Investors’ Corner (Sembcorp Industries, SingPost, Valuetronics Hldgs, Ascott Residence Trust)
Related stocks: SGX:U96, SGX:S08, SGX:BN2, SGX:A68U
Sembcorp Industries
Price – $4.69
Target – $5.10
Sembcorp Industries’ utilities segment earnings surged 23% q-o-q in 3Q14 on the back of short-term contracts and new income from the Banyan Cogen plant in Singapore. Power spreads declined 3% q-o-q as competition in Singapore remains intense. A new revenue recognition policy forced earlier bookings of low-margin procurement for the marine segment. Margins in the next few quarters are likely to stay depressed as more low-margin revenues are booked on subsequent drillships and may only rebound in 2H15 or 1H16. Without a near-term margin catalyst, we downgraded Sembcorp Marine. Given that it accounts for 41% of Sembcorp Industries’ value, its lowered target price reduces our valuation of the latter. Moving forward, it may require an oil price recovery or earnings surprise at Sembcorp Marine, or reduced competition in the Singapore utilities space to offset the negative sentiment. Downgrade to NEUTRAL. DMG & Partners (7 Nov)
Singapore Post
Price – $1.94
Target – $2.17
Singapore Post (SingPost) reported an 8.1% and 5.5% y-o-y rise in 2Q15 revenue and net profit respectively. Increased e-commerce transshipments in the international mail business line boosted mail revenue while a challenging environment led to a revenue decline in the traditional postal business. In the past few months, the firm has continued to invest in its various business segments and upgrade its postal infrastructure in Singapore, with its mail sorting machines expected to be fully operational in Dec-14. SingPost has sought to reduce its reliance on the mail business, which accounted for 56% of 2Q15’s revenue, its lowest in history. Indeed, SingPost’s e-commerce unit made up 27% of 1H15 revenue, representing a 20% y-o-y growth, backed by close to 1,000 e-commerce customers. Maintain BUY. OCBC Investment (7 Nov)
Valuetronics Holdings
Price – $0.345
Target – $0.54
Valuetronics Holdings’ consumer electronics (CE) segment revenue was down 11% y-o-y in 2Q15, while its industrial and commercial electronics (ICE) unit was up 25% y-o-y. Its major customer is facing intense competition in its LED lighting business and has been cutting its selling prices to increase its competitiveness in the market. This price cut is likely to adversely affect gross margins for the firm’s CE segment. We think that there will be a limit to how much this customer is able to squeeze Valuetronics, and with the latter as the cost leader, it will difficult for alternative suppliers to offer lower prices without sacrificing on profitability. While there will be downside pressure on the firm’s margins going forward, there will be a floor to it. ICE remains the key area of focus for the firm to reduce its reliance on CE and maintain or increase overall margins. Maintain BUY. AmFraser Securities (7 Nov)
Ascott Residence Trust
Price – $1.23
Target – $1.30
In line with our estimates, Ascott Residence Trust’s 3Q14 gross revenue and DPU came in at $93.7m (up 8.9% y-o-y) and $0.0211 (down10.8% y-o-y). This was mainly due to additional contribution from 9 properties acquired during the year, while new shares issued in Dec-13 resulted in a share dilution. Revenue per available unit (RevPAU) in 3Q14 for countries with management contracts was generally stronger, due to strong corporate and leisure demand as well as higher demand for refurbished apartments. On the other hand, RevPAU in Singapore and Vietnam was weighed down by lower corporate accommodation budgets while China and the Philippines were weaker due to the repositioning of the portfolio. Although the top line will continue to benefit from the recently-announced acquisitions in Australia and Japan, we prefer the former given the fixed lease contract and anticipated yield accretion. As we believe the full potential from most of the assets acquired this year will not be realised in the near term, the dilution effect is expected to persist. Maintain HOLD. CIMB Securities (6 Nov)
Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.
http://www.sharesinv.com
Related stocks: SGX:U96, SGX:S08, SGX:BN2, SGX:A68U
Sembcorp Industries
Price – $4.69
Target – $5.10
Sembcorp Industries’ utilities segment earnings surged 23% q-o-q in 3Q14 on the back of short-term contracts and new income from the Banyan Cogen plant in Singapore. Power spreads declined 3% q-o-q as competition in Singapore remains intense. A new revenue recognition policy forced earlier bookings of low-margin procurement for the marine segment. Margins in the next few quarters are likely to stay depressed as more low-margin revenues are booked on subsequent drillships and may only rebound in 2H15 or 1H16. Without a near-term margin catalyst, we downgraded Sembcorp Marine. Given that it accounts for 41% of Sembcorp Industries’ value, its lowered target price reduces our valuation of the latter. Moving forward, it may require an oil price recovery or earnings surprise at Sembcorp Marine, or reduced competition in the Singapore utilities space to offset the negative sentiment. Downgrade to NEUTRAL. DMG & Partners (7 Nov)
Singapore Post
Price – $1.94
Target – $2.17
Singapore Post (SingPost) reported an 8.1% and 5.5% y-o-y rise in 2Q15 revenue and net profit respectively. Increased e-commerce transshipments in the international mail business line boosted mail revenue while a challenging environment led to a revenue decline in the traditional postal business. In the past few months, the firm has continued to invest in its various business segments and upgrade its postal infrastructure in Singapore, with its mail sorting machines expected to be fully operational in Dec-14. SingPost has sought to reduce its reliance on the mail business, which accounted for 56% of 2Q15’s revenue, its lowest in history. Indeed, SingPost’s e-commerce unit made up 27% of 1H15 revenue, representing a 20% y-o-y growth, backed by close to 1,000 e-commerce customers. Maintain BUY. OCBC Investment (7 Nov)
Valuetronics Holdings
Price – $0.345
Target – $0.54
Valuetronics Holdings’ consumer electronics (CE) segment revenue was down 11% y-o-y in 2Q15, while its industrial and commercial electronics (ICE) unit was up 25% y-o-y. Its major customer is facing intense competition in its LED lighting business and has been cutting its selling prices to increase its competitiveness in the market. This price cut is likely to adversely affect gross margins for the firm’s CE segment. We think that there will be a limit to how much this customer is able to squeeze Valuetronics, and with the latter as the cost leader, it will difficult for alternative suppliers to offer lower prices without sacrificing on profitability. While there will be downside pressure on the firm’s margins going forward, there will be a floor to it. ICE remains the key area of focus for the firm to reduce its reliance on CE and maintain or increase overall margins. Maintain BUY. AmFraser Securities (7 Nov)
Ascott Residence Trust
Price – $1.23
Target – $1.30
In line with our estimates, Ascott Residence Trust’s 3Q14 gross revenue and DPU came in at $93.7m (up 8.9% y-o-y) and $0.0211 (down10.8% y-o-y). This was mainly due to additional contribution from 9 properties acquired during the year, while new shares issued in Dec-13 resulted in a share dilution. Revenue per available unit (RevPAU) in 3Q14 for countries with management contracts was generally stronger, due to strong corporate and leisure demand as well as higher demand for refurbished apartments. On the other hand, RevPAU in Singapore and Vietnam was weighed down by lower corporate accommodation budgets while China and the Philippines were weaker due to the repositioning of the portfolio. Although the top line will continue to benefit from the recently-announced acquisitions in Australia and Japan, we prefer the former given the fixed lease contract and anticipated yield accretion. As we believe the full potential from most of the assets acquired this year will not be realised in the near term, the dilution effect is expected to persist. Maintain HOLD. CIMB Securities (6 Nov)
Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.
http://www.sharesinv.com
