19 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 : Physical fitness is not only one of the most important keys to a healthy body, it is the basis of dynamic and creative intellectual activity.
- JOHN F. KENNEDY
Singapore: The Day AheadSINGAPORE DAYBOOK :Market tremors keep lid on Q3 Singapore M&As. Steep 76% plunge for Singapore firms partly due to last year's F&N, APB blockbusters. [SINGAPORE] Merger and acquisition (M&A) activity in the third quarter in Singapore slowed to its quietest level in more than four years as companies struggled to build deals in a shaky market.
Announced deals involving Singapore companies fell 76 per cent year-on-year to US$5.9 billion (S$7.4 billion) in the three months ending September, preliminary data from Thomson Reuters showed.
The year-on-year decline looks steep partly because the food-and-beverage takeover battles for Fraser and Neave (F&N) and Asia Pacific Breweries (APB) contributed more than US$15 billion of volume a year ago.
Nevertheless, the past three months were the slowest for M&A here since the second quarter of 2009.
Year-to-date, M&A volumes are down 46 per cent from the year-ago period, at US$24.8 billion.
Industry insiders pinpointed highly volatile markets - sparked by speculation about the US Federal Reserve's tapering of its asset-purchase programme and tensions in Syria - as the main culprit for the slowdown.
Companies are currently sitting on strong balance sheets, and market corrections in the middle of the year have rendered valuations attractive, Credit Suisse co-head of South-east Asia Investment Banking Edwin Low said.
Those factors would normally bode well for M&A activity.
"However, what you also find starting in May was a lot of market volatility," Mr Low said. "The problem with volatility is a lot of clients sit on the sidelines to wait out the market."
United Overseas Bank head of M&A Tan Chee Yang said the volatility reflected a souring of sentiment.
"Sentiment towards emerging markets were adversely affected by funds pulling back to the developed markets due to nascent evidence of improving economies in the West and uncertainties around the timing and extent of quantitative easing tightening," Mr Tan said.
Despite the muted quarter, Mr Low noted active deal-making in some niches. Privatisations, for example, remained a prominent theme.
"In a down market, you tend to see a bit of activity in privatisation and a lot of delisting offers," Mr Low said.
And while corporates were averse to making major moves in the midst of the market turbulence, cash-rich families kept their fingers on the trigger.
"When the markets are unstable, a lot of the larger corporates tend to sit on the sidelines but you will also see a lot of families tend to be more active," Mr Low said, pointing to investment firm GK Goh's pouncing on a weak Aussie dollar to make a A$136.7 million (S$160.9 million) offer for a 48 per cent stake in an Australian provider of residential aged care services.
The bankers are nevertheless hopeful that volumes will recover. UOB's Mr Tan noted an abundance of eager buyers lurking in the shadows.
"The fundamentals of many of these countries remain strong and we expect deal flows to continue, given that buyers remain keen to grow inorganically and sellers are likely to be more rational in their price expectations under the current business and economic environment," he said.
"At the same time, many private-equity funds have raised significant amount of capital dedicated for emerging markets and these funds will be looking to be deployed into suitable investments."
Credit Suisse's Mr Low expects cross-border deals and intra-Asia transactions to be a major theme when stability returns to the market.
"This is actually a very good time for companies to evaluate their strategy and shed businesses," he said.
"The universe of buyers willing to pay up is actually optimal. There are a lot of cashed-up corporates looking to buy growth."
The tapering of quantitative easing should have limited impact.
"Only to the extent that it creates market instability," Mr Low said. "Aside from that, (tapering of) QE leads to share prices being slightly reduced because of hot money coming out, which makes acquisitions cheaper."
