MARKET PULSE: CMA, NOL, CCT, Ezra, FCOT, Suntec REIT, MMH (29 Oct 2012)

Stock Name: CapMallsAsia
Company Name: CAPITAMALLS ASIA LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.16

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

Stock Name: CapitaComm
Company Name: CAPITACOMMERCIAL TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.62

Stock Name: Ezra
Company Name: EZRA HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.30

Stock Name: Frasers Comm
Company Name: FRASERS COMMERCIAL TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.31

Stock Name: SuntecReit
Company Name: SUNTEC REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.70

Stock Name: Micro-Mech
Company Name: MICRO-MECHANICS (HOLDINGS) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.325

MARKET PULSE: CMA, NOL, CCT, Ezra, FCOT, Suntec REIT, MMH

29 Oct 2012

KEY IDEA CapitaMalls Asia: 3Q12 results above view Summary: CMA reported 3Q12 PATMI of S$63.4m - up 70.8% YoY mostly due to Minhang and Hongkou contributions and increased management fees. We judge this set of results to be above consensus and our expectations, and 9M12 core PATMI, excluding extraordinary items, now make up 83% of our FY12 forecast, driven by faster than expected revenue growth at Minhang and Hongkou and a S$7.3m QoQ dip in admin expenses as mall-opening costs eased. We expect increased visibility of recurring earnings, as a larger component of CMA's portfolio becomes operational, and relatively firm retail outlooks in China and Singapore to be positive drivers of its share price ahead. Maintain BUY with an increased fair value estimate of S$2.16 from S$1.85 previously as we update for valuations of REIT holdings and reduce the RNAV discount to par (from 10% previously). (Eli Lee) MORE REPORTS Neptune Orient Lines: Outlook promising Summary: Neptune Orient Lines (NOL) finally reported a profitable 3Q12 after six consecutive quarterly losses. Its revenue grew 4.0% YoY to US$2.3b (vs. +6% forecast) on higher volumes while its core EBIT improved to US$74m - a much better showing versus-US$72m in 3Q11 and marginal gains of US$16m in the previous quarter. The better performance came largely on the back of significant cost savings from its Efficiency Leadership Programme (ELP) as freight rates remained lacklustre despite the peak season impact. With this improved result, we narrow our net loss projections for FY12 as we anticipate 4Q12 rates to hold up well, capacity management efforts by the industry to continue, and bunker fuel rates to remain capped at current levels. Maintain BUY with an unchanged fair value estimate of S$1.38. (Lim Siyi) CapitaCommercial Trust: Average portfolio rentals up Summary: CapitaCommercial Trust (CCT) reported 3Q12 distributable income of S$57.9m - up 11.9% YoY mostly due to contributions from Twenty Anson, higher revenues from portfolio assets and yield protection income from One George Street (OGS). This is mostly in line with expectations and we note 9M12 distributable income now makes up 75% of our FY12 forecast. As indicated in our last two reports, we have been expecting an uptick in office fundamentals and believe this was mostly validated by CCT's 3Q portfolio data-points: 1) occupancy edged up QoQ to 97.1% in 3Q12 from 96.2% in 2Q, and 2) average portfolio rent increased to S$7.53 psf - the first increase seen after seven consecutive quarters of decline from 4Q10. Maintain BUY with an increased fair value estimate of S$1.70, versus S$1.62 previously, as we update our model for firmer rental numbers and cap rates. (Eli Lee) Ezra Holdings: Monitoring operating costs Summary: Ezra Holdings reported a 49% YoY rise in revenue to US$326.3m but saw a 41% decrease in net profit to US$7.3m in 4QFY12, such that full year net profit of US$65m was ~15% below our full year estimate. Core net profit of US$15.7m accounted for 90% of our estimate. This was partly due to higher administrative expenses and a higher tax rate. We expect admin expenses to remain elevated going forward. On a more positive note, management expects an increase in margins in FY13 as offshore support and subsea vessel utilisation rises, along with higher margins for new contracts. The group has a total bid book of US$4.4b, in which a significant portion is expected to be awarded in FY13. After adjusting our estimates and accounting for the listing of Triyards, our fair value estimate