsurprising given that it is located within the main wholesale centre of Zhengzhou, coupled with close proximity to key bus and rail transport stations. More importantly, Zhengzhou’s status as China’s transportation hub makes it one of the most vibrant wholesale centres in China, thus supporting a thriving demand for retail units within the city as people across China constantly travel there to purchase wholesale goods for resale in their respective provinces and cities. For CentraLand, we believe that this is also positive for its upcoming new development – Tianrong Fashion City, a fashion apparel wholesale centre. In the medium-long term, it could also look at acquiring or developing sites which can benefit from the wholesale trade.

On the back of the handing over of ~ 1,000 retail and office units in J-Expo, CentraLand recorded a 1,292% YoY surge in 3Q08 PATMI to RMB74.3m. For the next 2 - 3 quarters, we reckon CentraLand can still recognize income contribution from 803 pre-sold retail and office units which have yet to be delivered, as well as potential sales of 184 other unsold ones. However, we are less certain of its 2H09 performance, as J-Expo’s contribution should come only in the form of rental income (estimated at RMB20.9m p.a.) as a bulk of its sales contribution would have been recognized then. Simultaneously, we are not expecting a robust take-up for GLSS Phase 3. From our view, some of the more likely avenues for topline enhancement could be the acquisition of another commercial development which has a higher probability of asset turnaround, possible sales of some of J-Expo’s retail rental units and quickened finalization of Tianrong Fashion City.

Following a pledge to construct more low-income housing and cutting mortgage rates and down payments for first-time home buyers, the Chinese government has introduced more concrete measures. These include the trimming of business and transaction taxes for property sales, as well as policies to make it easier for developers to obtain credit. Given that real estate investment accounts for about 10% of China’s GDP, we are not surprised by the recent slew of favorable policies. Nonetheless, we believe that it could take a longer than expected time for the policies to fully filter to each individual province and city in China. As such, we estimate a recovery in China’s property sector sometime beginning 2H09. Chinese property developers on the SGX are currently trading at 1.2x their book value, while CentraLand has a P/B ratio of 3.4x. We do not have a rating for CentraLand. Catalysts for the counter include the finalization of the purchase of an adjacent site sitting next to Tianrong Fashion City, acquisitions of more commercial sites, as well as global recovery in buying sentiments within the property sector. Risks include its over-dependence on one city and two projects for its current income contribution.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

SGX: S$5.40 SELL (TP: S$3.95) - Nov futures turnover volume plunged

Dec stockmarket turnover value remains soft. Average daily stockmarket turnover value was S$0.96b for the first 11 trading days of Dec 08. Though this is close to Nov 08’s S$1.04b, it represents a sharp 31% decline from Oct 08’s S$1.40b. The average value per share traded has also fallen from Oct 08’s S$1.03 to Dec 08’s S$0.86 – suggesting a shift towards trading of smaller cap stocks. However, we note that Dec is seasonally a month of weaker trading volumes due to the holiday season. Hence, despite the weakness in Dec, we are maintaining our FY09 and FY10 ADT assumptions of S$1.19b and S$1.24b respectively.

Futures turnover strength has abated. After recording very strong futures trading volume of 6.47m and 6.84m in Sep and Oct 08 respectively, futures turnover fell to 4.44m in Nov 08, with a 1.69m MoM decline in Nikkei futures trading volume. We do not read this positively as derivatives clearing fees account for 29% of 1QFY09 overall revenue. As the weakness only occurred for one month, we maintain our FY09 and FY10 futures turnover volume of 72m and 75m respectively, and will review the numbers, if necessary, at a later date.

Is an assumption of FY10 ADT of S$2.1b reasonable? We do not think so, given that Dec 08’s was S$0.96b. SGX traded at mid-teens P/E in 2005, when FY05 ADT fell 14.5% YoY. We believe a fair P/E rating is 13x, factoring in the more severe decline this time round – we are assuming FY09 ADT to fall 47%. Our target price of S$3.95 is pegged to this 13x P/E rating. Based on the current price of S$5.40 (and applying a 13x P/E rating), the market is assuming a FY10 ADT of S$2.1b, which we feel is unachievable. Maintain SELL on SGX.

source: DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Pan Hong Property Group: S$0.20 NEUTRAL (TP: S$0.25) - A Modest But Reasonable Take-Up in Huzhou

