MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL (3 Jul 2012)

Stock Name: Micro-Mech
Company Name: MICRO-MECHANICS (HOLDINGS) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.325

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.33

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL

3 Jul 2012

KEY IDEA CapitaMalls Asia: Divestments validate asset valuations CMA announced it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III), in which it would hold a 50% stake. Three CMA shopping malls, Tianfu and Meilicheng (Chengdu) and Luwan (Shanghai), would be divested as seed assets to CMCDF III. We understand that these would be injected for S$749m, versus their current book value of S$640m. This would result in a net gain of ~S$72m, on a 100% basis for these properties, and a net cash inflow of ~S$335m to CMA for the sale of its stakes. We expect the market to react positively to this development, and believe divestment valuations would serve as key data-points validating CMA's asset values in the market. Maintain BUY with a higher fair value estimate of S$1.79 (10% RNAV discount) versus S$1.76 previously, mostly due to stronger valuations for Chinese assets and listed entities. (Eli Lee) MORE REPORTS Micro-Mechanics: 4QFY12 results preview We continue to forecast a double-digit YoY fall in Micro-Mechanics Holdings' (MMH) revenue and net profit for its upcoming 4QFY12 results. This is premised on the still lacklustre conditions in the semiconductor industry. However, we are cognizant of a possible upside surprise to our revenue projection, given the relative strength of the USD against the SGD seen in 2QCY12. Meanwhile, MMH recently secured its maiden order for its new 24/7 Machining Line. This could aid its CMA division's turnaround, in our opinion, given the system's ability to improve its product cycle time, quality and operational efficiency. We also expect gradual sequential improvement in MMH's financial performance moving forward, in line with the recovery in the semiconductor industry. Maintain HOLD and S$0.325 fair value estimate. (Wong Teck Ching Andy) Midas Holdings: JV company wins RMB860m metro contract Midas Holdings (Midas) announced last evening that its 32.5% owned JV company, Nanjing SR Puzhen Rail Transport (NPRT) has clinched a RMB860m metro contract. This entails the supply of 20 train sets (or 120 train cars) to the Dongguan Rapid Railway R2 Line Project, with delivery scheduled from 2013 to 2015. This is the second announced contract win by NPRT in 2012 (the first being a RMB526.9m metro contract announced on 1 Mar). We estimate that this would boost NPRT's order book to ~RMB7.4b. Despite NPRT's strong order book, its contribution to Midas' earnings has been volatile and lumpy. As a recap, Midas reported a share of loss from NPRT amounting to RMB4.6m in 1Q12 (1Q11: net profit of RMB4.1m). Nevertheless, we expect conditions from NPRT to improve for the remainder of FY12. For now, we have a HOLD rating and S$0.33 fair value estimate on Midas. (Wong Teck Ching Andy) Neptune Orient Lines: Looking to sell Singapore HQ Neptune Orient Lines (NOL) yesterday said it intends to sell its Singapore headquarters building along Alexandra Road so as to release capital for strategic investment. NOL said it has not decided on a reserved price, but the media has thrown in an indicative pricing of ~S$400m for the 29 year old office building. In addition, Jones Lang LaSalle - the exclusive marketing agent for NOL Building, revealed in a release that NOL is expected to lease back the premises after the sale. The proposed sale and leaseback, if successful, will allow NOL to better allocate its capital in its core business of container shipping and logistics. We maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (Eric Teo)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - The Dow industrials dipped slightly (-0.07%) after data showed that US manufacturing activity contracted in June for the first time in three years, but the S&P 500 index finished higher (+0.25%). - Sin Heng Heavy Machinery, a rental and trading of cranes and aerial lifts company in Singapore, has entered into a distributorship agreement for Indonesia with Kato Works Co., Ltd, one of the world's leading hydraulic crane manufacturers. - Perennial China Retail Trust has exercised its option to increase its stake in Chengdu Longemont Shopping Mall Development from 50.0% to 80.0%, at a total purchase consideration of RMB2.24b. - KSH Holdings' and Heeton Holdings' wholly-owned subsidiaries, along with Zap Piling Pte. Ltd. shall own 40%, 30% and 30% of the share capital of Unique Resi Estate Pte. Ltd., which has been awarded the tender for the purchase the freehold land parcel located at 121C Whitley Road at a purchase price of S$31m.

SG: CapitaMalls Asia - Divestments validate asset valuations

CapitaMalls Asia 3 July 2012

DIVESTMENTS VALIDATE ASSET VALUATIONS -USD1b CMCDF III established - Three malls divested - To book in S$72m gains CMA announced it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III), in which it would hold a 50% stake. Three CMA shopping malls, Tianfu and Meilicheng (Chengdu) and Luwan (Shanghai), would be divested as seed assets to CMCDF III. We understand that these would be injected for S$749m, versus their current book value of S$640m. This would result in a net gain of ~S$72m, on a 100% basis for these properties, and a net cash inflow of ~S$335m to CMA for the sale of its stakes. We expect the market to react positively to this development, and believe divestment valuations would serve as key data-points validating CMA's asset values in the market. Maintain BUY with a higher fair value estimate of S$1.79 (10% RNAV discount) versus S$1.76 previously, mostly due to stronger valuations for Chinese assets and listed entities.