for Ezra drops to S$1.30. Maintain BUY. (Low Pei Han) Frasers Commercial Trust: A brand new start Summary: Frasers Commercial Trust (FCOT) reported a strong set of 4QFY12 results that were within our expectations. FCOT also announced the completion of divestment of its Japan properties, after months of market anticipation. We view the transaction positively because the divestment would improve its portfolio occupancy and weighted average lease to expiry. More importantly, gearing ratio is expected to drop from 36.8% to 28.6%, with no debt maturing until FY15. This will significantly strengthen its financial position and flexibility, and aid FCOT in seeking the release of two properties from its securitized pool. Regarding the space vacated by MMC at China Square Central (CSC), FCOT also updated that 76% of the space has been re-leased, including 49,000 sqft by GroupM starting Apr 2013. Going forward, FCOT intends to embark on Phase 2 of refurbishment works at CSC by end-2012, which should further enhance its positioning. We are positive on FCOT's transformation, strong execution and growth potential in FY13. Maintain BUY on FCOT with an unchanged fair value of S$1.31. (Kevin Tan) Suntec REIT: Strong execution paid off Summary: Suntec REIT delivered a good set of 3Q12 results, in our view. Despite the partial closure of Suntec Singapore and Suntec City Mall for Phase 1 of the asset enhancement works (AEI) and divestment of Chijmes, DPU only showed a 7.2% YoY dip to 2.35 S cents. For 9M12, DPU totalled 7.164 S cents (-3.9%), forming 78%/77% of our/consensus full-year DPU forecasts. We note that office segment continued to be the star performer in 3Q, registering a 10.3% YoY growth in revenue to S$31.4m amid positive rental reversions. In particular, Suntec City Office achieved its second consecutive quarter of full occupancy. Leasing demand had also been strong, as evidenced by the average contracted rent of S$8.96 psf pm secured for the quarter (vs. S$8.71 in 2Q). On its Suntec City AEI, Suntec REIT reiterated that the Phase 1 works is on schedule for completion by 2Q13. We understand that pre-commitment for Phase 1 NLA improved to 71.2% from 58.5% in 2Q, and projected ROI of 10.1% remains on track. We are upgrading Suntec REIT to BUY with a revised fair value of S$1.70 (S$1.45 previously). (Kevin Tan) Micro-Mechanics: 1QFY13 results below expectations Summary: Micro-Mechanics Holdings (MMH) reported 1QFY13 results which fell short of our expectations. Revenue declined 4.6% YoY to S$9.9m, or 8.0% lower than our forecast. This was MMH's sixth consecutive quarter of YoY sales decline. Net profit slid 5.6% to S$1.2m and was 12.4% short of our projection due to weaker-than-estimated revenue and higher effective tax rate, although this was partially offset by better-than-expected gross margin. Sequentially, revenue and net profit fell 4.3% and 13.4%, respectively. Both of MMH's core segments registered YoY decline in revenue, with its Custom Machining & Assembly (CMA) division causing a bigger drag once again. Sales for this division dipped 18.4% YoY to S$1.3m, but what surprised us was the -2.4% gross margin recorded during the quarter (1QFY12: 4.8%). We would likely reduce our forecasts, and will provide more details after speaking with management. However, we believe that MMH would still report growth in both its topline and bottomline for FY13 given the low base in 2Q and 3Q FY12. For now we have a HOLDrating and S$0.325 fair value estimate on the stock. (Wong Teck Ching Andy)

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

NEWS HEADLINES - US stocks ended Friday with weekly losses after weak earnings reports and bleak forecasts added to worries about the world economy. The Dow inched up 0.03% on Friday to close at 13,107.21, while the S&P 500 Index slid 0.07% to 1,411.94 and the Nasdaq finished 0.06% higher at 2,987.95. - Mermaid Maritime won a US$530m subsea services contract through a joint venture, with its revenue share estimated at 60%-70% of the contract value. Separately, Mermaid associate Asia Offshore Drilling won a US$236.5m drilling contract. - Koh Brothers Group agreed to buy a 41% stake in Metax Engineering for S$8.2m as it sees growth potential in Metax's business and possible synergies with its own. Metax said the investment would strengthen its financial position and help it bid for more capital-intensive projects.