18 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 : All successful people men and women are big dreamers. They imagine what their future could be, ideal in every respect, and then they work every day toward their distant vision, that goal or purpose.
- BRIAN TRACY
Singapore: The Day AheadSINGAPORE DAYBOOK : London stakes claim to be the global capital of Islamic finance. The UK capital is already the biggest such centre outside the Islamic world. [SINGAPORE] Which city, or nation, will be the global leader in Islamic finance over the next decade?
The favourites at the moment are Kuala Lumpur and Dubai. But a lot of people are now beginning to bet on London.
On Oct 29, the British government created a stir that reverberated across the financial capitals of the Islamic world. On that day, Prime Minister David Cameron announced that the UK Treasury would soon issue a £200 million (S$401 million) "sukuk" or Islamic bond. This will be the first sovereign sukuk issued by a Western country (a sukuk differs from a traditional bond in that it pays no interest; investors get a share of profits from an underlying syariah-compliant asset).
Moreover, the UK sovereign sukuk could serve as a global benchmark for Islamic bonds, which at the moment have none.
Mr Cameron was speaking at the 9th World Islamic Economic Forum (WIEF) in London at the end of October - the first time this annual convention - known as "the Davos of the Islamic world" - has ever been held in a non-Islamic nation. He was expansive about his country's ambitions in the realm of syariah-compliant finance.
"London is already the biggest centre for Islamic finance outside the Islamic world," he said. "I want London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic finance anywhere in the world."
There's a lot to play for. According to a report by PwC, Islamic finance assets (including banking assets) total US$1.6 trillion globally. Between 2008 and 2012, they grew at close to 20 per cent per year and, by 2020, the market is expected to cross US$6 trillion. While Islamic finance assets are barely one per cent of all global financial assets, the number of players is also small.
Nearly all of the Western world does not participate in this market - London being the significant exception. Nine countries hold about 90 per cent of Islamic finance assets and just three (Iran, Malaysia and Saudi Arabia) account for more than 50 per cent.
Moreover, in certain areas of Islamic finance, demand exceeds supply - and this is particularly true of bonds. Sukuks outstanding at the end of 2012 totalled US$240 billion, with Malaysia being the biggest issuer, followed by Saudi Arabia.
Last year, Ernst & Young forecast that sukuk demand is likely to jump to US$900 billion by 2017, partly driven by rising risk aversion following the global financial crisis. Sukuks are popular because they are backed by real assets or real projects. Significantly, they are also favoured by investors from the non-Islamic world.
At the WIEF, Musaffar Hisham, CEO of Maybank Group Islamic Banking, pointed out that about half of the group's customers for Islamic products in Malaysia are non-Muslim. In Singapore, the figure is around 70 per cent.
The wider world's interest in Islamic finance products also derives from the growing interest in "ethical finance". During a session on Internationalising Islamic Finance at the WIEF, Hasan Al Jabri, CEO of Sedco Capital, an asset manager in Saudi Arabia, said: "Syariah-compliant finance intersects 90 per cent with ethical finance, which is a US$6 trillion market."
He added that common features include investments in sustainable development and avoiding investments in companies associated with gambling, alcohol, tobacco and weapons. A growing number of pension funds - such as Calpers, the California public employees retirement system, the biggest in the United States - and several foundations have strict guidelines mandating that they invest ethically. Many have Islamic finance products in their portfolio.
However, even its promoters and practitioners acknowledge that Islamic Finance has some way to go before it becomes truly mainstream. Sajid Javid, a British MP and Financial Secretary to the UK Treasury, who is one of the key personalities driving the development of Islamic finance in Britain pointed out: "Islamic scholars don't always agree on what constitutes Islamic finance; they come from different schools of thought."
Amr Al Menhali, head of Islamic Banking at the Abu Dhabi Commercial Bank in the UAE called for more simplicity in Islamic finance, including in the use of terminology.
Maybank's Mr Hisham called for clearer global regulation to ensure more uniformity of syariah-compliant products.
But the UK is undeterred by these obstacles. It is pulling out all the stops to promote itself as the centre for Islamic finance. It has set up an Islamic Finance Task Force. Its infrastructure is already relatively advanced: more Islamic products are listed on London exchanges than anywhere else. London has 25 law firms that provide services in Islamic finance and more syariah-compliant banks than anywhere in the Western world. And 16 British universities offer courses in Islamic finance.
Even London's mayor Boris Johnson (who spoke at the WIEF) is on board.
The mayor's office co-finances a corporation called London & Partners, which is the official promotional organisation for London, including for business, tourism, education, and conventions. Its director for International Business, David Slater told BT that London has seen what Islamic finance can do and likes what it sees.
On the proposed British sovereign sukuk, he said: "Investors are demanding more Islamic finance products, so it's about following the market, responding to what the market wants."
