Wednesday, January 28, 2009

Kim Eng "hold call" on SMRT with price target of $1.80

Still a smooth journey
3Q09 profit rose 7.6% yoy, inline with our forecast, driven by higher MRT profits and rental income. QoQ, profit fell 3% as LRT and Bus losses widened (the latter due to higher costs from higher service quality standards), while fuel cost edged higher sequentially despite lower diesel costs as SMRT paid 30% more for electricity. But lower staff costs helped EBITDA margin recover slightly to 35.9% (2Q09: 35.4%, 3Q08: 36%).
Benefited from higher ridership & rental
Driven by the recession and supportive government policies for public transport, more Singaporeans are taking trains and buses. In 9M08, MRT ridership rose 10.8% YoY while Bus ridership rose 5.1% YoY. Also, rental income from 28 refurbished train stations accounted for 21% of operating profit in 3Q09, up from 17% a year ago.
Costs should peak soon
SMRT lost $2m in profit in 3Q09 due to a hedge executed on diesel at higher prices. But the current contract should expire by the end of March 2009, which is the same time that electricity prices are set to fall 25%. With staff costs expected to head lower, the rising costs that have plaqued SMRT for a year now should start to trail off.
Budget goodies likely negated by lower fares
SMRT should see earnings boosted by 10-12% from the Jobs Credit scheme announced in the 2009 budget. There are also other goodies such as a road tax rebate and waiver on diesel tax for non-hired out taxis. However, SMRT is likely to pass on most of these savings to riders and drivers. In addition, it has decided not to seek a fare increase this year; in fact, there is a chance it will cut fares to reflect the economy. In addition, the rental kicker that provided a boost in FY09 will not recur in FY10 as most tenants are already paying higher rents and the number of refurbished stations is likely to remain static.
No catalysts; maintain HOLD
While SMRT remains a relatively defensive story, valuations are still too expensive and dividend yield unexciting, given the lack of catalysts. Given that, we maintain our HOLD call with a price target of $1.80.

Friday, January 23, 2009

Capitaland rumoured to consider rights issue

SINGAPORE (Dow Jones)--CapitaLand Ltd. (C31.SG) is considering a rights issue to raise about S$1.5 billion by offering one new rights share for every four existing shares at S$2.20 each, people familiar with the situation said Friday. "The consideration is for the capital increase to take place around mid-February, but there is no firm decision," one person said. Shares of the developer traded down 2.4% at S$2.44 each at 0235 GMT. A spokesman couldn''t be immediately reached for comment. Last month, it said it wouldn''t comment on market rumor or speculation, after Dow Jones Newswires reported the company was mulling the rights issue. CapitaLand had about 2.8 billion shares outstanding and S$4.2 billion in cash and cash equivalents at Sept. 30. Analysts say CapitaLand isn''t in need of capital, but raising more money would allow it to buy distressed assets in attractive markets and put the company in a better position to face challenges in the current property market. The sector in Singapore and the region has cooled considerably since last year. Chief Executive Liew Mun Leong has said the company could consider acquiring some distressed real estate companies in Asia, including China and Australia. If the issue takes place, it would be the second major Singapore company to raise money through a rights issue in recent months. In late December, DBS Group Holdings Ltd. (D05.SG) said it planned to raise about S$4 billion to bulk up its capital base.

Thursday, January 22, 2009

Keppel Land Buy Call by Kim Eng(price target $2.79)

KepLand posted an FY08 net profit of $227.7m, a 70.8% decline from $779.7m in FY07. Removing one-off gains, core earnings fell 23.6% yoy to $213.3m, meeting our expectations. Revenue however fell by 40.2% in FY08, largely due to the completion of several development projects in Singapore and overseas. As expected, no write-downs were made. The Group’s management had reviewed its residential landbank and concluded that no provisions or write-downs are necessary due to their low breakeven prices, in relation to market prices. In addition, its investment properties including those under K-REIT have also held their values, with no downward revision in capital values yet. Assurance given with regards to funding for MBFC and OFC. Construction works are underway for both the MBFC and OFC. Management has given the assurance that there is sufficient cash to fund the construction of both projects. In addition, management also reiterated that future tenants are contractually-bound, and must stay true to the committed rental levels even if market rates have dipped. Timeline for new residential launches look uncertain. Due to the weak market conditions, KepLand will delay project launches in Singapore and overseas. In Singapore, this will include units at Reflections at Keppel Bay and Marina Bay Suites. This follows weak sales of only 52 units sold in 2H08, made up of units at Reflections, Park Infinia and The Tresor. Management will also keep a keen eye on project costs, possibly suspending projects that do not add value. Negatives have been priced in. We think that despite the weak outlook, especially pertaining to the weak demand for mid-to-high end residential and office sector, these negatives have already been priced in. KepLand’s balance sheet remains strong enough to weather the storm. We maintain our BUY recommendation with a target price of $2.79, based on a 50% discount to RNAV.

