China Hongxing Sports (S$0.49) - Growth after the Olympics
We spoke to management recently regarding its growth strategy
post-Olympics. Hongxing plans to continue its retail network expansion and
A&P to raise brand visibility as it believes that China's sporting market
will continue to grow, buttressed by other sporting events like the 16th
Asian Games in 2010 and rising sports participation. In addition, Hongxing
has secured indicative orders worth Rm1bn during its March trade fair. We
have made no changes to our earnings estimates and maintain our target
price of S$0.86, based on 16.5x CY09 earnings, or a 20% premium to average
valuations for the sports shoe sector. Reiterate Outperform on the back
of robust industry prospects.
CIMB
Thursday, March 27, 2008
Singapore Exchange: Time for a relook
Singapore Exchange (SGX) has also been hit by the recent
volatility in the market. Its share price has fallen in line with its
regional peers, down about 57% from its 52-week high. This is reflective of
the generally weak sentiment in the market where trading volume has fallen
in Feb and Mar this year. Taking these factors into account, we have
imputed the drop in trading activities into our 2H FY08 estimates, and
lowered FY08 earnings by 11.7% to S$428.6m and FY09 earnings by 12.4% to
S$434.5m. Using lower valuation of 21x (versus 19x for its regional peers
and 23x for its global peers), we are lowering our fair value estimate to
S$8.20 (previous: $11.20). As SGX’s stable revenue (terminal, listing,
price information and other fees) is fairly secured, we believe that
together with the attractive yield of 4.9% at current price level, the
stock is starting to look attractive again, especially for medium to longer
term holders as SGX continues to grow its suite of products and services to
buoy its long term income. With recent volatile market conditions and on
price weakness, SGX is a BUY. (Carmen Lee - Head, OCBC Investment Research)
volatility in the market. Its share price has fallen in line with its
regional peers, down about 57% from its 52-week high. This is reflective of
the generally weak sentiment in the market where trading volume has fallen
in Feb and Mar this year. Taking these factors into account, we have
imputed the drop in trading activities into our 2H FY08 estimates, and
lowered FY08 earnings by 11.7% to S$428.6m and FY09 earnings by 12.4% to
S$434.5m. Using lower valuation of 21x (versus 19x for its regional peers
and 23x for its global peers), we are lowering our fair value estimate to
S$8.20 (previous: $11.20). As SGX’s stable revenue (terminal, listing,
price information and other fees) is fairly secured, we believe that
together with the attractive yield of 4.9% at current price level, the
stock is starting to look attractive again, especially for medium to longer
term holders as SGX continues to grow its suite of products and services to
buoy its long term income. With recent volatile market conditions and on
price weakness, SGX is a BUY. (Carmen Lee - Head, OCBC Investment Research)
Wednesday, March 26, 2008
COSCO - Pricing in potential headwinds - valuations remain
(JP Morgan - Overwgt $4.20) 24 Mar 08
• Pricing in higher raw materials and labor costs: On the back of
potential headwinds – rising steel prices and labor costs, we are
moving away from our previously assumed blue-sky scenario and
pricing in more realistic assumptions.
• Raising steel prices remain a major concern: According to
management, its steel input cost has increased by 20% Y/Y in
FY07. While management has budgeted 20% increase in steel
input prices for all its contracts secured since Oct-07, it remains
exposed to any further increase in steel plate prices beyond the
budgeted level and margins could be impacted on further price
increases. YTD, medium steel plates prices have already increased
19% which signifies that Cosco is likely to suffer from margin
pressure for its outstanding orders as it has yet to procure its steel
supply for projects slated for FY09 delivery and beyond.
• Price catalysts going forward: Possible share price catalysts
include (1) stronger offshore contract momentum; (2) completion
of the acquisition of 19% stake in Cosco Shipyard Group at
attractive valuations; and (3) clearer management strategy on
input cost management.
• Revising Dec-08 PT to S$4.20: We are reducing our SOTP price
target to S$4.20 factoring in more conservative net margin
estimates of 10% for newbuilding, 21% for ship repair, 16% for
conversion and 19% for offshore projects secured from FY07.
• Pricing in higher raw materials and labor costs: On the back of
potential headwinds – rising steel prices and labor costs, we are
moving away from our previously assumed blue-sky scenario and
pricing in more realistic assumptions.
• Raising steel prices remain a major concern: According to
management, its steel input cost has increased by 20% Y/Y in
FY07. While management has budgeted 20% increase in steel
input prices for all its contracts secured since Oct-07, it remains
exposed to any further increase in steel plate prices beyond the
budgeted level and margins could be impacted on further price
increases. YTD, medium steel plates prices have already increased
19% which signifies that Cosco is likely to suffer from margin
pressure for its outstanding orders as it has yet to procure its steel
supply for projects slated for FY09 delivery and beyond.
• Price catalysts going forward: Possible share price catalysts
include (1) stronger offshore contract momentum; (2) completion
of the acquisition of 19% stake in Cosco Shipyard Group at
attractive valuations; and (3) clearer management strategy on
input cost management.
• Revising Dec-08 PT to S$4.20: We are reducing our SOTP price
target to S$4.20 factoring in more conservative net margin
estimates of 10% for newbuilding, 21% for ship repair, 16% for
conversion and 19% for offshore projects secured from FY07.
Monday, March 24, 2008
Singapore - A to K - March 24 : Various Brokers
ALLCO COMMERCIAL REIT, csfb downgrade to UNDERPERFORM with target price
$0.78($1.00)
- ALLC has attempted and failed to prevent a Moody.s downgrade of its
corporate credit rating from Ba1 to Ba2. Moody.s is currently keeping
ALLC.s rating under review, which could mean a further possible downgrade.
- This is negative for ALLC, as it could imply a potential refinancing
cost. In the event that ALLC cannot get full refinancing, we believe ALLC.s
potential sale of its A$483 (~S$617) worth of AU assets could also end up
in a fire sale, as potential acquirers may take advantage of the situation
or find difficulty in funding. Our analysis suggests a significant dilution
of to our TP and DPU in a fire sale scenario.
- ALLC has outperformed since last Nov. At this level, we see more
potential downside risk given the uncertain outlook. We have raised our
refinancing costs to 4.5% accordingly, and in turn revised our TP to S$0.78
and downgrade the stock to an UNDERPERFORM. On the back of the cut, our 08
DPU has decreased from 9.17 Scts to 7.10 Scts. ALLC is currently trading at
0.49 P/B, and 9.9% yield.
ASCENDAS REITS, daiwa upgrade to BUY with target price $2.75
- Investment case: Largest industrial-property S-REIT and arguably one of
the most defensive, with a diversified and highquality portfolio and a
highly-disciplined (in our opinion) acquisition strategy. AREIT faces
unique opportunities, such as its ideal position to capture CBD spill-over
demand at its multitenanted properties and an inside track in the
development of several potentially highly DPU-accretive properties at the
Changi Business Park site. The stock market has largely ignored these
positive factors, in our view.
- Asset profile: 100% industrial properties (business and science park,
hi-tech industrial, light industrial, logistics and distribution centres,
and warehouse retail facilities); 100% in Singapore.
- Risk profile/major risk factor: Singapore industrial properties are
better insulated from potential peak property-market risks (residential and
office), though future supply will always be a perennial risk. The only
possible risk we see for AREIT is earnings disappointment from
lower-than-expected contributions from development properties and rental
reversions.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 55 years, an effective cap rate of 5.9% (an un-levered
opportunity cost of capital of 7.9% and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 40%, and a WACC of 6.1%.
ASCOTT RESIDENCE TRUST, daiwa maintain BUY with target price $1.80
- Investment case: Diversified overseas exposure to the relatively stable
Asian serviced-residence industry with strong long-term growth potential;
an attractive balance of DPU yield (12-month forward yield of 7.6%) and DPU
growth (2008-10 CAGR of 14.3%), based on our forecasts; ART has an
investment-property portfolio target of S$2bn by the end of 2008, but the
manager has clarified that it has no intention of raising new equity in
2008 and can comfortably finance up to S$500m in new acquisitions entirely
with debt, and still keep the leverage ratio below 50%.
- Asset profile: 100% serviced-residence properties, including
rental-housing units across Asia; 27% by portfolio value in Singapore, 26%
in China, 20% in Japan, 11% in Vietnam, 9% in The Philippines, 6% in
Indonesia and 1% in Australia (as at 31 December 2007, a total portfolio
value of S$1.49bn).
- Risk profile/major risk factor: Local market-specific and
property-specific risks could surface from time to time (such as Jakarta
and Shanghai properties in 2007), and the portfolio could be severely
affected if a global crisis chokes off FDI flows to Asia.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 75 years, an effective cap rate of 6.05% (an un-levered
opportunity cost of capital of 8.55% and an assumed growth rate of 2.5%), a
target debt-to-asset ratio of 40%, and a WACC of 6.57%.
ASCOTT RESIDENCE TRUST, jpm downgrade to NEUTRAL with target price $1.28
- We downgrade ART to N from OW with a Dec-08 price target of S$1.28/unit:
Over the past year ART has been one of the beneficiaries of strong demand
for serviced apartments in the region. However, as about 60% of the leases
in the portfolio are of shorter than a one-year stay, we see some
vulnerability in ART's earnings going forward. We downgrade ART to Neutral
as we reduce our previously robust assumptions.
- Calibrate our earnings estimates: We have reduced our RevPAU forecast for
FY08 onwards to reflect a less exuberant outlook for the sector and have
also incorporated in the newly acquired Somerset St George in Perth. Our
FY08E-10E DPU estimates have been reduced by 0%-10%.
- Slower long-term growth expected: With the latest inclusion of Japan
rental housing and increasing exposure towards developed markets like
Australia and Japan, we expect lower growth from the current portfolio.
Coupled with considerably less certainties on the growth outlook in
emerging markets, we reduce our assumption of ART's long-term growth to 1%
(2% previously).
- We reduce our Dec-08 price target to S$1.28/unit, based on our DDM model
using a discount rate of 9.39%, increased from 8.49% previously, as a
result of increasing foreign currency exposures. Key risks to our rating
and price target include an unexpected movement in RevPAR and an
improvement in the trust's long-term growth prospects.
AVAPLAS, dmg downgrade to SELL with target price $0.07
-Topline in 1H08 increased 8.1% toS$34.3m as Avaplas experienced revenue
growth in all of its business segments. While the company did manage to
recover from the red from 1H07, the S$0.02m net profit seen in 1H08 was
actually achieved through a tax write-back of S$0.145m. Avaplas also
announced that it is expecting to incur a loss for FY08. Downgrade to SELL
with target price of S$0.07 based on a 15% discount to the industry average
of 0.6x FY08 P/B.
-Hit by high operating costs. Topline in 1H08 increased 8.1% to S$34.3m as
Avaplas experienced revenue growth in all of its business segments. SG&A,
however, served as a drag attributed to the expansion of the company's
operations in Malaysia while higher oil prices which resulted in higher
energy costs was also a factor. While the company did manage to recover
from the red from 1H07, the S$0.02m net profit seen in 1H08 was actually
achieved through a tax write-back of S$0.145m.
-Higher gearing. Balance sheet of Avaplas is looking stretched with net
gearing deteriorating slightly from 11.5% in FY07 to 14.9% in 1H08. The
company also continued to experience negative operating cashflows, as with
the case during 1H07. Going forward, we expect its balance sheet to remain
strained in 2H08.
-Unfavourable near-term outlook. The dismal performance by Avaplas in 1H08
was due mainly to the declining US dollar and the lower-than-expected
demand from its China operations. It was also announced that the expected
loss in FY08 would be further impacted by a one-time charge relating to the
relocation of its Singapore operations to overseas. We expect this one-off
charge to be in the range of S$0.4 – 0.5m.
CAMBRIDGE INDUSTRIAL TRUST, daiwa maintain OUTPERFORM with target price
$0.80
- Investment case: Niche acquisition-growth strategy leveraging on the
manager's independence; 12-month forward yield of 11.9% (based on Daiwa
forecasts) is one of the highest in the sector. Long average lease terms
(6.7 years) and security deposits (16.5 months) are well above the industry
average. We believe CREIT can ride out 2008 without further EFR, with
enough capacity to fund comfortably about S$350m of acquisitions with debt.
- Asset profile: 100% industrial properties (logistics and warehousing,
light industrial, industrial and warehouse, industrial, self storage, and
car showrooms); 100% in Singapore.
- Risk profile/major risk factor: Even though we are comfortable with
low-cost debt funding of acquisitions for the rest of the year, future
acquisitions might not be accretive for CREIT if the unit price languishes
and its cost of equity remains sky high.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 45 years, an effective cap rate of 8.1% (an un-levered
opportunity cost of capital of 9.6% and an assumed growth rate of 1.5%), a
target debt-to-asset ratio of 45%, and a WACC of 6.86%.
CAPITACOMMERCIAL TRUST, daiwa upgrade to BUY with target price $2.70
- Investment case: Exposure to a portfolio of arguably the highest quality
office-property assets in the sector; riding the momentum of positive
rental reversions, CCT's FY08-10 DPU growth of 23.3% (based on our
estimates) is the fastest among the SREITs. We believe CCT's
office-portfolio valuation, and hence NAV, is the most conservatively
valued among its peers, at a cap rate (using our FY09 NPI estimate for
net-operating income) of 4.9% (versus 4.2% for the other office S-REITs,
and 4.0% for Singapore office properties).
- Asset profile: Predominant exposure to Singapore (98.6%, with the
remainder in Malaysia through a 30% stake in Quill Capita Trust and
Malaysia Commercial Development Fund) and the office-property (including
two car-park properties) segment with an estimated 77% exposure, with the
remainder in the non-office (retail-mall, convention and hotel) segments of
Raffles City.
- Risk profile/major risk factor: The Singapore office-property sector has
already exceeded its all-time highs in terms of both rentals and capital
values, with new office supply to remain tight up to at least 2010; we
expect at least two more years of robust rental reversions, but the
supply-demand dynamics in four years is still unclear.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 99 years, an effective cap rate of 5.5%, a target
debt-to-asset ratio of 30%, and a WACC of 6.1%.
CAPITACOMMERCIAL TRUST, jpm upgrade to OVERWEIGHT with target price $2.27
- Upgrading CCT to Overweight: We are upgrading our rating on
CapitaCommercial Trust (CCT) to Overweight (previously Neutral) with the
stock having fallen to what we consider to be attractive floor valuations.
The stock has underperformed the FTSE ST REIT Index by 5.4% over the last
year, and underperformed the FTSE ST Index by 39% over the same period.
- CCT's characteristics fit the bill for a REIT investment today: CCT's
income stream is very low risk, supported by a highquality portfolio of
generally under-rented office properties in Singapore's CBD. Gearing is low
at just 24.4%, while the trust has no short-term debt refinancing issues.
- Alleviation of the sectoral short-term debt refinancing overhang could
lead to a re-rating of this stock: CCT's stock has been held back, in our
view, because of the market's worries of the substantial S$3.37 billion
short-term debt refinancing requirements for the S-REIT sector as a whole.
Alleviation of these debt re-financing concerns could reduce CCT's risk
premium and refocus the market's attention on the stock's attractive
fundamentals and reward-risk payoff.
- Our end-Dec-08 target price of S$2.27/unit is based on DDM (up from
S$1.97 previously). We expect CCT to deliver a total return of 20% through
end-Dec-08. Key risks to our price target are an unexpected increase in cap
rates beyond the levels we have already assumed, or a reduction in
equilibrium office rents in Singapore below the S$10psf pm mark, which we
believe is a sustainable through-the-cycle base.
CAPITACOMMERCIAL TRUST, uob maintain BUY with target price $2.45($3.04)
-CapitaCommercial Trust (CCT) invests in income-producing real estate used
for commercial purposes. It owns nine properties in Singapore with 2.3m sf
of office space, which accounts for 7% of private office stock within
Downtown Core. CCT has a 30% stake in Quill Capita Trust (QCT), a
commercial REIT listed on Bursa Malaysia. It has a 7.4% stake in Malaysia
Commercial Development Fund (MCDF), the largest private real estate fund in
Malaysia focusing on investments in Kuala Lumpur and the Klang Valley. CCT
was assigned a corporate rating of A3 with stable outlook by Moody's
Investors Services.
-Huge room for rental reversions. Rentals for prime office space within
Raffles Place and Marina Bay area has shot up from S$8.60 in 1Q07 to
S$15.00psf pm in 4Q07, a result of a supply crunch coupled with strong
demand from financial institutions and oil & gas companies. Rental for
Grade A office space was even higher at S$17.15psf pm in 4Q07. According to
CB Richard Ellis, rentals for Grade A office space could average S$18.50psf
pm by end-08, a further increase of 7.9%. CCT is well positioned to benefit
from positive rental reversion as 56.9% of its leases for office space are
up for renewal in 2008 and 2009, when supply coming onstream is fairly
limited. Some 54% of office space at 6 Battery Road are up for renewal in
2008 and 2009. We understand that in Jan 08, Standard Chartered has renewed
leases for 130,000sf at an average of S$14.95psf pm for three years vs the
previous rate of S$7.00psf pm. About 53% of office space are up for renewal
in 2008 at Robinson Point with existing rent of only S$4.00psf pm. Another
53% of office space are up for renewal in 2009 at Raffles City Tower with
existing rent of only S$3.40psf pm. Positive rental reversion from these
prime office buildings provides revenue growth of 14.8% in FY08 and 12.4%
FY09.
-Redevelopment for Market Street Car Park. CCT has secured Outline Planning
Permission for the redevelopment of Market Street Car Park into a premium
Grade A office tower with estimated net lettable area (NLA) of 680,000sf.
Management estimated the development cost at S$1b-1.5b, depending on the
amount of development premium imposed. Construction is likely to commence
in late-08/early-09 and completion by 1H12. The project is likely to be
undertaken by a JV with an option for CCT to repurchase at a later stage
when rentals have stabilised. Sponsor CapitaLand is the most likely JV
partner. We believe a 50:50 JV is possible, particularly if the project is
developed in phases.
-No risk from refinancing. CCT's current gearing is a low 24% in Dec 07.
The company issued S$150m 3-year medium term note with attractive fixed
interest rate of 3.05% in Mar 08. This has largely satisfied its funding
requirements for refinancing short-term borrowings and the acquisition of
Wilkie Edge, a mixed development project at Selegie Road. CCT plans to
expand its asset size from the current S$5.3b to S$6b by 2009. Potential
pipeline of acquisitions from sponsor CapitaLand includes One George Street
with NLA of 448,000sf and a possible re-development of Golden Shoe Car
Park. CCT provides FY08 distribution yield of 5.12%, a healthy spread of
3.04% over 10-year Singapore government bond yield at 2.08%.
CAPITAMALL TRUST, daiwa maintain BUY with target price $3.61
- Investment case: Multiple DPU-growth drivers, including asset
enhancement, active leasing, acquisitions, and property redevelopment
(Funan DigitaLife Mall with significant office development potential);
proven ability to increase DPU even on enlarged equity base; the largest
S-REIT and best proxy for the sector; asset-size target of S$8bn by 2010;
clear and high-profile acquisition pipeline from sponsor. Moreover, we do
not expect the major DPU drivers to diminish, even if 2008 turns out to be
a challenging year for property landlords and retailers.
- Asset profile: Predominantly in Singapore (98%, with the remainder in
China through a 20% stake in sister S-REIT, CRCT) with retail-mall exposure
(estimated at 90.2%, with the remainder in the non-retail (office,
convention, and hotel) segments of Raffles City, in which it has a 40%
stake).
