OSPL - Good Morning S'pore - Central Dealing Desk

Stock Name: Amtek
Company Name: AMTEK ENGINEERING LTD

Research House: DBS Vickers

Price Call: HOLD

Target Price: 0.48

Stock Name: Sabana REIT
Company Name: SABANA SHARI'AH COMPLIANT REIT

Research House: UOB KayHian

Price Call: HOLD

Target Price: 1.29

Market Compass

27 August 2013~ Good Morning Singapore!

Singapore Idea Snippets:

27 Aug 2013~ Good Morning Singapore! Central Execution Team - The Excellence of Execution This product is made available by your Central Execution Team, for you as TRs of OCBC Securities to help you with your business and therefore it is confidential and only for internal circulation. It is not intended for onward circulation to non-OSPL TRs, clients or any other third party in this or any other version. Neither is this intended to be relied upon as a sole basis for any recommendation. TRs must also consider their clients' investment objectives, financial position and needs when intending to make or making any recommendation. For the front desk, by the front desk. All feedback to make this a better product is welcome. Global Flash: While You Were Sleeping Source: Marketwatch Quote for the day : You cannot create experience. You must undergo it. - ALBERT CAMUS Singapore: The Day Ahead SINGAPORE DAYBOOK : China Minzhong gets ambushed by shortseller [SINGAPORE] In a sharply timed attack yesterday morning, Californian shortseller Glaucus Research Group sent China Minz-hong shares plunging by more than half after publishing a 49-page report accusing the China vegetable producer of fraud and financial irregularities. China Minzhong shares fell from $1.015 to as low as 50 cents, before a share trading halt was called by the company at 11.15am. Its last traded price was 53 cents, down a staggering 48 per cent, wiping out more than $300 million from the company's market capitalisation. China Minzhong said last night that it is reviewing the Glaucus report and will respond shortly. "The company will take all necessary steps to defend its reputation and will not hesitate to take legal action against those who put up and disseminate false or misleading statements without due regard to their truth and for the purpose of inducing others to deal in securities," it said. Responding to a Singapore Exchange (SGX) query about its trading activity, the company reiterated its compliance with listing rules and said that other than the shortseller's report, it is not aware of any information that will explain yesterday's trading. In its report, Glaucus cast doubts on China Minzhong's balance sheet in a manner reminiscent of Muddy Waters' attack on commodities trader Olam International last year. Glaucus alleged China Minzhong boosted sales artificially through suspicious capital expenditures and increasing receivables, amid abnormal profit margins and negative free cash flow. Glaucus also went one step further, alleging that at the time of its listing on SGX in 2010, China Minzhong had already faked sales to its then-top two customers as well as payments to its top supplier. Said Glaucus: "We believe that Minzhong . . . has so significantly deceived regulators and investors about the scale of its business and its financial performance that we expect trading in its shares to be halted and its shares to be worthless." China Minzhong's biggest shareholder is PT Indofood Sukses Makmur, which holds a 29.33 per cent stake. The Indonesian food giant's shares fell 5.6 per cent yesterday. It bought part of its stake at end-February this year from Tetrad Ventures, a subsidiary of the Government of Singapore Investment Corporation. Tetrad sold the remainder of its stake to PT Indofood. Observers have speculated that PT Indofood might even take the company private. Another major shareholder in China Minzhong is global investment firm Franklin Resources, which bought most of its 14.76 per cent stake last year. Maybank Kim Eng Research's Wei Bin, who had put out a "buy" call with a target price of $1.36 in an earnings preview report yesterday morning, told BT it is difficult to prove if the allegations are true or false at the moment: "We need to wait for the company to come up with some announcements to clarify the questions raised," he said. China Minzhong is the 11th company targeted by Glaucus, founded in 2011 by former investment banker Matt Wiechert, who then roped in his University of Chicago schoolmate, lawyer Soren Aandahl. Shortsellers such as