By Carey Wong
Wed, 12 May 2010, 09:02:29 SGT

Market Pulse: REITs, Telecoms, Wilmar and First Ship (12 May 2010)

FOCUS

S-REITs: 1Q10 results review; downgrade sector to NEUTRAL

Summary: Four out of the eight S-REITs under our coverage reported earnings in line with our estimates. CapitaCommercial Trust and Frasers Centrepoint Trust (FCT) beat our DPU estimates, but A-REIT and LMIR Trust missed our earnings expectations for 1Q CY10. Several managers indicated an intention to optimize yield and grow the portfolio both organically (asset enhancement initiatives) and inorganically (acquisitions). The recent volatility in the market has led to ~100 basis point movements in yields – we think this volatility will continue as macro-economic concerns, this time in Europe, take a front seat again. In our view, investors may consequently ascribe a higher risk premium (that is, higher yields and lower price-to-book ratios) to the S-REIT sector in the near-term. In an uncertain environment, we prefer REITs with a strong earnings outlook and strong balance sheets. We tilt slightly defensive in our top picks and favor FCT, Mapletree Logistics Trust and Ascott Residence Trust with estimated total returns of 19%, 19.8%, and 21.7% respectively. Downgrade broader sector to NEUTRAL on a more cautious view. (Meenal Kumar)


Telecoms Sector: Minimal World Cup Boost

Summary: Both SingTel and StarHub have managed to secure the broadcast rights for all the 64 matches of the month-long 2010 World Cup event in South Africa. The two telcos did not reveal how much they paid for the rights, but we believe that it is probably several times higher than the US$5m that StarHub reportedly paid for the 2006 World Cup event. The pricing (before GST) of S$66 and S$88 for the packages are around 4x higher than the 2006 event and could lead to a dip in take-up from home viewers. But in response, we may see better take-up from businesses to capitalise on this. Assuming that the telcos paid a total of S$20m for the rights and that the average subscription price is S$70/subscriber, the telcos would probably need to sell 280k packages to break even – we think that this is achievable. In any case, we expect to see higher content costs for both SingTel and StarHub in the third quarter, which may depress margins; but we have already worked this into our estimates. Instead, we continue to like the telcos for their defensive earnings and high dividend yields, especially in the increasingly volatile market. Maintain OVERWEIGHT. (Carey Wong)


Wilmar: 1Q10 results mostly in line

Summary: Wilmar International Limited (WIL) reported its 1Q10 results this morning. Revenue grew 36.4% YoY (but down 2.2% QoQ) to US$6764.1m, meeting nearly 25% of our full-year forecast. Also positive was the improvement in gross margin from 11.0% in 4Q09 to 12.2% in 1Q10, although still somewhat away from 16.5% in 1Q09. Net profit grew 5.6% YoY (but fell 9.2% QoQ) to US$401.4m, or around 21.4% of our full year estimate. All in, the results were mostly in line. We will be attending the analyst meeting later at noon and we will have more updates after that. Meanwhile, we maintain our BUY rating with S$8.23 fair value. (Carey Wong)


FSL Trust: Placing DPU guidance under review

Summary: FSL Trust (FSLT) released an update on the re-delivery of two of its product tankers. It said charterer Groda indicated that “it has become increasingly difficult for them to improve their cash flow” due to 1) escalating bunker prices; 2) under-utilization of the vessels under the Contract of Affreightment (CoA); and 3) “limited options to generate incremental revenue given the trading area of the vessels”. FSLT is currently estimating (conservatively) that it can earn US$7,000/day per vessel on a bareboat charter equivalent basis (versus US$20,700/day at present). The vessels currently have planned voyages under the CoA and FSLT’s “immediate priority is the continued smooth operation of the vessels whilst [it explores] alternative commercial solutions”. The manager has decided to suspend the management fee it is entitled to receive on the two vessels under further notice. It also said that FSLT’s DPU guidance for 2Q FY10 and beyond is under review by the Board. FSLT is “presently not aware of any information that would lead it to believe that its other customers would not continue to fulfill their lease payment obligations.” Maintain HOLD and S$0.48 fair value estimate. (Meenal Kumar)


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


NEWS HEADLINES

- The Singapore government has restored its technology budget to the pre-crisis level of S$1.1b.

- First Resources saw its net profit rise almost five-fold to US$25.5m in 1Q10.

- A Chip Eng Seng unit trumped 17 other bidders to put in the top offer of S$152.7m for a residential site on Simei St 3.

- Sim Lian Group expects to achieve a set of profitable operating results for FY10 after a 38% YoY rise in 3Q10 net profit.

- The Taiwan Stock Exchange is still seeing a strong pipeline of primary and secondary listings this year.

- Marco Polo Marine reported a 2Q10 net profit of S$7.44m compared to S$3.2m a year ago, helped by gains from vessel disposals.

- Bonvests Holdings posted a 26.5% YoY rise in 1Q10 net profit on firmer sales and a one-off gain.

- BBR Holdings achieved a 61.9% YoY rise in net profit to S$4.49m in 1Q10.