02 Sept 2013 ~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : The good life is one inspired by love and guided by knowledge
- BERTRAND RUSSELL
Singapore: The Day Ahead
SINGAPORE DAYBOOK : Average DC rate for industrial use up 15%
[SINGAPORE] THE government has raised development charge (DC) rates for landed residential use by an average of 7 per cent for the period Sept 1, 2013 to Feb 28, 2014.
For non-landed residential use, DC rates have been increased by an average of 5 per cent. For industrial use, the hike averages 15 per cent.
DC rates for commercial use and hotel/hospital use have been left completely unchanged.
DC rates are payable for enhancing the use of some sites or building bigger projects on them. DC rates, revised on March 1 and Sept 1 each year, are stated according to use groups across 118 geographical sectors. The Ministry of National Development, in consultation with the Chief Valuer, revises DC rates based on current market values.
(Source: The Business Times)
CIMB Securities says... THAI BEVERAGE | OUTPERFORM | TP: S$0.71
There has been no official statement yet but we do not think that these changes will be detrimental to spirits margin
There are no changes to our FY13-15 EPS estimates and SOP-based target price for now
We keep our Outperform call and expect re-rating catalysts from further corporate restructuring
We understand that a new tax policy will be implemented, specifically that a sum of both a specific rate per litre of pure alcohol and a percentage of the wholesale price will be used to compute the excise tax
Currently, the excise tax is computed either using a specific rate or fixed percentage of factory prices, whichever is higher
The specific rate ceiling will also be raised, with various media outlets reporting an increase to THB2,000 (THB 400 currently)
There has been no official government announcement yet and there is little clarity at this stage
The motivation for this change is to prevent importers from under-declaring their costs and to create a level playing field for domestic and foreign alcoholic beverage players in preparation for ASEAN economic integration in 2015
Sellers of imported spirits will have to raise ASPs to maintain their margins and Thai Bev‟s volumes may benefit
The impact to Thai Bev‟s margins is uncertain but we do not think that it will be detrimental
It is not in the government‟s interest to harm Thai Bev‟s business because it is a big tax contributor
Furthermore, too large a tax increase could cause consumers to switch to black market spirits
This will lead to lower tax revenue
Further, changes to excise tax policies are a given in this business and management has successfully navigated this in the past 20 years
On a separate issue, F&N (29% associate) is involved in a dispute over its 55% stake in Myanmar Brewery
However, the impact to our SOP is minimal, with a decrease of just 1 Sct if it loses its stake
We keep our Outperform call
CREDIT SUISSE Securities says ...
OLAM INTERNATIONAL LTD | NEUTRAL | TP: S$1.50
Olam's FY13 Net Contribution (NC) of S$1,616 mn represents 96% of our FY13 forecast of S$1,685 mn, but PATMI of S$363 mn was below our expectation of S$412 mn
Income tax expense rose to S$51 mn in FY4Q13, representing a tax rate of 38%
This was driven by an increased contribution from higher tax jurisdictions, as well as a one-off tax charge of S$13 mn resulting from the sale of the Basmati rice mill in India and sale-and-leaseback of almond orchards in the US
Olam continued to see strong volume growth of 24% YoY in FY4Q13
However, NC/ton declined by 15%, driven by weakness in the Confectionary & Beverage Ingredients segment, which was impacted by the coffee rust disease in its Central and South American Coffee operations
With Cash-to-cycle days reduced to 99 days from 119 days in FY12, we believe Olam is on track to turning FCF positive in FY14 should capex declines as planned
We lower our 2013-14 EPS by 7-10% on higher tax assumption, which leads to a reduction in our DCF-based target price to S$1.50
Maintain NEUTRAL
DBS Securities says... OLAM INTERNATIONAL LTD | HOLD | TP: S$1.60
Olam's FYJune13 core profit missed our/consensus estimates by 19%/23% as taxes were much higher than expected
Excluding the one-off S$12.8m tax on sale of assets, the effective tax rate of 19.1% was also higher than guidance of 12-15%, which management attributes to tax adjustment for underprovided tax in the first few quarters and higher earnings from high tax jurisdiction countries in 4Q
Excluding biological gains of S$96.3m and exceptionals of S$10.3m, net profit was flat y-o-y at S$256m despite 22% growth in revenue
On a positive note, net gearing drifted to below 2x at 1.93x as of end-June
Olam declared a final DPS of 4 Scts
Operating environment is challenging in view of the macro uncertainties, currency depreciation in emerging markets and weak commodity prices, in particular affecting tomato, peanut, coffee and cocoa products
Management continues to focus on its strategy to rebalance growth and cash flow in the coming year to bring free operating cash flow back to positive territory by end of FY14
We have trimmed our FY14/15F core profit by 17/5% to factor in higher tax rate of 1.5ppts each year and lower gross profit /tonne of S$10.90/7.40
Olam is trading at inexpensive valuations of 9x FY14F PE and 1.0x P/BV against decent ROE of 11% and EPS CAGR of 36% in FY13-15F
However, we would like to see clearer signs of earnings delivery from previous M&As, and cash flow improvement before turning positive on the counter
Maintain HOLD
Our DCF-based TP is lowered to S$1.60 after factoring in earnings revisions and higher risk premium (WACC +0.6ppt)
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