Glaucus borrow shares to sell in the hope of the price going down so the shares can be bought back cheap for a profit. The firm's attacks have been hit and miss. Its most recent attack was on New York Stock Exchange-listed real estate website SouFun Holdings in April. But SouFun has since doubled in price. A notable success was Hong Kong-listed China Metal Recycling. In January this year, Glaucus alleged the company misled the market about the size of its business. Trading in China Metal was immediately suspended. After investigations, Hong Kong's Securities and Futures Commission recently moved to have the company wound up, with provisional liquidators suing the company's husband-and-wife founders for fraud. China Minzhong was targeted probably because it met the aggressive growth metrics and other statistical outliers that Glaucus had said it screens for to find targets. In its 2012 annual report, the company noted that in the last five years, its revenue had grown at a compound annual growth rate of 41.9 per cent a year, while net profit grew at an average of 33.1 per cent a year. In its financial statement for the period ended March 31, 2013, China Minzhong reported a 38 per cent rise in revenue to 2.4 billion yuan (S$502 million), and a 16.5 per cent increase in net profit to 592 million yuan. The company went public in April 2010 at a price of $1.20 a share. Glaucus focused on what the company said were its top customers and suppliers in the initial public offering (IPO) prospectus. Two major customers, Hong Kong Yifenli Trading and Putian Daziran Vegetables Produce, were singled out. Glaucus said a search on the website of the ICRIS companies registry in Hong Kong showed that Yifenli, which China Minzhong said contributed to its sales from its fiscal year 2007 onwards, was incorporated only in November 2009. Yifenli was a Taiwan-based food distributor according to China Minzhong, but Glaucus claimed it could not find any trace of the company being registered in Taiwan. Meanwhile, filings with China's State Administration for Industry & Commerce also purportedly show that Putian Daziran had zero revenues and cost of goods sold in 2009. Glaucus said Daziran's inventory balance did not change in 2010, allegedly proving it was not buying vegetables from China Minzhong. It added that Daziran's supervisor Lin Guo Ping was also the legal representative of a Minzhong subsidiary, a connection that was not disclosed. Glaucus also alleged that China Minzhong fabricated payments to Cheng Du Shu Feng Nong Ye, its largest supplier pre-IPO. The company had been deregistered and stripped of its business licence in February 2010, two months before China Minzhong went public, Glaucus said. Glaucus then said that upon considering that China Minzhong sells to middlemen before a commoditised product reaches consumers, its yearly fresh produce segment pre-tax margins of 63 per cent to 90 per cent were abnormally high. It also highlighted alleged red flags: increasing receivables and negative free cash flow of one billion yuan since its IPO. The report was distributed at 9.30am. At 10am, the stock was still trading at $1 a share. But a deluge of sell orders pushed the stock down: 90 cents at 10.30am, 76 cents at 11am, and a low of 50 cents in a frenetic 15 minutes of activity before the trading halt took effect. (Source: The Business Times) MARKET SCOOP CAOhalves jet fuel needs in tender after tax change Singaporeto help foster China, Asean cooperation Thai tycoon Charoen eyes $500m IPO for F&N REIT: sources Tiong Woon swings back into profit in FY13 on higher turnover Cedar cans Trechance RTO, to buy certain Hua Cheng assets instead Jaya wins S$25.6m charter deal in East Africa (Source: The Business Times) DBS Securities says... AMTEK ENGINEERING LTD | HOLD | TP: S$0.48 Headline net profit of S$10.9m included a S$10.8m gain from the divestment of a factory building Without this gain, 4Q13 would be a small loss of S$0.1m, compared to S$2m forecast Key variance was c.S$5m of capacity restructuring expenses Sales fell 7% y-o-y but rebounded 9% q-o-q to S$160.7m Except for Mass Storage and Consumer Elec., all segments grew q-o-q and performed better than expected, thanks to new programmes which offset softer end market demand Tooling sales hit another record high on more wins, indicating a strong pipeline of new progammes awaiting mass production Gross margin was 14.6% (4Q12:16%, 3Q13:13.5%) Firstly, high tooling sales would