DBS Vickers (Spore) Flash Note: CapitaMalls Asia Limited: Growing fee income (BUY; S$1.57; Price Target : S$ 2.06 (Prev S$ 2.02); CMT SP)

Stock Name: CapMallsAsia
Company Name: CAPITAMALLS ASIA LIMITED

Research House: DBS Vickers

Price Call: BUY

Target Price: 2.06

CapitaMalls Asia Limited: BUY; S$1.57; Bloomberg Code: CMT SP
Growing fee income
Price Target : S$ 2.06 (Prev S$ 2.02)




· Largest PE fund established to date

· Seed assets from CMA, rakes in divestment gains and lowers gearing

· Maintain BUY with TP of $2.06


First PE fund established since 2005/06, largest to date. CMA has
established a new private equity fund CapitaMalls China Development Fund
III (CMCDF III) with a fund size of US$1b. CMA will take a 50% share in the
fund with the remaining held by institutional investors from Asia and North
America. CMCDF III will invest in the development of shopping malls in
China and has a fund life of eight years. CMCDF III is CMA's largest
private equity fund established to date and will strengthen the group's fee
income model. Once fully deployed, it will increase CMA's total AUM (100%
basis) to cS$21b.

Realises divestment gains, lowers gearing for CMA. The fund will be seeded
with three assets valued at S$749.4m from CMA, namely CapitaMall Tianfu,
CapitaMall Meilicheng, both in Chengdu, and its entire 66% share in an
integrated retail/office development in Luwan, Shanghai. Post divestment,
CMA will have an effective 75% stake in Meilicheng and Tianfu and a 33%
share of Luwan. Currently under various stages of construction, these
properties have a relatively short gestation period and are expected to be
operational between 2013 and 2015. In terms of impact, CMA will recognise a
net gain of S$71.8m from the divestment of a partial stake as well as fair
value gain from its retained share. This is likely to be reflected in FY12
results. In addition, the group would also be able to generate fee income
from managing the fund, in the medium term. With the divestment, its
debt-to-asset ratio is expected to decline marginally, by c.3%pt to mid 30
+%. This leaves more headroom for further capital recycling into new
investments.

Retain BUY call. We maintain our BUY call with a slightly higher TP of
$2.06, after adjusting for this transaction and the higher share price of
its listed subsidiaries/associates.

OCBC raises CapitaMalls target price

Stock Name: CapMallsAsia
Company Name: CAPITAMALLS ASIA LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.79

OCBC Investment Research raised its target price of CapitaMalls Asia to $1.79 from $1.76 and kept its ’buy’ rating, citing stronger valuations for the shopping mall developer’s China assets and listed entities.

By 9:03 a.m., CapitaMalls shares were 0.6% higher at $1.59, and have surged about 40% since the start of the year, compared to the Straits Times Index’s 10% gain.

CapitaMalls said on Monday it had set up a US$1 billion ($1.3 billion) private equity fund. OCBC said the fund would be an option for capital recycling going forward, and could be a potential joint venture partner for future developments, giving CapitaMalls bigger scope for capital allocation for acquisitions.

“CapitaMalls’ valuation remains undemanding, and we see significant upside as its asset pipeline transitions into an income-generating portfolio over 2012,” OCBC said in a report.

DBS cuts SingTel to hold from buy

Stock Name: SingTel
Company Name: SINGTEL

Research House: DBS Vickers

Price Call: HOLD

Target Price: 3.29

DBS Vickers has downgraded Singapore Telecommunications  to 'hold' from 'buy' and cut its target price to $3.29 from $3.32, on concerns of intensifying competition in India, a weak rupee and its growth in Singapore.

By 10:51 a.m., SingTel shares were 1.2% lower at $3.26, and have gained about 5.5% so far this year, underperforming the benchmark Straits Times Index’s 9% rise.

DBS said its checks suggest that tariffs in India have been falling rapidly since May, indicating greater competition in the country, while SingTel’s affiliate Bharti Airtel has been losing revenue share to competitors such as Vodafone.

The Indian rupee has declined 20 % against the Singapore dollar over the last three months, which could result in significant foreign exchange losses at Bharti as it has large US dollar-denominated foreign debt, DBS said.

Singapore regulator Infocomm Development Authority's upcoming initiative to spur adoption of fibre network, Inter Connect Offer, could dampen SingTel’s earnings in Singapore, DBS said.