- Risk profile/major risk factor: New Singapore retail-property supply
(roughly one-third of existing stock over the next four years) creates some
uncertainty. Quality and strong fundamentals do not come cheap, as CMT
trades at the highest premium (P/NAV) in the sector. In times of
indiscriminate heavy market selling, CMT, by far the most liquid S-REIT,
could underperform, in our view.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 97 years, an effective cap rate of 5.5%, a target
debt-to-asset ratio of 40%, and a WACC of 6.2 %.
CAPITARETAIL CHINA TRUST, daiwa maintain HOLD with target price $1.43
- Investment case: Exposure to a rapidly expanding portfolio of eight
shopping malls in China; ambitious and assured pipeline of about 70 malls
from sponsor; high DPU-growth outlook (Daiwa forecast's a three-year CAGR
of 22.7%) from accretive acquisitions and asset-enhancement activities.
- Asset profile: Focused solely on shopping malls (100%) throughout China
(100%).
- Risk profile/major risk factor: CRCT faces country, city and
property-specific risks; foreign business culture presents a unique
challenge for the sponsor, a blue-chip Singapore-listed company and paragon
of corporate governance; significant operating inefficiencies for those
malls not developed by the sponsor, creating opportunities for improvement.
With some difficulty (we believe) in raising equity for its maiden Xizhimen
Mall acquisition in Beijing, one of the most attractive assets in its
portfolio, future EFR could be even more challenging if market conditions
and investor appetites remain weak.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 35 years, an effective cap rate of 5.0% (un-levered
opportunity cost of capital of 10.0% and an assumed growth rate of 5.0%), a
target debt-to-asset ratio of 35%, and a WACC of 7.55%.
CDL HOSPITALITY TRUSTS, jpm downgrade to UNDERWEIGHT with target price
$1.51
- We downgrade CDREIT to UW from OW: CDREIT has outperformed JPMorgan's
S-REITs index by 5% over the last six months on the back of robust RevPAR
growth and strong operating leverage. Given the REIT's low visibility on
top-line growth and the significant vulnerability to reduced demand for
business and leisure travel, we downgrade CDREIT to Underweight (previously
Overweight).
- We reduce our FY08-FY10 estimates by about 15%-35%, as we have lowered
our occupancy rate assumptions to 80% and flattening our assumed growth in
room rates for FY09 and FY10. Given the operating leverage, we estimate
that every 10% drop in RevPAR reduces CDREIT's DPU by about 15%.
- Valuation highly sensitive to changes in RevPAR: CDREIT's valuation is
highly sensitive towards changes in RevPAR as a result of operating
leverage. We estimate that every 10% drop in RevPAR assumption could reduce
our valuation by at least 16%.
- We set our Dec-08 price target at S$1.51/unit, based on our DDM. The key
risks to our rating and price target mainly stem from an unexpected
improvement in the RevPAR trend beyond our lowered assumptions and the
inherent difficulty in calculating the effects of operating leverage on the
REIT's distributions at a time of significant volatility in revenues and
expenses.
CHINA XLX, cimb downgrade to NEUTRAL with target price $0.57($1.20)
- Rising coal prices. Anthracite coal prices in China have surged 9% qoq in
1Q08, in part due to disruptions in transportation and shutdowns of smaller
mines during recent snow storms. We expect the tight supply to ease as
operations resume. Conservatively, we have assumed firm coal prices of
Rmb900/tonne for FY08-10.
- 1Q08 urea gross margins expected at 29% (-1.6% pts qoq). According to our
sensitivity analysis, every Rmb50/tonne increase in anthracite coal prices
could reduce CXLX's urea gross margins by 2% pts, while a corresponding
Rmb50/tonne increase in urea selling prices could increase its gross
margins by 2% pts.
- Potential increase in urea price ceiling in 2H08. We think that China's
price ceiling for urea will inevitably be raised, as the wide disparity
between international and domestic prices could more than offset higher
export taxes. However, we do not think the price increase would start in
the coming quarter due to sufficient urea inventories and the
reconstruction of snowstorm-hit farming areas.
- FY08-10 EPS forecasts cut by 15-39%, to account for higher coal and raw
material prices, a higher effective tax rate and lower compound fertiliser
ASP assumptions. We have not factored in potential increases in the urea
price ceiling.
- Downgrade from Outperform to Neutral; target price reduced to S$0.57 from
S$1.20. We have used a lower P/E target of 10x on CY09 earnings (12x
previously). This represents a larger discount to Hong Kong-listed peers
than previously, in view of CXLX's limited urea export exposure compared to
China BlueChemical (3983 HK) and CXLX's less diversified portfolio compared
to Sinofert Holdings (0297 HK).
CSC HOLDINGS, dbs initial coverage HOLD with target price $0.29
-CSC is a leading foundation and geotechnical engineering specialist in
Singapore with a large fleet size of c. 209 rigs and offers a complete
range of piling solutions.
-Acquisition growth strategy positive…. CSC has cemented its leading market
position through its acquisition strategy. The company has proven its
capabilities to pick earnings accretive acquisitions of between 5-10X PER.
Recent acquisitions of Wisescan and JV with IJM should contribute S$2.9m to
the Group's bottomline in FY09 and S$4.8m in FY10.
-… but CSC is unlikely to repeat record order wins of S$488m in FY08, order
wins to slow to S$300m pa in FY09 and FY10. CSC has a healthy order book of
S$435m (3.4x FY07 revenue) as of March 2008. Given the bullish outlook for
construction sector in 2008, driven by firm demand from both private and
public sectors, we expect CSC to achieve contract wins of S$300m in FY09
and FY10 each year. Projects such as the Sports Hub and Tuas' petrochemical
plants coming onstream will support its contract wins. However, CSC is
unlikely to exceed $488m contract wins attained in FY08, which was largely
attributed to the $190m Marina Sands contract.
-Expect decline in gross margins and net profit. We have assumed gross
margin compression from rising steel and RMC prices, which currently
account for c. 50% of CSC's COGS. Steel prices, which rose 23% since Dec
07, are expected to increase by a further 20% in 2Q08. RMC prices are
expected to rise in tandem with a 35% increase in demand in 2008. As such,
we have forecasted lower gross margins of 19.5% for FY09 versus HY08's
22.3%. Consequently, we expect net profit to decline 6% yoy from $41m to
$39m in FY09.
-CSC share price surged 25% to its peak of S$0.47 in July 07 sparked by the
announcement of its prized Marina Sands contracts in May-July 07. Since
then, share price has corrected to a 3-month average of S$0.28 despite new
contract wins in Jan 08. The share currently trades at a PE of 7.2x and
7.1x on FY09 and FY10 earnings respectively, compared to 8.4x for its peers
in the construction industry. Given its niche as a foundation specialist,
we believe it is fair to apply 9x PE on its FY09 earnings, which translates
to S$0.29, representing an upside of 14%. We are thus initiating coverage
on CSC with a HOLD rating.
-Re-rating opportunities could arise when (i) the proposed acquisition of a
60% stake in CLS Holdings, which specializes in earth excavation works, is
concluded; could add S$7.3m to CSC's PBT in FY09 and FY10 each year. (ii)
CSC announces more sizable contract wins, which could raise our contract
wins assumptions.
CSE GLOBAL, bnp maintain BUY with target price $1.57
-Oil and gas plays sold down on raw-materials fear. In recent weeks, almost
all oil-and-gas-related plays have been sold down heavily and have
underperformed the STI (Exhibit 1). We believe this may be due to fears of
rising steel costs (Exhibit 2), which are up about 30% y-y this year. CSE
was also not spared, with its share price correcting 16.0% to SGD0.84 in
just a matter of two weeks.
-CSE has minimal exposure to rising steel costs. During our recent visit to
CSE's premises in Singapore, we saw the assembly of some control and
telecom systems (Exhibits 4 and 5). The key component of these systems is
the microprocessor, which the group procures from third-party suppliers.
CSE has very minimal steel requirements, which are only in the form of
steel racks and cabinets. We understand from management that steel
constitutes less than 1% of its COGS. Furthermore, the group uses mainly
stainless steel, which has been on a downward trend due to the collapse of
the price of nickel (Exhibit 3). In addition, CSE procures the necessary
equipment only when it has gotten a firm order, which implies very low
inventory risk. This can be seen from the group's inventory of only SGD9.0m
as of end 2007.
-Order flow stays solid, 2008 earnings in the bag. We understand from
management that the group has racked up some SGD90m worth of new orders so
far and remains on track for orders of SGD120m-130m in 1Q08. Management
expects new orders for the full year to hit some SGD500m, an increase of
about 15.0% y-y. We believe there is a high level of certainty for 2008
earnings given the continued solid oil and gas flow and contribution from
government initiatives (UK health care, Singapore ERP), which should be
recession proof. As shown in Exhibit 6, our analysis of CSE's order backlog
suggests that the group should achieve revenue of SGD460m this year even
without any more new orders. This already constitutes 88.0% of our
forecast.
-Maintain BUY; TP of SGD1.57, based on 14x 2008E EPS. Our TP stays at
SGD1.57 based on 14x 2008E EPS. We deem this appropriate given a three-year
EPS CAGR of 26.3%, or PEG of 0.53x. The 2008 dividend yield is now an
attractive 4.8%. BUY.
FRASERS CENTREPOINT, daiwa maintain OUTPERFORM with target price $1.54
- Investment case: The only S-REIT with pure exposure to the defensive
suburban shopping-mall segment; visible, long-term acquisition pipeline of
Singapore suburban malls from its sponsor; positive rental reversions on
existing portfolio as 32.8% of leases (by gross rental income) are up for
renewal for FY08 and 30.5% for FY09.
- Asset profile: 100% retail malls predominantly in Singapore (95.5%, with
the remainder in its 27% stake in Hektar REIT (HEKT MK, RM1.40, Not rated),
a complementary suburbanmall REIT in Malaysia).
- Risk profile/major risk factor: We see limited risk from its mall
properties. However, FCT's balance sheet strength and capacity to finance
the Northpoint 2 acquisition (and possibly even the Yew Tee Point
acquisition) entirely with debt implies that its limited free float and
liquidity is likely to persist for some time, in our view.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 88 years, effective cap rate of 5.75% (an un-levered
opportunity cost of capital of 8.25% and an assumed growth rate of 2.5%),
target debt-to-asset ratio of 35%, and WACC of 6.66%.
K-REIT, daiwa maintain BUY with target price $1.64
- Investment case: Small office-property S-REIT riding the positive
rental-reversion cycle and scaling up big through the acquisition of a
one-third stake in ORQ from its sponsor. The release of its proposed
rights-issue circular, dated 13 March 2008, suggested only modest dilution
from the impending rights issue, and not as severe as our earlier
expectations. We estimate attractive adjusted (ex-rights) yields of 8.2%
for 2009 and 9.7% for 2010. We estimate upside potential of 27.6% to our
target price on a theoretical ex-rights basis.
- Asset profile: Pure exposure to office properties (100%) and Singapore
(100%).
- Risk profile/major risk factor: KREIT's fortunes are highly dependent on
the Singapore office market, which we believe still looks positive, given
the tight supply situation and several more years of robust rental
reversions. The rights issue might alienate minority unitholders (and deter
investors from future EFRs) with its dilution, and might not improve free
float or liquidity if the sponsor ends up mopping up most of the new rights
units.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 150 years, an effective cap rate of 3.65% (an
un-levered opportunity cost of capital of 5.15%, and an assumed growth rate
of 1.5%), a target debt-toassets ratio of 27%, and a WACC of 4.84%.
KEPPEL LAND, cl downgrade to UNDERPERFORM with target price $5.63
-We are downgrading Keppel Land from BUY to an Underperform with a revised
target price of S$5.63. We do not believe the tightening credit situation
will ease by 1H08 and more likely to worsen going into 2009. Our aggressive
cuts to assumptions on residential ASPs across key markets in Singapore and
China and a further delay of six to twelve months for upcoming projects has
led us to cut earnings for FY08 by 12%. Our target price of S$5.63 is
pegged to parity on forward FY09 RNAV.
-Bearish assumptions. Our aggressive downgrade in assumptions of fair spot
rents for Prime Grade A from S$15psf to S$12psf for FY08 and FY09 and a cap
rate expansion for commercial assets in 2009 is the reason for the massive
drop in FY09 RNAV. On the domestic residential segment, we have applied a
more bearish assumption of 10% to 15% decline in ASP from the already
negative outlook in mid high end and luxury segments. Similarly, in line
with our China property team, we have cut our china residential ASPs from
the previous 25% price increase to 8%. Apart from lowered ASP assumptions,
we have also factored in delay in residential launches and a lower target
price for listed entity K-Reit. We have bumped up our cap rate assumption
by 100bps to 6% in FY09 to reflect the increasing risk aversion stemming
from the external credit market crisis as well as the impending
supplycoming on stream in 2009. Over the past year in the office market
average
prime office yields have inched up since hitting a low of 4.1% in 2Q07 and
we believe it is not far from the two historical peaks at closer to 6%.
-Downgrade to Underperform. The downgrade shaved off earnings for FY08 by
12% and we have rolled forward our target price by pegging at parity to
FY09 RNAV of S$5.63 with an UPF recommendation from the previous BUY.
$0.78($1.00)
- ALLC has attempted and failed to prevent a Moody.s downgrade of its
corporate credit rating from Ba1 to Ba2. Moody.s is currently keeping
ALLC.s rating under review, which could mean a further possible downgrade.
- This is negative for ALLC, as it could imply a potential refinancing
cost. In the event that ALLC cannot get full refinancing, we believe ALLC.s
potential sale of its A$483 (~S$617) worth of AU assets could also end up
in a fire sale, as potential acquirers may take advantage of the situation
or find difficulty in funding. Our analysis suggests a significant dilution
of to our TP and DPU in a fire sale scenario.
- ALLC has outperformed since last Nov. At this level, we see more
potential downside risk given the uncertain outlook. We have raised our
refinancing costs to 4.5% accordingly, and in turn revised our TP to S$0.78
and downgrade the stock to an UNDERPERFORM. On the back of the cut, our 08
DPU has decreased from 9.17 Scts to 7.10 Scts. ALLC is currently trading at
0.49 P/B, and 9.9% yield.
ASCENDAS REITS, daiwa upgrade to BUY with target price $2.75
- Investment case: Largest industrial-property S-REIT and arguably one of
the most defensive, with a diversified and highquality portfolio and a
highly-disciplined (in our opinion) acquisition strategy. AREIT faces
unique opportunities, such as its ideal position to capture CBD spill-over
demand at its multitenanted properties and an inside track in the
development of several potentially highly DPU-accretive properties at the
Changi Business Park site. The stock market has largely ignored these
positive factors, in our view.
- Asset profile: 100% industrial properties (business and science park,
hi-tech industrial, light industrial, logistics and distribution centres,
and warehouse retail facilities); 100% in Singapore.
- Risk profile/major risk factor: Singapore industrial properties are
better insulated from potential peak property-market risks (residential and
office), though future supply will always be a perennial risk. The only
possible risk we see for AREIT is earnings disappointment from
lower-than-expected contributions from development properties and rental
reversions.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 55 years, an effective cap rate of 5.9% (an un-levered
opportunity cost of capital of 7.9% and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 40%, and a WACC of 6.1%.
ASCOTT RESIDENCE TRUST, daiwa maintain BUY with target price $1.80
- Investment case: Diversified overseas exposure to the relatively stable
Asian serviced-residence industry with strong long-term growth potential;
an attractive balance of DPU yield (12-month forward yield of 7.6%) and DPU
growth (2008-10 CAGR of 14.3%), based on our forecasts; ART has an
investment-property portfolio target of S$2bn by the end of 2008, but the
manager has clarified that it has no intention of raising new equity in
2008 and can comfortably finance up to S$500m in new acquisitions entirely
with debt, and still keep the leverage ratio below 50%.
- Asset profile: 100% serviced-residence properties, including
rental-housing units across Asia; 27% by portfolio value in Singapore, 26%
in China, 20% in Japan, 11% in Vietnam, 9% in The Philippines, 6% in
Indonesia and 1% in Australia (as at 31 December 2007, a total portfolio
value of S$1.49bn).
- Risk profile/major risk factor: Local market-specific and
property-specific risks could surface from time to time (such as Jakarta
and Shanghai properties in 2007), and the portfolio could be severely
affected if a global crisis chokes off FDI flows to Asia.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 75 years, an effective cap rate of 6.05% (an un-levered
opportunity cost of capital of 8.55% and an assumed growth rate of 2.5%), a
target debt-to-asset ratio of 40%, and a WACC of 6.57%.
ASCOTT RESIDENCE TRUST, jpm downgrade to NEUTRAL with target price $1.28
- We downgrade ART to N from OW with a Dec-08 price target of S$1.28/unit:
Over the past year ART has been one of the beneficiaries of strong demand
for serviced apartments in the region. However, as about 60% of the leases
in the portfolio are of shorter than a one-year stay, we see some
vulnerability in ART's earnings going forward. We downgrade ART to Neutral
as we reduce our previously robust assumptions.
- Calibrate our earnings estimates: We have reduced our RevPAU forecast for
FY08 onwards to reflect a less exuberant outlook for the sector and have
also incorporated in the newly acquired Somerset St George in Perth. Our
FY08E-10E DPU estimates have been reduced by 0%-10%.
- Slower long-term growth expected: With the latest inclusion of Japan
rental housing and increasing exposure towards developed markets like
Australia and Japan, we expect lower growth from the current portfolio.
Coupled with considerably less certainties on the growth outlook in
emerging markets, we reduce our assumption of ART's long-term growth to 1%
(2% previously).
- We reduce our Dec-08 price target to S$1.28/unit, based on our DDM model
using a discount rate of 9.39%, increased from 8.49% previously, as a
result of increasing foreign currency exposures. Key risks to our rating
and price target include an unexpected movement in RevPAR and an
improvement in the trust's long-term growth prospects.
AVAPLAS, dmg downgrade to SELL with target price $0.07
-Topline in 1H08 increased 8.1% toS$34.3m as Avaplas experienced revenue
growth in all of its business segments. While the company did manage to
recover from the red from 1H07, the S$0.02m net profit seen in 1H08 was
actually achieved through a tax write-back of S$0.145m. Avaplas also
announced that it is expecting to incur a loss for FY08. Downgrade to SELL
with target price of S$0.07 based on a 15% discount to the industry average
of 0.6x FY08 P/B.
-Hit by high operating costs. Topline in 1H08 increased 8.1% to S$34.3m as
Avaplas experienced revenue growth in all of its business segments. SG&A,
however, served as a drag attributed to the expansion of the company's
operations in Malaysia while higher oil prices which resulted in higher
energy costs was also a factor. While the company did manage to recover
from the red from 1H07, the S$0.02m net profit seen in 1H08 was actually
achieved through a tax write-back of S$0.145m.
-Higher gearing. Balance sheet of Avaplas is looking stretched with net
gearing deteriorating slightly from 11.5% in FY07 to 14.9% in 1H08. The
company also continued to experience negative operating cashflows, as with
the case during 1H07. Going forward, we expect its balance sheet to remain
strained in 2H08.
-Unfavourable near-term outlook. The dismal performance by Avaplas in 1H08
was due mainly to the declining US dollar and the lower-than-expected
demand from its China operations. It was also announced that the expected
loss in FY08 would be further impacted by a one-time charge relating to the
relocation of its Singapore operations to overseas. We expect this one-off
charge to be in the range of S$0.4 – 0.5m.
