Phillip Singapore Monthly March 2018: Results Commentary March 14, 2018



CNMC Goldmine Holding (Target Px: 0.30 / Upgrade to ACCUMULATE)

  • Revenue was in line with our expectation. Net profit outperformed our expectation due mainly to the unexpected downward adjustment of compensation for employees and key management.
  • The trial run of CIL plant showed a satisfactory result.
  • We revise down FY18e EPS to 1.5 US cents (previous 2 US cents) as the full production from CIL plant may only start in 2Q18. Meanwhile, it is expected a further improvement of output in FY19. Accordingly, we upgrade our recommendation to ACCUMULATE with an unchanged target price of S$0.3 due to the recent price correction.



Fraser and Neave (Target px: S$2.83 / ACCUMULATE)

  • Beverages remain a drag with persistent headwinds in Malaysia. However, New Markets, namely Myanmar, Vietnam and Indonesia, should further diversify country-specific risk and provide new avenues for growth.
  • It is a proxy to Vinamilk. The Group continues to accumulate its interest in Vinamilk. The stake interest increased to 19.50% from 18.74% in end-FY17. It has recently registered its interest to acquire an additional 1.0% from the open market. Vinamilk contributed approximately S$17mn or 33% to 1Q18 EBIT. We expect Vinamilk to continue to drive over 40% of the Group’s EBIT moving forward.
  • Publishing and Printing continues to recover on improved operating efficiencies and cost rationalisation measures.

Old Chang Kee (Target px: S$0.98 / BUY)

  • Investment thesis remains intact. Expanded factory space and factory equipment to provide new capacity to boost product innovations and enhance margins from 3Q18 (ended Dec-17) onwards.
  • Near term headwinds rising from (a) higher input prices, (b) change of sales mix, (c) one-off write off costs, as well as (d) start-up costs from its UK flagship, eroded margins.

Sheng Siong (Target px: S$1.13 / BUY)

  • 11 new stores growth and improving macro backdrop to mitigate absence of contribution from the Verge and Woodlands Blk 6A. Strong financial position with zero debt and cash position of S$73.4mn as at end-FY17 to support new store openings.
  • Margin drivers remain intact, expect gross margin to be sustainable at c.26% in FY18e.
  • Declared final dividend of 1.75 cents per share (Full year dividend of 3.30 cents, or 71.1% payout ratio in FY17).

Thai Beverage (Target px: S$1.05 / BUY)

  • Private consumption in the domestic alcoholic beverage recovered at a slower-than expected pace post-mourning period, as it coincides with the new Excise Tax Act (in effective since 16 Sep-17). Sales agents’ destocking dragged local alcoholic sales in 1Q18. Maintained market share in Beer business.
  • New acquisitions to boost FY18e growth in Spirits, Beer and Food segments. Contribution from Sabeco’s results (as consolidated subsidiary basis) starting from 2Q18 onwards.
  • We remain upbeat that on-trade consumption should turnaround in FY18 after the effect of mourning period and excise tax hike in Thailand subside. A broader economic recovery in Thailand would help to support consumer sentiment and purchasing power; while the FIFA World Cup is likely to boost beer sales.

Dairy Farm International (Target px: US$9.83 / BUY)

  • FY17 Revenue was in line with our expectation; FY17 Adjusted PATMI missed our estimation by 6.6% on higher than expected operating expenses and tax rate.
  • Strong trading performances from Convenience Stores, Health and Beauty, IKEA, Maxim’s and Yonghui but weighed by poor operating results from Southeast Asia Food and US$64.5mn of business change costs.
  • Near-term catalysts: Recovery in SE Asia consumer sentiment as well as higher Chinese tourist arrivals to Hong Kong and Macau; increasing online and offline network; and improving profitability via better sales mix and efficiency gains.



Sembcorp Industries (Target px: S$3.86 / ACCUMULATE)

  • FY17 revenue and net profit substantially missed our expectation, due mainly to unexpected weak performance from marine segment in 4Q17.
  • Utilities’ Singapore generated moderate growth but the group’s performance was dragged by weak India and marine operations.
  • A new strategy for the group: reposition utilities, support marine segment and move up value chain of urban development segment.
  • We maintain our ACCUMULATE recommendation with a higher TP of S$3.86 (previous S$3.7) as earnings was raised.



Health Management International (Target px: S$0.83 / BUY)

  • Expecting a strong FY18e. 1H18 NPAT grew 9.6% YoY and 2H is typically seasonally stronger.
  • Margins expansion on patient volume and bill size growth, as well as realizing gain from its cost-saving measures.
  • Adopting a dividend policy to payout not less 20% of the Group’s core earnings.
  • The upgrading and expansion plans for Mahkota Medical Centre and Regency Specialist Hospital are on track to meet the increasing medical demand in the region.

