01 Nov 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 : I couldn't find the sports car of my dreams, so I built it myself.
- FERDINAND PORSCHE
Singapore: The Day AheadSINGAPORE DAYBOOK :Muddy Waters: Game over for Olam if Temasek pulls out. [SINGAPORE] Almost a year after it first released its report on Olam International, shortselling research firm Muddy Waters is not letting up on the agri-commodities trader yet.
"My view is that if Temasek decides tomorrow that it wanted out of this investment, it would be game over within months for them, without Temasek's backstop," its research director Carson Block told The Business Times in his first visit to Singapore since launching its report against Olam last November.
"For us, the be-all and end-all when we're looking at Olam is free cashflow. It's a company that seems to be in general wholly-incapable of generating free cash flow. It takes on more and more debt, and eventually, this debt has to be repaid."
The shortseller had late last year accused Olam of relying on accounting tricks to boost its bottomline, spending too much on poor quality assets, and said it valued Olam on a "liquidation basis".
The attack, the first of its kind in Singapore, caused Olam's shares to fall 20 per cent to a low of $1.395 at the height of the saga, and subsequently led to an overhaul of Olam's plans after a strategic review.
The firm said that it now aims to be free cashflow positive from the 2014 financial year onwards, a year earlier than its original target of FY2015, and has laid out plans to cut planned capital expenditure, monetise its balance sheet and divest certain assets.
Mr Block said of these: "The company's saying the right things. The question is whether it actually does those things. It might have become slightly more selective, but you still see substantial cash burn in the company."
"Maybe they can finance their way out of it, however many more times, but there will come a day - it might be sooner, it might be later - when the market will not be open to this company."
In August, Olam reported a negative free cashflow of $316 million for the 2013 financial year, compared with negative $661 million a year before.
Olam's net gearing now stands at 1.93 times, as compared to 2.20 times the previous quarter, and 1.81 times at the end of FY2012.
When asked if Muddy Waters still retains a short position on the firm, Mr Block said it does not usually comment on its positions aside from the release of its reports.
But in a hint that Muddy Waters is still short on Olam, he added: "Obviously we're usually used to winning within a shorter period of time. Fortunately for many of the names we've shorted in the past, we haven't really had to think to answer that question. Olam is different."
Shares for Olam, and Muddy Waters' target after that, US cellphone antenna operator American Towers, had not dropped as much as the shortseller's earlier targets, leading to talk that its influence has faded.
In a sign that its streak of lacklustre results is ending, however, Muddy Waters' latest report launched last Thursday against Chinese mobile services provider NQ Mobile led to its shares falling more than 60 per cent within an hour.
Temasek moving into the ring to support Olam was a move that the shortseller had not foreseen, Mr Block admitted.
"We looked at it from a purely economic standpoint, which is that it is not an investible company, and maybe we ignored the political elements of this, the psychological element, the issues that were more systemic in Singapore that could interest a sovereign in a bailout," he said.
Two weeks after Muddy Waters spoke out against Olam, Temasek, then the firm's second-largest shareholder, threw its weight behind Olam by agreeing not just to take up its pro-rata entitlement of Olam's US$1.25 billion bonds-cum-warrants rights issue, but also sub-underwrite it. The issue was eventually 1.1 times subscribed.
Temasek has also since then progressively increased its ownership of Olam, from an initial 16.3 per cent before the Muddy Waters attack to 24.07 per cent now.
In Mr Block's view, Temasek had stepped in because of the wider implications that an Olam collapse would have posed to the commodity-trading industry in Singapore.
"If Olam had failed, what would the banks have done with the other commodity houses that are borrowing in Singapore?" he said. "It's reasonable to assume that if the banks had to write off losses to Olam, you could have a real funding freeze for the commodity trading industry in Singapore. "
Temasek's spokesman Stephen Forshaw said the Singapore investment company's reason for investing in Olam remained the same: "We have been, and remain, supportive of its publicly known strategy to take the opportunity, in recent years, to add on more upstream and midstream capabilities and capacities.
"We also acknowledged that no business is without risks. But that said, at the time of the investment, we were comfortable with Olam's credit position and longer term prospects, and were very pleased to have another opportunity to invest in the company, alongside others."
(Source: The Business Times)
MARKET SCOOP
Soilbuild Q3 net profit up 13%
SMRT's Q2 profit down 57% at $14.3m
OSIM Q3 net profit up 16% at $23m
Sin Heng Q1 net up 15.8% at $3.8m
Two residential sites yielding 980 units released
Singapore offers 5 industrial sitesfor sale
Metax clinches S$6.7m PUB tender
Unemployment falls in Q3 on strong manpower demand: MOM
Bank loans growth up 1.1% in Sept from Aug: MAS
(Source: The Business Times)
DBS VICKERS Securities says ...