Wednesday, January 21, 2009

Profit warning list!

SembCorp Marine (SCMN.SI - S$1.59; 3H): Sell: Not Decoupled from Customers' Challenges

Company filings - Petromena requires an additional ~US$300m funding for its 3 semi-subs under construction at SMM, of which ~US$100m needs to be raised by Apr 30 before delivery of the first rig. Options being explored: i) increase loan commitment for the first rig by ~US$100m, and the bank, in return, requests to be absolved from its commitment to fund the other two rigs. This will result in a financing shortfall of US$600m for two other rigs due in Sep 09 and Jan 10; ii) sell part or all of the rigs to make up for the shortfall, but could be challenging given current market conditions.

K-REIT Asia (KASA.SI - S$0.69; 2L): Hold: Decent Results, Occupancy Falls for 2nd Straight Quarter

Results slightly ahead of expectations - Distributable income rose 15% qoq in 4Q08 while FY08 distributable income was slightly ahead of CIR estimates. DPU for FY08 was 8.91, translating into a yield of 13.3%.

CapitaCommercial Trust (CACT.SI - S$0.88; 1L): Buy: Worst is in the Price; Yield of Over 13%

Revenue was ahead but cost was also higher than expected - For 4Q08, CCT reported a DPU of 2.71cents, reflecting a 13% decline qoq and 16% rise YoY. Total DPU for FY08 was 11cents. Although revenue was up 5% QoQ, driven largely by Raffles City and Starhub Centre, NPI was 1.7% lower on higher operating expenses at Raffles City and initial loss at Wilkie Edge.

S-REITs: Clarity on Re-financing and Leverage Ratios

MAS gives clarification on gearing limit - Under the MAS Property Fund Guidelines, an S-REIT's total borrowings and deferred payments cannot exceed 35% of its deposited property. This limit can go up to 60% if the REIT obtains a credit rating and publicizes it. MAS has added that REITs are not in breach of the limit if the 60% limit is reached as a result of a fall in asset values.

Tuesday, January 20, 2009

DBS Vickers on SembMarine

SembCorp Marine’s client, Petromena has won approval from its bondholders for higher debt facilities of US$300m for the first semi-submersible rig scheduled for delivery by SembCorp Marine in April 2009, and thereby avoiding a default on payments to SMM. Petromena has another two semi-submersible rigs under construction by SMM. We estimate the remaining and maximum exposure to the 3 Petromena's rig construction projects to be about S$1.1b. This represents about 10.9% of its net order book of S$10.1b. We have already assumed order delay/cancellation of 15% of orderbook for the group. Going forward, we believe that SMM may try to conserve its available cash hoard so as to maintain its future contract renegotiation flexibility. This may result in a reduction in future dividend payout ratio. We now assume SMM to maintain its absolute dividend payment in our FY08-10 forecast periods, which implies around 40% dividend payout ratio. Maintain HOLD.

Monday, January 19, 2009

Capitala in financing agreement

CapitaLand's Abu Dhabi unit Capitala has entered into an agreement to provide future buyers of its maiden project in the city with up to 85 per cent financing. Under the finance agreement with Abu Dhabi Finance, buyers of homes in Capitala's US$5-6 billion Arzanah development will qualify for loans of up to 85 per cent of the property's value; with loan terms of up to 30 years, flexible repayment methods and debt service ratios of up to 55 per cent. Traditionally, homebuyers in Abu Dhabi pay for their properties upfront. Capitala is 49 per cent owned by CapitaLand, Singapore's largest property developer, while the remaining 51 per cent stake is held by Mubadala Development Company, Abu Dhabi's state-owned investment vehicle.

Financial Result Calendar for Jan 2009