CAMBRIDGE INDUSTRIAL TRUST, daiwa maintain OUTPERFORM with target price
$0.80
- Investment case: Niche acquisition-growth strategy leveraging on the
manager's independence; 12-month forward yield of 11.9% (based on Daiwa
forecasts) is one of the highest in the sector. Long average lease terms
(6.7 years) and security deposits (16.5 months) are well above the industry
average. We believe CREIT can ride out 2008 without further EFR, with
enough capacity to fund comfortably about S$350m of acquisitions with debt.
- Asset profile: 100% industrial properties (logistics and warehousing,
light industrial, industrial and warehouse, industrial, self storage, and
car showrooms); 100% in Singapore.
- Risk profile/major risk factor: Even though we are comfortable with
low-cost debt funding of acquisitions for the rest of the year, future
acquisitions might not be accretive for CREIT if the unit price languishes
and its cost of equity remains sky high.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 45 years, an effective cap rate of 8.1% (an un-levered
opportunity cost of capital of 9.6% and an assumed growth rate of 1.5%), a
target debt-to-asset ratio of 45%, and a WACC of 6.86%.
CAPITACOMMERCIAL TRUST, daiwa upgrade to BUY with target price $2.70
- Investment case: Exposure to a portfolio of arguably the highest quality
office-property assets in the sector; riding the momentum of positive
rental reversions, CCT's FY08-10 DPU growth of 23.3% (based on our
estimates) is the fastest among the SREITs. We believe CCT's
office-portfolio valuation, and hence NAV, is the most conservatively
valued among its peers, at a cap rate (using our FY09 NPI estimate for
net-operating income) of 4.9% (versus 4.2% for the other office S-REITs,
and 4.0% for Singapore office properties).
- Asset profile: Predominant exposure to Singapore (98.6%, with the
remainder in Malaysia through a 30% stake in Quill Capita Trust and
Malaysia Commercial Development Fund) and the office-property (including
two car-park properties) segment with an estimated 77% exposure, with the
remainder in the non-office (retail-mall, convention and hotel) segments of
Raffles City.
- Risk profile/major risk factor: The Singapore office-property sector has
already exceeded its all-time highs in terms of both rentals and capital
values, with new office supply to remain tight up to at least 2010; we
expect at least two more years of robust rental reversions, but the
supply-demand dynamics in four years is still unclear.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 99 years, an effective cap rate of 5.5%, a target
debt-to-asset ratio of 30%, and a WACC of 6.1%.
CAPITACOMMERCIAL TRUST, jpm upgrade to OVERWEIGHT with target price $2.27
- Upgrading CCT to Overweight: We are upgrading our rating on
CapitaCommercial Trust (CCT) to Overweight (previously Neutral) with the
stock having fallen to what we consider to be attractive floor valuations.
The stock has underperformed the FTSE ST REIT Index by 5.4% over the last
year, and underperformed the FTSE ST Index by 39% over the same period.
- CCT's characteristics fit the bill for a REIT investment today: CCT's
income stream is very low risk, supported by a highquality portfolio of
generally under-rented office properties in Singapore's CBD. Gearing is low
at just 24.4%, while the trust has no short-term debt refinancing issues.
- Alleviation of the sectoral short-term debt refinancing overhang could
lead to a re-rating of this stock: CCT's stock has been held back, in our
view, because of the market's worries of the substantial S$3.37 billion
short-term debt refinancing requirements for the S-REIT sector as a whole.
Alleviation of these debt re-financing concerns could reduce CCT's risk
premium and refocus the market's attention on the stock's attractive
fundamentals and reward-risk payoff.
- Our end-Dec-08 target price of S$2.27/unit is based on DDM (up from
S$1.97 previously). We expect CCT to deliver a total return of 20% through
end-Dec-08. Key risks to our price target are an unexpected increase in cap
rates beyond the levels we have already assumed, or a reduction in
equilibrium office rents in Singapore below the S$10psf pm mark, which we
believe is a sustainable through-the-cycle base.
CAPITACOMMERCIAL TRUST, uob maintain BUY with target price $2.45($3.04)
-CapitaCommercial Trust (CCT) invests in income-producing real estate used
for commercial purposes. It owns nine properties in Singapore with 2.3m sf
of office space, which accounts for 7% of private office stock within
Downtown Core. CCT has a 30% stake in Quill Capita Trust (QCT), a
commercial REIT listed on Bursa Malaysia. It has a 7.4% stake in Malaysia
Commercial Development Fund (MCDF), the largest private real estate fund in
Malaysia focusing on investments in Kuala Lumpur and the Klang Valley. CCT
was assigned a corporate rating of A3 with stable outlook by Moody's
Investors Services.
-Huge room for rental reversions. Rentals for prime office space within
Raffles Place and Marina Bay area has shot up from S$8.60 in 1Q07 to
S$15.00psf pm in 4Q07, a result of a supply crunch coupled with strong
demand from financial institutions and oil & gas companies. Rental for
Grade A office space was even higher at S$17.15psf pm in 4Q07. According to
CB Richard Ellis, rentals for Grade A office space could average S$18.50psf
pm by end-08, a further increase of 7.9%. CCT is well positioned to benefit
from positive rental reversion as 56.9% of its leases for office space are
up for renewal in 2008 and 2009, when supply coming onstream is fairly
limited. Some 54% of office space at 6 Battery Road are up for renewal in
2008 and 2009. We understand that in Jan 08, Standard Chartered has renewed
leases for 130,000sf at an average of S$14.95psf pm for three years vs the
previous rate of S$7.00psf pm. About 53% of office space are up for renewal
in 2008 at Robinson Point with existing rent of only S$4.00psf pm. Another
53% of office space are up for renewal in 2009 at Raffles City Tower with
existing rent of only S$3.40psf pm. Positive rental reversion from these
prime office buildings provides revenue growth of 14.8% in FY08 and 12.4%
FY09.
-Redevelopment for Market Street Car Park. CCT has secured Outline Planning
Permission for the redevelopment of Market Street Car Park into a premium
Grade A office tower with estimated net lettable area (NLA) of 680,000sf.
Management estimated the development cost at S$1b-1.5b, depending on the
amount of development premium imposed. Construction is likely to commence
in late-08/early-09 and completion by 1H12. The project is likely to be
undertaken by a JV with an option for CCT to repurchase at a later stage
when rentals have stabilised. Sponsor CapitaLand is the most likely JV
partner. We believe a 50:50 JV is possible, particularly if the project is
developed in phases.
-No risk from refinancing. CCT's current gearing is a low 24% in Dec 07.
The company issued S$150m 3-year medium term note with attractive fixed
interest rate of 3.05% in Mar 08. This has largely satisfied its funding
requirements for refinancing short-term borrowings and the acquisition of
Wilkie Edge, a mixed development project at Selegie Road. CCT plans to
expand its asset size from the current S$5.3b to S$6b by 2009. Potential
pipeline of acquisitions from sponsor CapitaLand includes One George Street
with NLA of 448,000sf and a possible re-development of Golden Shoe Car
Park. CCT provides FY08 distribution yield of 5.12%, a healthy spread of
3.04% over 10-year Singapore government bond yield at 2.08%.
CAPITAMALL TRUST, daiwa maintain BUY with target price $3.61
- Investment case: Multiple DPU-growth drivers, including asset
enhancement, active leasing, acquisitions, and property redevelopment
(Funan DigitaLife Mall with significant office development potential);
proven ability to increase DPU even on enlarged equity base; the largest
S-REIT and best proxy for the sector; asset-size target of S$8bn by 2010;
clear and high-profile acquisition pipeline from sponsor. Moreover, we do
not expect the major DPU drivers to diminish, even if 2008 turns out to be
a challenging year for property landlords and retailers.
- Asset profile: Predominantly in Singapore (98%, with the remainder in
China through a 20% stake in sister S-REIT, CRCT) with retail-mall exposure
(estimated at 90.2%, with the remainder in the non-retail (office,
convention, and hotel) segments of Raffles City, in which it has a 40%
stake).
- Risk profile/major risk factor: New Singapore retail-property supply
(roughly one-third of existing stock over the next four years) creates some
uncertainty. Quality and strong fundamentals do not come cheap, as CMT
trades at the highest premium (P/NAV) in the sector. In times of
indiscriminate heavy market selling, CMT, by far the most liquid S-REIT,
could underperform, in our view.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 97 years, an effective cap rate of 5.5%, a target
debt-to-asset ratio of 40%, and a WACC of 6.2 %.
CAPITARETAIL CHINA TRUST, daiwa maintain HOLD with target price $1.43
- Investment case: Exposure to a rapidly expanding portfolio of eight
shopping malls in China; ambitious and assured pipeline of about 70 malls
from sponsor; high DPU-growth outlook (Daiwa forecast's a three-year CAGR
of 22.7%) from accretive acquisitions and asset-enhancement activities.
- Asset profile: Focused solely on shopping malls (100%) throughout China
(100%).
- Risk profile/major risk factor: CRCT faces country, city and
property-specific risks; foreign business culture presents a unique
challenge for the sponsor, a blue-chip Singapore-listed company and paragon
of corporate governance; significant operating inefficiencies for those
malls not developed by the sponsor, creating opportunities for improvement.
With some difficulty (we believe) in raising equity for its maiden Xizhimen
Mall acquisition in Beijing, one of the most attractive assets in its
portfolio, future EFR could be even more challenging if market conditions
and investor appetites remain weak.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 35 years, an effective cap rate of 5.0% (un-levered
opportunity cost of capital of 10.0% and an assumed growth rate of 5.0%), a
target debt-to-asset ratio of 35%, and a WACC of 7.55%.
CDL HOSPITALITY TRUSTS, jpm downgrade to UNDERWEIGHT with target price
$1.51
- We downgrade CDREIT to UW from OW: CDREIT has outperformed JPMorgan's
S-REITs index by 5% over the last six months on the back of robust RevPAR
growth and strong operating leverage. Given the REIT's low visibility on
top-line growth and the significant vulnerability to reduced demand for
business and leisure travel, we downgrade CDREIT to Underweight (previously
Overweight).
- We reduce our FY08-FY10 estimates by about 15%-35%, as we have lowered
our occupancy rate assumptions to 80% and flattening our assumed growth in
room rates for FY09 and FY10. Given the operating leverage, we estimate
that every 10% drop in RevPAR reduces CDREIT's DPU by about 15%.
- Valuation highly sensitive to changes in RevPAR: CDREIT's valuation is
highly sensitive towards changes in RevPAR as a result of operating
leverage. We estimate that every 10% drop in RevPAR assumption could reduce
our valuation by at least 16%.
- We set our Dec-08 price target at S$1.51/unit, based on our DDM. The key
risks to our rating and price target mainly stem from an unexpected
improvement in the RevPAR trend beyond our lowered assumptions and the
inherent difficulty in calculating the effects of operating leverage on the
REIT's distributions at a time of significant volatility in revenues and
expenses.
CHINA XLX, cimb downgrade to NEUTRAL with target price $0.57($1.20)
- Rising coal prices. Anthracite coal prices in China have surged 9% qoq in
1Q08, in part due to disruptions in transportation and shutdowns of smaller
mines during recent snow storms. We expect the tight supply to ease as
operations resume. Conservatively, we have assumed firm coal prices of
Rmb900/tonne for FY08-10.
- 1Q08 urea gross margins expected at 29% (-1.6% pts qoq). According to our
sensitivity analysis, every Rmb50/tonne increase in anthracite coal prices
could reduce CXLX's urea gross margins by 2% pts, while a corresponding
Rmb50/tonne increase in urea selling prices could increase its gross
margins by 2% pts.
- Potential increase in urea price ceiling in 2H08. We think that China's
price ceiling for urea will inevitably be raised, as the wide disparity
between international and domestic prices could more than offset higher
export taxes. However, we do not think the price increase would start in
the coming quarter due to sufficient urea inventories and the
reconstruction of snowstorm-hit farming areas.
- FY08-10 EPS forecasts cut by 15-39%, to account for higher coal and raw
material prices, a higher effective tax rate and lower compound fertiliser
ASP assumptions. We have not factored in potential increases in the urea
price ceiling.
- Downgrade from Outperform to Neutral; target price reduced to S$0.57 from
S$1.20. We have used a lower P/E target of 10x on CY09 earnings (12x
previously). This represents a larger discount to Hong Kong-listed peers
than previously, in view of CXLX's limited urea export exposure compared to
China BlueChemical (3983 HK) and CXLX's less diversified portfolio compared
to Sinofert Holdings (0297 HK).
CSC HOLDINGS, dbs initial coverage HOLD with target price $0.29
-CSC is a leading foundation and geotechnical engineering specialist in
Singapore with a large fleet size of c. 209 rigs and offers a complete
range of piling solutions.
-Acquisition growth strategy positive…. CSC has cemented its leading market
position through its acquisition strategy. The company has proven its
capabilities to pick earnings accretive acquisitions of between 5-10X PER.
Recent acquisitions of Wisescan and JV with IJM should contribute S$2.9m to
the Group's bottomline in FY09 and S$4.8m in FY10.
-… but CSC is unlikely to repeat record order wins of S$488m in FY08, order
wins to slow to S$300m pa in FY09 and FY10. CSC has a healthy order book of
S$435m (3.4x FY07 revenue) as of March 2008. Given the bullish outlook for
construction sector in 2008, driven by firm demand from both private and
public sectors, we expect CSC to achieve contract wins of S$300m in FY09
and FY10 each year. Projects such as the Sports Hub and Tuas' petrochemical
plants coming onstream will support its contract wins. However, CSC is
unlikely to exceed $488m contract wins attained in FY08, which was largely
attributed to the $190m Marina Sands contract.
-Expect decline in gross margins and net profit. We have assumed gross
margin compression from rising steel and RMC prices, which currently
account for c. 50% of CSC's COGS. Steel prices, which rose 23% since Dec
07, are expected to increase by a further 20% in 2Q08. RMC prices are
expected to rise in tandem with a 35% increase in demand in 2008. As such,
we have forecasted lower gross margins of 19.5% for FY09 versus HY08's
22.3%. Consequently, we expect net profit to decline 6% yoy from $41m to
$39m in FY09.
-CSC share price surged 25% to its peak of S$0.47 in July 07 sparked by the
announcement of its prized Marina Sands contracts in May-July 07. Since
then, share price has corrected to a 3-month average of S$0.28 despite new
contract wins in Jan 08. The share currently trades at a PE of 7.2x and
7.1x on FY09 and FY10 earnings respectively, compared to 8.4x for its peers
in the construction industry. Given its niche as a foundation specialist,
we believe it is fair to apply 9x PE on its FY09 earnings, which translates
to S$0.29, representing an upside of 14%. We are thus initiating coverage
on CSC with a HOLD rating.
-Re-rating opportunities could arise when (i) the proposed acquisition of a
60% stake in CLS Holdings, which specializes in earth excavation works, is
concluded; could add S$7.3m to CSC's PBT in FY09 and FY10 each year. (ii)
CSC announces more sizable contract wins, which could raise our contract
wins assumptions.
CSE GLOBAL, bnp maintain BUY with target price $1.57
-Oil and gas plays sold down on raw-materials fear. In recent weeks, almost
all oil-and-gas-related plays have been sold down heavily and have
underperformed the STI (Exhibit 1). We believe this may be due to fears of
rising steel costs (Exhibit 2), which are up about 30% y-y this year. CSE
was also not spared, with its share price correcting 16.0% to SGD0.84 in
just a matter of two weeks.
-CSE has minimal exposure to rising steel costs. During our recent visit to
CSE's premises in Singapore, we saw the assembly of some control and
telecom systems (Exhibits 4 and 5). The key component of these systems is
the microprocessor, which the group procures from third-party suppliers.
CSE has very minimal steel requirements, which are only in the form of
steel racks and cabinets. We understand from management that steel
constitutes less than 1% of its COGS. Furthermore, the group uses mainly
stainless steel, which has been on a downward trend due to the collapse of
the price of nickel (Exhibit 3). In addition, CSE procures the necessary
equipment only when it has gotten a firm order, which implies very low
inventory risk. This can be seen from the group's inventory of only SGD9.0m
as of end 2007.
-Order flow stays solid, 2008 earnings in the bag. We understand from
management that the group has racked up some SGD90m worth of new orders so
far and remains on track for orders of SGD120m-130m in 1Q08. Management
expects new orders for the full year to hit some SGD500m, an increase of
about 15.0% y-y. We believe there is a high level of certainty for 2008
earnings given the continued solid oil and gas flow and contribution from
government initiatives (UK health care, Singapore ERP), which should be
recession proof. As shown in Exhibit 6, our analysis of CSE's order backlog
suggests that the group should achieve revenue of SGD460m this year even
without any more new orders. This already constitutes 88.0% of our
forecast.
-Maintain BUY; TP of SGD1.57, based on 14x 2008E EPS. Our TP stays at
SGD1.57 based on 14x 2008E EPS. We deem this appropriate given a three-year
EPS CAGR of 26.3%, or PEG of 0.53x. The 2008 dividend yield is now an
attractive 4.8%. BUY.
FRASERS CENTREPOINT, daiwa maintain OUTPERFORM with target price $1.54
- Investment case: The only S-REIT with pure exposure to the defensive
suburban shopping-mall segment; visible, long-term acquisition pipeline of
Singapore suburban malls from its sponsor; positive rental reversions on
existing portfolio as 32.8% of leases (by gross rental income) are up for
renewal for FY08 and 30.5% for FY09.
- Asset profile: 100% retail malls predominantly in Singapore (95.5%, with
the remainder in its 27% stake in Hektar REIT (HEKT MK, RM1.40, Not rated),
a complementary suburbanmall REIT in Malaysia).
- Risk profile/major risk factor: We see limited risk from its mall
properties. However, FCT's balance sheet strength and capacity to finance
the Northpoint 2 acquisition (and possibly even the Yew Tee Point
acquisition) entirely with debt implies that its limited free float and
liquidity is likely to persist for some time, in our view.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 88 years, effective cap rate of 5.75% (an un-levered
opportunity cost of capital of 8.25% and an assumed growth rate of 2.5%),
target debt-to-asset ratio of 35%, and WACC of 6.66%.
K-REIT, daiwa maintain BUY with target price $1.64
- Investment case: Small office-property S-REIT riding the positive
rental-reversion cycle and scaling up big through the acquisition of a
one-third stake in ORQ from its sponsor. The release of its proposed
rights-issue circular, dated 13 March 2008, suggested only modest dilution
from the impending rights issue, and not as severe as our earlier
expectations. We estimate attractive adjusted (ex-rights) yields of 8.2%
for 2009 and 9.7% for 2010. We estimate upside potential of 27.6% to our
target price on a theoretical ex-rights basis.
- Asset profile: Pure exposure to office properties (100%) and Singapore
(100%).
- Risk profile/major risk factor: KREIT's fortunes are highly dependent on
the Singapore office market, which we believe still looks positive, given
the tight supply situation and several more years of robust rental
reversions. The rights issue might alienate minority unitholders (and deter
investors from future EFRs) with its dilution, and might not improve free
float or liquidity if the sponsor ends up mopping up most of the new rights
units.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 150 years, an effective cap rate of 3.65% (an
un-levered opportunity cost of capital of 5.15%, and an assumed growth rate
of 1.5%), a target debt-toassets ratio of 27%, and a WACC of 4.84%.
KEPPEL LAND, cl downgrade to UNDERPERFORM with target price $5.63
-We are downgrading Keppel Land from BUY to an Underperform with a revised
target price of S$5.63. We do not believe the tightening credit situation
will ease by 1H08 and more likely to worsen going into 2009. Our aggressive
cuts to assumptions on residential ASPs across key markets in Singapore and
China and a further delay of six to twelve months for upcoming projects has
led us to cut earnings for FY08 by 12%. Our target price of S$5.63 is
pegged to parity on forward FY09 RNAV.
