We showcased King Wan (KWAN) at a road show last week. Management briefed investors on how it arrived at the decision to dispose of its Thai associates as well as clarified KTIS’ IPO timeline. We think that post-special dividend, the market will not allow KWAN trade at a 9% yield indefinitely. Instead, we expect yield compression to move the share price closer to a 7% yield, as implied in our SGD0.43 TP.
Market leader enjoys economies of scale. Within the mechanical & electrical (M&E) space, KWAN is the only company that is involved in the fields of electrical, plumbing, air-conditioning and fire protection. Its economies of scale give it a contract-winning cost advantage. The group is also currently involved in the construction of the Sports Hub.
Cash flow supports our special-dividend thesis. The core M&E business currently contributes SGD5m-SGD7m of cash, which is easily sufficient to meet our core 1.5 cent dividend totaling SGD5.2m. Other sources of cash are KWAN’s property development arms, its vessel-chartering associate, and of course, the sale of shares in the Thai sugar mill (KTIS).
No delay in KTIS listing; “80% confident”. Earlier, we were mistaken in stating that KTIS’ IPO was delayed from April. Management clarified that the IPO process began only in June 2012, and the short one-year period to IPO (implicit in the option to reverse the sale) was agreed upon by both parties to hasten the exercise. Management is “80% confident” that the IPO will proceed in mid-July as planned.
SMRT Corp ---> Maybank Kim Eng: Earnings Weakness Not Priced In; Sell, TP $1.00
Ø Maintain Sell with TP of SGD1.00. With structurally higher leverage and poor dividend yield support, we argue that SMRT should de-rate structurally from its historical levels. The stock of SMRT currently trades at 25X FY14E P/E and yields merely 1.7%.
Ø We have 3 key concerns on the stock: 1) Structurally higher leverage, 2) Fare revenue and OPEX mismatch and 3) Lack of CAPEX visibility.
0024 GMT [Dow Jones] STOCK CALL: Barclays tips dip-buying opportunities in Singapore REITs as "valuations are looking attractive." It notes that concerns over the Federal Reserve tapering its asset purchase program have
seen the FTSE ST REIT Index, a proxy for SREITs, fall over 15% from a 52-week high on May 15 compared with the STI's 8% decline over the same period. However, the house remains of the view "that the concern is premature and we do not expect the Fed to cut back its bond purchases until
2014 vs the market's expectation of 2H13." It prefers "higher beta REITs which are also less constrained by Singapore's ongoing economic restructuring conditions."
In the office REITs space its Overweight-rated names are Keppel REIT (K71U.SG), with a S$1.70 target price, and
CapitaCommercial Trust (C61U.SG), with a S$1.87 target price.
We believe 2Q 2013 will be challenging for Wilmar (results to be announced in mid-August) and we expect all divisions to be under pressure.
● Plantations: Palm oil prices are down 29% YoY. Oilseed: The bird flu scare has resulted in crush volumes falling by 10-20% YoY.
Palm refining margins are deteriorating with new capacities coming on stream. Sugar: the Yellow Canopy syndrome has resulted in less sugar content. Consumer pack: 2Q is a seasonally weak quarter due to the lack of major festivals.
● There is good support at S$3.00 for Wilmar given: (1) top management—Kuok Khoon Hong and Martua—bought Wilmar
stocks at S$3.17-3.18/share; (2) share buybacks at S$3.00; and (3) Wilmar’s forward P/B of 0.9x is very close to the GFC low of 0.8x.
● Although we believe in the long-term prospects of Wilmar, it lacks positive catalysts in the short term. We maintain our NEUTRAL rating on the stock.
SIA --> CIMB: SIA’s three major businesses – mainline, SIA Cargo and SilkAir – all reported load factor softness last month. Guidance from management remains muted as both loads and yields seem to be under pressure.
We leave our target price, estimates and Neutral rating unchanged. We base our end-13 target price of S$10.65 on a trough multiple of 4.2x CY14 EV/EBITDAR to reflect the
long-term de-rating that we believe SIA is undergoing due to competition from the Middle East airlines and LCCs.
While SIA may return capital to shareholders by divesting long-term assets, we believe that its net cash balance of S$3.8bn as at Dec 12 is insufficient to warrant a large special dividend as we expect it to be just enough to cover estimated capitalised operating lease costs. We believe that SIA tends to distribute a significantly larger part of its earnings to investors when these costs are covered. We prefer Cathay Pacific (Outperform, target price HK$17) to SIA due to the former’s greater reliance on traffic and revenues from North America
where we see less intense competition.
WILMAR --> CIMB: During our conference, Wilmar revealed that 2Q earnings may be weaker qoq as bird flu has led to a drop of around 10-20% in soya meal demand in China and refining margin may weaken when new refining capacity comes onstream in Indonesia. There is also concern that
sugar profitability may be diluted as sugarcane yield
from its mills may be hit by the "yellow canopy syndrome" disease. But these are short-term negatives that do not shake our Outperform rating, which is underpinned by its cheap FY12 P/BV of 1.2x vs. the historical average of 2.1x. We maintain our SOP-based target price.
NextInsight
a hub for serious investors