A Modest But Reasonable Take-Up In Huzhou

Pan Hong attained a modest take-up rate of 41% for Huzhou Liyang Jingyuan (HLJ) Phase 2, a 150-unit residential project which it launched two weeks ago. A total of 61 units (~7,000 sm in GFA) were transacted at an average selling price of RMB4,950 psm, slightly under our estimates of RMB5,000 psm. Assuming a breakeven price of RMB3,000 psm, they would contribute 0.41¢ / share to NAV when completed and handed over in 2Q09. Despite the weakening sentiments surrounding China’s real estate sector and deteriorating operating environment for property developers, Pan Hong was able to sell close to half of the project within a short period of time from the launch date. We view this positively, and attribute it to a confluence of factors, including Pan Hong’s proven track record in Huzhou (having completed 7 projects here), the buyers’ genuine owner-occupier profile, as well as the project’s quality and good location. Of late, there has been a slew of government policies aimed at bolstering the role of the financial sector in supporting economic growth. At the same time, the Chinese government could be implementing more sector-specific policies in the near term. While the government’s increasing ardor in its introduction of expansionary policies are positive, we would like to stress that implementation is the key here. Judging from the size of the country and historical lead time of policies meted out, it could take a longer than expected time for the intended impact of the policies to filter down to each of the different provinces and cities. Since our initiation report, Pan Hong’s share price has remained flat. Given its residential-centric business model, Pan Hong is not spared from the current weakening sentiments, sales volumes and take-up rates that are plaguing the property sector across China, including the lower-tier cities which Pan Hong is exposed to. Any available catalyst would have to rely on the rate at which the government’s various policies hit the ground running, coupled with a global recovery in real estate sentiments. On the bright side, Pan Hong does have a relatively strong balance sheet - current net gearing ratio of 0.33x and cash position of RMB111.9m. In light of the above, we maintain our NEUTRAL call for the stock with a target price of S$0.25.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Parkway Holdings: S$1.20 BUY-Initial (TP: S$1.45) - Strong branding will help it ride out challenging times

Strong branding will help it ride out challenging times

Thanks to a strong brand name, Parkway has been able to execute its strategies in growing revenue intensity. In 9M08, it recorded a 5.9% YoY increase in net revenue per adjusted patient day to S$1,850. Going forward, Parkway plans to focus more on complex cases that would generate more revenue. This would help to offset the expected lower hospital admissions due to the economic downturn. Its achievements in the medical field have given Parkway the edge over peers, to draw patients to its medical facilities.

New 350-bed Novena hospital. Parkway secured the 1.7ha Novena Terrace / Irrawaddy Road hospital site, with a bid of S$1.284b. The land parcel has been fully paid on 20 May 2008. This site can be developed into a 500-bed private hospital with a maximum GFA of 778,500 sf. Parkway intends to put in 350 beds in this new Novena hospital. The hospital is expected to be operationally ready in 2011 and Parkway would be in a good position to capture the influx of medical tourists.

Regional footprint contributes to earnings. Parkway operates hospitals and medical centres across the region, allowing it to draw foreign patients to its Singapore operations, and also contribute to earnings. Having a regional exposure also helps to boost Parkway’s brand name. On top of that, with hospitals in the region, Parkway is also in a position to capture the portion of medical tourists who opt for treatments in the neighbouring countries where Parkway has a presence, given the current economic climate. In that sense, Parkway may not lose out that much, from the potential dip in foreign patients.

Initiate coverage with BUY recommendation. With a strong brand name and regional footprint, Parkway is positioned to draw patients to its medical facilities, even in the economic downturn. Parkway is a larger healthcare provider, compared with its peers, in terms of market capitalization and operations. Hence, we ascribe a PE of 13x for its healthcare services and hospital business. Based on our SOTP valuation, we arrive at a 12-month target price of S$1.45 for Parkway.

Source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Low Keng Huat Q3 profit trebles

Property and hospitality group Low Keng Huat (Singapore) yesterday reported a net profit of
$12.95 million for the third quarter ended Oct 31, 2008 - more than treble the $3.75 million for
the previous corresponding quarter. This drove earnings per share for the quarter to 1.75
cents, up from 0.51 cents in the year-ago period. Higher earnings came on the back of a near
doubling in revenue to $52.26 million from $26.45 million. For the nine months ended Oct 31,
Low Keng Huat's net profit surged 105 per cent from a year ago to $23.36 million. The higher
earnings were mainly due to higher development profit from associated companies.
Contributions from projects such as the one-north Residences, Duchess Residences and
Regency Suites had increased, while those from Domain 21 had dropped.
Low Keng Huat also benefited from lower construction losses, partly because it managed to
recover some cost increases. Net earnings in the nine months would have been higher if not
for lower profits from the hotel and investment segments. Net profit before tax and minority
interests for the hotel business dropped as concessionary income from gaming centre
operations fell. Overall hotel revenues were also lower as the weaker Australian dollar shaved
revenues from Duxton Hotel Perth. Investments also booked a lower net profit before tax and
minority interest. This was due to the sale of some quoted equities which had to be marked to
market. Group revenue in the nine months soared 66 per cent from a year ago to $148.09
million, driven largely by an increase in construction revenue.
There was a higher percentage of completion for ongoing projects and new projects - the
Hardrock Hotel at Sentosa and Meritus Mandarin Hotel - had also started. Low Keng Huat said
that it is 'in a strong financial position'. Its net gearing as at Oct 31 was 15.4 per cent, lower
than the 24.2 per cent at end-January. The group also expects its two hotels in Perth and Ho
Chi Minh City to perform well despite more challenging economic conditions in Western
Australia and Vietnam. Low Keng Huat won a $295 million project last month to construct a
shopping mall cum bus interchange complex at Serangoon Central. Its order book as at
November was $900 million.
Source: Business Times and Bloomberg