SINGAPORE POST | BUY | TP: S$1.50
2Q14 revenue grew 32.7% y-o-y but operating profit was stable due to high developmental costs
Excluding contribution from new subsidiaries, revenue grew a healthy 9.6%
Overall operating profit edged up 0.9% to S$43.7m
The Mail segment booked S$34.8m operating profit, down 0.3% y-o-y
Meanwhile, the Logistics segment recorded S$2.6m operating profit, up 116.5% y-o-y, due to the inclusion of Famous Holdings and General Storage Company
But operating profit for Retail & E-commerce fell 63.8% to S$1.4m due to development costs incurred for its e-commerce business
Property & rental related income rose 11.5% y-o-y to S$11.5m, uplifting the operating income
Underlying profit benefitted from 60% y-o-y decline in interest costs due to the repayment of S$300m bond in April 2013
Singpost is positioned to ride on e-commerce growth in Asia
The company is pursuing a Low-Cost-Carrier (LCC) strategy rather than speed to compete with the likes of DHL and FedEx
Singpost offers a niche service due to its access to last mile delivery network of postal peers in various countries
It has a strong balance sheet with S$139m net cash, and acquires a business only if it is earnings-accretive and provides new capabilities or geographies
Singpost offers mid-single digit growth plus ~5% yield
New acquisitions may give a fillip to growth
Our S$1.50 TP (DCF: WACC 6%, terminal growth 0%) implies 20% total potential returns
CREDIT SUISSE Securities says ...
NEPTUNE ORIENT LINES | UNDERPERFORM | TP: S$0.95
Neptune Orient Lines (NOL) has reported a pre-ex loss of US$6 mn for 3Q13, down US$48 mn on last year, slightly better than our US$64 mn loss, but below consensus NPAT of US$21 mn
The company's headline announced profit benefitted from a US$32 mn FX gain, as well as a logistics contribution that exceeded our estimates, offsetting liner EBIT that barely broke even
A 5% fall in volumes was compounded by a 9% drop in rates to drive liner revenues down by 13%, with unit costs falling 5% and providing some cushion
Nonetheless, a 4Q13 profit, whether smoke and mirrors like this one, or "clean" appears unlikely
We have cut our estimates >US$180 mn for 2013E and 20% for 2014E to reflect ongoing rate weakness that should prevail into next year
Rolling our TP base to 2014 and marking NOL's book value to market, we believe it should trade at 0.8x 2014E P/B - equivalent to the 20% discount to book that its fleet is worth at market value
While marginally better than our numbers, we see no reason to change our UNDERPERFORM rating
UOB KAY HIAN says...
CAPITALAND | BUY | TP: S$4.35
CapitaLand reported 3Q13 net profit of S$135.5m bringing the 9M13 earnings to S$706.9m, up 5.9% yoy driven by strong revenue contribution from development projects in Singapore and China, as well as rental income from the shopping mall business
Excluding the impact of portfolio gains of S$124.3m and revaluation gains/impairments of S$239.5m, the core 9M13 operating profit of S$343.1m is below our expectations accounting for 48% of our full year forecast of S$717m (50% of consensus forecast of S$680.4m)
?Strong residential sales of S$2.2b reported in Singapore with 1151 units sold, which is more than a threefold increase over S$633m seen in 9M12
CapitaLand launched Sky Vue, Bishan in September, selling 433 (86%) of 505 units launched (ASP S$1,400 psf) while The Interlace received TOP in September
CapitaLand targets to launch Marine Point and remaining units at Sky Vue (261 units), The Interlace (205 units), d'Leedon (315 units) and Sky Habitat (334 units) in the coming quarters
In China, CapitaLand Sep 2013 ytd sales value of Rmb 4.24b (S$865m) is 1% above the Rmb 4.17b achieved in ytd 2012
The number of units sold was up 21% yoy to 2,398 units by Sep 2013
The units sold were from The Loft in Chengdu, The Metropolis in Kunshan, Dolce Vita in Guangzhou and iPark in Shenzhen
Management guided that Singapore residential sales will be moderated by cumulative impact of various property cooling measures
However, management remains positive on long term prospects of the property market in Singapore supported by a resilient economy and policies to support population growth
They plan to continue investing in well-located sites to build up the pipeline of residential and commercial developments
The outlook for the Chinese economy is stabilizing, and with structural changes in the economy, stable and sustainable growth will remain intact
For CapitaMalls Asia Limited (CMA), revenues grew 21.3% to S$120.7m in 3Q13 due to revenue recognition of Bedok Residences, offset by lower fee income from China
CMA will continue to open new malls and explore opportunities in its key markets of Singapore, China, and Malaysia
Ascott is seeking to improve the quality of its investment portfolio through AEIs and with new investments in Asia and Europe
We have a BUY recommendation with a target price of S$4.35/share, pegged at a 15% discount to our RNAV of S$5.11/share |
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