-Bearish assumptions. Our aggressive downgrade in assumptions of fair spot
rents for Prime Grade A from S$15psf to S$12psf for FY08 and FY09 and a cap
rate expansion for commercial assets in 2009 is the reason for the massive
drop in FY09 RNAV. On the domestic residential segment, we have applied a
more bearish assumption of 10% to 15% decline in ASP from the already
negative outlook in mid high end and luxury segments. Similarly, in line
with our China property team, we have cut our china residential ASPs from
the previous 25% price increase to 8%. Apart from lowered ASP assumptions,
we have also factored in delay in residential launches and a lower target
price for listed entity K-Reit. We have bumped up our cap rate assumption
by 100bps to 6% in FY09 to reflect the increasing risk aversion stemming
from the external credit market crisis as well as the impending
supplycoming on stream in 2009. Over the past year in the office market
average
prime office yields have inched up since hitting a low of 4.1% in 2Q07 and
we believe it is not far from the two historical peaks at closer to 6%.
-Downgrade to Underperform. The downgrade shaved off earnings for FY08 by
12% and we have rolled forward our target price by pegging at parity to
FY09 RNAV of S$5.63 with an UPF recommendation from the previous BUY.
Stock Summary M to sector - March 24 : Various Brokers
MACQUARIE MEAG PRIME REIT, daiwa downgrade to HOLD with target price $1.33
- Investment case: Core holdings of two prime Orchard Road commercial
properties; trading at a discount to NAV (of S$1.61 as at the end of
December 2007); positive rental reversions from 14% Singapore office
exposure and strong DPU growth of 43.9% for 2008 (based on Daiwa forecast)
and attractive yield. However, MMP's discount to NAV is no longer excessive
in our view, with office S-REITs trading at even bigger discounts to NAV.
One could view MMP as a perennial hostile takeover play, but the framework
for hostile takeovers for S-REITs is still untested, and we do not believe
MMP's NAV discount is wide enough to enable a buyer to mount a successful
takeover.
- Asset profile: Portfolio predominantly retail property (70%, with the
rest in office properties) and Singapore (87%) exposure.
- Risk profile/major risk factor: Concentrated in two major properties,
Wisma Atria and Ngee Ann City; the market might never give MMP's management
or sponsor the respect they deserve; Orchard Road supply addition in late
2008 could lead to major tenant reshuffle.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 71 years, an effective cap rate of 6.4% (an un-levered
opportunity cost of capital of 8.9% and an assumed growth rate of 2.5%), a
target debt-to-asset ratio of 30%, and a WACC of 7.13%.
MANDARIN ORIENTAL, lehman initial coverage OVERWEIGHT with target price
$2.28
-We regard Mandarin Oriental Int'l Ltd (MOIL) as one of the world's
best-managed luxury hotel groups. Its earnings risk from US economic
problems is mitigated by several well-executed disposals of US assets and a
more resilient management contract business. We view MOIL as a key
beneficiary of tight luxury room supply in Hong Kong. We initiate coverage
of the stock with a 1-Overweight rating and a 12-month price target (PT) of
US$2.28, representing 37% potential upside.
-Combining quality and growth. Leveraging its high-quality assets, MOIL is
expanding globally with management contracts that allow higher returns with
lower capital.
-Improved resilience to economic downturns. MOIL's outlook remains strong,
thanks to its growing management contracts, tight high-end room supply in
Hong Kong (structural support to margins), and strong financial strength.
- Favorable risk/reward balance. Our PT of US$2.28 is based on a historical
average of 12x 2008E attributable EV/EBITDA, in line with its peers and
implies a conservative 0.9x 08E adjusted NAV. MOIL's current valuation is
already at the 1991 US recession level and 11% away from its trough of 8x
attributable EV/EBITDA (implying US$1.47). Positive catalysts will be if
its earnings prove to be more resilient than the market expects.
MAPLETREE LOGISTICS TRUST, daiwa maintain BUY with target price $1.25
- Investment case: Diversified exposure across emerging and developed
markets in Asia fuelled by an acquisition-growth strategy, supported partly
by a development pipeline from its sponsor (a wholly-owned subsidiary of
Temasek Holdings). The unit price has been hit by EFR uncertainty, but we
expect the manager to scrap the rights issue option and adopt a flexible
and nimble EFR stance for 2008, and this development could surprise the
market positively, in our view. We believe MLT's 12-month forward yield of
over 7.9% (based on our estimates) is another investment attraction.
- Asset profile: 100% logistics properties (distribution centre, free-trade
zone, non-free trade zone, food and cold storage, oil and chemical
logistics, industrial warehousing); 52% (by 4Q07 net-property income) in
Singapore, 28% in Hong Kong, 13% in Japan, 4% in Malaysia, and 3% in China.
- Risk profile/major risk factor: Significant logistics-property exposure
in mature Asian markets, with minor but increasing exposure to developing
Asian markets. Major short-term risk, in our view, is if the manager
relents and proceeds with a dilutive rights issue.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 67 years, an effective cap rate of 6.3% (an un-levered
opportunity cost of capital of 8.3% and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 47%, and a WACC of 6.19%.
MAPLETREE LOGISTICS TRUST, jpm downgrade to NEUTRAL with target price $1.07
- We downgrade MLT to N from OW, on the back of heightened financial risks.
MLT has underperformed the JPMorgan S-REITs index by 2% since the
withdrawal of its equity fundraising plans, leaving its gearing at 53%.
With reduced risk appetites in real estate equity capital markets at the
moment, we see little opportunity for MLT to reduce its gearing in the
short run, leaving the financial risk profile of the trust at elevated
levels.
- Acquisitions continue and risk profile on the rise: Despite running at an
elevated gearing level, MLT continues to acquire assets using its remaining
debt headroom, getting ever closer to 60% S-REIT gearing limit. We believe
that the accretion from the acquisitions, if any, will be more than
outweighed by the increase in MLT's risk profile, which could cap the
trust's performance.
- Refinancing risks remain: We estimate that the trust will need to
refinance close to S$600 million in debt this year. Although we believe
that the trust is likely to obtain its refinancing, the cost of the renewed
debt is still an open question; especially given that the trust is on
rating watch.
- Our Dec-08 price target is unchanged at S$1.07/unit, based on our DDM
model. We downgrade the trust to Neutral given the increase in risk profile
and little share price catalysts in the short run. Key risks to our rating
and price target include any possible increase in borrowings costs, and
management's inability to raise funds for a prolonged period.
OLAM, cl maintain BUY with target price $2.61
- Olam trades on the futures exchanges through up to ten brokers.
- Exposure to MF Global is 3% of their total hedge, at less than US$750k as
of Wednesday.
- This is a balance on their margin account, which Olam will receive today
as MF Global continues to honour the futures.
- Olam will have no more exposure to MF Global after this.
- In all futures trade counterparty is the Exchange, not broker. The
exposure is only the cashline/margin surplus account at any point in time.
- As of 18 March, credit lines total S$3.32bn, up to 54% is used at the
moment because of peak procurement season.
- Working capital requirement will come down after 3Q07 (end March).
- Sufficient for working capital, despite high commodity prices.
- No problem meeting margin calls or obligation.
- Customers are not shying away from soft commodities, but need to rely on
Olam to supply to them and help them manage delivery costs.
- These customers are big global food companies with pricing power.
- Olam, most of them are 8-9mths forward, have good visibility of their
order book.
- In case of working capital issues on the customer' side, the risk lies in
the some postponement of delivery but any default will give Olam a windfall
gain.
- Generally, customers are more concerned about getting their supplies.
- Company continues to provide 1-2week advances to village level agents,
who charges money on a commission basis.
- Other trade houses not on Olam's model may have working capital
constraint.
- On capital raising, it will be within the next 12 months, but this will
continue to cause an overhang on the share price.
- Healthy M&A pipeline, targets are getting cheaper, but it depends on size
of transaction and their ability to raise money. Any changes to M&A policy
will be announced in 3Q results (around mid May).
OLAM by ubs
- Olam: Concerns appear overdone. Olam was down 12.6% yesterday. We believe
there may be concerns about its working capital requirements given its high
gearing levels and high commodity prices. We believe the concerns are
overdone and the stock should bounce back post fund raising. Olam said it
has been able to increase its working capital facilities with banks by
cS$420m to S$4.8b.
- Olam: Needs to raise equity soon. We believe the stock has been on a
downward spiral recently due to overhang from impending fund raising. We
understand Olam has c6 months to raise further equity and is waiting for an
opportune time to raise the funds. We do not believe fund raising is a
concern per se and Olam should be able to raise additional equity at close
to prevailing share price.
- Wilmar: concerns remain. On Wilmar, our key concern is increasing
percentage of profits which may be volatile in the medium term. We believe
the company should be able to weather price controls in China well. We
adjust Wilmar's valuation for de-rating of plantation stocks.
- Valuation: Reducing Price Target for Wilmar in line with sector derating.
We have reduced our target for Wilmar by 20% to account for fall in prices
of Indonesian and Malaysian plantation companies. We retain our target
price for Olam at S$3.75 and see 4% downside if the company raises S$450m
at today's price (due to higher dilution).
RAFFLES EDUCATION, csfb maintain OUTPERFORM with target price $1.70($2.13)
- We have revisited our assumptions for Raffles Education (RLS) after a
recent meeting with management, imputed an earnings model for the
recently-sealed Oriental University City deal into our forecasts, and
assumed that the guaranteed profit contribution kicks in from Jan-08
(Oct-07 previously).
- Although this lowers FY08 earnings by 6%, we raised estimates from FY10E
given greater clarity on the deal metrics, and now see 43% earnings CAGR
from FY08 through FY10E, versus our earlier expectations of 32% CAGR.
- While RLS remains, in our view, a defensive business model given the
secular demand for private education services in Asia, coupled with its
franchise and scale, its China exposure has played against it in recent
months, as risk-adverse investors realise profit on a stock that has
delivered one of the highest returns in the market.
- Our TP downgrade to S$1.70 (from S$2.13), based on 1x PEG (from 1.8x),
reflects a waning premium on growth, even as we continue to see many
positive catalysts beyond the immediate months, driven by optimism that
management is firming up new growth initiatives in China, India and
Vietnam.
SGX, jpm maintain OVERWEIGHT with target price $10.00($20.00)
- We are reducing FY08E-FY10E estimates for SGX by 26%- 28% and reduce
Dec-08 PT to S$10 from S$20 as our blue skies assumptions for the stock do
not hold any more. Key changes include reduction in average daily turnover
(ADT) expectation for CY08 to S$2.15bn from average of S$3.4bn previously
and removal of stake sale probability from the PT.
- The stock in near term acts as a high beta proxy to trading volumes,
which is a function of system liquidity and investor confidence. Since both
of these factors are volatile at this point in time, we expect the stock to
trade in a range between S$5-S$8 over next few months, before recovering in
2H08.
- Despite the near term risks, we maintain positive view on the stock as we
see higher revenues from initiatives like introduction of new trading
engine, single stock derivatives and new board – Catalist' which should
lead to 1) higher algorithmic trades, 2) improved derivatives turnover and
3) increased number of listings.
- Biggest upside potential for ADT is return to volumes above S$2bn, as
currently several investors prefer OW cash positions. We believe this
should change in 2H08, leading to higher volumes and consequently
turnaround in SGX stock price.
- Our S$10 Dec-08 PT is based on relative valuation, where we assume 25%
normalized RoE and 3.5% terminal growth, leading to 21.4x 1 year forward PE
multiple. Key risk to our call include lower than expected average daily
turnover and slower growth in the derivatives business at SGX.
SGX, mac maintain NEUTRAL with target price $6.90($10.20)
- We lower our forecast assumptions for Singapore Exchange in light of the
more sombre outlook and events in the US. Consequently, we have also
lowered our target price from S$10.20 to S$6.90, indicating little
potential share-price upside for now. We are maintaining our Neutral
recommendation.
- The average daily trading value has trended down from S$2.32bn in January
to S$1.81bn in February. March trading value is expected to remain below
S$2bn, driven in part by the potential effect from the US slowdown.
- We believe there is no good news in the offing for trading volume and
value given the US slowdown could have a negative effect here. Accordingly,
we have lowered our FY6/08 forecast assumption from S$2.10bn to S$2.03bn.
Further out, we have lowered our FY6/09 daily securities trading-value
assumption from S$1.80bn to S$0.98bn.
- With the introduction of more derivatives products, we believe the share
of revenue will enlarge, providing some cushion to slowing securities
revenue. However, it will not be sufficient to prevent a potential decrease
in earnings in FY6/09.
-Earnings revision. We lowered our net profit forecasts for FY6/08 and
FY6/09 by 9.1% and 40% because of lower securities and derivatives
trading-value assumptions.
SMRT, cl downgrade to UNDERPERFORM with target price ($1.87)
- Since our re-initiation on SMRT, its share price has outperformed the
market by 9% on a 1-month basis and 25% on a 3-month basis.
- Our 14% upside on initiation has narrowed to a mere 8%, which is half
that of the estimated 15% upside that we have on the STI, based on a bottom
up valuation approach.
- This drives our change in recommendation, which is downgraded to an
Underperform.
SUNTEC REIT, daiwa maintain OTPERFORM with target price $1.75
- Investment case: Prime and well-located core assets (Suntec City shopping
mall and office towers and a one-third stake in the One Raffles Quay (ORQ)
office building in Marina Bay). Balance sheet remains strong after the ORQ
acquisition, with the end-2007 debt-to-asset ratio at 31.4% (aggregate
leverage ratio, including deferred units, at 35.1%). Office-rental
reversions at Suntec City will underpin strong DPU growth (18.9% for FY08,
based on our forecasts). A unit-price catalyst for 2008 could be the
disclosure of plans for the Park Mall property asset enhancement or
redevelopment with adjoining land acquisitions.
- Asset profile: Located entirely in Singapore with an estimated 66%
exposure to the office segment (including its share of ORQ) and the
reminder in the retail-property segment.
- Risk profile/major risk factor: Suntec depends largely on the
contributions of two major (albeit grade-A and well-located) assets, so any
negative property-specific issues (which we do not expect) with these
assets might affect its unit-price performance.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 81 years, an effective cap rate of 5.0% (un-levered
opportunity cost of capital of 7.0%, and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 30%, and a WACC of 5.89%.
SWIBER, amfraser maintain BUY with target price $4.08
- FY07 net profit surged 310% to US$49.7m, however this was below our
forecast due to three factors. Swiber recognised a lesser US$24m in
exceptional gains from vessel sale and leaseback transactions (S&L), while
we were expecting US$36m. The booking of revenues from the Brunei Shell
project was also lower at US$50m (due to delay caused by adverse weather)
compared to forecasted US$70m; but the largest impact came from sharply
lower-than-expected margins.
- For the year as a whole, less usage of third party vessels helped improve
gross profit margin (GPM) to 28% in FY07 from 23% in FY06, as Swiber took
deliveries of 17 vessels in FY07. However, GPM was sharply lower than our
forecast of 32%, as 4Q GPM of 24% lagged behind the average 30% achieved in
the nine months to Sept-07, due to the additional charter of a third party
accomodation barge for the Brunei Shell project. Overall, we think our
previous GPM forecast for 32% over the next two years seem aggressive and
we are reducing GPM to 28% in FY08 and 30% in FY09.
- Prospects for Swiber have brightened further with an order book that has
ballooned to US$756m, significantly higher than the US$263.1m at end-07.
Its largest EPCIC contract for Brunei Shell, was extended by another
US$53.4m in Dec-07, which brings the total value to US$200m. A vessel
chartering customer, BG Exploration of India, awarded Swiber its second
largest project at US$127m in Mar-08, and this also marks Swiber's first
foray into the India market. These project values are noteworthy, as
typically, Swiber's contracts are less than US$50m. It is also encouraging
that Kruez Shipyard (previously North Shipyard, acquired in 2007), will
contribute to FY08 earnings, with its first contract (US$21m) for works on
an SPM buoy and construction and installation of two floating crane barges.
Swiber's latest contract is a new turn as it helps to build a longer-term
stream of revenues, given that the bulk of its orders on hand complete by
FY09. Its latest customer CUEL Limited, an offshore contracting specialist,
awarded Swiber a five-year contract to deliver US$50m of work a year until
the end of 2013.
- We are raising our revenue forecast by 33% to US$400m in FY08 and 23% to
US$480m in FY09, which we believe is achievable. Current contracts on hand
already account for 90% of FY08 and 40% of FY09 revenue. Net profit is
revised up marginally by 5% to US$97.1m in FY08 and US$110.5m in FY09.
While GPMs are reduced, more S&L bookings are pushed into FY08 and FY09.
- Stripping out S&L contributions to arrive at its core operational EPS,
Swiber is currently trading at a low 8.9x FY08 PER and 6.7x FY09 PER. We
maintain fair value at 13x FY09 PER on core earnings which translates to
target price of S$4.08. Given that Swiber has a rapidly expanding fleet
which may provide a recurrent base for S&L contributions, raising the base
of Swiber's net earnings, valuations may be deemed to be even lower at 6.7x
FY08 and 5.9x FY09, which provide the buffer to the higher execution risks
for its projects.
SYNEAR, cimb downgrade to UNDERPERFORM with target price $0.35($0.77)
-1Q08 sales to fall by up to 10% yoy. Synear issued a profit warning for
1Q08 yesterday. Management guided that 1Q08 sales could fall by up to 10%
yoy, implying sales of around Rmb647.9m. The weakness was blamed on snow
storms in January, which hurt transportation and sales.
-Margins under pressure. The company also faced margin pressure from the
rising prices of key raw materials such as pork, flour and packaging
materials. This suggests that 1Q08 gross margin is likely to be thinner
than the 27.6% in 4Q07.
-Reiterate aggressive advertising efforts. Despite the weak sales in 4Q07
and expected weakness in 1Q08, management reaffirmed its plans to spend
aggressively on advertising, especially TV ads, in order to capitalise on
the upcoming Beijing Olympics, where the company is the sole sponsor of
quick freeze foods.
-Update on new plants. Management disclosed that the Chengdu plant remains
on track to achieve capacity utilisation of 30% in FY08, up from the 20%
achieved at the end of FY07. Meanwhile, the Huzhou plant is scheduled to
begin trial production at end-Mar 08.
-Reducing FY08-10 EPS estimates. While we had expected FY08 to be
challenging, the potential sales decline of up to 10% yoy in 1Q08 is
steeper than what we had anticipated. We are concerned that the poor
performance might also be due to runaway inflation in China which has
reduced real disposable income, as well as the company's premium branding
strategy, which might have priced the company's products out of the reach
of consumers. We are reducing our FY08-10 EPS estimates by 7.3-8.2% on
lower sales volume and margin assumptions.
-Downgrade to Underperform from Trading Sell; lower target price of S$0.35
(from S$0.77). In light of the dismal near-term outlook and execution risks
from the company's aggressive expansion plans, we have lowered our target
valuation to 6x CY09 P/E from 12x, now valuing the company on par with Pine
Agritech (PAG SP, Underperform, S$0.155, target price S$0.16), which we
also think has a challenging near-term outlook. With our lower target and
our earnings downgrade, our target price for Synear falls to S$0.35 from
S$0.77. Downgrade to Underperform.