begin to contribute, especially in Casings/Enclosures and Automotive Notwithstanding weak HDD industry, management is positive on a new baseplate programme Secondly, margins would sustain or improve, benefiting from continuous consolidation and automation to combat rising labour costs Our margin assumptions are conservatively kept flat amid volatile market demand Stronger than expected end market demand would pose margin upsides TP raised to S$0.48 on earnings rollover to FY14 PE Customer sentiment has improved but growth finally depends on end demand, which at the moment, remains short term Hence, we recommend Hold for its 6-7% dividend yield while waiting for more growth conviction to emerge UOB KAY HIAN says ... SABANA SHARI'AH COMPLIANT REIT | HOLD | TP: S$1.29 (Sabana) has announced the acquisition of Advanced Micro Devices' (AMD) light industrial building at 508 Chai Chee Lane for S$67.2m (~S$205 psf inclusive of upfront land premium of S$7.7m) The building is a seven-storey light industrial facility with a GFA of 327,571sf and has a remaining lease tenure of 46.5 years The facility is well-located near the Kembangan MRT, and will also be near the upcoming Bedok North (completing 2017) MRT AMD has committed to leaseback at least 50% of the property for a period of 10 years, with options to renew for a further 11 years We estimate that the rentals that AMD will be signing are between S$2.50-3.00 psf pm, implying a 5% initial cap rate although this would rise to 7-8% upon fully leasing out the remainder of the facility to third-party tenants The acquisition will be yield accretive if fully-funded by debt However this will increase Sabana's gearing level by 3.4ppt to 40.5% from 37.1%, leaving little further headroom for acquisitions We estimate accretion to DPU of about 3-5% for the acquisition Equity fund raising on the horizon as gearing shifts above the 40% level This is likely to be paired with additional acquisitions as management continues to see opportunities for acquisitions in the industrial space We raise our 2014-15 DPU estimates by 3-5% to factor in the impact of the acquisition and also higher future occupancies for the acquisition Key near term risks remain the expiry of the master-leases in Nov 13 and also potential equity fund raising to fund further acquisitions We maintain HOLD with a higher target price of S$1.29 (from S$1.27), based on DDM (required rate of return: 8.1%, terminal growth:1.8%) Entry price is S$1.12 OCBC Securities says... CPO STOCKS: OUTLOOK STILL FAIRLY MUTED Most CPO (crude palm oil) companies reported fairly disappointing 1H13 results recently, no doubt hurt by weaker CPO prices in 2Q13 (CPO prices fell 25% YoY and another 5% QoQ) Under our coverage, Golden Agri's (GAR) 1H13 earnings only met about 34% of our full-year forecast Global Palm Resources (GPR) was even harder hit, as its 1H net profit met just 27% of our full year forecast Wilmar International Limited (WIL) fared slightly better, with 1H13 core earnings meeting 40% of our FY13 forecast, as its substantial downstream business helped to mitigate the poorer upstream showing But going forward, the outlook for CPO prices remains largely muted, given the sluggish economy in China (one of the biggest buyers of CPO and other vegetable oils), while even Indonesia's economy1 could be facing increased headwinds due to reduced spending power on the back of a higher than-expected spike in inflation and a sharp weakening in the IDR1 On the supply side, things are not looking too good either - CPO production as well as the other vegetable oil substitutes are expected to increase in 2H13 Based on current estimates, market watchers like Oil World1 believe that "world production is likely to exceed demand" The Hamburg based industry researcher adds that there is little scope for more growth in demand for vegetable oils to make biodiesel, citing unchanged biodiesel mandates in the EU and "hesitatingly" implemented increases in Brazil and Argentina1 Most of the plantation stocks have corrected quite a bit of late - on average, we estimate that these stocks are down about 17% YTD, versus the STI's 3% slide, making valuations less demanding But we note that there could still be earnings disappointments for upstream players should CPO prices fall further We have a SELL on GGR and are reviewing our Hold rating on GPR While we have a HOLD on WIL, its downstream business may be vulnerable to further economic contraction in China