(Source: The Business Times)
MARKET SCOOP
PSA International, ICTSI tie up to develop Colombian port
PPHS to cover more families, allow faster move in
China Gaoxian names new CEO, CFO and chairman
Rex acquires 2 more licenses inNorway
(Source: The Business Times) DBS Securities says... PARKWAY LIFE REIT | HOLD | TP: S$2.51
PREIT announced that it has entered into 2 conditional sales and purchase agreements to acquire a further five nursing homes in Japan for a total consideration of JPY4.5bn (S$59.2m)
The average net property yield is 7%, and is roughly in line with its existing Japan assets
The purchase will be fully funded by a 6-year unsecured JPY loan at a cost of c.1.75%
With this acquisition, the REIT's gearing will increase to about 34.8%, from 32% as of 31 July 2013
The acquisition is expected to complete by end Oct 2013
With this latest acquisition, the PREIT's Japan portfolio stands at 32.9% of the Group's portfolio
The rationale for investing further in Japan is consistent with its past strategy and to leverage on Japan's ageing population
Each of the nursing homes will enter into a fresh 20-year building lease with the operator
This will raise PREIT's weighted lease expiry further to 11.14 years, from 10.69 years (as at July 2013), thus providing long term stability to the REIT's lease structure
We have increased our FY14F/15F DPU forecasts by c.3% each after taking into account this acquisition
Our DCF-backed TP is adjusted marginally to S$2.51 (from S$2.49 previously)
While we like PREIT's stable and defensive revenue, we maintain our HOLD recommendation on valuation
At current price, the stock is trading at the highest valuations amongst our SREITs universe at c.1.5x P/NAV and FY13F/14F yields of 4.8%/5.1%
OCBC Securities says ...
EZRA HOLDINGS | SELL | TP: S$0.99
Ezra Holdings' share price surged 40% since early last week
Prompted by a query from the SGX, it replied that it was not aware of any information that might explain the unusual trading activity
There was market speculation that there may be a potential takeover offer by Samsung
Heavy Industries, but Ezra had clarified earlier that it was not aware nor has it been
engaged on the subject of a takeover by Samsung
However, this does not exclude the possibility that there could be other offers by potential acquirers along the way
The recent episode has drawn market attention to Ezra's stock, which has been a stark underperformer before the price spike amongst the offshore and marine stocks
Companies looking for strategic partnerships with a long-term view may also be prompted to do more research on Ezra's capabilities for any acquisition opportunities
On the operations' side, there has been no perceptible change since it announced a
disappointing set of 3QFY13 results in mid Jul
The subsea segment had went into the red again with delays in project execution and additional costs that were previously unexpected by management
We believe execution risks remains, despite an order book of more than US$2b, as this is susceptible to project delays and cost overruns
Without a formal takeover offer or sizeable contract wins, the recent price spike appears overdone at current level
Our fair value estimate of S$0.99 is based on P/B of 0.7x (in line with its peers), although a takeover offer, if it materializes, could be a price driver depending on offer price
Based on fundamentals and at current price, we downgrade our rating to SELL
UOB KAY HIAN says... FIRST RESOURCES | BUY | TP: S$2.40 FR has announced its monthly statistics
Its Aug 13 nucleus FFB production grew by 1.0% mom (15.5% yoy) while its CPO production was up 5.2% mom (22.9% yoy)
Higher yoy CPO production growth was mainly boosted by better oil extraction rate (OER) and higher third-party crop intake
Ytd, its nucleus FFB production grew by 3.2% yoy to 1.25m tonnes and CPO production recorded a stronger growth of 9.2%
Also, it has purchased about 166,510 tonnes of FFB, about 4.5x more than the previous year
Based on historical trend, FFB production tends to dip mom during the month of Hari Raya
However, in Aug 13, FR reported a marginal growth of 1.0% mom (+15.5% yoy) in FFB production likely due to strong yield recovery from water stress in 1H13
FR's FFB production of 3.2% ytd is on track to meet management guidance of 0-5%
FR has been delivering strong FFB production growth of about 12-19% yoy in the past two years
Slower growth rate is expected this year because FFB yield has been affected by the tree stress and dry weather in 1H13
We are expecting FFB production to continue to pick up with the yield recovery
FFB production is likely to peak in Sep/Oct 13 with the recovery in FFB yield and pick-up in harvesting activities after the Hari Raya break
Thus, FR's FFB production could potentially be higher than our expectation
Based on our sensitivity analysis, for every 1% higher-than-expected FFB production, FR's net profit would be 1.4% higher than our forecast
Plasma FFB production was up 16.4% mom but down 4.5% yoy
It was also down 11.0% ytd
This is mainly because the plasma areas have not yet recovered from their abnormal high productivity in 2H12
Maintain BUY with target price of S$2.40, based on 15x 2014F PE
FR remains our favourite as its balanced age profile will support earnings growth
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