TIONG WOON, kim eng maintain BUY with target price $1.23
- Business on track. A recent meeting with Tiong Woon Corporation (TWC)
confirms that its core businesses of heavy lift/haulage and marine
transport are doing well on the back of the buoyant activities in the
Offshore Oil & Gas sector. Within this industry as well as the domestic
construction industry, equipment supply continues to be tight while demand
remains high. Tiong Woon therefore expects rental rates to rise 10-15% pa.
This is in line with previous guidance as well as our current forecast
assumptions.
- Expanding its options. Given the higher pricing and long lead time
(around 2 years) to procure new cranes from Europe and Japan, Tiong Woon is
exploring the option of buying from China manufacturers. However, quality
and maintenance issues are key considerations, although Chinese cranes are
40% cheaper and delivery time lag is only 8-12 months, according to
management. If these quality issues can be addressed, management would
consider trading part of its existing crane fleet (bought at low costs) in
favour of cheaper ones.
- Moving up the learning curve on its newbuild. As for its Fabrication &
Engineering business at its Bintan yard, progress of its maiden contract -
the pipelay vessel - is on track. However, 2H08 is likely to see a small
loss due to start-up costs. Towards June 08, the yard should be breaking
even through a higher percentage of revenue recognition from the newbuild
contract. This is within expectations. Based on the experience that it is
garnering from this initial project, Tiong Woon is actively negotiating for
additional newbuilding contracts, where it hopes to achieve gross margin of
15%, after going through its current gestation stage.
- Maintain Buy, TP S$1.23. We are maintaining our June FY08 forecast of
S$24.8m/EPS 7.4cts per share versus consensus of 7.5cts. Furthermore, our
forecast also includes the potential gain on the sale of older cranes -
core EPS stands at 6.6cts per share. Tiong Woon carries its assets in its
balance sheet at book value (depreciated by around 40%), whereas the strong
demand for cranes puts market prices at a minimum of 2x book value. On this
basis, revaluing Tiong Woon's crane fleet to market value yields a RNAV of
S$0.66 per share. At its current share price level, Tiong Woon is trading
at a 23% discount to its RNAV - we believe that this limits the downside on
its price. Current FYJun08 PE is also at 6.8x. Our full target price of
S$1.23 is based on a PEG of 0.4x. 3-year earnings CAGR stands at 28% p.a.
[ SECTOR ]
PROPERTY by csfb
- The close of tender for a suburban residential site at West Coast
Crescent raised some interesting trends . a foreign developer topping the
bids of a suburban site usually dominated by local developers; and while
there were more bids, they implied flat to 20% lower selling prices.
- Reversing the earlier trend of only 2-6 bidders, there were 12 bidders
for the site, but only the top three submitted bids within the range
expected by property consultants of S$260-400psf ppr; and the top bid of
S$305psf ppr, submitted by Cheung Kong (CK), was also at the lower end.
- At S$305psf ppr, we expect breakeven price to be S$600-650psf for CK and
a selling price to be S$750psf (comparable to Blue Horizon next door),
which should generate a pre-tax profit of 15%.
- The bottom 9 bidders submitted bids lower than S$240psf, with the lowest
at S$138psf (55% below top bid). Assuming they were imputing a 15% margin,
their assumed selling price of the project would be as low as S$600psf or
20% below current price; or they were making allowance for higher
construction costs.
- After this, we expect another c.1,225 residential units from 3 Government
Land Sales to close for tenders over the next month; and weak tender
results will likely dampen sentiment further. Though developer prices are
still holding up in thin volumes, anecdotally, secondary prices have
started to come off. We maintain Market Weight on the sector.
PROPERTY by uob
-According to The Urban Development Authority, the 99-year leasehold 1.2ha
residential site at West Coast Crescent received the highest bid of
S$110.4m or S$305psf ppr with a total of twelve bids in the S$138-305psf
ppr range. We estimate the breakeven cost for the project at S$670-700psf.
The average selling prices (ASP) in nearby West Cove, Blue Horizon,
Clementiwoods and Varisity Park condominiums have been in the S$605-765psf
range. Assuming a development margin of 12% at the least for the
mass-market site, the selling price expectations are upwards of
S$760-800psf. With breakeven close to the current price levels in that
area, the bid is very competitive, after pricing in a 10-15% price
appreciation from the current levels.
-The West Coast site has generated keen developer interest due to its easy
accessibility to major arterial roads and expressways, proximity to
schools, good recreational facilities at the nearby West Coast Park and
numerous shopping, dining and entertainment outlets in the vicinity. The
competitive bidding is indicative of the developers' confidence in the
mass-market segment due its favourable demand-supply dynamics. We expect
demand to outpace supply in the mass-market segment well into 2009. We
think the selling price expectations should be achievable with the
re-rating of the coastal stretch along the west coast by the end of next
year when the integrated resorts are expected to come in operation.
Allgreen (BUY/S$1.13/Target: S$1.60) offers good exposure to the
mass-market segment.
PROPERTY by dbs
-Story: The tender of a Government Land Sale (GLS) site for a private
residential development at West Coast Crescent closed yesterday. In total,
12 bids were received for this decidedly mass-market site located next to
the Blue Horizon condominium development, affirming our view that
developers might be focusing their attention to the mass-market segment,
believing that any upside in the residential sector is likely to come from
this segment.
-Point: The top bid came from Billion Rise Limited, a company believed to
be linked to Hong Kong's Cheung Kong Holdings. It submitted a bid of
S$110.4m for the site and the next highest bid was also strong, at just
S$1.5m lower. The site can yield around 300 residential units, and this
works out to be around S$305 psf ppr in terms of land cost. Breakeven price
would hover around S$650-700 psf, which was exceeded by launches last year
in the West Coast Area - like Botannia (by City Dev; 93% sold) and
Carabelle (by Sim Lian; 100% sold) of around S$800 psf.
-We believe that, going forward, developers will be more selective with
their choice of sites to bid for under the GLS, borne out by the strong
response to this West Coast site compared with the lackluster bids received
for the Westwood Avenue (Jurong West) landed housing site earlier this
month, which incidentally, was not awarded by the Government. There is
every reason to believe that this West Coast site will be awarded. The good
location of West Coast (close to universities and business parks like
one-north) coupled with the proven sales for developments in this area
could have explained the strong response to this land tender. Other
developers that threw their bids into this tender box included (in
descending order of bid price): MCL Land, Sim Lian, F&N (through its
Frasers Centrepoint Limited subsidiary), Brothers, Allgreen and City Dev.
-Relevance: We read this as a sign of faith by developers in the relative
prospects of the mass-market segment, particularly projects in more
desirable locations like West Coast. We continue to favour developers with
greater exposure to this segment, and we continue to like Allgreen
Properties (BUY, TP S$1.66).
PROPERTY by lehman
-The tender for the West Coast Crescent land parcel attracted a total of 12
bids and a top bid of S$305psfppr. While the level of participation has
markedly improved from the three bids that were submitted for the Simei
site in January and the top bid is within market expectations of
S$260-400psfppr, we believe on average the bids still reflect a cautious
mood in the market. We expect the project to yield a decent embedded margin
of 10%, based on the top bid of S$305psfppr and using the latest average
transacted price of S$750psf at next-door Blue Horizon as a reference, but
think prices could be higher judging from the current rents in the West
Coast area. The tender shows that developers are still keen to acquire
mass-market sites albeit cautiously and City Developments' upcoming Hong
Leong Garden redevelopment could benefit if the actual prices fetched by
this project surprised on the upside.
-Top bid of S$305psfppr for land parcel at West Coast Crescent – Higher
level of participation from developers but bids still reflect cautious
stance. The tender for a land parcel (99-year LH, maximum allowable GFA
361,536sf) at West Coast Crescent under the government land sales program
has closed. In all, 12 bids were submitted with the highest bid at
S$305psfppr and the lowest bid at S$138psfppr. The average bid works out to
be S$219psfppr and seven out of the 12 bids submitted fell within 1SD of
the mean. This is the second residential land parcel tender closed since
the beginning of the year – the first was the tender for a larger plot at
Simei Street 4 (99-year LH, maximum allowable GFA 797,144sf) that closed on
January 4 this year. The Simei tender attracted just three bids with the
top bid at S$296psfppr. Therefore in terms of participation, we think
developers definitely showed more enthusiasm this time round.
- Investment case: Core holdings of two prime Orchard Road commercial
properties; trading at a discount to NAV (of S$1.61 as at the end of
December 2007); positive rental reversions from 14% Singapore office
exposure and strong DPU growth of 43.9% for 2008 (based on Daiwa forecast)
and attractive yield. However, MMP's discount to NAV is no longer excessive
in our view, with office S-REITs trading at even bigger discounts to NAV.
One could view MMP as a perennial hostile takeover play, but the framework
for hostile takeovers for S-REITs is still untested, and we do not believe
MMP's NAV discount is wide enough to enable a buyer to mount a successful
takeover.
- Asset profile: Portfolio predominantly retail property (70%, with the
rest in office properties) and Singapore (87%) exposure.
- Risk profile/major risk factor: Concentrated in two major properties,
Wisma Atria and Ngee Ann City; the market might never give MMP's management
or sponsor the respect they deserve; Orchard Road supply addition in late
2008 could lead to major tenant reshuffle.
- Daiwa RNG valuation assumptions for target price: A weighted average
leasehold period of 71 years, an effective cap rate of 6.4% (an un-levered
opportunity cost of capital of 8.9% and an assumed growth rate of 2.5%), a
target debt-to-asset ratio of 30%, and a WACC of 7.13%.
MANDARIN ORIENTAL, lehman initial coverage OVERWEIGHT with target price
$2.28
-We regard Mandarin Oriental Int'l Ltd (MOIL) as one of the world's
best-managed luxury hotel groups. Its earnings risk from US economic
problems is mitigated by several well-executed disposals of US assets and a
more resilient management contract business. We view MOIL as a key
beneficiary of tight luxury room supply in Hong Kong. We initiate coverage
of the stock with a 1-Overweight rating and a 12-month price target (PT) of
US$2.28, representing 37% potential upside.
-Combining quality and growth. Leveraging its high-quality assets, MOIL is
expanding globally with management contracts that allow higher returns with
lower capital.
-Improved resilience to economic downturns. MOIL's outlook remains strong,
thanks to its growing management contracts, tight high-end room supply in
Hong Kong (structural support to margins), and strong financial strength.
- Favorable risk/reward balance. Our PT of US$2.28 is based on a historical
average of 12x 2008E attributable EV/EBITDA, in line with its peers and
implies a conservative 0.9x 08E adjusted NAV. MOIL's current valuation is
already at the 1991 US recession level and 11% away from its trough of 8x
attributable EV/EBITDA (implying US$1.47). Positive catalysts will be if
its earnings prove to be more resilient than the market expects.
MAPLETREE LOGISTICS TRUST, daiwa maintain BUY with target price $1.25
- Investment case: Diversified exposure across emerging and developed
markets in Asia fuelled by an acquisition-growth strategy, supported partly
by a development pipeline from its sponsor (a wholly-owned subsidiary of
Temasek Holdings). The unit price has been hit by EFR uncertainty, but we
expect the manager to scrap the rights issue option and adopt a flexible
and nimble EFR stance for 2008, and this development could surprise the
market positively, in our view. We believe MLT's 12-month forward yield of
over 7.9% (based on our estimates) is another investment attraction.
- Asset profile: 100% logistics properties (distribution centre, free-trade
zone, non-free trade zone, food and cold storage, oil and chemical
logistics, industrial warehousing); 52% (by 4Q07 net-property income) in
Singapore, 28% in Hong Kong, 13% in Japan, 4% in Malaysia, and 3% in China.
- Risk profile/major risk factor: Significant logistics-property exposure
in mature Asian markets, with minor but increasing exposure to developing
Asian markets. Major short-term risk, in our view, is if the manager
relents and proceeds with a dilutive rights issue.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 67 years, an effective cap rate of 6.3% (an un-levered
opportunity cost of capital of 8.3% and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 47%, and a WACC of 6.19%.
MAPLETREE LOGISTICS TRUST, jpm downgrade to NEUTRAL with target price $1.07
- We downgrade MLT to N from OW, on the back of heightened financial risks.
MLT has underperformed the JPMorgan S-REITs index by 2% since the
withdrawal of its equity fundraising plans, leaving its gearing at 53%.
With reduced risk appetites in real estate equity capital markets at the
moment, we see little opportunity for MLT to reduce its gearing in the
short run, leaving the financial risk profile of the trust at elevated
levels.
- Acquisitions continue and risk profile on the rise: Despite running at an
elevated gearing level, MLT continues to acquire assets using its remaining
debt headroom, getting ever closer to 60% S-REIT gearing limit. We believe
that the accretion from the acquisitions, if any, will be more than
outweighed by the increase in MLT's risk profile, which could cap the
trust's performance.
- Refinancing risks remain: We estimate that the trust will need to
refinance close to S$600 million in debt this year. Although we believe
that the trust is likely to obtain its refinancing, the cost of the renewed
debt is still an open question; especially given that the trust is on
rating watch.
- Our Dec-08 price target is unchanged at S$1.07/unit, based on our DDM
model. We downgrade the trust to Neutral given the increase in risk profile
and little share price catalysts in the short run. Key risks to our rating
and price target include any possible increase in borrowings costs, and
management's inability to raise funds for a prolonged period.
OLAM, cl maintain BUY with target price $2.61
- Olam trades on the futures exchanges through up to ten brokers.
- Exposure to MF Global is 3% of their total hedge, at less than US$750k as
of Wednesday.
- This is a balance on their margin account, which Olam will receive today
as MF Global continues to honour the futures.
- Olam will have no more exposure to MF Global after this.
- In all futures trade counterparty is the Exchange, not broker. The
exposure is only the cashline/margin surplus account at any point in time.
- As of 18 March, credit lines total S$3.32bn, up to 54% is used at the
moment because of peak procurement season.
- Working capital requirement will come down after 3Q07 (end March).
- Sufficient for working capital, despite high commodity prices.
- No problem meeting margin calls or obligation.
- Customers are not shying away from soft commodities, but need to rely on
Olam to supply to them and help them manage delivery costs.
- These customers are big global food companies with pricing power.
- Olam, most of them are 8-9mths forward, have good visibility of their
order book.
- In case of working capital issues on the customer' side, the risk lies in
the some postponement of delivery but any default will give Olam a windfall
gain.
- Generally, customers are more concerned about getting their supplies.
- Company continues to provide 1-2week advances to village level agents,
who charges money on a commission basis.
- Other trade houses not on Olam's model may have working capital
constraint.
- On capital raising, it will be within the next 12 months, but this will
continue to cause an overhang on the share price.
- Healthy M&A pipeline, targets are getting cheaper, but it depends on size
of transaction and their ability to raise money. Any changes to M&A policy
will be announced in 3Q results (around mid May).
OLAM by ubs
- Olam: Concerns appear overdone. Olam was down 12.6% yesterday. We believe
there may be concerns about its working capital requirements given its high
gearing levels and high commodity prices. We believe the concerns are
overdone and the stock should bounce back post fund raising. Olam said it
has been able to increase its working capital facilities with banks by
cS$420m to S$4.8b.
- Olam: Needs to raise equity soon. We believe the stock has been on a
downward spiral recently due to overhang from impending fund raising. We
understand Olam has c6 months to raise further equity and is waiting for an
opportune time to raise the funds. We do not believe fund raising is a
concern per se and Olam should be able to raise additional equity at close
to prevailing share price.
- Wilmar: concerns remain. On Wilmar, our key concern is increasing
percentage of profits which may be volatile in the medium term. We believe
the company should be able to weather price controls in China well. We
adjust Wilmar's valuation for de-rating of plantation stocks.
- Valuation: Reducing Price Target for Wilmar in line with sector derating.
We have reduced our target for Wilmar by 20% to account for fall in prices
of Indonesian and Malaysian plantation companies. We retain our target
price for Olam at S$3.75 and see 4% downside if the company raises S$450m
at today's price (due to higher dilution).
RAFFLES EDUCATION, csfb maintain OUTPERFORM with target price $1.70($2.13)
- We have revisited our assumptions for Raffles Education (RLS) after a
recent meeting with management, imputed an earnings model for the
recently-sealed Oriental University City deal into our forecasts, and
assumed that the guaranteed profit contribution kicks in from Jan-08
(Oct-07 previously).
- Although this lowers FY08 earnings by 6%, we raised estimates from FY10E
given greater clarity on the deal metrics, and now see 43% earnings CAGR
from FY08 through FY10E, versus our earlier expectations of 32% CAGR.
- While RLS remains, in our view, a defensive business model given the
secular demand for private education services in Asia, coupled with its
franchise and scale, its China exposure has played against it in recent
months, as risk-adverse investors realise profit on a stock that has
delivered one of the highest returns in the market.
- Our TP downgrade to S$1.70 (from S$2.13), based on 1x PEG (from 1.8x),
reflects a waning premium on growth, even as we continue to see many
positive catalysts beyond the immediate months, driven by optimism that
management is firming up new growth initiatives in China, India and
Vietnam.
SGX, jpm maintain OVERWEIGHT with target price $10.00($20.00)
- We are reducing FY08E-FY10E estimates for SGX by 26%- 28% and reduce
Dec-08 PT to S$10 from S$20 as our blue skies assumptions for the stock do
not hold any more. Key changes include reduction in average daily turnover
(ADT) expectation for CY08 to S$2.15bn from average of S$3.4bn previously
and removal of stake sale probability from the PT.
- The stock in near term acts as a high beta proxy to trading volumes,
which is a function of system liquidity and investor confidence. Since both
of these factors are volatile at this point in time, we expect the stock to
trade in a range between S$5-S$8 over next few months, before recovering in
2H08.
- Despite the near term risks, we maintain positive view on the stock as we
see higher revenues from initiatives like introduction of new trading
engine, single stock derivatives and new board – Catalist' which should
lead to 1) higher algorithmic trades, 2) improved derivatives turnover and
3) increased number of listings.
- Biggest upside potential for ADT is return to volumes above S$2bn, as
currently several investors prefer OW cash positions. We believe this
should change in 2H08, leading to higher volumes and consequently
turnaround in SGX stock price.
- Our S$10 Dec-08 PT is based on relative valuation, where we assume 25%
normalized RoE and 3.5% terminal growth, leading to 21.4x 1 year forward PE
multiple. Key risk to our call include lower than expected average daily
turnover and slower growth in the derivatives business at SGX.
SGX, mac maintain NEUTRAL with target price $6.90($10.20)
- We lower our forecast assumptions for Singapore Exchange in light of the
more sombre outlook and events in the US. Consequently, we have also
lowered our target price from S$10.20 to S$6.90, indicating little
potential share-price upside for now. We are maintaining our Neutral
recommendation.
- The average daily trading value has trended down from S$2.32bn in January
to S$1.81bn in February. March trading value is expected to remain below
S$2bn, driven in part by the potential effect from the US slowdown.
- We believe there is no good news in the offing for trading volume and
value given the US slowdown could have a negative effect here. Accordingly,
we have lowered our FY6/08 forecast assumption from S$2.10bn to S$2.03bn.
Further out, we have lowered our FY6/09 daily securities trading-value
assumption from S$1.80bn to S$0.98bn.
- With the introduction of more derivatives products, we believe the share
of revenue will enlarge, providing some cushion to slowing securities
revenue. However, it will not be sufficient to prevent a potential decrease
in earnings in FY6/09.
-Earnings revision. We lowered our net profit forecasts for FY6/08 and
FY6/09 by 9.1% and 40% because of lower securities and derivatives
trading-value assumptions.
SMRT, cl downgrade to UNDERPERFORM with target price ($1.87)
- Since our re-initiation on SMRT, its share price has outperformed the
market by 9% on a 1-month basis and 25% on a 3-month basis.
