MARKET PULSE: Singapore Budget, Raffles Medical, BreadTalk, KS Energy (26 Feb 2013)

Stock Name: RafflesMG
Company Name: RAFFLES MEDICAL GROUP LTD

Research House: OCBC

Price Call: HOLD

Target Price: 3.01

Stock Name: BreadTalk
Company Name: BREADTALK GROUP LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.77

Stock Name: KS Energy
Company Name: KS ENERGY LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.78

MARKET PULSE: Singapore Budget, Raffles Medical, BreadTalk, KS Energy

26 Feb 2013

KEY IDEA Singapore Budget: Budget for SMEs and lower-income Singapore's economic growth is likely to be between 1-3% this year. For businesses, the Budget mainly focused on reducing foreign workers and helping to defray some operating costs for the SMEs. For the individual, more progressive tax systems were announced, and are shifting higher tax rates to the higher income group. Overall, there are some goodies for the masses and selective targeted measures to help certain businesses. We do not expect the reduction in work permit holders ratio to severely affect the local yards, but expect the Healthcare sector to benefit from the government's commitment to make healthcare more affordable for Singaporeans. The corporate and personal income tax rebates will be welcomed by both businesses and residents to defray costs. Overall, we see the Singapore Budget 2013 as a budget for the SMEs and to also help lower the living expenses of the residents. (Carmen Lee & Research Team) MORE REPORTS Raffles Medical Group: Maintain HOLD on rich valuations Raffles Medical Group (RMG) reported its FY12 results which were within our expectations. Revenue grew 14.2% to S$311.6m, and just 0.1% shy of our forecast. Reported PATMI rose 12.8% to S$56.8m. However, if we exclude the fair value gain in investment properties amounting to S$3.9m, we estimate that core PATMI rose 9.7% to S$52.9m, which is 0.7% higher than our earnings projection. A final dividend of 3.5 S cents/share was declared, bringing full-year DPS to 4.5 S cents (FY12 yield of 1.4%). Looking ahead, we believe that RMG has set its sights on expanding its hospital operations beyond its core market Singapore. We retain our FY13 estimates and introduce our FY14 forecasts. Ascribing a higher PE valuation peg of 27x (previously 24x), we raise our fair value estimate on RMG from S$2.68 to S$3.01. But we maintain HOLD given RMG's rich valuations. (Wong Teck Ching Andy) BreadTalk Group: External factors boost stock BreadTalk Group (BTG) is due to release its 4QFY12 results this week, and we are anticipating another challenging set of results in terms of cost management. While there will be YoY improvements in terms of its top-line, a continued uptick in raw material costs and operating expenses should see operating profit and PATMI decline by 6% and 9% YoY respectively. Despite the lack of a fundamental catalyst, the stock has continued its appreciation with an 11.8% gain on a YTD basis. From our review of the similar counters across the region, we deem this increase to be down to a re-rating of the sector as investors clamour to gain exposure to EM-Asia consumer demand. Although we raise our rolling 12-month EPS multiple to 19x (11.1x previously) to reflect higher regional valuation, which increases our fair value estimate to S$0.77 (from S$0.49) and upgrades our rating to HOLD, we continue to urge caution as we expect margin pressure to continue in the coming quarters. (Lim Siyi) KS Energy: Still no news on convertible bonds KS Energy (KSE) reported a 41.7% increase in revenue to S$698.1m and a net profit of S$1.3m in FY12, vs. our forecast of a full year net loss of S$1.0m. This compares to a net loss of S$78.8m in FY11. There is still no news on the group's convertible bonds, which may be redeemed by investors in Mar this year. Management only mentioned that it is still working on various options to meet this funding requirement. The group's cash level stood at S$60.7m, with a net gearing of 0.75x as at 31 Dec 2012. Looking ahead, management is cautiously optimistic about prospects in FY13. There will also be increased focus on Indonesia for the drilling segment. Maintain HOLD with S$0.78 fair value estimate. (Low Pei Han)

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NEWS HEADLINES - US stocks dropped sharply on Monday with concerns over domestic and overseas political issues. The Dow closed down 1.6% to 13,784.17. - Nobel Design Holdings registered FY12 PATMI of S$32.0m versus S$7.3m a year prior, chiefly due to a 510% increase in other income to S$39.7m. - Sakae Holdings' FY12 gross profit rose 9% YoY to S$68.7m, but a S$10.5m allowance for impairment in investments in associates caused a S$6.8m loss after tax. - Zagro Asia posted FY12 net profit of S$8.4, down 14% YoY. Revenue had declined 9% to S$128m. - VGO Corporation expects to report a loss for FY12 ended 31 Dec.