By Carey Wong
Tue, 17 Feb 2009, 09:05:39 SGT

Market Pulse: Property Sector, Pan United, CitySpring, Valuetronics and Z-OBEE (17 Feb 2009)

FOCUS

Singapore Property: Mass market projects continue to dominate

Summary: Sale of new units of non-landed property (NLP) by property developers remained weak in January. New NLP launches increased by 30.2% MoM to 177 units but sales fell 22.1% MoM to 95 units. Mass market properties continued to dominate sales in January. Sales data for February should be significantly better, underpinned by the recent success of some of the new mass market launches. With further evidence of pent-up demand in the mass market segment and weakness in the mid-high end segment, we continue to favor developers with relatively lower landbank exposure towards the mid-high end and higher exposure towards mass market landbank. Among the developers under our coverage, UOL Group has the greatest exposure to the mass market segment (~34.1% of the attributable GFA of its Singapore landbank) and we have a BUY rating on UOL Group with fair value of S$2.88. (Foo Sze Ming)

CitySpring Infrastructure Trust: Cash earnings recover in 3Q09

Summary: CitySpring Infrastructure Trust (CitySpring) posted a 4.3% YoY gain in 3Q09 revenue to S$101.2m and a net loss of S$21.3m primarily due to non-cash items such as fair value losses. Most importantly, cash earnings recovered at S$20.3m versus S$1.1m a quarter ago when cash earnings were hit by one-off charges. The trust will pay out 1.75 S cents per share for the quarter, flat QoQ and up 9.4% YoY. This translates to an annualized trailing yield of about 13.5%. CitySpring’s assets have been relatively untouched by the current economic environment. This continues to be a key differentiator against other yield instruments, which are witnessing industry downturns that create either revenue or counterparty uncertainty. The trust said it expected to meet its projected payout of another 1.75 S cents in 4Q09. Our view of the trust is intact: we feel the 100% debt financing of the trust’s Basslink acquisition is not a long term solution and an equity injection is inevitable at some point. Maintain HOLD with S$0.57 fair value. (Meenal Kumar)

Pan-United Corporation: Good performance but dividends disappoint

Summary: Pan-United Corp (PAN) reported a good set of FY08 results last night with topline growing 27% to S$553m while PATMI escalated 51% to S$50m. PAN’s Basic Building Materials (BBM) division continued to power the growth for the group as it exerts its presence as Singapore’s dominant Ready Mixed Concrete (RMC) provider. The BBM division contributed 65% of the group’s PATMI. PAN’s Shipping division also delivered strong results as new vessels accreted to the top and bottomline. However, its Port division continued its lacklustre performance as trade flow slowed in China. PAN’s final dividend of 1 S cent missed our expectation of 2.5 Scents as the Company opted for cash preservation for capex in view of the tighter credit environment. While PAN remains committed to give strong yields, we have tempered our dividend payout to ~40% (prev: 50-60%). At the current share price, this yields 10% for FY09F. We will deliver more info after we meet management later this morning. Our DDM forecast will likely be tempered down but we maintain our BUY rating. (Kelly Chia)

Valuetronics Holdings: Onerous outlook, but cost structure to improve

Summary: Valuetronics (VHL) reported a soft set of 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. In the coming quarters, VHL expects to see great uncertainty in demand patterns and significant fluctuations in exchange rates, but also expects to see a positive effect on its cost structure as the Chinese authorities postpone the adjustment of the minimum wage standards in Guangdong province, and as material costs ease due to softening of oil prices. While we have pared our FY09 earnings forecast by 24.9% to accommodate a bleaker outlook, we believe that the group’s healthy balance sheet and its continuous emphasis to stay at the forefront of design and development activities in partnership with customers are likely to put it in good stead to take on new business opportunities. Applying 4x FY10F EPS, we derive a lower fair value of S$0.15 (S$0.17 on 4x FY09F previously). Nonetheless, maintain BUY on 66.7% upside potential and attractive FY09F dividend yield of 11.3%. (Kevin Tan)

Z-OBEE Holdings: 3QFY09 performance curtailed by market weakness

Summary: Z-OBEE Holdings reported a set of 3QFY09 results below our expectations, with revenue falling 52.0% YoY (-52.2% QoQ) to US$17.1m, and net profit sliding 98.4% YoY (-99.0% QoQ) to US$0.2m. Going forward, while Z-OBEE is expecting the general business environment to become increasingly difficult and that the sluggishness in the consumer market to persist for most of 2009, the group remains cautiously optimistic about its business prospects in China, as the Chinese government has stipulated a number of policies, such as subsidizing rural families on consumer electronics purchases, to boost the domestic demand and sustain its economic growth. Following the results, we have shed our FY09 forecasts by 19.8-39.1% to account for a possibility of further slowdown in handset market. However, in anticipation of the various measures by the Chinese authorities and new business opportunities that are likely to cushion a sharp deterioration, we are raising our valuation metric slightly from 1.5x to 2x PER. As Z-OBEE enters into 4QFY09, we also roll over our valuation to FY10. All in, our fair value remains unchanged at S$0.03 (2x FY10F EPS). As downside risks appear limited, we retain our HOLD rating on Z-OBEE. (Kevin Tan)

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


NEWS HEADLINES

- Faced with its worst operating environment in years, SIA will slash capacity by 11% and has started talking to unions about staff costs.

- China Hongxing reported a 41% rise in revenue to RMB2.89b for FY08 and a 7.7% increase in net profit to RMB448.5m.

- Advanced Integrated Manufacturing has warned of losses for 4Q08 and FY08.

- AnnAik is expecting a marginal loss for 2H08 due to factors including lower steel prices, operating expenses from a newly set up plant in China and lower profit contribution from its associate.

- Financial One expects to report a loss for 4Q08 and a significant decrease in profit for FY08.

- Full Apex expects to make a provision in respect of its PET chips stocks in its FY08 results and lower profits are expected.

- Hyflux Ltd said Istithmar World PJSC’s stake in the water treatment company has been cut to 4.6% from 6.5% after a series of transactions.

- OKP Holdings reported a 13.4% drop in net profit to S$9.5m for FY08 while revenue fell 18.3% to S$101.8m.

- Asia Enterprises posted a net loss of S$16.2m for 4Q08 compared to a net profit of S$3.34m for 4Q07. Revenue fell 48% YoY to S$25m owing to a severe industry-wide contraction in customer orders.