SG: Market Pulse: Tech Sector, Ezra, CRCT (15 Jul 2013)

Stock Name: Venture
Company Name: VENTURE CORPORATION LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 7.37

Stock Name: ECS
Company Name: ECS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.57

Stock Name: Ezra
Company Name: EZRA HOLDINGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.99

Stock Name: CapitaRChina
Company Name: CAPITARETAIL CHINA TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.58

MARKET PULSE: Tech Sector, Ezra, CRCT

15 Jul 2013

KEY IDEA Technology Sector: PC slump continues Summary: The worldwide shipment of PCs remained sluggish, falling 10.9% YoY to 76.0m units in 2Q13, according to research firm Gartner Inc. This was the fifth consecutive quarter of YoY decline. Besides the cannibalisation of PCs by mobile devices, we believe that the still uncertain macroeconomic backdrop has also played an inherent role in causing the sluggish demand for PCs. Just last week, the IMF trimmed its global economic growth forecasts for both 2013 and 2014. Although Singapore's 2Q13 GDP growth managed to exceed the street's expectations, we remain cautious on the downside risks on the tech sector given heightened concerns over China's economy and persistent weakness in the eurozone area. Hence, we maintain NEUTRAL on the sector. We replace Venture Corp [HOLD; FV: S$7.37] with ECS [BUY; FV: S$0.57] as our top pick in the sector following our downgrade of the former after its weak 1Q13 results. (Wong Teck Ching Andy) MORE REPORTS Ezra Holdings: Time needed for subsea to deliver sustainable earnings Summary: Ezra Holdings (Ezra) reported a 19% YoY rise in revenue to US$317.1m but saw a 68% drop in net profit to US$7.2m in 3QFY13, such that 9MFY13 revenue and net profit accounted for close to 75% of our full-year estimates. However, stripping out one-off items, we estimate core net loss of US$54m for the quarter. Gross profit margin was only 1% vs. 17% in 3QFY12. The main reason for the poor performance was the subsea segment, which went into the red with delays in project executions and unforeseen costs. As highlighted in our earlier reports, we have been waiting for evidence of smooth execution in this business before we turn more positive on the company. In view of the lack of sustainable core earnings for now, we value Ezra using a P/B of 0.7x, such that our fair value estimate drops from S$1.10 to S$0.99. Maintain HOLD. (Low Pei Han)

CapitaRetail China Trust: Acquiring Grand Canyon Mall in Beijing Summary: CRCT has announced this morning that it has entered into a conditional call option agreement with CMA to acquire Grand Canyon Mall in Beijing. Including acquisition expenses, the total investment cost for the mall is expected to be about RMB1.82b (S$373.0m), or about RMB26k (S$5,329) psm, based on GFA (excluding the car park). The mall has been valued at RMB1.83b as at 15 April 2013 by CBRE. The mall currently has an annualised net property income (NPI) yield of about 3.5%, based on the purchase price. The committed occupancy rate (92.7% as of April 2013) is expected to reach close to 100.0% next year. Leases accounting for about 27.0% of the mall's monthly gross rent are expiring between this month and the end of the year. In management's view, these leases allow for significant improvement in rental income when their average rent, currently over 90.0% lower than the market rate, is adjusted closer to the market rate. Furthermore, leases accounting for another 25.0% of the mall's monthly gross rent will be expiring in 2014 and 2015. The proposed acquisition of Grand Canyon Mall is thus expected to be yield-accretive once the acquisition is completed. The target NPI yield is about 7.0% to 8.0% in the longer term. CRCT intends to fund the acquisition using its existing cash and new debt of between S$286.9m and S$327.9m, with the balance from new equity financing. The transaction is expected to be completed by 2Q14. Given that CRCT will release its 2Q13 results soon, we maintain our fair value of S$1.58 and BUY rating for now. (Sarah Ong) For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - The Singapore government is clamping down on a common practice where developers and agents tie up with banks. It has introduced a rule that will stop banks from offering preferential interest rates for property loans. - The MAS is looking at possibly giving more teeth to credit bureaus so that banks can quickly comply with the new TDSR ruling when granting loans. - Tiong Seng Holdings Limited has formed a S$10m JV with High Tech Concrete Technology Co. Ltd and Sin Mian Development Pte Ltd to set up a precast plant in Myanmar. - Oxley Holdings has agreed to purchase a 6,625 sqm freehold plot of land in Phnom Penh, Cambodia for about US$11.26m. - Kingsmen Creatives has secured contracts valued at S$75.4m, including five contracts for Formula 1.