By Carey Wong
Mon, 16 Feb 2009, 08:52:19 SGT

Market Pulse: DBS, Pac Andes, Tat Hong, CitySpring, Eu Yan Sang, Koda, Silverlake, Valuetronics and Z-OBEE (16 Feb 2009)

FOCUS

DBS: Earnings revisions due to persistently weak outlook

Summary: DBS posted 4Q08 net earnings of S$295m and FY08 net earnings of S$1929m. While Net Interest Income showed some improvement, up 5% YoY and 4% QoQ in 4Q08, non interest income fell 24% YoY although it was up 10% QoQ. Allowances for credit and other losses surged 27% YoY but was down 8% QoQ at S$316m. For the whole year, it rose 44% to S$888m. Management has declared a one-tier tax-exempt dividend of 14 cents per share for 4Q08. While the global economic prospects remain weak, DBS’s recent round of job cuts should help to trim operating costs, but we expect allowances to remain high. We have trimmed our FY09 earnings forecast from S$2049m to S$1774m due to the protracted weakness in the market, which will be a drag on loan growth and net interest income, and to account for the lack of capital market activities. We are retaining our stand that we will only turn buyers when the stock approaches $7.80 or lower, and maintain our HOLD rating, but lower our fair value estimates from S$10.20 to S$8.60. (Carmen Lee)


Pacific Andes Holdings: Downside is limited

Summary: Despite the recent sharp deterioration in global economic conditions, Pacific Andes Holdings (PAH) has managed to buck the trend to post a fairly decent set of 3QFY09 earnings. Net earnings rose 11% YoY to HK$87.1m, while revenue rose 40% YoY to HK$1562.1m. China Fishery Group (CFG) delivered a 6.5% YoY rise in FY08 earnings to US$94.3m, while revenue grew 13.4% YoY to US$459m. Management reiterated that it will be in a good position to benefit from the implementation of the long awaited Individual Transferable Quota (ITQ) system in Peru from 2009 onwards. We are retaining our FY09 estimates of net earnings of HK$492m. While global market conditions remain uncertain, we believe the downside for the stock is limited at current levels. Demand for fish could soften in the coming months if market conditions remain weak, but PAH has put in place longer term operational strategies for both the North and South Pacific and this should enable PAH to enjoy higher catch volumes once market conditions improve. We are maintaining our BUY rating and fair value estimate of S$0.30. (Carmen Lee)


Tat Hong Holdings Ltd: Sound underlying performance tainted by forex losses

Summary: Tat Hong Holdings Ltd (Tat Hong)’s operationally sound 3Q09 was tainted by forex losses arising from the appreciation of the Japanese Yen during the quarter. Revenue contracted 7.5% YoY to S$146.1m while gross profit declined by 9.6% to S$55.4m. Stripping off the impact of forex, net profit would have expanded 50.6% YoY to S$26.4m, ahead of the street’s expectation of S$18.0m. However, including forex losses, most of which is unrealised, net profit slumped 86.0% to S$3.0m. Nevertheless, Tat Hong’s underlying fundamentals remained robust with all segments posting improved revenue, except equipment sales. Going forward, we expect stability from its rental businesses to cushion the group from the impact of the slowdown. We have trimmed our estimates and switch our PER-based valuation to 1x FY09F NTA, bringing our fair value estimate to S$0.72 (from S$0.75). Given its sound underlying fundamentals, we upgrade our rating to BUY. (Lee Wen Ching)


CitySpring Infrastructure Trust: Pays out 1.75 S cents for 3Q09

Summary: CitySpring Infrastructure Trust (CitySpring) will distribute 1.75 S cents per share for 3Q09, flat QoQ and up 9.4% YoY. This translates to an annualized trailing yield of about 13.5%. The trust posted S$101.2m in 3Q revenue, up 4.3% YoY and 0.2% QoQ. Most importantly, cash earnings re-stabilized at S$20.3m versus S$1.1m a quarter ago when the trust was hit by timing lags and one-offs. For one, City Gas had been hit by the timing lag between tariff adjustments and actual fuel prices in the previous quarter – this effect was reversed during 3Q09. City Gas has since reduced its gas tariffs from 1 February 2009. Over time, the revenue model is designed to leave City Gas neutral to the effect of changes in fuel costs. Meanwhile, Basslink recovered A$1m in facility fee based on its cumulative availability at year end. We’re maintaining our HOLD call on CitySpring and our S$0.57 fair value estimate. We will be attending an analyst briefing today and will have more subsequently. (Meenal Kumar)


Eu Yan Sang International Ltd: Found its footing in 2Q09

Summary: Eu Yan Sang International Ltd (EYS) posted a credible set of 2Q09 results which were in line with our estimates. Revenue improved by 6.1% YoY to S$53.4m, while operating profit edged up by 1.8% to S$5.2m. PAT rose 39% to S$4.7m, but after taking into account losses from discontinued operations, net profit grew by a smaller 11% to S$3.5m. Profit margins held steady in 2Q09, and these should be sustainable, given that inflationary pressure has generally tapered off. While sales have been holding up well so far, a protracted recession and the threat of further job cuts could weigh on consumer spending. We rollover our valuation to blended FY09/10, and derive a slightly higher fair value estimate of S$0.30 (previously S$0.29). Upgrade to HOLD. (Lee Wen Ching)


