By Carmen Lee
Thu, 26 Feb 2009, 08:28:01 SGT

Market Pulse: SG Economy, SAR, Gallant, CityDev (26 Feb 2009)

FOCUS

Singapore Economy: Slower 1.1% growth in 2008

Summary: Singapore’s economy grew by 1.1% in 2008, slightly lower than the 1.2% estimated in the Ministry of Trade and Industry’s (MTI) January release. Real GDP contracted by 4.2% YoY in 4Q08, compared to the previous estimate of 3.7%. However, on a seasonally adjusted annualised QoQ basis, real GDP declined by 16.4% instead of the previous estimate of -16.9%. On a sectoral breakdown, the revised figures were largely similar to the earlier estimates (4.1% contraction for manufacturing, and 4.7% growth for services producing industries.) Construction, however, grew at a stronger 20.3% instead of the 17.9% previously estimated. (Low Pei Han)

Straits Asia Resources: Something to cheer about

Summary: Straits Asia Resources Ltd’s (SAR) FY08 results were ahead of expectations. Revenue accelerated by 133.2% to US$585.2m on strong coal prices and higher production volumes, leading to a 335.6% surge in net profit to US$124.4m. Gross profit margin for FY08 ballooned by 16.6ppt to 39.4% on sky-high coal prices, while net profit margin expanded by 9.9ppt to 21.3%. We see more room for profit margin improvements in FY09 given that the bulk of SAR’s FY09 output has been contracted at favourable prices. This will also boost the group’s cash flows. A final dividend of 2.18 US cents has been declared, bringing total dividends for the year to 6.83 US cents (yield: 12%). We have raised our WACC to cater for higher borrowing costs and lowered our thermal coal price assumptions for FY10 and beyond, resulting in a slightly lower fair value estimate of S$1.15 (from S$1.35). Nevertheless, we maintain our BUY rating on the stock. (Lee Wen Ching)

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

Gallant Venture Ltd: No catalysts in sight

Summary: Gallant Venture Ltd (Gallant) posted a disappointing set of 4Q08 results. Revenue met our estimate with a 2.3% YoY improvement to S$56.3m, but PATMI slipped into a S$2.0m loss from a S$6.4m profit a year ago. For the full year, Gallant’s revenue retreated 3.9% to S$225.2m while PATMI slumped 96.2% to S$0.6m. High taxes led to Gallant’s downfall in FY08. A timing mismatch between revenue and cost recognition resulted in exorbitant taxes that wiped out the group’s earnings. Gallant’s land sales have come to a standstill in light of the sickly investment climate. In addition, we see greater risk of order cancellations and deferments in light of the credit crunch, and this could deprive the group of much-needed cash flow. Gallant faces a bleak outlook in FY09. With no near term catalysts in sight, we suspend our coverage on the stock. (Lee Wen Ching)

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

City Developments Ltd: Earnings hit by impairment losses

Summary: City Developments (CDL) reported its 4Q08 results this morning. 4Q08 revenue fell 6.3% YoY to S$717.5m, dragged down by weak contribution from its hotel operations. Property development and investment properties continued to perform well. Operating profit fell by a larger 31.6% YoY to S$147.2m due to impairment losses which amounted to S$90.8m on Millennium & Copthorne’s assets, an investment property and loan to a JV in Bangkok. Impairment loss was also made on a hotel in Beijing and this contributed to the decline in contributions from jointly-controlled entities. PATMI for 4Q08 plunged 57.4% YoY to S$100m and was below consensus forecast of S$182.9m. With the recent increase in buying interests, CDL says it may be launching two of its projects, The Arte and The Quayside Collection, soon. For its South Beach development, the consortium is in discussions with banks to extend the loan for the land. Based on a recent external valuation, no provision is required for the development. Outlook for FY09 remains challenging but CDL expects to ‘continue to perform profitably’. A final dividend of 7.5 S-cents has been declared, translating to a dividend yield of 1.6%. Our rating on CDL is under review. We will provide more details after the analysts’ briefing later this morning. (Foo Sze Ming)

NEWS HEADLINES

- As it forewarned, China Aviation Oil reported a net loss of US$3.5m in 4Q08, partly due to costly jet fuel inventories, but it chalked up a net profit of US$38.35m for FY08.

- KS Energy posted a 36.3% YoY rise in net profit to S$9.1m on the back of a 30.1% rise in revenue to S$165.3m for 4Q08.

- China Paper reported a 44.8% increase in net profit to RMB143.4m for FY08 due to higher sales and improved margins. Revenue rose 19.8% to RMB910.6m, partly due to higher utilization rates.

- CWT more than doubled its net profit to S$73.9m on a 13% rise in sales to S$602.7m for FY08.

- Welding, gas and safety integration specialist Leeden posted a 58.6% rise in net profit to S$10.4m for FY08 as revenue grew by half to S$157.2m.

- Old Chang Kee posted a 15.5% fall in net profit to S$2.23m for FY08 although revenue rose 19.5% to S$48.4m. There were one-off expenses such as IPO costs and pre-opening expenses for a new restaurant in Chengdu.

- Ho Bee Investment, which posted a 70.9% YoY slide in 4Q08 earnings to S$11.3m, warned that it will be facing a “very challenging year amidst the weak market sentiment and adverse economic environment”.

- Koh Brothers reported a 30% fall in FY08 net profit to S$27.7m, partly due to absence of revaluation gains. Revenue also fell 24% to S$215.8m with lower recognition of construction projects completed.