28 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 : My kids idea of a hard life is to live in a house with only one phone.
- GEORGE FOREMAN
Singapore: The Day AheadSINGAPORE DAYBOOK : Broker seeks to recover US$68m from 10 clients. Legal action taken in wake of October's penny stock collapse. [SINGAPORE] Global broking giant Interactive Brokers has launched the largest legal action so far in the wake of October's penny stock collapse, taking aim at at least 10 clients as it seeks to recover about US$68 million of losses.
BT understands that Interactive Brokers launched arbitration proceedings earlier this month against 10 individuals and entities through the American Arbitration Association.
Pending the start of arbitration proceedings, the global broker has also obtained court orders in Singapore and Malaysia to freeze the assets of eight of those clients, including certain directors and shareholders of Asiasons Capital, Blumont Group, LionGold Corp and Innopac Holdings - four of the stocks at the centre of last month's selldowns.
According to court documents inspected by The Business Times and confirmed by sources, Interactive Brokers on Nov 8 sought court orders to freeze the assets of Malaysian nationals Neo Kim Hock, Peter Chen Hing Woon, Tan Boon Kiat, Quah Su-Ling, Lee Chai Huat and Kuan Ah Ming; and two British Virgin Islands-registered companies, Sun Spirit Group Ltd and Neptune Capital Group Ltd.
(Source: The Business Times)
MARKET SCOOP
China committed to reforms for sustained growth: PM Lee
Ooredoo (former Qtel) sells inaugural sukuk
PNE FY2013 profit falls to $3.76m
Oxley Holdings sells 3-year $100m bonds
Business receipts of services sector up 8% in Q3
Steering committee for UniSim law school unveiled
NTU, SBF to setup African studies centre
(Source: The Business Times)
UOB KAY HIAN says ...
IHH HEALTHCARE | SELL | TP: S$1.43
IHH Healthcare (IHH) reported 9M13 revenue and EBITDA increases of 18% and 24% yoy respectively
This was mainly attributed to organic growth of existing operations, ramping up of new hospitals and a full nine-month consolidation of Acibadem Holdings (Acibadem)
Net profit rose 38% yoy to RM438m, representing 66% and 67% of our and consensus full-year estimates respectively
Inpatient admissions ytd rose 7.5% and 5.6% yoy in Singapore and Malaysia respectively, supported by strong domestic demand
Business from medical travel rebounded in 3Q13 with a 9% qoq incease in Indonesian inpatient admissions in Singapore
Price adjustments and an increase in the number of specialists contributed to
higher average revenue per inpatient (ARPI). Ytd, Singapore's ARPI reached RM21,371
(+5% yoy) while Malaysia's hit RM4,499 (+7% yoy)
Assuming IHH had consolidated nine months of Acibadem's performance in 9M12, inpatient admissions in Turkey would have grown 6.7% yoy in 9M13 on higher patient volumes in existing hospitals as well as contributions from its two newly-opened hospitals
ARPI rose only 1.6% yoy
9M13 EBITDA margin improved to 24.3% from 23.1% in 9M12
MENH contributed a positive ytd EBITDA of RM10.9m, rebounding from a RM64m loss in 9M12
Acibadem's revenue growth was partly eroded by higher staff and rental costs as well as start-up and pre-operating expenses for its new hospitals
Foreign exchange loss of RM135.8m arising from the translation of US$-denominated
loans as the Turkish Lira depreciated by over 13% in the period
This is compared with an exchange gain of RM41m in 9M12 on the back of a 5% appreciation in the Turkish Lira vs the US$
Still cautious on execution risks as capex balloons to RM3.8b for the period 4Q13-2016
This is 39% more than the projected budget of RM2.7b as of end-Jun 13
We note the cost estimate for Gleneagles Hong Kong Hospital increased 21% to RM1.5b (previously RM1.2b)
Maintenance and expansion capex for Malaysia is now 26% higher at RM1b while Turkey's budget doubled to RM1.3b on the back of new hospital projects added to the pipeline
We continue to be wary of the key challenges facing IHH such as a shortage of qualified medical staff, slower ramp-up of operations due to a weaker economic environment and managing start-up and pre-operating expenses
Ytd, we have seen cost pressures impacting Acibadem's operating results as it confronts a 7-8% national inflation rate
There have been several signs of difficulties in ramping up MENH
The hospital currently has 120 beds operating at 75% utilisation, below the
intended 330 beds
ARPI is still below Mount Elizabeth Orchard's (MEO) and management is now looking to add new disciplines and specialties to MENH's offerings in order to boost revenue intensity
Our site visits also indicate that less than 50% of the 254 medical suites are in use
As a package promotion, the hospital has allocated one of its wards to provide
lower-cost beds at S$373 per day, a 40% discount to its standard single room
While management maintains it will not cut prices for its medical services, we think it will consider more package promotions if these will help pull up the hospital's business
MENH has already been placed under the same management as MEO to allow the group to rationalize its cost structure
We anticipate stiff competition for IHH from Connexion at Farrer Park, an integrated healthcare and hospitality complex by The Farrer Park Company
Comprising a 200-suite specialist medical centre (target opening: 1Q14), a 220-bed private tertiary hospital (mid-14) and a luxury hotel (mid-14), Connexion is helmed by Dr Luisa Lee whose 30 years in the public sector included stints as CEO of Woodbridge Hospital (now Institute of Mental Health) and Tan Tock Seng Hospital
Farrer Park Hospital (FPH) aims to promote fairness in its healthcare solutions, offering value for service to patients
We think it will attract the same patient profiles as IHH's hospitals, including a share of the medical travel market
We also note that a number of doctors who are involved in this project currently hold private practices in IHH's hospitals
Hence, the opening of FPH may pose more challenges for the group
Valuations rich; maintain SELL and target price of S$1.43, based on our SOTP model
No change to our earnings forecasts
Management says it will make an announcement on the dividend policy in 4Q13
IHH is currently trading at 45x 2014F PE, which we think is unjustified, given our cautious near-term outlook
Our target price implies 39x forward PE
UOB KAY HIAN says ...