(Source: The Business Times)
MARKET SCOOP
Singapore Airlines says CFO to leave in Feb
468 units at Duo Residence sold as at 3pm Friday
LionGold to issue 98.2m new shares at 18.3 cts/shr to raise S$17m
Singapore retail sales slip 5.9% in Sept
SIA, Tourism New Zealand renew partnership
Ho Bee's Q3 net profit slips to S$7.3m
Thai Beverage Co Q3 profit tumbles
Kingsmen Q3 net profit down 8.2% to S$3.2m
(Source: The Business Times)
DBS VICKERS Securities says ...
THAI BEVERAGE PUBLIC CO | HOLD | TP: 0.57
3Q13 core net profit grew by 36% y-o-y to THB4.1bn, from THB3bn in 3Q12, despite revenue falling by 7% to THB35bn
The growth came largely from contribution of its associate stake in FNN
Stripping out FNN's profit contribution, ThaiBev's net profit fell by 23% to THB3.7bn
Beer and Non-Alcoholic Beverage (NAB) sales volume disappointed in 3Q13, while Spirits' volumes managed to show sequential volume growth of 7% from 2Q13
Beer revenue slipped by 9% as volumes dipped 14% arising from a hefty 15-20% ASP increase (due to a new excise tax passed on 4 Sep'13)
NAB segment faces keen competition, and with lower sales (-52% y-o-y) and higher expenses, the segment registered a loss of THB419m in 3Q13
We revised our forecasts down by 17%/ 20%/15% for FY13F/14F/15F
We expect competition to remain keen for its NAB segment while the Beer segment is likely to continue to see declining volumes on the back of the recent hefty price increase
We have also lowered Spirits' gross margin assumption to c.32%, from 34-34.5% previously
While we like the strong cash generation of its stable Spirits business, the projected slow ramp up and uncertainty in its other segments would be a drag on overall growth
We expect growth momentum to pick up meaningfully only in FY15F, which is still some time away
With the downward revision in earnings, our SOP-based TP is cut to S$0.57
In view of the limited upside, we downgrade ThaiBev to HOLD
UOB KAY HIAN says ...
OLAM INTERNATIONAL | HOLD | TP: S$1.60
Olam reported net profit of S$45.6m, up 5.7% yoy
1QFY14 results is about 10% of our full-year earnings and this a norm for Olam due to the seasonality of the production cycle
The growth was driven by margin expansion in upstream and midstream activities
Meanwhile, revenue dropped 7.9% yoy on lower commodity prices as sales volume was unchanged at 3.67m mt yoy
Olam announced sale-and-leaseback of our Australian Almond assets (A$200m) and sale of Dirranbandi Cotton gin (A$20m) for A$220.0m
We expect a one-time net profit of A$45m from the sale-and-leaseback of almond orchards
Across all divisions, EBITDA margin showed good improvement (refer to following table) due mainly to a) better cost management, b) some upstream investments starts contributing better margin as they move into a more mature stage
At group level, EBITDA margin for 1QFY14 was 5.7% vs 4.7% and 3.8% for 1QFY13 and 4QFY13 respectively
Although management stressed in the past that Olam's operations are less dependent on prices as most trades are on cost plus formula, in this quarter, management did highlight that the lower coffee and rice prices could have an impact on their margin
Both commodities prices corrected due to oversupply from Vietnam and Thailand respectively
Food Staples & Packaged Foods division deliver best results, ie the only division that delivered yoy and qoq growth in EBITDA
The good performance was mainly supported by the growth from African wheat milling, Packaged Foods and Indonesian Sugar refining segments
Losses mainly attributed to the Market-making & Volatility Trading Division
Both the Fund Management as well as the Market-making & Volatility Trading parts of the business have been restructured after the strategy review
Gearing maintained at 1.9x for 1QFY14, still below the 2x limit
The proceeds from the sale-and-leaseback of its plantations will be used to pair down the debts and working capital
This should further improve its gearing and cashflow
Capex for FY14 will be scaled back
For 1QFY14 the capex was down by 24.5% yoy to S$159.5m
No change to earnings estimates
We are expecting core net profits of S$447m, S$532 and S$604m for FY14, FY15 and FY16 respectively
Maintain HOLD with target price of S$1.60 based on FY15F PE and a 30% discount to Olam's long-term forward PE of 16.1x (or equivalent to 1SD below long-term mean PE)
CREDIT SUISSE Securities says...
OLAM INTERNATIONAL |HOLD | TP: S$1.50
Olam reported FY1Q14 PATMI of S$46 mn, inline with expectations and representing 12% of consensus FY14 PATMI
While FY1Q14 volumes were flat YoY, an improvement in group margin particularly in the Edible nuts, spices and beans segment led to a 12% YoY increase in EBITDA
Olam generated positive FCF of S$46 mn in FY1Q14, driven by both a reduction in working capital outflow and capex
With a further A$220 mn (S$255 mn) expected to be released with the completion of the sale of its Dirranbandi cotton gin and sale-and-leaseback of its almond plantation assets in Australia, we believe Olam is on track to turning FCF positive in FY14
There were no further updates on Olam's Gabon fertiliser project, even though negotiations with EPC negotiations with contractors were supposed to be completed in CY 3Q13 based on previous guidance
We maintain our NEUTRAL rating and DCF-based target price of S$1.50 |
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