- Our 14% upside on initiation has narrowed to a mere 8%, which is half
that of the estimated 15% upside that we have on the STI, based on a bottom
up valuation approach.
- This drives our change in recommendation, which is downgraded to an
Underperform.
SUNTEC REIT, daiwa maintain OTPERFORM with target price $1.75
- Investment case: Prime and well-located core assets (Suntec City shopping
mall and office towers and a one-third stake in the One Raffles Quay (ORQ)
office building in Marina Bay). Balance sheet remains strong after the ORQ
acquisition, with the end-2007 debt-to-asset ratio at 31.4% (aggregate
leverage ratio, including deferred units, at 35.1%). Office-rental
reversions at Suntec City will underpin strong DPU growth (18.9% for FY08,
based on our forecasts). A unit-price catalyst for 2008 could be the
disclosure of plans for the Park Mall property asset enhancement or
redevelopment with adjoining land acquisitions.
- Asset profile: Located entirely in Singapore with an estimated 66%
exposure to the office segment (including its share of ORQ) and the
reminder in the retail-property segment.
- Risk profile/major risk factor: Suntec depends largely on the
contributions of two major (albeit grade-A and well-located) assets, so any
negative property-specific issues (which we do not expect) with these
assets might affect its unit-price performance.
- Daiwa RNG valuation assumptions for target price: A weighted-average
leasehold period of 81 years, an effective cap rate of 5.0% (un-levered
opportunity cost of capital of 7.0%, and an assumed growth rate of 2.0%), a
target debt-to-asset ratio of 30%, and a WACC of 5.89%.
SWIBER, amfraser maintain BUY with target price $4.08
- FY07 net profit surged 310% to US$49.7m, however this was below our
forecast due to three factors. Swiber recognised a lesser US$24m in
exceptional gains from vessel sale and leaseback transactions (S&L), while
we were expecting US$36m. The booking of revenues from the Brunei Shell
project was also lower at US$50m (due to delay caused by adverse weather)
compared to forecasted US$70m; but the largest impact came from sharply
lower-than-expected margins.
- For the year as a whole, less usage of third party vessels helped improve
gross profit margin (GPM) to 28% in FY07 from 23% in FY06, as Swiber took
deliveries of 17 vessels in FY07. However, GPM was sharply lower than our
forecast of 32%, as 4Q GPM of 24% lagged behind the average 30% achieved in
the nine months to Sept-07, due to the additional charter of a third party
accomodation barge for the Brunei Shell project. Overall, we think our
previous GPM forecast for 32% over the next two years seem aggressive and
we are reducing GPM to 28% in FY08 and 30% in FY09.
- Prospects for Swiber have brightened further with an order book that has
ballooned to US$756m, significantly higher than the US$263.1m at end-07.
Its largest EPCIC contract for Brunei Shell, was extended by another
US$53.4m in Dec-07, which brings the total value to US$200m. A vessel
chartering customer, BG Exploration of India, awarded Swiber its second
largest project at US$127m in Mar-08, and this also marks Swiber's first
foray into the India market. These project values are noteworthy, as
typically, Swiber's contracts are less than US$50m. It is also encouraging
that Kruez Shipyard (previously North Shipyard, acquired in 2007), will
contribute to FY08 earnings, with its first contract (US$21m) for works on
an SPM buoy and construction and installation of two floating crane barges.
Swiber's latest contract is a new turn as it helps to build a longer-term
stream of revenues, given that the bulk of its orders on hand complete by
FY09. Its latest customer CUEL Limited, an offshore contracting specialist,
awarded Swiber a five-year contract to deliver US$50m of work a year until
the end of 2013.
- We are raising our revenue forecast by 33% to US$400m in FY08 and 23% to
US$480m in FY09, which we believe is achievable. Current contracts on hand
already account for 90% of FY08 and 40% of FY09 revenue. Net profit is
revised up marginally by 5% to US$97.1m in FY08 and US$110.5m in FY09.
While GPMs are reduced, more S&L bookings are pushed into FY08 and FY09.
- Stripping out S&L contributions to arrive at its core operational EPS,
Swiber is currently trading at a low 8.9x FY08 PER and 6.7x FY09 PER. We
maintain fair value at 13x FY09 PER on core earnings which translates to
target price of S$4.08. Given that Swiber has a rapidly expanding fleet
which may provide a recurrent base for S&L contributions, raising the base
of Swiber's net earnings, valuations may be deemed to be even lower at 6.7x
FY08 and 5.9x FY09, which provide the buffer to the higher execution risks
for its projects.
SYNEAR, cimb downgrade to UNDERPERFORM with target price $0.35($0.77)
-1Q08 sales to fall by up to 10% yoy. Synear issued a profit warning for
1Q08 yesterday. Management guided that 1Q08 sales could fall by up to 10%
yoy, implying sales of around Rmb647.9m. The weakness was blamed on snow
storms in January, which hurt transportation and sales.
-Margins under pressure. The company also faced margin pressure from the
rising prices of key raw materials such as pork, flour and packaging
materials. This suggests that 1Q08 gross margin is likely to be thinner
than the 27.6% in 4Q07.
-Reiterate aggressive advertising efforts. Despite the weak sales in 4Q07
and expected weakness in 1Q08, management reaffirmed its plans to spend
aggressively on advertising, especially TV ads, in order to capitalise on
the upcoming Beijing Olympics, where the company is the sole sponsor of
quick freeze foods.
-Update on new plants. Management disclosed that the Chengdu plant remains
on track to achieve capacity utilisation of 30% in FY08, up from the 20%
achieved at the end of FY07. Meanwhile, the Huzhou plant is scheduled to
begin trial production at end-Mar 08.
-Reducing FY08-10 EPS estimates. While we had expected FY08 to be
challenging, the potential sales decline of up to 10% yoy in 1Q08 is
steeper than what we had anticipated. We are concerned that the poor
performance might also be due to runaway inflation in China which has
reduced real disposable income, as well as the company's premium branding
strategy, which might have priced the company's products out of the reach
of consumers. We are reducing our FY08-10 EPS estimates by 7.3-8.2% on
lower sales volume and margin assumptions.
-Downgrade to Underperform from Trading Sell; lower target price of S$0.35
(from S$0.77). In light of the dismal near-term outlook and execution risks
from the company's aggressive expansion plans, we have lowered our target
valuation to 6x CY09 P/E from 12x, now valuing the company on par with Pine
Agritech (PAG SP, Underperform, S$0.155, target price S$0.16), which we
also think has a challenging near-term outlook. With our lower target and
our earnings downgrade, our target price for Synear falls to S$0.35 from
S$0.77. Downgrade to Underperform.
TIONG WOON, kim eng maintain BUY with target price $1.23
- Business on track. A recent meeting with Tiong Woon Corporation (TWC)
confirms that its core businesses of heavy lift/haulage and marine
transport are doing well on the back of the buoyant activities in the
Offshore Oil & Gas sector. Within this industry as well as the domestic
construction industry, equipment supply continues to be tight while demand
remains high. Tiong Woon therefore expects rental rates to rise 10-15% pa.
This is in line with previous guidance as well as our current forecast
assumptions.
- Expanding its options. Given the higher pricing and long lead time
(around 2 years) to procure new cranes from Europe and Japan, Tiong Woon is
exploring the option of buying from China manufacturers. However, quality
and maintenance issues are key considerations, although Chinese cranes are
40% cheaper and delivery time lag is only 8-12 months, according to
management. If these quality issues can be addressed, management would
consider trading part of its existing crane fleet (bought at low costs) in
favour of cheaper ones.
- Moving up the learning curve on its newbuild. As for its Fabrication &
Engineering business at its Bintan yard, progress of its maiden contract -
the pipelay vessel - is on track. However, 2H08 is likely to see a small
loss due to start-up costs. Towards June 08, the yard should be breaking
even through a higher percentage of revenue recognition from the newbuild
contract. This is within expectations. Based on the experience that it is
garnering from this initial project, Tiong Woon is actively negotiating for
additional newbuilding contracts, where it hopes to achieve gross margin of
15%, after going through its current gestation stage.
- Maintain Buy, TP S$1.23. We are maintaining our June FY08 forecast of
S$24.8m/EPS 7.4cts per share versus consensus of 7.5cts. Furthermore, our
forecast also includes the potential gain on the sale of older cranes -
core EPS stands at 6.6cts per share. Tiong Woon carries its assets in its
balance sheet at book value (depreciated by around 40%), whereas the strong
demand for cranes puts market prices at a minimum of 2x book value. On this
basis, revaluing Tiong Woon's crane fleet to market value yields a RNAV of
S$0.66 per share. At its current share price level, Tiong Woon is trading
at a 23% discount to its RNAV - we believe that this limits the downside on
its price. Current FYJun08 PE is also at 6.8x. Our full target price of
S$1.23 is based on a PEG of 0.4x. 3-year earnings CAGR stands at 28% p.a.
[ SECTOR ]
PROPERTY by csfb
- The close of tender for a suburban residential site at West Coast
Crescent raised some interesting trends . a foreign developer topping the
bids of a suburban site usually dominated by local developers; and while
there were more bids, they implied flat to 20% lower selling prices.
- Reversing the earlier trend of only 2-6 bidders, there were 12 bidders
for the site, but only the top three submitted bids within the range
expected by property consultants of S$260-400psf ppr; and the top bid of
S$305psf ppr, submitted by Cheung Kong (CK), was also at the lower end.
- At S$305psf ppr, we expect breakeven price to be S$600-650psf for CK and
a selling price to be S$750psf (comparable to Blue Horizon next door),
which should generate a pre-tax profit of 15%.
- The bottom 9 bidders submitted bids lower than S$240psf, with the lowest
at S$138psf (55% below top bid). Assuming they were imputing a 15% margin,
their assumed selling price of the project would be as low as S$600psf or
20% below current price; or they were making allowance for higher
construction costs.
- After this, we expect another c.1,225 residential units from 3 Government
Land Sales to close for tenders over the next month; and weak tender
results will likely dampen sentiment further. Though developer prices are
still holding up in thin volumes, anecdotally, secondary prices have
started to come off. We maintain Market Weight on the sector.
PROPERTY by uob
-According to The Urban Development Authority, the 99-year leasehold 1.2ha
residential site at West Coast Crescent received the highest bid of
S$110.4m or S$305psf ppr with a total of twelve bids in the S$138-305psf
ppr range. We estimate the breakeven cost for the project at S$670-700psf.
The average selling prices (ASP) in nearby West Cove, Blue Horizon,
Clementiwoods and Varisity Park condominiums have been in the S$605-765psf
range. Assuming a development margin of 12% at the least for the
mass-market site, the selling price expectations are upwards of
S$760-800psf. With breakeven close to the current price levels in that
area, the bid is very competitive, after pricing in a 10-15% price
appreciation from the current levels.
-The West Coast site has generated keen developer interest due to its easy
accessibility to major arterial roads and expressways, proximity to
schools, good recreational facilities at the nearby West Coast Park and
numerous shopping, dining and entertainment outlets in the vicinity. The
competitive bidding is indicative of the developers' confidence in the
mass-market segment due its favourable demand-supply dynamics. We expect
demand to outpace supply in the mass-market segment well into 2009. We
think the selling price expectations should be achievable with the
re-rating of the coastal stretch along the west coast by the end of next
year when the integrated resorts are expected to come in operation.
Allgreen (BUY/S$1.13/Target: S$1.60) offers good exposure to the
mass-market segment.
PROPERTY by dbs
-Story: The tender of a Government Land Sale (GLS) site for a private
residential development at West Coast Crescent closed yesterday. In total,
12 bids were received for this decidedly mass-market site located next to
the Blue Horizon condominium development, affirming our view that
developers might be focusing their attention to the mass-market segment,
believing that any upside in the residential sector is likely to come from
this segment.
-Point: The top bid came from Billion Rise Limited, a company believed to
be linked to Hong Kong's Cheung Kong Holdings. It submitted a bid of
S$110.4m for the site and the next highest bid was also strong, at just
S$1.5m lower. The site can yield around 300 residential units, and this
works out to be around S$305 psf ppr in terms of land cost. Breakeven price
would hover around S$650-700 psf, which was exceeded by launches last year
in the West Coast Area - like Botannia (by City Dev; 93% sold) and
Carabelle (by Sim Lian; 100% sold) of around S$800 psf.
-We believe that, going forward, developers will be more selective with
their choice of sites to bid for under the GLS, borne out by the strong
response to this West Coast site compared with the lackluster bids received
for the Westwood Avenue (Jurong West) landed housing site earlier this
month, which incidentally, was not awarded by the Government. There is
every reason to believe that this West Coast site will be awarded. The good
location of West Coast (close to universities and business parks like
one-north) coupled with the proven sales for developments in this area
could have explained the strong response to this land tender. Other
developers that threw their bids into this tender box included (in
descending order of bid price): MCL Land, Sim Lian, F&N (through its
Frasers Centrepoint Limited subsidiary), Brothers, Allgreen and City Dev.
-Relevance: We read this as a sign of faith by developers in the relative
prospects of the mass-market segment, particularly projects in more
desirable locations like West Coast. We continue to favour developers with
greater exposure to this segment, and we continue to like Allgreen
Properties (BUY, TP S$1.66).
PROPERTY by lehman
-The tender for the West Coast Crescent land parcel attracted a total of 12
bids and a top bid of S$305psfppr. While the level of participation has
markedly improved from the three bids that were submitted for the Simei
site in January and the top bid is within market expectations of
S$260-400psfppr, we believe on average the bids still reflect a cautious
mood in the market. We expect the project to yield a decent embedded margin
of 10%, based on the top bid of S$305psfppr and using the latest average
transacted price of S$750psf at next-door Blue Horizon as a reference, but
think prices could be higher judging from the current rents in the West
Coast area. The tender shows that developers are still keen to acquire
mass-market sites albeit cautiously and City Developments' upcoming Hong
Leong Garden redevelopment could benefit if the actual prices fetched by
this project surprised on the upside.
-Top bid of S$305psfppr for land parcel at West Coast Crescent – Higher
level of participation from developers but bids still reflect cautious
stance. The tender for a land parcel (99-year LH, maximum allowable GFA
361,536sf) at West Coast Crescent under the government land sales program
has closed. In all, 12 bids were submitted with the highest bid at
S$305psfppr and the lowest bid at S$138psfppr. The average bid works out to
be S$219psfppr and seven out of the 12 bids submitted fell within 1SD of
the mean. This is the second residential land parcel tender closed since
the beginning of the year – the first was the tender for a larger plot at
Simei Street 4 (99-year LH, maximum allowable GFA 797,144sf) that closed on
January 4 this year. The Simei tender attracted just three bids with the
top bid at S$296psfppr. Therefore in terms of participation, we think
developers definitely showed more enthusiasm this time round.
Tat Hong Holdings - Sell-off provides entry opportunity; fundamentals intact; U/G to Buy
Source of opportunity
We view the recent 34% pull-back in Tat Hong’s (TAT) share price as an
attractive entry point. We think the multiple compression is overdone and
current level has more than reflected conceivable earnings concerns. We
see no change to its solid fundamentals and continue to like its defensive
business model and strong earnings visibility given exposure to the
resilient infrastructure and oil & gas sectors; growth prospects of recurring
net profit of TAT remain healthy at 74%/26% in FY08/09E. Its solid balance
sheet, attractive FCF yields and quality mgmt should also stand out in
current volatile markets. Upgrade to Buy from Neutral; new TP is S$2.80.
We view the recent 34% pull-back in Tat Hong’s (TAT) share price as an
attractive entry point. We think the multiple compression is overdone and
current level has more than reflected conceivable earnings concerns. We
see no change to its solid fundamentals and continue to like its defensive
business model and strong earnings visibility given exposure to the
resilient infrastructure and oil & gas sectors; growth prospects of recurring
net profit of TAT remain healthy at 74%/26% in FY08/09E. Its solid balance
sheet, attractive FCF yields and quality mgmt should also stand out in
current volatile markets. Upgrade to Buy from Neutral; new TP is S$2.80.
Olam, Tgt Px Cut : Credit Suisse
● Olam held a conference call on 20 Mar-08 to clarify that its
exposure to futures broker MF Global, which just announced a
US$142 mn write-down last month, was limited to less than 3% of
its hedging activities, and denied news of potential liquidity risk.
● On the call, Olam’s management also addressed concerns on
rising commodity prices stretching working capital requirements,
price volatility affecting margin account balances, and high
inventory levels driven by seasonal peaks in procurement activity.
● While we remain convinced that fundamentals for Olam remain
sound, given its control over its network of 150K-odd suppliers, on
the back of strong structural factors driving demand for agricultural
commodities, valuations should now reflect a view that the
market’s higher-risk premium is unlikely to dissipate anytime soon.
● Our new DCF-based S$2.75 target price (down from S$4.10)
assumes less aggressive medium-term growth rates of 14% (from
16%), on an 11% discount rate (from 10%). Taking the view that
the bad news is largely discounted in the price, we see attractive
upside potential and hence maintain our OUTPERFORM rating.
exposure to futures broker MF Global, which just announced a
US$142 mn write-down last month, was limited to less than 3% of
its hedging activities, and denied news of potential liquidity risk.
● On the call, Olam’s management also addressed concerns on
rising commodity prices stretching working capital requirements,
price volatility affecting margin account balances, and high
inventory levels driven by seasonal peaks in procurement activity.
● While we remain convinced that fundamentals for Olam remain
sound, given its control over its network of 150K-odd suppliers, on
the back of strong structural factors driving demand for agricultural
commodities, valuations should now reflect a view that the
market’s higher-risk premium is unlikely to dissipate anytime soon.
● Our new DCF-based S$2.75 target price (down from S$4.10)
assumes less aggressive medium-term growth rates of 14% (from
16%), on an 11% discount rate (from 10%). Taking the view that
the bad news is largely discounted in the price, we see attractive
upside potential and hence maintain our OUTPERFORM rating.
Creative Technology - Not out of the woods yet:as expected : CIMB
24 March 2008
Creative Technology (CREAF SP / CREA.SI, UNDERPERFORM - Maintained, S$6.25
- Target: S$5.39)
Quick takes - Not out of the woods yet, as expected
by Jonathan NG
In a statement to the SGX this morning, Creative warned that that it would
be reporting an operating loss for the current third quarter as revenue has
fallen below its target. This is in line with our expectations. We are
keeping our FY08-10 earnings intact (excluding exceptional gains of S$200m)
as well as our target price of S$5.39, which is based on 0.85x P/BV, the
low end of its historical P/BV. Maintain Underperform.
Creative Technology (CREAF SP / CREA.SI, UNDERPERFORM - Maintained, S$6.25
- Target: S$5.39)
Quick takes - Not out of the woods yet, as expected
by Jonathan NG
In a statement to the SGX this morning, Creative warned that that it would
be reporting an operating loss for the current third quarter as revenue has
fallen below its target. This is in line with our expectations. We are
keeping our FY08-10 earnings intact (excluding exceptional gains of S$200m)
as well as our target price of S$5.39, which is based on 0.85x P/BV, the
low end of its historical P/BV. Maintain Underperform.
Saturday, March 8, 2008
Dow's technical - 7th March 2008
Next Monday, Dow's support of about 11740 should be quite critical. This is what I see as the first support to be met soon .This is the longterm uptrend support. Mid term and short term is downtrending.
If it breaks, Dow would likely hit 22nd Jan low of 11634.82 and 23rd Jan low 11644.81, which is not far from last night closing of 11893.69. Less than 300 points. There should be a stronger support there.