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

SIA Nov traffic slump biggest in 5 years

(Singapore) Singapore Airlines, the world's largest carrier by market value, reported its biggest
slump in traffic in more than five years as a global recession cuts travel demand. Passenger
numbers slid 6.1 per cent last month to 1.54 million, the airline said in a Singapore stock
exchange statement yesterday. That's the biggest drop since a 7.6 per cent decline in August
2003, according to data compiled by Bloomberg.
SIA's traffic has declined in two of the past three months as financial firms cut business travel
and people cancel leisure trips. Global air traffic will decline 3 per cent next year, the first drop
since 2001, the International Air Transport Association has said. The airline gained 0.2 per cent
to $11.06 in trading yesterday. The shares have declined 36 per cent this year.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Cambridge Industrial Trust: S$0.28 BUY (TP: S$0.49) - Change at the Helm, Refinancing Overhang Removed

source: dmg

Cambridge Industrial Trust (CIT) has appointed Christopher Dale Calvert as the new CEO of Cambridge Industrial Trust Management (CITM), CIT’s REIT manager. While we reckon that CIT could gain from Christopher’s vast array of expertise in various segments of the property sector, we note that aside from his 1-year stint as CEO of Macarthurcook Industrial REIT, the bulk of his real estate experience evolved around the Australian market. However, as the previous CEO will remain with CITM, we believe CIT can still benefit from his wealthier experience within the Singapore industrial property sector. Additionally, we think that the new appointment could signify CIT’s intention to look into cross-border assets, as well as further enhancing its Australian identity. On a separate note, CIT has agreed to the terms of an S$390.1m syndicated 3-yr term loan from RBS, HSBC and nabCapital. With an effective annual interest rate of 6.6%, the loan will be used to refinance CIT’s all existing debt facilities of S$490.0m, of which it has drawn S$369.2m. While the agreed interest rate is higher than our assumed estimates of 5.6%, we believe this is reasonably lesser than what the market was pricing in (we forecast to be 10 – 12%). Our last sensitivity analysis has shown that for every 0.5% increase in funding cost, DPU would head down by 0.22¢. Until the final facility documentation is agreed and loan drawdown, we are maintaining our DPU estimates and fair value. We conjecture that CIT’s successful debt refinancing is an encouragement for S-REITs as a whole. Even though it is a smaller-cap REIT, CIT was able to secure a clean debt (which we view as most optimal amongst all refinancing options despite the higher funding costs eating into DPU), thus not risking a potential share dilution from issuance of equity or convertible bonds, or asset sales to pare down debt levels. More importantly, as CIT is the REIT with the first major loan due for refinancing in 2009, we believe that this event could be a harbinger of better things to come for other REITs with major debt due in 2009. The removal of the refinancing overhang is music to the ears of existing unitholders, and we thus advise prospective investors to buy the stock on its relatively higher yield of 17 - 21% compared to the sector average of 13 – 14%. Maintain BUY at S$0.49.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Jardine Cycle & Carriage: NEUTRAL - Downgrade (TP: S$11.18) - Outlook is less rosy

Sales of Komatsu equipment may decline in 2009. Overall Indonesian sales of heavy equipment vehicles may drop to 6,000 units in 2009, from an estimated 10,000 in 2008, as buyers face problems obtaining loans, and customers in the mining and plantation industries scrap expansion plans. Astra’s subsidiary in the Heavy Equipment business, United Tractors, which has a 45% market share, indicated in an announcement that it may also fail to reach its target of 4,750 units in 2008.

Plans to boost coal extraction capacity. United Tractors has also announced that it plans to spend US$315m to increase its coal extraction capacity, by 14% to 65m tons a year. It plans to add equipment to its coal mining services unit. This may somewhat offset the decline in its heavy equipment vehicles sales.

Motorcar sales continue to decline MoM. Overall Indonesian motorcar sales reached 47,000 units in November, up 2.6% YoY, but lower than the 54,810 units recorded in October. According to Astra, its November sales were 20,839 units.