MARKET PULSE: CACHE, CDLHT, CMA, STX-OSV, Dyna-Mac (02 Jul 2012)

Stock Name: CDL HTrust
Company Name: CDL HOSPITALITY TRUSTS

Research House: OCBC

Price Call: BUY

Target Price: 2.04

Stock Name: CapMallsAsia
Company Name: CAPITAMALLS ASIA LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.76

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.00

Stock Name: Dyna-Mac
Company Name: DYNA-MAC HOLDINGS LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 0.34

MARKET PULSE: CACHE, CDLHT, CMA, STX-OSV, Dyna-Mac

02 Jul 2012

KEY IDEA Cache Logistics Trust: Beefing up market position Summary: Cache Logistics Trust (CACHE) had received approval from unitholders pertaining to the proposed acquisition of Pandan Logistics Hub and the entry of a master lease agreement with CWT Limited. With the addition of this prime logistics property, CACHE will have 12 quality assets under management and an enlarged GFA of ~4.83m sq ft. CACHE also embarked on a capital management exercise to enhance its debt profile, consistent with our expectations. Notably, the effective interest rate for the new bank facility is 2.8% plus SOR, which is at 30bps below its existing rate of 3.1% plus SOR. Hence, CACHE is likely to gain from interest savings going forward. We are reiterating our BUYrating on CACHE. Our fair value is raised from S$1.11 to S$1.18, after we incorporate the acquisition of Pandan Logistics Hub and interest savings into our model. (Kevin Tan) MORE REPORTS CDL Hospitality Trusts: Garden of Supertrees Summary: Gardens by the Bay, officially opened last Thursday and the new Marina Bay Cruise Centre will solidify Marina Bay as a key tourist cluster to complement Sentosa. STB has a target of 17m visitor arrivals by 2015, implying a growth rate of 6.6% p.a. from 2011. Even with a "leakage" from the conversion of visitor arrivals into hotel rooms nights because cruise passengers are much less likely to book hotel rooms, we estimate that hotel room demand will grow by an enviable 6.4% p.a., easily outstripping the growth in hotel rooms, which we estimate at 3.7% p.a. The 6.4% estimate conservatively assumes no change in hotel room nights per hotel guest. We maintain a BUY rating on CDLHT and our fair value of S$2.04. (Sarah Ong) CapitaMalls Asia: Established USD1b China Development Fund III Summary: CapitaMalls Asia (CMA) announced today that it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III). CMCDF III would have a fund life of eight years, and would primarily invest in retail properties in China. CMA would hold a 50% stake amounting to USD500m; remaining stakes are held by institutional investors from Asia and North America. The fund would own three CMA shopping malls, currently under development, as seed assets. These are CapitaMall Tianfu (Chengdu), CapitaMall Meilicheng (Chengdu), and the Luwan integrated development (Shanghai). We would speak with management further on this development today, and in the meantime, maintain our BUY rating with an unchanged fair value estimate to S$1.76. (Eli Lee) STX OSV: Secured NOK 500m contract with Island Offshore Summary: STX OSV announced that it has secured new contracts with Island Offshore for the construction of two Platform Support Vessels (PSVs). The total contract value is approximately NOK500m (USD80m). Deliveries are scheduled from STX OSV Brevik in Norway in 4Q13 and 2Q14. Year-to-date, STX OSV has secured about NOK7.2b worth of contracts, forming about 65% of our full-year estimates (NOK11b). Maintain BUY with an unchanged S$2.00 fair value estimate. (Chia Jiunyang) Dyna-Mac Holdings: Acquisition of Chinese fabrication yard Summary: Dyna-Mac Holdings Ltd (DMH) announced that it has entered into an agreement to purchase 70% of the paid up capital of Paliy Marine Engineering Pte Ltd (PME) for S$3.8m. PME operates a fabrication yard of about 100,000 sqm in Guangzhou City and has been engaged in the fabrication of structural blocks for semi-submersibles over the past three years. In FY11, PME recorded a net profit of RMB5.4m (or S$1.1m) compared to DMH's S$5.6m (for seven months ended 31 Dec 2011*). We will speak with management to understand more about the acquisition. In the meantime, we put our Hold rating and S$0.34 fair value estimate UNDER REVIEW. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks jumped on Friday after Europe agreed on actions to boost the economies of its more troubled nations. The S&P 500 Index and the Dow climbed 2.5% and 2.2% respectively. - Popular Holdings' revenue for FY12 rose 8.6% to S$567.3m and PATMI jumped 92.5% to S$29.6m. - Creative Technology expects its revenue for 4Q12 to come in below target, at ~US$35m, primarily due to lower than expected demand in Europe. As previously announced, the company expects to report an operating loss for the quarter. - Catalist-listed EMS Energy is acquiring a 23.98% stake in Nosco-Vinalines Ships Repair Company, which is constructing the biggest ship repair yard in Vietnam. EMS will fund the stake through a rights issue and proposes to raise up to S$16.4m.

OCBC ups Cache Logistics' TP to $1.18, maintains buy rating

Stock Name: CACHE
Company Name: CACHE LOGISTICS TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.18

OCBC Investment Research raised its target price for Cache Logistics Trust to $1.18 from $1.11 and kept its buy rating, to reflect its acquisition of a logistics property in Singapore.

By 9:08 a.m., Cache units were 0.5 per cent higher at $1.055, and have gained about 11 per cent since the start of the year, outperforming the Straits Times Index’s 10 per cent rise.

Cache has received approval from unitholders to acquire Pandan Logistics Hub, which OCBC expects to contribute $5.2 million in rental income to the real estate investment trust in the first year.

This translates to an initial net property income yield of 7.6 per cent and is expected to add 0.28 cents to its distribution per unit (DPU) on an annualised basis.