It may test these supports a few times, breaks it and hit new low.
Worst scenario is that it will break and hit new low and rebound before 18th March 2008 FOMC meeting. It is not impossible, if there are more bad news coming out before 18th March.
Wednesday, March 5, 2008
Financials Daily - 5th March 2008
US: U.S. stocks fell, led by financial and commodity shares, after Federal Reserve Chairman Ben S. Bernanke urged banks to forgive more late loans and oil, gold and copper prices dropped from records.
Europe: European stocks retreated for a fifth day, led by technology companies and automakers, after Intel Corp. cut its profit forecast and PSA Peugeot Citroen said the car market may decline.
Asia: Asian stocks fell for a fourth day on concern record commodity prices and credit-market losses will erode earnings.
Commodities: Crude oil rose in New York as investors purchased commodities to hedge against inflation amid the dollar's decline. Gold fell the most in four weeks after crude-oil futures dropped from a record, reducing the appeal of the precious metal as a hedge against inflation.
Silver also retreated.
Currencies: The dollar traded near a three-year low against the yen on speculation a report today will show weakening demand for U.S. labor as the world's largest economy grapples with losses on subprime mortgages.
Source: Bloomberg
Europe: European stocks retreated for a fifth day, led by technology companies and automakers, after Intel Corp. cut its profit forecast and PSA Peugeot Citroen said the car market may decline.
Asia: Asian stocks fell for a fourth day on concern record commodity prices and credit-market losses will erode earnings.
Commodities: Crude oil rose in New York as investors purchased commodities to hedge against inflation amid the dollar's decline. Gold fell the most in four weeks after crude-oil futures dropped from a record, reducing the appeal of the precious metal as a hedge against inflation.
Silver also retreated.
Currencies: The dollar traded near a three-year low against the yen on speculation a report today will show weakening demand for U.S. labor as the world's largest economy grapples with losses on subprime mortgages.
Source: Bloomberg
Commodities Daily - 5th March 2008
Spotlight: OPEC is likely to maintain oil output targets today because supplies are sufficient and prices near $100 a barrel are high enough for the OPEC members. Commodities plunged the most in almost six weeks, as oil, gold and corn fell from records. However, platinum continued this year’s rally to record highs. Copper fell.
Energy: Crude oil fell more than $2 a barrel on signs that the OPEC will leave production targets unchanged at a time of year when demand declines. Gasoline fell the most since October 2006 as supplies increased. However, natural gas in New York advanced after updated forecasts called for lower temperatures, signaling higher demand.
Agriculture: Soybeans oil tumbled the most on speculation that China will increase sales of vegetable oil from inventories to slow food inflation. Corn fell the most in almost six weeks on speculation that overseas demand and U.S. animal-feed consumption will slow after grain prices reached a record yesterday. Wheat fell on speculation that U.S. growers will harvest more grain because fewer fields are being used to graze cattle.
Sugar fell the most in nine months as investors sold commodities on renewed concerns that the U.S. economy is slowing. Cocoa fell from a 28-year high as commodities slump. Likewise coffee fell on speculation U.S. recession may hurt consumer demand.
Precious Metals: Gold fell the most in four weeks after crude-oil futures dropped from a record, reducing the appeal of the precious metal as a hedge against inflation. Platinum continuing this year's rally to record highs, on concern over supplies from South Africa, which accounted for 78 percent of world shipments of the metal last year. Silver fell.
Industrial Metals: Copper tumbled the most in six weeks on speculation this year's rally will curb demand in China, the world's biggest metals buyer.
(Source: Bloomberg)
Energy: Crude oil fell more than $2 a barrel on signs that the OPEC will leave production targets unchanged at a time of year when demand declines. Gasoline fell the most since October 2006 as supplies increased. However, natural gas in New York advanced after updated forecasts called for lower temperatures, signaling higher demand.
Agriculture: Soybeans oil tumbled the most on speculation that China will increase sales of vegetable oil from inventories to slow food inflation. Corn fell the most in almost six weeks on speculation that overseas demand and U.S. animal-feed consumption will slow after grain prices reached a record yesterday. Wheat fell on speculation that U.S. growers will harvest more grain because fewer fields are being used to graze cattle.
Sugar fell the most in nine months as investors sold commodities on renewed concerns that the U.S. economy is slowing. Cocoa fell from a 28-year high as commodities slump. Likewise coffee fell on speculation U.S. recession may hurt consumer demand.
Precious Metals: Gold fell the most in four weeks after crude-oil futures dropped from a record, reducing the appeal of the precious metal as a hedge against inflation. Platinum continuing this year's rally to record highs, on concern over supplies from South Africa, which accounted for 78 percent of world shipments of the metal last year. Silver fell.
Industrial Metals: Copper tumbled the most in six weeks on speculation this year's rally will curb demand in China, the world's biggest metals buyer.
(Source: Bloomberg)
Tuesday, March 4, 2008
US Markets Closing Comments - 4th March 2008
Economic Summary
Today's unsettling mix of weak economic data, higher oil prices, and a falling
dollar kept equities near Friday's lows. Prices of Treasury coupon securities
fell, retracing only a small portion of last week's tremendous rally. The
dollar touched a new record low against the euro and fell for the fifth
consecutive trading day versus the yen.
The ISM Purchasing Managers Index met widespread expectations that it would
fall back below its neutral 50 level in February. The index dropped 2.4 points
to 48.3, slipping just below its previous trough of 48.4 for December. The
index hasn't been as low as 48.3 since the spring of 2003. The consensus was
looking for a slightly softer 48.0 level. The latest data suggest
manufacturing activity contracted in February.
Construction spending declined 1.7% in January, more than the consensus
forecast of a 0.7% decline. The surprise came in non-residential construction
activity, which had been quite strong of late. In January non-residential
construction dropped 1.2% after increasing in 23 of the previous 24 months.
Bad weather in January may have held back non-residential construction.
Alternatively, this could be the start of the slowdown in commercial
construction that we expect to take place this year.
With only a few small producers still to report, domestic car and light truck
sales in February were running at a sluggish 11.7mn rate. Sales rounded up to
6.6mn for light trucks and to 5.2mn for cars. If sustained after the late
reports are tallied, this would be the slowest annualized sales pace since
July, falling below the consensus call for an 11.9mn sales rate.
Economic Outlook
There are no major economic statistics scheduled for release in the US on
Tuesday, March 4.
Market Summary
The broad equity indexes found little opportunity to rally today in the face
of weak economic data, higher oil prices, and a weaker dollar. The best that
can be said is that equities did manage to climb from their 3pm lows to close
the day close to flat. Financial stocks performed the worst, losing 1.2%,
while basic materials outperformed (+1.6%). (DJ INDU 12259, -7; S&P500 1331,
+1; NASDAQ 2259, -13)
Today's unsettling mix of weak economic data, higher oil prices, and a falling
dollar kept equities near Friday's lows. Prices of Treasury coupon securities
fell, retracing only a small portion of last week's tremendous rally. The
dollar touched a new record low against the euro and fell for the fifth
consecutive trading day versus the yen.
The ISM Purchasing Managers Index met widespread expectations that it would
fall back below its neutral 50 level in February. The index dropped 2.4 points
to 48.3, slipping just below its previous trough of 48.4 for December. The
index hasn't been as low as 48.3 since the spring of 2003. The consensus was
looking for a slightly softer 48.0 level. The latest data suggest
manufacturing activity contracted in February.
Construction spending declined 1.7% in January, more than the consensus
forecast of a 0.7% decline. The surprise came in non-residential construction
activity, which had been quite strong of late. In January non-residential
construction dropped 1.2% after increasing in 23 of the previous 24 months.
Bad weather in January may have held back non-residential construction.
Alternatively, this could be the start of the slowdown in commercial
construction that we expect to take place this year.
With only a few small producers still to report, domestic car and light truck
sales in February were running at a sluggish 11.7mn rate. Sales rounded up to
6.6mn for light trucks and to 5.2mn for cars. If sustained after the late
reports are tallied, this would be the slowest annualized sales pace since
July, falling below the consensus call for an 11.9mn sales rate.
Economic Outlook
There are no major economic statistics scheduled for release in the US on
Tuesday, March 4.
Market Summary
The broad equity indexes found little opportunity to rally today in the face
of weak economic data, higher oil prices, and a weaker dollar. The best that
can be said is that equities did manage to climb from their 3pm lows to close
the day close to flat. Financial stocks performed the worst, losing 1.2%,
while basic materials outperformed (+1.6%). (DJ INDU 12259, -7; S&P500 1331,
+1; NASDAQ 2259, -13)
Financials Daily - 4th March 2008
US: Most U.S. stocks gained as record oil and gold prices spurred a rally in commodity producers, outweighing declines in technology and financial shares. Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. helped the Standard & Poor's 500 Index recover from a decline of 0.8 percent and rise for the first time in four days.
Europe: European stocks retreated for a fourth day, led by financial companies, as Warren Buffett said ``the party is over'' for insurers and investors speculated banks may have more credit-market losses.
Asia: Asian stocks fell the most in a month, erasing February's gain, on concern worsening credit losses at financial companies will push the U.S. economy into a recession.
Commodities: Crude oil rose to a record after the dollar dropped to an all-time low against the euro, increasing the appeal of commodities as an alternative investment. Gold rose to a record $992 an ounce as the dollar fell to the lowest ever against the euro and crude oil neared $104 a barrel, stoking concern that inflation will accelerate. Silver climbed to the highest since 1980.
Currencies: The dollar traded close to the weakest ever against the euro on speculation the slumping U.S. economy will cause banks to report more losses from the collapse of the subprime-mortgage market.
Source: Bloomberg
Europe: European stocks retreated for a fourth day, led by financial companies, as Warren Buffett said ``the party is over'' for insurers and investors speculated banks may have more credit-market losses.
Asia: Asian stocks fell the most in a month, erasing February's gain, on concern worsening credit losses at financial companies will push the U.S. economy into a recession.
Commodities: Crude oil rose to a record after the dollar dropped to an all-time low against the euro, increasing the appeal of commodities as an alternative investment. Gold rose to a record $992 an ounce as the dollar fell to the lowest ever against the euro and crude oil neared $104 a barrel, stoking concern that inflation will accelerate. Silver climbed to the highest since 1980.
Currencies: The dollar traded close to the weakest ever against the euro on speculation the slumping U.S. economy will cause banks to report more losses from the collapse of the subprime-mortgage market.
Source: Bloomberg
Commodities Daily - 4th March 2008
Spotlight: Crude oil rose to a record after the dollar dropped to an all-time low against the euro. Notably, soybean exports from Brazil plunged 45 percent in February. Gold, silver, platinum and palladium may be the best-performing financial assets this year as inflation and slowing growth erode the value of the world's major currencies, bonds and stocks.
Energy: Crude oil rose to a record after the dollar dropped to an all-time low against the euro. Natural gas declined as speculators trimmed positions after the fuel surged as much as 2.6 percent to more than a two-year high. Heating oil futures rose to a record as investors bought contracts to hedge against inflation and a weakening dollar.
Agriculture: Soybeans and soybean oil soared to records on increased Chinese demand. Besides, wheat rose as investors bet crops will face adverse weather. Corn jumped on speculation that U.S. farmers will plant less to take advantage of surging soybean and wheat prices.
Cotton rose to highest since 1996 as demand from China grows. Sugar rose to a 19-month high as a slide in the dollar and U.S. equity markets fueled demand for commodities as an inflation hedge. Notably, coffee in New York rose after prices for Folgers coffee, the top-selling U.S. brand, were boosted to compensate for soaring bean costs.
Precious Metals: Gold rose to a record $992 an ounce, silver, platinum and palladium soared as the dollar fell to the lowest ever against the euro and crude oil closed at $102 a barrel, stoking concern that inflation will accelerate.
Industrial Metals: Copper futures closed at the highest price ever in New York as global inventories declined and China, the world's biggest user of the metal, boosted imports.
(Source: Bloomberg)
Energy: Crude oil rose to a record after the dollar dropped to an all-time low against the euro. Natural gas declined as speculators trimmed positions after the fuel surged as much as 2.6 percent to more than a two-year high. Heating oil futures rose to a record as investors bought contracts to hedge against inflation and a weakening dollar.
Agriculture: Soybeans and soybean oil soared to records on increased Chinese demand. Besides, wheat rose as investors bet crops will face adverse weather. Corn jumped on speculation that U.S. farmers will plant less to take advantage of surging soybean and wheat prices.
Cotton rose to highest since 1996 as demand from China grows. Sugar rose to a 19-month high as a slide in the dollar and U.S. equity markets fueled demand for commodities as an inflation hedge. Notably, coffee in New York rose after prices for Folgers coffee, the top-selling U.S. brand, were boosted to compensate for soaring bean costs.
Precious Metals: Gold rose to a record $992 an ounce, silver, platinum and palladium soared as the dollar fell to the lowest ever against the euro and crude oil closed at $102 a barrel, stoking concern that inflation will accelerate.
Industrial Metals: Copper futures closed at the highest price ever in New York as global inventories declined and China, the world's biggest user of the metal, boosted imports.
(Source: Bloomberg)
Monday, March 3, 2008
Financials Daily - 3rd March 2008
US: U.S. stocks tumbled, capping the market's fourth-straight monthly drop, after a report showed business activity fell to the lowest level since 2001 and UBS AG said losses in credit markets may top $600 billion.
Europe: European stocks fell, sending the Dow Jones Stoxx 600 Index to its fourth straight monthly decline, on mounting concern the U.S. economy is slipping into a recession and financial companies will report more writedowns.
Asia: Asian stocks had their biggest decline in a week, led by financial companies and automakers, on heightened concern the U.S. is headed for a recession and as the dollar neared a three-year low against the yen.
Commodities: Crude oil was little changed after falling in New York in advance of a meeting of the Organization of Petroleum Exporting Countries in Vienna to discuss production targets. Gold rose to a record as a weakening dollar increased the appeal of the precious metal as an alternative investment and the rising cost of raw materials boosted demand for a hedge against inflation.
Currencies: The dollar declined to a three-year low against the yen on speculation Federal Reserve officials will signal that they will keep reducing interest rates to avert a recession.
Source: Bloomberg
Europe: European stocks fell, sending the Dow Jones Stoxx 600 Index to its fourth straight monthly decline, on mounting concern the U.S. economy is slipping into a recession and financial companies will report more writedowns.
Asia: Asian stocks had their biggest decline in a week, led by financial companies and automakers, on heightened concern the U.S. is headed for a recession and as the dollar neared a three-year low against the yen.
Commodities: Crude oil was little changed after falling in New York in advance of a meeting of the Organization of Petroleum Exporting Countries in Vienna to discuss production targets. Gold rose to a record as a weakening dollar increased the appeal of the precious metal as an alternative investment and the rising cost of raw materials boosted demand for a hedge against inflation.
Currencies: The dollar declined to a three-year low against the yen on speculation Federal Reserve officials will signal that they will keep reducing interest rates to avert a recession.
Source: Bloomberg
Commodities Daily - 3rd March 2008
Spotlight: Bloomberg survey showed crude oil and natural gas may fall on weaker demand. Coffee slipped after price hits 10-year high and sparks selling. Gold rose to a record on speculation lower U.S. interest-rates will spur inflation and may top $1,000 an ounce for the first time ever as a slumping dollar and higher raw-materials costs boost demand for the precious metal as an inflation hedge. Copper fell.
Energy: Bloomberg survey showed crude oil and natural gas may fall this week because of rising U.S. inventories and weakening fuel demand as the nation's economy slows as well as demand for natural gas begins to wane with the approach of spring.
Agriculture: Corn futures rose extending last month's 11 percent rally to a record, on speculation that surging soybean prices will encourage a switch in crops. Besides, soybeans extended a rally to a record in Chicago on Chinese demand. However, wheat fell on speculation the world's farmers will seed more acres to capitalize on record prices, increasing stockpiles that are headed for the lowest level in 30 years.
Cotton soared to highest since October 2003 on supply concerns. Sugar rose after Federal Reserve Chairman urged the U.S. to reduce tariffs on imports of cane-based ethanol from Brazil, the world's largest producer. Cocoa fell as the U.K. pound eased against the dollar, reducing the appeal of U.S. futures. Notably, coffee fell after the price rose to its highest in 10 years and sparked selling by investors.
Precious Metals: Gold rose to a record on speculation lower U.S. interest rates will weaken the dollar and spur inflation; silver and platinum rose on speculation the dollar will extend a slump boosting the appeal of the metal as a hedge.
Industrial Metals: Copper fell as stockpiles in Shanghai rose for a third straight week, and fresh signs emerged that a slowing U.S. economy may weaken demand for the metal.
(Source: Bloomberg)
Energy: Bloomberg survey showed crude oil and natural gas may fall this week because of rising U.S. inventories and weakening fuel demand as the nation's economy slows as well as demand for natural gas begins to wane with the approach of spring.
Agriculture: Corn futures rose extending last month's 11 percent rally to a record, on speculation that surging soybean prices will encourage a switch in crops. Besides, soybeans extended a rally to a record in Chicago on Chinese demand. However, wheat fell on speculation the world's farmers will seed more acres to capitalize on record prices, increasing stockpiles that are headed for the lowest level in 30 years.
Cotton soared to highest since October 2003 on supply concerns. Sugar rose after Federal Reserve Chairman urged the U.S. to reduce tariffs on imports of cane-based ethanol from Brazil, the world's largest producer. Cocoa fell as the U.K. pound eased against the dollar, reducing the appeal of U.S. futures. Notably, coffee fell after the price rose to its highest in 10 years and sparked selling by investors.
Precious Metals: Gold rose to a record on speculation lower U.S. interest rates will weaken the dollar and spur inflation; silver and platinum rose on speculation the dollar will extend a slump boosting the appeal of the metal as a hedge.
Industrial Metals: Copper fell as stockpiles in Shanghai rose for a third straight week, and fresh signs emerged that a slowing U.S. economy may weaken demand for the metal.
