Company Name: UOL GROUP LIMITED
| Research House: OCBC | Price Call: BUY | Target Price: 5.57 |
Stock Name: ECS
Company Name: ECS HOLDINGS LIMITED
| Research House: OCBC | Price Call: BUY | Target Price: 1.04 |
Market Pulse: Singapore Property and ECS Holdings (02 Sep 2011)
FOCUS
Singapore Property Sector: DC revisions market-neutral, deceleration ahead
Summary: The latest DC rates revisions showed largest increases in Industrial/Warehousing (Group D - 31%) and Commercial (Group A - 22%). Overall, we believe the market would be neutral to these revisions as these were in line with the broad 1H11 uptrend in industrial and commercial rentals and capital values. We judge that the incremental impact of these rates increases in itself would be relatively low for developers. But, coupled with current macro uncertainties and expected inflection points in residential prices and office rentals ahead, this could push developers further towards a cautious stance. Going forward, we expect the rate of DC increases for the commercial and residential sector to decelerate as selling prices, rentals and capital values soften with macro headwinds. We prefer UOL due to its limited residential exposure and the potential to pick up land-bank as the acquisition environment cools down further (BUY with a fair value estimate of S$5.57). (Eli Lee))
ECS Holdings: Likely limited impact from HP PSG spinoff
Summary: ECS Holdings (ECS) has released an announcement in response to HP's decision to spinoff or sell its Personal Systems Group (PSG) business. This includes its PCs, notebooks and webOS operating system and devices. Given the uncertainty generated for HP's suppliers and consumers, ECS's management highlighted to us during a teleconference that HP has provided incentives for the group to entice it to continue its focus on their products. These include increased advertising and promotion and faster reimbursement of rebates. We believe that this would help to improve the working capital of ECS. Moreover ECS has also returned all the HP tablets (TouchPad) and smartphones and received a full refund. Overall, ECS opines that the impact of a spinoff, should it materialise, is likely to mitigated as it is expected to continue to act as a regional distributor for PSG. This business contributed ~18% of ECS's total purchases (contribution has been declining) and ~8% of its total net profits. Moreover the group has also been diversifying by forging strategic agreements with other key vendors such as Dell and Lenovo. We believe that even if HP sells the PSG business to a competitor, the distributorship of the products could still continue given ECS's established relationships with most of the key vendors. Hence we maintain our BUY rating and fair value estimate of S$1.04. (Wong Teck Ching Andy)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- Eurozone manufacturing activities fell in August, the first contraction in almost two years due to a sharp in fall in output and new orders.
- Singapore's seventh President Tony Tan promised to safeguard the nation's reserves and said that it should not be compromised at any costs.
- Global Logistics Properties (GLP) has formed a JV with Canada Pension Plan Investment Board (CPPIB) to develop modern logistics facilities in Japan with each party contributing US$250m of equity capital over a 3-year period.
- Sheng Siong announced that it had entered into a lease agreement for a 14,239 sq ft store located at 200 Woodlands Industrial Park for use as a supermarket.
- Swiber Holdings said that it hopes to secure an offshore services contract from a major oil company based in Brunei that will pay it US$80-100m yearly till 2016.
- Real estate services provider Savills expects the rents on Orchard Road to stabilise this year, although the limited supply and constant demand implies upside potential for prime space.
- According to Knight Frank's Global House Price Index, Hong Kong recorded the largest increase in property prices, with a 26.5% spike over the past 12 months. Singapore came in ninth with a 6.7% increase over the same period.
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