Koda Ltd: Not out of the woods yet

Summary: Koda Ltd’s (Koda) 2Q09 results were below expectations. Revenue slipped 34.2% YoY (but grew 2.5% QoQ) to US$11.8m, while net profit slumped 85.6% YoY and 18.7% QoQ to US$0.3m. Weak demand was the key culprit for the slump in revenue. No dividends were declared. Profit margins came under pressure during the quarter due to persistent raw material costs and fixed overheads. We expect the outlook to remain muted in the next quarter as shorter working months, festive holidays, and overcapacity could continue to weigh on the group. Management has warned that it could slip mildly into the red in 3Q09. On a brighter note, the US market has shown signs of a recovery and orders are flowing in again following inventory depletion. We have trimmed our estimates by 27% to 50% and ease our fair value to S$0.145 (previously S$0.185). The bleak outlook appears to be factored in at current prices, as such, we maintain our HOLD rating on the stock. (Lee Wen Ching)


Silverlake Axis: Cautiously optimistic of better 2H09

Summary: Silverlake Axis Limited (SAL) reported a pretty dismal set of 2Q09 results last week; 1H09 revenue (down 73.4% YoY at MYR28.6m) met only 28.6% of our FY09 forecast, while net profit (down 79.9% at MYR15.4m) was just 24.6% of full-year estimate. But management remains cautiously optimistic that its 2H09 performance will be better than its first half; small orders are still coming in and it revealed that it is still in talks with several customers for major upgrades of their core banking systems, although the timeline for winning these contracts remains unclear. But given the still uncertain economic environment, we prefer to take a more prudent approach (assuming no major contract wins in FY09 and a modest recovery in FY10), and slash our top and bottomline estimates for FY09 by 41-49% and FY10 by 34-35%. Hence, even as we push forward our valuation from 8x FY09 to blended FY09/FY10F, our fair value drops to S$0.12 from S$0.19. We retain our HOLD rating as SAL is committed to continue paying out dividend in 2H09 (expected 7.7% yield). (Carey Wong)


Valuetronics Holdings: Weakness manifests in 3QFY09 results

Summary: Valuetronics (VHL) handed in its 3QFY09 results last Friday, with revenue up 3.5% YoY (-22% QoQ) at HK$247.9m and net profit down 41.9% YoY (-43.7% QoQ) at HK$12.5m. The modest top-line growth was mainly due to strength in OEM segment (+7.6% YoY) partially offset by decrease in sales within its ODM segment (-12.8% YoY), whereas the soft bottom-line performance was due to a change in sales mix, increase in commodity prices, added depreciation expenses from its new Daya Bay facilities and higher operating expenses. For 9MFY09, revenue registered HK$800.8m (+17.9%), meeting 80.3% of our FY09 sales forecast (77.3% of consensus), while net profit hit HK$55.8m (-21.2%), or 68% of our earnings figure (69.3% of consensus). Going forward, VHL expects to see great uncertainty in demand patterns and significant fluctuations in exchange rates, but expects to benefit from the various measures implemented by Chinese and Hong Kong governments. We will be speaking to management later for more information. Until then, we are putting our BUY rating and S$0.17 fair value under review. (Kevin Tan)


Z-OBEE Holdings: 3QFY09 results below expectations

Summary: Z-OBEE Holdings reported a set of 3QFY09 results that was below our expectations. Despite our downward revision in forecasts recently, revenue fell greater than expected at 52.0% YoY (-52.2% QoQ) to US$17.1m, due to continuous slackening in demand of the PRC consumer market. The slowdown also took a toll on its gross margin, which fell to 7.2% from 11.4% in 3QFY08 (2QFY09: 8.8%) amid pricing pressures and lower sales from its higher-margin solution segment. Together with an increase in finance lease costs for its Surface Mount Technology (SMT) lines, higher rates for trade receipt loans and tax expenses, net profit slid 98.4% YoY (-99.0% QoQ) to US$0.2m. For 9MFY09, revenue stood at US$89.9m (-4.2%), meeting 69.9% of our FY09 sales forecast, while net profit reached US$4.0m (-56.3%), or 65.7% of our full-year projection. We will be speaking to management later for more clarity. For now, we put our HOLD rating and S$0.03 fair value estimate under review. (Kevin Tan)


For more information on the above, visit www.ocbcresearch.com for the detailed report.


NEWS HEADLINES

- As of last Friday, out of the 63 firms which had released their results for FY08, 50 were in the black, reaping net profits amounting to S$7.57b.

- Australian wildfire survivors have launched a lawsuit against SP Ausnet, alleging a downed power line sparked one of the blazes.

- Over 750 units of the Caspian and the Alexis @ Alexandra have been sold, topping new developer sales for 1Q08.

- China Aviation Oil (Singapore) expects a net loss for 4Q08 due to costly jet fuel inventories procured at Shanghai Pudong Airport, although it will remain profitable for FY08.

- Jurong Consultants, which helped design Singapore’s planned S$1b plus underground oil storage facility, is looking for similar opportunities in China and India.

- F&N posted a 18% YoY fall in net profit to S$88.98m for 1Q09 while revenue slipped 6% to S$1.24b.

- Cerebos Pacific posted a 2% YoY rise in 1Q09 net earnings to S$30m despite a 2% dip in topline sales to S$223.7m.

- Saizen Reit said it will not be giving out any distribution for 2Q09.