Singapore announced its budget last week. Small-caps are likely to feel
the pressure from rising business costs and a labour shortage. Foreign
worker levies, especially for unskilled workers, will be raised and the
dependency ratio will also be reduced.
Construction, offshore marine and
the services industry will be
negatively hit. Productivity
improvements and innovations will
gain urgency. However, the
government is taking a calibrated
approach and businesses will have
time to adapt. Healthcare small-caps
such as Raffles Medical will heave a
sigh of relief as the government will
allow foreign healthcare manpower
Yongnam’s 4Q/FY12 profit was in
line. Order book remains strong. A
key catalyst is Yongnam’s
involvement in a consortium that
will be bidding to build and operate a
new international airport in
Myanmar. We understand that the
tender closes in late-April. Given the
renown of the partners in the
consortium and Yongnam’s proven
track record with airport
construction, they stand a good
chance of winning the contract.
Maintain Outperform and target
price of S$0.36. Parkson Retail Asia
and Del Monte Pacific also offer
exposure to Myanmar.
We downgraded ARA Asset
Management, Pan-United but
upgraded Ezion to Outperform.
CWT, our high conviction small-cap
pick, reported in-line results.
Earnings have normalised at Eratat
although stronger sales growth will
depend on further realignment of its
distribution network. Trade
receivables remain the key risk.
should benefit from the strong
construction demand and earnings
over CY13/CY14 will be buttressed by
its property development project,
Bliss@Kovan. We also highlight
Jadason for its attractive dividend
yield. Other stocks with potential are
Del Monte Pacific Limited, Banyan
Tree and GuocoLeisure. (Read Report)
5.1 What will April bring?
121212, a beautiful number? On that day, HK-listed Guoco Group Ltd (53 HK)
announced that it had received an offer from GuoLine Overseas Limited to
privatise the company and delist from the stock exchange. Want to guess the
offer price? HK$88 per share (sound great if you say it in Cantonese). At that
price, the offer values Guoco Group at 0.65x historical P/BV based on FY6/12
Of interest to readers would be the fact that Guoco owns a 66.64% stake in
GuocoLeisure, which is listed on the SGX. GuoLine’s privatisation offer resulted
in the appointment of Somerley Limited as the independent financial adviser to
advise the Independent Board Committee of Guoco. Given the many businesses
own by the Guoco Group, the timeline for the issuance of the Independent
Financial Adviser’s report has been pushed back to 30 April 13 from 2 January
5.2 Revaluation upside for GuocoLeisure’s assets?
Hotels, property and equipment accounted for 87% of GuocoLeisure’s FY12
fixed assets. Given that the group does not appear to have revalued its hotel
assets for the past two years at least, there could be upside to GuocoLeisure’s
reported book value of 87.8 US cts (2Q FY13). GuocoLeisure operates two hotel
brands, Guoman and Thistle, primarily in Europe. The reported book value of
its hotels, property and equipment as at end-December 12 was US$1.2bn. We
believe Somerley’s updated valuation on GuocoLeisure just from the hotel
assets alone could be more reflective of the replacement value of these assets.
Other than the hotel business, GuocoLeisure’s other assets are:
Involved in the gaming industry in the UK through its wholly-owned subsidiary,
Clermont Leisure (UK) Limited (Clermont). Clermont owns and operates The
Clermont Club (TCC), an exclusive members-only casino in Mayfair, London,
and has five other dormant gaming licences across the UK.
2) Oil & Gas
Receives royalties from the Bass Strait Oil Trust (BSOT), which is a unit trust
managed by Bass Strait Oil Management Limited, a wholly-owned subsidiary of
the Group in Australia, by virtue of BSOT’s 55.11% entitlement to the Weeks Royalty.
The Weeks Royalty refers to a 2.5% overriding royalty relating to all
hydrocarbons produced by BHP Billiton Limited (formerly known as The
Broken Hill Proprietary Company Limited) (BHP) from designated areas in the
Bass Strait, Australia, granted by BHP. Production is currently undertaken in
those designated areas by BHP and Esso Australia Resources Pty Ltd (Esso).
3) Property Development
Involved in property development through its wholly-owned subsidiaries,
Molokai Properties Limited (Molokai Properties) and Tabua Investments
Limited (Tabua Investments).
Molokai Properties owns a 54,677-acre property on the island of Molokai in
Hawaii. This was closed in 2008 and remains so. Currently, Molokai Properties
maintains a small staff force on the island to perform routine maintenance of
buildings and other assets. Molokai Properties is working with various parties
who are exploring development opportunities, such as renewable energy
projects, on its property.
Tabua Investments is the group’s property investment arm in Denarau, Fiji.
The company intends to divest its property investments completely and
eventually exit from Fiji.
5.3 If Guoco gets privatised, how about GuocoLeisure?
The markets will likely want to believe that major shareholder Quek Leng Chan
will eventually want to take GuocoLeisure private. History supports this view as
the Guoco Group did make an offer of S$1.25 (S$1.20 initially) per share for
shares in GuocoLeisure in 2005. Mr Quek (through GuoLine) has also been
buying shares from the open market. The last reported transaction was on 16
Oct 12 when 667,000 shares were purchased at S$0.65 per piece.
At the same
time, no major shareholder per se seems to have enough holdings to thwart any
privatisation attempt. We believe Guoco’s current privatisation is likely to keep
GuoLine busy. Privatisation of GuocoLeisure, if at all, will have to wait till the
Guoco deal comes to a conclusion. Even then, one should not read too much
into the 2005 offer as the key objective then (on hindsight) seems to be the
importance of Guoco having a controlling stake in GuocoLeisure.
You may be interested to read...
Source : CIMB Research
Labels: ARA Asset Management, China Eratat Fashion, CWT, Del Monte Pacific Limited, Equity Strategy, Ezion Holdings, GuocoLeisure, Jadason, Pan-United Corp, The Banyan Tree, Yongnam Holdings