(Source: Bloomberg)
Economic Releases for week of 3rd March 2008
US
Date Time Event Survey Actual Prior
Monday
3/3/2008 22:00 RPX Composite 28dy YoY DEC - - - - -4.17%
3/3/2008 22:00 RPX Composite 28dy Index DEC - - - - 254.29
3/3/2008 23:00 ISM Manufacturing FEB 48 - - 50.7
3/3/2008 23:00 ISM Prices Paid FEB 73 - - 76
3/3/2008 23:00 Construction Spending MoM JAN -0.70% - - -1.10%
Tuesday
4-Mar Total Vehicle Sales FEB 15.5M - - 15.2M
4-Mar Domestic Vehicle Sales FEB 11.9M - - 11.7M
Wednesday
3/5/2008 6:00 ABC Consumer Confidence 3-Mar - - - - -37
3/5/2008 20:00 MBA Mortgage Applications 1-Mar - - - - -19.20%
3/5/2008 20:30 Challenger Job Cuts YoY FEB - - - - 19.10%
3/5/2008 21:15 ADP Employment Change FEB 10K - - 130K
3/5/2008 21:30 Nonfarm Productivity 4Q F 1.80% - - 1.80%
3/5/2008 21:30 Unit Labor Costs 4Q F 2.10% - - 2.10%
3/5/2008 23:00 Factory Orders JAN -2.50% - - 2.30%
3/5/2008 23:00 ISM Non-Manf. Composite FEB 47.5 - - 44.6
Thursday
3/6/2008 3:00 Fed's Beige Book
3/6/2008 21:30 Initial Jobless Claims 2-Mar 363K - - 373K
3/6/2008 21:30 Continuing Claims 24-Feb 2820K - - 2807K
3/6/2008 23:00 Pending Home Sales MoM JAN -1.00% - - -1.50%
3/6/2008 23:00 Mortgage Delinquencies 4Q - - - - - -
Friday
3/7/2008 2:30 ICSC Chain Store Sales YoY FEB 0.60% - - 0.50%
3/7/2008 21:30 Change in Nonfarm Payrolls FEB 25k - - -17k
3/7/2008 21:30 Unemployment Rate FEB 5.00% - - 4.90%
3/7/2008 21:30 Change in Manufact. Payrolls FEB -25K - - -28K
3/7/2008 21:30 Average Hourly Earnings MoM FEB 0.30% - - 0.20%
3/7/2008 21:30 Average Hourly Earnings YoY FEB 3.60% - - 3.70%
3/7/2008 21:30 Average Weekly Hours FEB 33.7 - - 33.7
Saturday
3/8/2008 4:00 Consumer Credit JAN $7.0B - - $4.5B
UK
Date Time Event Survey Prior
Monday
3/3/2008 17:30 PMI Manufacturing FEB 51 50.6
Tuesday
3/4/2008 17:30 PMI Construction FEB 53 53.9
Wednesday
3/5/2008 8:01 Nationwide Consumer Confidence FEB - - 81
3/5/2008 17:30 PMI Services FEB 52 52.5
3/5/2008 17:30 Official Reserves (Changes) FEB - - $1456M
3/5/2008 18:30 BRC February Shop Price Index
Thursday
3/6/2008 20:00 BOE ANNOUNCES RATES 7-Mar 5.25% 5.25%
Germany
Date Time Event Survey Prior
Monday
3/3/2008 16:55 PMI Manufacturing FEB 54 54.4
3-Mar CPI - Brandenburg (MoM) FEB - - -0.30%
3-Mar CPI - Brandenburg (YoY) FEB - - 2.60%
Wednesday
3/5/2008 16:55 PMI Services FEB 51 49.2
Thursday
3/6/2008 19:00 Factory Orders MoM (sa) JAN -0.40% -1.70%
3/6/2008 19:00 Factory Orders YoY (nsa) JAN 9.90% 5.60%
7-16 MAR Wholesale price Index (YoY) FEB 6.70% 6.60%
7-16 MAR Wholesale Price Index (MoM) FEB 0.50% 1.40%
Friday
3/7/2008 19:00 Industrial Prod. YoY (nsa wda) JAN 4.60% 4.10%
3/7/2008 19:00 Industrial Production MoM (sa) JAN 0.30% 0.80%
Japan
Date Time Event Survey Prior
Monday
3/3/2008 9:30 Labor Cash Earnings YoY JAN 0.10% -1.90%
3/3/2008 13:00 Vehicle Sales (YoY) FEB - - 3.70%
Tuesday
3/4/2008 7:50 Monetary Base (YoY) FEB 0.10% -0.10%
Wednesday
3/5/2008 7:50 Capital Spending 4Q -2.50% -1.20%
3/5/2008 7:50 Capital Spending excl Sftwre 4Q -1.80% -0.60%
Thursday
3/6/2008 7:50 Foreign Buying Japan Stocks 29-Feb - - -¥159.1B
3/6/2008 7:50 Foreign Buying Japan Bonds 29-Feb - - -¥562.5B
3/6/2008 7:50 Japan Buying Foreign Stocks 29-Feb - - ¥21.8B
3/6/2008 7:50 Japan Buying Foreign Bonds 29-Feb - - -¥90.9B
3/6/2008 12:00 BoJ Monetary Policy Meeting
3/6/2008 13:00 Leading Economic Index JAN P 30.00% 45.50%
3/6/2008 13:00 Coincident Index JAN P 22.20% 70.00%
3/6/2008 14:00 Machine Tool Orders (YoY) FEB P - - 0.00%
Friday
3/7/2008 7:50 Official Reserve Assets FEB - - $996.0B
7-Mar BOJ Target Rate 7-Mar 0.50% 0.50%
3/7/2008 14:00 BOJ Monthly Report
Singapore
Date Time Event Survey Prior
Tuesday
3/4/2008 21:30 Purchasing Managers Index FEB 49.8 50.5
3/4/2008 21:30 Electronics Sector Index FEB 49.5 50.8
Wednesday
3/5/2008 16:00 Automobile COE Open Bid Cat A 5-Mar - - S$12856
3/5/2008 16:00 Automobile COE Open Bid Cat B 5-Mar - - S$15510
3/5/2008 16:00 Automobile COE Open Bid Cat E 5-Mar - - S$15110
Friday
3/7/2008 17:00 Foreign Reserves FEB - - $167.65B
HongKong
Date Time Event Survey Prior
Monday
3/3/2008 6:40 Brunswick PMI FEB - - 52.5
3/3/2008 16:15 Retail Sales - Value (YoY) JAN 18.90% 16.80%
3/3/2008 16:15 Retail Sales - Volume (YoY) JAN 15.50% 12.40%
Friday
3/7/2008 17:00 Foreign Currency Reserves FEB - - $159.9B
Energy
Date Time Event Survey Prior
Monday
3/3/2008 22:30 Aquila Executives Review Results: Teleconference
Wednesday
3/5/2008 23:30 DOE U.S. Crude Oil Inventories 2-Mar - - 3231K
3/5/2008 23:30 DOE U.S. Gasoline Inventories 2-Mar - - 2355K
3/5/2008 23:30 DOE U.S. Distillate Inventory 2-Mar - - -2575K
3/5/2008 23:30 DOE U.S. Refinery Utilization 2-Mar - - 1.16%
3/5/2008 23:30 API U.S. Crude Oil Inventories 2-Mar - - -1739K
3/5/2008 23:30 API U.S. Gasoline Inventories 2-Mar - - -1047K
3/5/2008 23:30 API U.S. Distillate Inventory 2-Mar - - -1211K
Thursday
3/6/2008 23:30 EIA Natural Gas Storage Change 1-Mar - - -151
Saturday
3/8/2008 2:00 Baker Hughes U.S. Rig Count 8-Mar - - 1763
Agriculture
Date Time Event Survey Prior
Tuesday
3/4/2008 0:00 Export Inspections - Corn 29-Feb - - 46.63
3/4/2008 0:00 Export Inspections - Soybeans 29-Feb - - 23.86
3/4/2008 0:00 Export Inspections - Wheat 29-Feb - - 17.25
Wednesday
3/5/2008 6:00 Chicago Merc. Inventories PB 1-Mar - - 55132
Thursday
3/6/2008 21:30 Export Sales - Cotton 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soy Oil 29-Feb - - - -
3/6/2008 21:30 Export Sales - Wheat 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soy Meal 29-Feb - - - -
3/6/2008 21:30 Export Sales - Corn 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soybeans 29-Feb - - - -
Source: Bloomberg
Date Time Event Survey Actual Prior
Monday
3/3/2008 22:00 RPX Composite 28dy YoY DEC - - - - -4.17%
3/3/2008 22:00 RPX Composite 28dy Index DEC - - - - 254.29
3/3/2008 23:00 ISM Manufacturing FEB 48 - - 50.7
3/3/2008 23:00 ISM Prices Paid FEB 73 - - 76
3/3/2008 23:00 Construction Spending MoM JAN -0.70% - - -1.10%
Tuesday
4-Mar Total Vehicle Sales FEB 15.5M - - 15.2M
4-Mar Domestic Vehicle Sales FEB 11.9M - - 11.7M
Wednesday
3/5/2008 6:00 ABC Consumer Confidence 3-Mar - - - - -37
3/5/2008 20:00 MBA Mortgage Applications 1-Mar - - - - -19.20%
3/5/2008 20:30 Challenger Job Cuts YoY FEB - - - - 19.10%
3/5/2008 21:15 ADP Employment Change FEB 10K - - 130K
3/5/2008 21:30 Nonfarm Productivity 4Q F 1.80% - - 1.80%
3/5/2008 21:30 Unit Labor Costs 4Q F 2.10% - - 2.10%
3/5/2008 23:00 Factory Orders JAN -2.50% - - 2.30%
3/5/2008 23:00 ISM Non-Manf. Composite FEB 47.5 - - 44.6
Thursday
3/6/2008 3:00 Fed's Beige Book
3/6/2008 21:30 Initial Jobless Claims 2-Mar 363K - - 373K
3/6/2008 21:30 Continuing Claims 24-Feb 2820K - - 2807K
3/6/2008 23:00 Pending Home Sales MoM JAN -1.00% - - -1.50%
3/6/2008 23:00 Mortgage Delinquencies 4Q - - - - - -
Friday
3/7/2008 2:30 ICSC Chain Store Sales YoY FEB 0.60% - - 0.50%
3/7/2008 21:30 Change in Nonfarm Payrolls FEB 25k - - -17k
3/7/2008 21:30 Unemployment Rate FEB 5.00% - - 4.90%
3/7/2008 21:30 Change in Manufact. Payrolls FEB -25K - - -28K
3/7/2008 21:30 Average Hourly Earnings MoM FEB 0.30% - - 0.20%
3/7/2008 21:30 Average Hourly Earnings YoY FEB 3.60% - - 3.70%
3/7/2008 21:30 Average Weekly Hours FEB 33.7 - - 33.7
Saturday
3/8/2008 4:00 Consumer Credit JAN $7.0B - - $4.5B
UK
Date Time Event Survey Prior
Monday
3/3/2008 17:30 PMI Manufacturing FEB 51 50.6
Tuesday
3/4/2008 17:30 PMI Construction FEB 53 53.9
Wednesday
3/5/2008 8:01 Nationwide Consumer Confidence FEB - - 81
3/5/2008 17:30 PMI Services FEB 52 52.5
3/5/2008 17:30 Official Reserves (Changes) FEB - - $1456M
3/5/2008 18:30 BRC February Shop Price Index
Thursday
3/6/2008 20:00 BOE ANNOUNCES RATES 7-Mar 5.25% 5.25%
Germany
Date Time Event Survey Prior
Monday
3/3/2008 16:55 PMI Manufacturing FEB 54 54.4
3-Mar CPI - Brandenburg (MoM) FEB - - -0.30%
3-Mar CPI - Brandenburg (YoY) FEB - - 2.60%
Wednesday
3/5/2008 16:55 PMI Services FEB 51 49.2
Thursday
3/6/2008 19:00 Factory Orders MoM (sa) JAN -0.40% -1.70%
3/6/2008 19:00 Factory Orders YoY (nsa) JAN 9.90% 5.60%
7-16 MAR Wholesale price Index (YoY) FEB 6.70% 6.60%
7-16 MAR Wholesale Price Index (MoM) FEB 0.50% 1.40%
Friday
3/7/2008 19:00 Industrial Prod. YoY (nsa wda) JAN 4.60% 4.10%
3/7/2008 19:00 Industrial Production MoM (sa) JAN 0.30% 0.80%
Japan
Date Time Event Survey Prior
Monday
3/3/2008 9:30 Labor Cash Earnings YoY JAN 0.10% -1.90%
3/3/2008 13:00 Vehicle Sales (YoY) FEB - - 3.70%
Tuesday
3/4/2008 7:50 Monetary Base (YoY) FEB 0.10% -0.10%
Wednesday
3/5/2008 7:50 Capital Spending 4Q -2.50% -1.20%
3/5/2008 7:50 Capital Spending excl Sftwre 4Q -1.80% -0.60%
Thursday
3/6/2008 7:50 Foreign Buying Japan Stocks 29-Feb - - -¥159.1B
3/6/2008 7:50 Foreign Buying Japan Bonds 29-Feb - - -¥562.5B
3/6/2008 7:50 Japan Buying Foreign Stocks 29-Feb - - ¥21.8B
3/6/2008 7:50 Japan Buying Foreign Bonds 29-Feb - - -¥90.9B
3/6/2008 12:00 BoJ Monetary Policy Meeting
3/6/2008 13:00 Leading Economic Index JAN P 30.00% 45.50%
3/6/2008 13:00 Coincident Index JAN P 22.20% 70.00%
3/6/2008 14:00 Machine Tool Orders (YoY) FEB P - - 0.00%
Friday
3/7/2008 7:50 Official Reserve Assets FEB - - $996.0B
7-Mar BOJ Target Rate 7-Mar 0.50% 0.50%
3/7/2008 14:00 BOJ Monthly Report
Singapore
Date Time Event Survey Prior
Tuesday
3/4/2008 21:30 Purchasing Managers Index FEB 49.8 50.5
3/4/2008 21:30 Electronics Sector Index FEB 49.5 50.8
Wednesday
3/5/2008 16:00 Automobile COE Open Bid Cat A 5-Mar - - S$12856
3/5/2008 16:00 Automobile COE Open Bid Cat B 5-Mar - - S$15510
3/5/2008 16:00 Automobile COE Open Bid Cat E 5-Mar - - S$15110
Friday
3/7/2008 17:00 Foreign Reserves FEB - - $167.65B
HongKong
Date Time Event Survey Prior
Monday
3/3/2008 6:40 Brunswick PMI FEB - - 52.5
3/3/2008 16:15 Retail Sales - Value (YoY) JAN 18.90% 16.80%
3/3/2008 16:15 Retail Sales - Volume (YoY) JAN 15.50% 12.40%
Friday
3/7/2008 17:00 Foreign Currency Reserves FEB - - $159.9B
Energy
Date Time Event Survey Prior
Monday
3/3/2008 22:30 Aquila Executives Review Results: Teleconference
Wednesday
3/5/2008 23:30 DOE U.S. Crude Oil Inventories 2-Mar - - 3231K
3/5/2008 23:30 DOE U.S. Gasoline Inventories 2-Mar - - 2355K
3/5/2008 23:30 DOE U.S. Distillate Inventory 2-Mar - - -2575K
3/5/2008 23:30 DOE U.S. Refinery Utilization 2-Mar - - 1.16%
3/5/2008 23:30 API U.S. Crude Oil Inventories 2-Mar - - -1739K
3/5/2008 23:30 API U.S. Gasoline Inventories 2-Mar - - -1047K
3/5/2008 23:30 API U.S. Distillate Inventory 2-Mar - - -1211K
Thursday
3/6/2008 23:30 EIA Natural Gas Storage Change 1-Mar - - -151
Saturday
3/8/2008 2:00 Baker Hughes U.S. Rig Count 8-Mar - - 1763
Agriculture
Date Time Event Survey Prior
Tuesday
3/4/2008 0:00 Export Inspections - Corn 29-Feb - - 46.63
3/4/2008 0:00 Export Inspections - Soybeans 29-Feb - - 23.86
3/4/2008 0:00 Export Inspections - Wheat 29-Feb - - 17.25
Wednesday
3/5/2008 6:00 Chicago Merc. Inventories PB 1-Mar - - 55132
Thursday
3/6/2008 21:30 Export Sales - Cotton 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soy Oil 29-Feb - - - -
3/6/2008 21:30 Export Sales - Wheat 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soy Meal 29-Feb - - - -
3/6/2008 21:30 Export Sales - Corn 29-Feb - - - -
3/6/2008 21:30 Export Sales - Soybeans 29-Feb - - - -
Source: Bloomberg
Saturday, March 1, 2008
Credit crisis throws AIG into "uncharted waters"
By Lilla Zuill
NEW YORK, Feb 29 (Reuters) - American International Group, on the heels of reporting its largest-ever loss, said on Friday the subprime crisis had thrown it into "uncharted waters" that were likely to remain choppy through 2008.
The world's biggest insurer did not rule out further write-downs and losses but said the crisis that led to a $5.3 billion fourth-quarter loss was not expected to be material in the long run.
Its shares fell 7 percent and led other insurers lower. The KBW Insurance Index <.KIX> was down 2 percent, with AIG the biggest drag.
"We are in unchartered waters," Chief Executive Martin Sullivan said on a conference call on Friday, a day after reporting AIG's largest quarterly loss since it was founded in 1919.
The world's largest insurer said the loss stemmed largely from a $11.12 billion write-down of a super senior credit swap portfolio in its AIG Financial Products unit.
AIG said it had not incurred a realized loss in the credit swap portfolio since it entered this business in 1998, but it forecast potential realized losses of $900 million over time, based on current analysis.
Sullivan said the financial products business had provided high returns over its history, and while all businesses are reviewed periodically, there was no immediate plan to shed it.
AIG's difficulty in valuing its derivatives portfolio earned it a rebuke from its auditor, which earlier this month cited "material weakness" in the company's internal controls.
"We have already begun the process to remediate the material weakness identified by (PricewaterhouseCoopers)," Sullivan said, indicating that AIG could take the rest of 2008 to do so.
Joe Cassano, head of AIG Financial Products, has agreed to leave AIG but will remain a consultant, Sullivan said.
Deterioration in U.S. residential and credit markets also took a hit on two other AIG units, he said.
United Guaranty posted an operating loss of $348 million, and American General Finance reported $9 million in fourth-quarter operating income after increasing its provision for finance receivable losses and a decline in mortgage banking revenues.
AIG said the deterioration in its credit swaps had raised the concern of rating agencies, resulting in its being assigned a negative outlook or having its ratings put under review for possible downgrade.
As a result, the insurer said it was prudent to preserve capital, and said it was suspending its share buyback program for the foreseeable future.
Goldman Sachs analyst Tom Cholnoky, in a research note, said investors were likely to worry about future write-downs and could also be rattled by the suspension of share repurchases.
AIG shares were down $3.70 to $46.45 in morning trade on the New York Stock Exchange.
NEW YORK, Feb 29 (Reuters) - American International Group
The world's biggest insurer did not rule out further write-downs and losses but said the crisis that led to a $5.3 billion fourth-quarter loss was not expected to be material in the long run.
Its shares fell 7 percent and led other insurers lower. The KBW Insurance Index <.KIX> was down 2 percent, with AIG the biggest drag.
"We are in unchartered waters," Chief Executive Martin Sullivan said on a conference call on Friday, a day after reporting AIG's largest quarterly loss since it was founded in 1919.
The world's largest insurer said the loss stemmed largely from a $11.12 billion write-down of a super senior credit swap portfolio in its AIG Financial Products unit.
AIG said it had not incurred a realized loss in the credit swap portfolio since it entered this business in 1998, but it forecast potential realized losses of $900 million over time, based on current analysis.
Sullivan said the financial products business had provided high returns over its history, and while all businesses are reviewed periodically, there was no immediate plan to shed it.
AIG's difficulty in valuing its derivatives portfolio earned it a rebuke from its auditor, which earlier this month cited "material weakness" in the company's internal controls.
"We have already begun the process to remediate the material weakness identified by (PricewaterhouseCoopers)," Sullivan said, indicating that AIG could take the rest of 2008 to do so.
Joe Cassano, head of AIG Financial Products, has agreed to leave AIG but will remain a consultant, Sullivan said.
Deterioration in U.S. residential and credit markets also took a hit on two other AIG units, he said.
United Guaranty posted an operating loss of $348 million, and American General Finance reported $9 million in fourth-quarter operating income after increasing its provision for finance receivable losses and a decline in mortgage banking revenues.
AIG said the deterioration in its credit swaps had raised the concern of rating agencies, resulting in its being assigned a negative outlook or having its ratings put under review for possible downgrade.
As a result, the insurer said it was prudent to preserve capital, and said it was suspending its share buyback program for the foreseeable future.
Goldman Sachs analyst Tom Cholnoky, in a research note, said investors were likely to worry about future write-downs and could also be rattled by the suspension of share repurchases.
AIG shares were down $3.70 to $46.45 in morning trade on the New York Stock Exchange.
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