Q&M Dental Group (Target px: S$0.63 / NEUTRAL)

  • Both Aidite and Aoxin have been reclassified from subsidiaries to associates, contributing $$3.95mn or 27.2% to the Group’s FY17 adjusted PBT. This will also revert gross profit margin to pre-acquisition levels, i.e. in the high-80s or low 90s.
  • Post-deconsolidation of its major revenue drivers in China, the Group is stepping up its regional expansion in Singapore and Malaysia to plug the gap (targeting 10 new clinics in each Singapore and Malaysia).
  • Declared final dividend of 0.42 cents and a special dividend of 0.5 cents

Raffles Medical Group (Target px: S$1.32 / ACCUMULATE)

  • Expanded capacity and two new China hospitals to drive growth in next 5 years. RafflesSpecialistCentre has commenced operation in Jan-18, providing scope for refurbishment in RafflesHospital. The two China hospital projects are on track to commence operations: RafflesHospital Chongqing (4Q18) and RafflesHospital Shanghai (4Q19).
  • Near-term headwinds arising from (a) higher staff costs as the Group ramps up recruitment drive, (b) higher finance costs, and (c) start-up costs from the gestation of its new China hospitals.
  • Declared higher final dividend of 1.75 cents (Full year dividend of 2.25 cents, +12.5% YoY).

Singapore O&G (Target px: S$0.42 / ACCUMULATE)

  • Weakness in Dermatology business due to a slowdown in foreign patient load; Mitigated by solid performance from O&G segment and improved profitability in Cancer-related segment.
  • New business segment from Paediatrics to contribute more significantly to bottom line in FY18e, as the two new Paediatricians break eve.
  • Long-term fundamentals remain intact, but we have revised to a lower PER to 23.2x (previously 29x), in-line with the lower peers average PER, as well as due to the recent corporate movements. The Group is still in search for a new CEO. We will review the PER once the new CEO comes on board, to see if the Group’s strategy moving forward remains the same. Attractive valuation at c.21x PER currently.



Banyan Tree Holdings (Target px: S$0.71 / ACCUMULATE)

  • Broad-based increase in RevPAR across key geographies.
  • Weakness in Maldives was a drag in FY17, likely to extend into 1Q18 because of the ongoing state of emergency in the country.
  • 15% YoY improvements in hotel forward bookings for 1Q18.

CapitaLand Limited (Target px: S$4.19 / ACCUMULATE)

  • Lower residential sales value in China partially offset by higher sales in Vietnam.
  • Replenishing of land bank in Singapore with en bloc purchase of Pearl Bank.
  • Active portfolio reconstitution with realised divestment gains tripled YoY at S$318mn.

Chip Eng Seng Corporation Ltd. (Target px: S$1.21 / BUY)

  • Improved occupancies at Singapore and Maldives hotels.
  • Timely replenishing of construction order book with S$168mn design and build contract from HDB.
  • Strong revenue visibility in FY18 with unrecognised profits of c.S$210mn.

City Developments Ltd. (Target px: S$13.40 / ACCUMULATE)

  • 4 successful site acquisitions since 2017 to capitalise on the Singapore residential market upcycle.
  • Recovery in hotel operations with 3.2% YoY global RevPAR growth for FY17, in constant currency.
  • Strong cash reserves to capitalise on opportunities locally and abroad.

Ho Bee Land Ltd. (Target px: S$2.98 / ACCUMULATE)

  • Stable recurring income portfolio continues to buffer earnings in absence of development income.
  • Recovering sentiment in high-end properties presents monetisation possibility for Sentosa properties.
  • Impairment loss of S$16.8mn for JV project, Cape Royale in Sentosa.



800 Super Holdings (Target px: S$1.35 / ACCUMULATE)

  • Weakness seen in the contract cleaning business segment, with renewals done at more competitive prices
  • 2Q FY18 PATMI was significantly lower YoY, but within our expectation
  • Current FY18 expected to be weak during ramp-up phase of new projects; earnings growth expected only in FY19

Nam Lee Pressed Metal (Target px: S$0.56 / BUY)

  • Management commentary is noticeably more upbeat since two quarters ago, on the basis of recovery in US economy driving demand for the aluminium industrial product
  • Strong set of results for this 1Q FY18 have reflected the positive demand for the aluminium frames product
  • Positive business outlook, strong balance sheet and high-yield of 6.6%



ComfortDelGro Corp (Target px: S$2.50 / BUY)

  • Negatively impacted by competitive environment for Taxi business segment
  • Rail losses to narrow, following the commencement of full service for Downtown Line in October 2017
  • Takeover of Seletar package from 1Q 2018 and award of Bukit Merah package from 4Q 2018, under the government Bus Contracting Model are positives for the stock

SATS Ltd (Target px: S$5.33 / NEUTRAL)

  • Negative impact on Food Solutions from TFK Corp, as Delta Air Lines diverted some flights to Shanghai as a hub instead of Tokyo
  • Long-term earnings growth coming from pipeline of new JVs: such as Food Solutions JV with Turkish Airlines and Gateway Services JV with AirAsia
  • Downgraded from Accumulate to Neutral on the belief that growth prospects had already been priced in

SIA Engineering Company (Target px: S$3.51 / ACCUMULATE)

  • Core-business remains weak, on structural issue of aircraft requiring less frequent overhaul and lower work content
  • Worst could be over for Associates/JVs, with an L-shaped recovery
  • Upgraded from Neutral to Accumulate, after adjusting upwards our assumptions for Associates/JVs


For the full Singapore Monthly for March 2018 report.


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