SIA ENGINEERING | SELL | TP: S$4.65
We hosted a post-results luncheon with SIA Engineering (SIAEC). Group CFO, Anne Ang and Mr Chow Kok Wah, SVP Line maintenance, answered questions regarding line
maintenance, competition, operating costs as well as prospects for engine maintenance
Management explained that the difference between 1HFY14's 16.9% rise in flights handled at Changi and the 4.2% rise in line maintenance revenue was due to: a) a greater portion of LCC (low-cost carriers) work, and b) discontinuation of line maintenance work at Bahrain
LCC's line maintenance requirements are not as rigorous as that of full service airlines particularly relating to cabin works and in-flight entertainment (IFE)
LCCs also use narrow-bodied aircraft which requires less man hours
In 1HFY14, SIAEC signed nine new contracts, which should drive growth in 2HFY14, and the unit had a 79% market share of line checks as at 1HFY14
SIAEC also clarified that they only performed technical ramp handling for Jetstar Asia and not the higher value added certification work, which was performed by SHAECO
SIAEC explained that the discontinuation of a Gulf Air fleet maintenance contract was the primary reason behind a 15% decline in FMP revenue
2HFY14 should see this normalise
Except for parent SIA's maintenance work, maintenance, repair and overhaul (MRO) is priced in US dollars, while SIAEC's labour cost is primarily in SGD and is expected to grow 4-5% annually (+5.5% in 1HFY14)
A strong Singapore dollar has hurt SIAEC's revenue and margins
SIAEC also faces difficulty in passing cost increases as airlines have other choices in terms of MRO destinations
Recognising the labour challenges, SIAEC had expanded into the Philippines, where it has built two hangars at Clark Air Base
A third hangar will be completed in 2014, which will enable the unit to handle wide-bodied aircraft
MRO costs there are 20-30% lower and SIAEC plans to shift some of the narrow-bodied work
Even so, SIAEC faces competition in the Philippines from Lufthansa Technik which has a hangar at Manila with capabilities to provide MRO service for various wide-bodied aircraft including the Airbus A380. SIAEC also plans to invest in automation to reduce costs and improve productivity
SIAEC's Rolls Royce JV SAESL is expected to perform well, but the other engine maintenance associate, ESA is at the mature end of its product cycle and will
thus see less maintenance works
Overall, engine maintenance accounts for 90% of JV and associate income
Non- SIA work accounted for 69% of JV and associate revenue but SIA's related work grew 33% yoy vs 4.9% for non-SIA work
We queried management on the growing clout of Middle Eastern carriers and whether MRO OEMs will move some of their operations to the region
Management opined that access to qualified engineers could be a problem as
most of the skilled work force in the region is made up of foreigners who tend to command higher pay
While we managed to learn more about the company's operations, we still
feel that SIAEC faces substantial challenges
Operationally, the entrance of ST Aerospace at Changi is a risk that should not be downplayed
Management's guidance on the Pratt & Whitney associate ESA also implies that engine maintenance growth will be lower in coming quarters
Meanwhile, labour cost will be an ongoing challenge as will be the ability to pass
on these costs
In the longer term, we believe that the Middle Eastern carriers' huge base
load of orders could see engine OEMs set up shop in the region and potentially recruit from elsewhere
Maintain SELL and target price of S$4.65, based on DDM (COE: 6.9%, terminal growth
rate: 1%)
At our target price, the stock offers a dividend yield of 4.8%
OCBC Securities says ...
CONSUMER SECTOR: CHALLENGING 2014 AHEAD
Revenue growth hurt by weakness in EM data points
Margin pressures to stay
Prefer defensives/strong market positions
2013 recap: a see-sawing year
At the start of the year, we had called for allocation into counters with exposure to EM Asia consumer demand. While that call did fairly well for the first half of the year, it faced some challenges subsequently and YTD gains were eroded. At the company level, revenue growth for consumer-related firms was decent although margin pressures from rising costs had an effect on bottom-line figures.
Top-line growth to face headwinds
For 2014, we expect revenue growth to be a tad more challenging. Data points both domestically and aboard have indicated that consumer spending will not be as forthcoming as before. Concerns over the ongoing global recovery process will continue to dominate consumer focus, as will be the impact of rising inflation on purchasing ability. In fact, we could expect to see companies spend a higher amount in order to attract a single dollar of consumer expenditure vis-a-vis previous years.
Margin pressures to remain
On the cost front, we expect consumer-related companies to face the greatest pressures domestically. Regulatory changes have been rather punitive on companies with higher reliance on foreign labour, and have forced companies to look towards more expensive local help. With this issue extending to other countries in the region via an increase in the minimum wage requirements, we can expect to see an overall increase in wage costs for companies in 2014. This increase in operating expenses may potentially outpace top-line growth - due to greater competitive pressures - and lead to an eventual, further compression of margins.
Consumer sector to be less attractive in 2014
As the consumer sector is cyclical in nature, we expect the first half of 2014 to be an uneventful one for the sector. Investor attention is unlikely to be on consumer-related companies (particularly consumer discretionary counters) given the overall macro uncertainty and challenges ahead, and the sector could see itself trading sideways. That said, we maintain our UNDERWEIGHT rating on the sector. Our top picks are Sheng Siong Group [BUY; FV: S$0.78] as we like its defensive qualities in the face of weaker domestic sales, and Petra Foods [BUY; FYS$3.95] for its dominant leadership position in chocolate confectionary products. |
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