Motorcycle sales improved slightly. Overall Indonesian motorcycle sales fell 4.4% YoY to 492,903 units in November, with Honda maintaining the lead with total sales of 230,544 units. This was slightly more than the 222,012 units achieved in October for Honda. Motorcycle unit sales for the first 11 months have already overshot the industry’s target of 5.8m units for 2008, and sales are expected to reach 6m units for the whole year. Automotive sales are expected to be lower in 2009,

We are lowering our target price for JC&C, as we adjust our valuation for its business units. Based on our SOTP valuation, we arrive at a target price of S$11.18, down from S$12.28 previously. This presents a marginal potential upside from current levels. Given the less rosy outlook for 2009, we are downgrading our recommendation to Neutral.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Property Sector: NEUTRAL - 1H09 GLS - Good But Not Good Enough

Citing the expected weak global economic outlook in 2009, the Government has decided against adding new sites to the 1H09 Government Land Sales (GLS) Programme. We believe another factor could be attributable to the considerable quantum of remaining sites backlogged from 2H08, where only 2 sites were successfully tendered off, paling in comparison to the average of 15 sites in the previous three semi-annual periods. Further potential supply was trimmed, as a mere 40,000 sm of commercial space would be made available through non-GLS avenues, representing a 72% HoH plunge. Although the move could help to re-calibrate the supply-demand dynamics, we surmise that the crux of the measure is essentially an affirmation of the current sentiments. While we welcome the Government’s move to pare down the potential pipeline of properties and not crowd the market with unnecessary supply when sentiments are already dampened, we hold the view that at this moment, the property market is more in need of demand-side catalysts than supply-side measures. Some of these could come in the form of temporary exemptions of stamp duty and decreased property taxes, as well as a fine-tuned Deferred Payment Scheme (i.e. 30 – 50% of sale price upon purchase to be paid initially, instead of 10 – 20%). Further, we reckon that the market has already priced in this measure following the earlier announcement on 31 Oct 08. As such, we believe the impact on developers’ share prices would be minimal. With the global macroeconomic climate still running its course, the operating environment for property developers has inevitably become increasingly challenging. We believe this is just the inception of a downcycle for the property market. There remain no near-term boosters to galvanize the share-price performance for developers. Aside from more concerted and effective measures by governments worldwide to shore up the economy and assist corporates in tiding through the current rough climate, we look forward to January’s Budget statement for Singapore. For now, we keep our NEUTRAL rating on the property sector and stick to developers which are well-capitalized, have less exposure to the residential segment and equipped with sources of recurring income. We thus maintain our BUY call for CapitaLand at S$3.05.

source:DMG
The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Singtel:Key takeaways from Investor Day

Increasing mobile leadership. SingTel doesn’t seem to be contended with its comfortable lead in both the post-paid and pre-paid mobile segments. It has an overall market share of 46%, up from 40% a year ago. The launch of the iPhone 3G was an integral part of SingTel’s strategy to extend its lead. In fact, Allen Lew, CEO of SingTel Singapore, proclaims that it is the “best thing to happen to SingTel”. The telco garnered important lessons on key information, like what datasavvy subscribers are likely to watch and what are some of the most popular applications. Approximately 30% of the activations are new mobile clients and ARPU is about 1.5 times higher than its post-paid base. Management is confident that the company will reap good returns in time to come, and the knock in margins (due to higher SAC arising from handset subsidy) is a sacrifice it has to make in the near term.

Growing and diversifying ICT business. SingTel aims to sell its one-stop converged ICT services. Corporates that go with SingTel will be able to enjoy bundled services like e-mail, web-hosting, security and network solutions. The proposition has become even stronger with the acquisition of Singapore Computer Systems (SCS), which has 2,000 employees and is expected to be completed this month at a cost of S$240m. This acquisition will allow SingTel’s systems integrator arm NCS to diversify away from Singapore government projects, which currently accounts for a big chunk of its business.

Repositioning the fixed line. The fixed line copper service, where it has a 94% market share, is still very important to SingTel, as it allows the company to “upsell” its mio TV service. In doing so, it has successfully repositioned the traditional home telephone socket. mio TV has 46,000 subscribers, still small compared to StarHub’s 500,000, but nevertheless a credible base. It also claims to have a “critical mass” of channels, with 56 currently.

Update on Next Gen NBN. As a key partner in the winning OpenNet consortium, SingTel is confident of benefiting from the award of the NetCo. As mentioned in previous reports, the red camp will have a few bites of the cherry – OpenNet’s use of its passive infrastructure, sale of the same infrastructure to AssetCo and the participation in profits of OpenNet. Mr Lew assesses that the cost to households post-NBN will be close to S$80 per month, which is apparently higher than its rivals’ estimates.

soource:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned