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Genting Singapore - Last hope seems squashed

Shared By Stock Fanatic on Saturday, October 25, 2014 | 25.10.14

Reuters has reported that the Japan casino bill is likely to be delayed again and it is likely that Japan would not have casinos for the 2020 Olympics.

As we highlighted in our report on 12th September (Hope can hurt) investors were clinging on to GENS with two hopes – 1st, that the domestic gaming market will grow, and 2nd that the Japan casinos will be approved and GENS will get a licence. We now see both of these hopes squashed.

SIA Group - Tiger trap

Singapore Airlines (SIA) eventually announced that it would consolidate Tiger Airways (Tiger) by converting all perpetual convertible capital securities (PCCS) and subscribing to its rights issue. We forecast that SIA will inject capital of SGD 247mn into Tiger and control 71.1% of the LCC when the deal is completed sometime in 2HFY15.

As Tiger cut its bases in the Philippines, Indonesia and Australia, it has become a LCC based only in a small and competitive Singapore, sharing the market with SIA, Silkair and Scoot. A turnaround of its business remains tough, in our view.

Despite the SIA-Tiger consolidation (as we expected), we do not expect a Tiger-Scoot brand merger to happen nor for SIA Group’s pan-Asia LCC ambitions to bear fruit. We are concerned about SIA’s long-term strategy.

We cut our earnings forecasts on both Tiger and SIA due to Tiger’s larger-than-expected losses in 2QFY15 and worse-than-expected outlook. We downgrade Tiger to Underperform with a new price target of SGD 0.23, based on an unchanged multiple of 2x FY15E PBR. We cut SIA’s price target to SGD 8.90, based on a lower multiple of 0.8x FY15E PBR, given its strategy muddle.

Tiger Airways - Alarming losses in Singapore

Tiger’s annualised 1HFY15 core net loss was 51% more than our previous full year forecast, due to lower-than-expected yields at Tigerair Singapore (TR), which caused it to suffer its worst-ever losses in its history. Although we downgrade our earnings forecasts for TR, our group-wide core earnings forecasts do not change significantly, as a 40% stake in Tigerair Australia (TT) will be sold to Virgin Australia by December 2014, and we have removed further equity accounting for its losses. 

We have also factored in a 85-for-100 rights issue at S$0.20 and the conversion of SIA’s perpetual debt into new ordinary shares. We maintain Reduce, with a lower cum-rights target price still based on 1x P/BV after major asset writedowns last quarter. Derating catalysts include Tiger Airways’s poor outlook.

Keppel T&T - Attractive entry point

KPTT delivered 3Q14 net profit of S$18.5m, leading to 9MFY14 net profit coming in above at 79% of our full-year estimate due to higher-than-expected other income. We keep our Add rating, and raise our FY14 EPS estimate by 5% to account for higher other income, but cut FY15-16 EPS by 4-5% to reflect a delay in the construction of Jilin Food Logistics Park. 

Our SOP-based target price falls marginally to S$1.90. We see value in the stock, which is trading at 11.4x FY15 P/E (0.5 s.d. below its historical mean). Management continues to reiterate its commitment to the REIT listing, which we believe would be a key re-rating catalyst given the potential to unlock asset value.

Guocoleisure - Operations remain sound

At 34% of our full-year forecast, 1QFY15’s core earnings are deemed in line with our expectations, as 1Q is seasonally stronger. However, we cut our FY15-17 EPS estimates by 5.0%-8.7% as UK hotel earnings are likely to be affected by the recently-weakened GBP and the Bass Strait O&G royalty income is affected by a sharp drop in oil prices. Apart from the FX translation and oil price impact, operations remain sound. 

We roll over our target price to end-CY15 to a lower S$1.18 (based on 30% discount to end-CY15 RNAV) as we incorporate a weaker GBP and lower oil price. Potential catalysts include UK’s booming hospitality sector, potential new hotel management contracts, and value unlocking from disposal of non-core assets. Maintain Add.

Alpha Edge - Signs of cracking

US S&P500 weekly price chart
The US and regional equity markets should rebound soon after the sharp correction over the past fortnight. However, the medium-term trend is still down. The S&P500 monthly MACD has just turned negative while the DJIA has broken off its 1-year diagonal triangle formation. China’s Shanghai Composite is resilient but negative divergence in the daily technical indicators could mean consolidation ahead for this Index.

Herd Instinct - Key Emerging Markets and Developed Asia Fund Flow Weekly, 9 October - 15 October 2014

During the week to 15 October, there were net redemptions of US$2.3billion in EM equity funds and $5.8bn in the last 2 weeks. For the week, total redemptions in EM ETFs came at US$1.8billion. YTD redemption in EM is US$7.7billion (subscription US$1.4billion in EM ETF’s).

The net flows by mandate were:

Singapore Traders Spectrum - Wired Weekly

■ STI – 3135 limits downside, scope for initial rebound to 3220, and thereafter to 3284

■ Rebound in oil price brings respite for O&G stocks – our picks are Keppel Corp, Pacific Radiance, Ezion and SMM

Sembcorp Marine - Four FPSOs And Counting

SembMarine has won its fourth FPSO order this year, combining it with an offshore substation platform contract for a total value of SGD222m. Maintain BUY and SGD4.50 TP, a 24.3% upside. YTD orders are a healthy SGD3.9bn – on track to meet our SGD4.5bn target. We believe margins and earnings bottomed out one and two years ago respectively and the stock is now trading at 13x trough earnings only.

Nam Cheong - First Diesel-Electric AHTS Sold Out On Launch!

Nam Cheong launched its first diesel-electric AHTS vessel, the NCA80E, last Friday. Customers signed letters of intent (LOIs) worth USD186m for a mix of “sale and charter” for 12 vessels, with options taken for the remaining eight in the series. Thus, its vessels are sold out for the next three years. 

As it has convincingly showed an ability to sell vessels even with oil priced at USD85/bbl, we maintain BUY with a SGD0.58 TP (59.6% upside, 10x blended FY14F/FY15F P/E).

UBS Singapore - Alpha Preferences

Remove Hutchison Port Holdings Trust from Least Preferred
We are upgrading HPH Trust from Sell to Neutral after 10% share price correction from the recent peak of US$0.76 (as of 6 June 2014), as we find current valuation fair

Despite positive volume numbers coming out in recent months from both Yantian and HK, we remain cautious on the sustainability of dividends as we see short-term risk being interest rate hike and long-term risk being potential dividend payout ratio cut.
**** Recommendation ****

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