F&N to be delisted?

Fraser and Neave (F&N) might not be delisted after all.  After controlling shareholder took over the company, there has been 2 senior appointments to the board of F&N.  The property and beverage conglomerate has appointed Koh Poh Tiong and former Singapore finance minister Richard Hu to the board.  Mr Koh Poh Tiong is a food and beverage veteran.

These appointments have led to speculation that Mr Charoen who bought over F&N might be keen to keep F&N listed on the Singapore stock exchange.  Mr Charoen currently holds more than 90% of F&N shares and SGX listing rules requires a free float of at least 10%.  To do so, more shares will probably have to be issued.  SGX has given F&N until 18 April 2013 to declare its listing intentions.

Marco Polo Marine- A Buy

Marco Polo Marine (MPM) headquartered in Singapore is an investment holding company which was founded in 2006. Its primary business is to offer tug boats & barges to a diverse set of customers spanning from commodities, mining, infrastructure, construction, property development and land reclamation industries amongst others

 It also engages in transshipment services which could be defined as transportation of coal from the Indonesian mines to coal purchasers and from their transporting it to Asian electric power plants for final consumption. The two different business segments of MPM are Ship chartering & Shipyard. Ship chartering segment engages in charter, hire activities of ships while Shipyard deals with repair, maintenance & brokering activities of vessels.

MPM has a global presence, spreading across Thailand, Indonesia & Australian waters.

Strengths 

• Ship chartering fleet has been operating at close to 100% of its capacity. 
• Young & technologically advanced fleet: MPM vessels are well-equipped with sophisticated tools like satellite surveillance systems which ensure quick response-time. Its shipyard lately outfitted a DP-3 vessel, adding yet another feather in its achievement-hat. 
• Diverse & reliant clientele: With its customers’ profile ranging from property developers to mining, MPM enjoys a stable & regular flow of business through the year. 
• Cost containment: Successful integration of the two business segments helps MPM enjoy higher cost-benefits compared to its competitors. Moreover, its shipyard operational location at Batam; a free-trade zone & its ship chartering operations located at Singapore; an important industrial hub in the South East Asian region and is also in close proximity to vital shipping routes; aids MPM in getting an edge over its competitors. 
• MPM enjoys various tax benefits.

Recent developments 

Chairman Mr. Lee purchased 1.0million of MPM common stock at S$ 0.42, the highest ever he has paid, totaling his stake at 59.5% (or a total of 202.8Million shares). This move of Mr. Lee signifies his confidence into the fundamentals of MPM.

The recent implementation of the cabotage law in Indonesia worked in favor of MPM. The enforcement of cabotage law compelled customers to cancel their contracts with foreign contractors whose vessels failed to conform to the norms of the cabotage law. Thus, as the supply suddenly shrunk from the foreign contractors, charter rates saw a sudden spike. MPM seized the opportunity & is reaping higher margins & better utilization rates.

Looking Forward

MPM is planning to further integrate its two business segments of Ship Chartering & Shipyard to establish ship repair, conversion & maintenance capabilities at its own shipyard.

MPM is inclined to broaden its product portfolio into bigger & sophisticated vessels such as the Anchor Handling, Towing & Supply (AHTS) vessels, tankers, cargo ships (which are 150 meters in length) and accommodation barges, all of which are in huge demand riding on the back of the oil & gas marine logistics industry.

It further plans to expand its customer base of its shipping business leveraging the growing industry & Singapore economy at large.

Stock Information

Marco Polo Marine (“MPM”) was listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”) in 2007. Marco Polo marine (SGX:MPM) share price closed at S$0.43 a share. The average volume of shares traded is 0.2Million at the Singapore Stock Exchange.

Reasons to Buy 

With strong fundamentals & a robust business model MPM seems an attractive investment.  This is also considering the significant purchase by an insider who also happens to be the Chairman. Net revenue is expected to increase to S$ 108.8Million in FY2013 & to S$ 125.6Million in FY2014 respectively. Its EPS is estimated to reach S$0.07 per share in FY2013 & to S$ 0.077 per share in FY2014.

Nam Cheong Limited - A Buy

Nam Cheong Limited (NCL) is the largest Offshore Support Vessels (OSVs) shipbuilders in Malaysia. It is also one the largest regional players. Established four decades ago, NCL is headquartered in Kuala Lampur, Malaysia. Its prime focus is on building environment friendly & technologically advanced OSVs which are used in the exploration & production of offshore oil & gas.

Currently, NCL has 37 vessels in October 2012, under its shipbuilding program which is due for completion by 2013.

NCL’s global presence spans across Malaysia, the U.S., the Middle East and South-East Asian regions among others.

Financial Results 

NCL witnessed a whopping increase of 45% YoY to MYR 877Million in net sales in 4Q2012 primarily driven by significant growth in the shipbuilding business. Gross profit increased 56% YoY to MYR 164Million. Operating margin took a beating of 90bps YoY to 16.4% in 4Q2012 from 17.3% in 4Q2011. Net profit climbed up 47% YoY to MYR 137Million in 4Q2012.

Operational Challenges

Operating margin shrank due to declined margins in NCL’s vessel charting business. However, measures have been taken to redeploy vessels which completed their contracts. The primary reason for the considerable increase in net revenues could be assigned to the increase of 49% YoY to MYR 839Million in 4Q2012 in the shipbuilding business. Out of the 19 vessels which were deployed for 2013, the company already secured orders for 13 vessels.

Dividend Payout

Dividend paid for the reported quarter is 0.5 Singapore cents which accounts for 19.2% payout ratio of net profit after tax. The company paid a dividend of 0.2 Singapore cents in the year-ago period (4Q2011). There is no dividend forecast for the current year FY13.

Looking Forward 

Nam Cheong sits on an order book of MYR 1.3Billion which includes a big-ticket order of USD 130Million (MYR 405.3Million) from Bumi Armada. It needs to deliver four units of Multi-Purpose Supply Vessels. Revenue estimates for the current year is at an average of MYR 1.3Billion and for FY2014 it is estimated to be around MYR 1.5Billion against the last year revenue of MYR 877Million. The estimated EPS for FY2013 & FY2014 are MYR 8.7 per share and MYR 9.69 per share, respectively. NCL expects an uptick in vessels to 19 vessels in 2013 & 25 vessels in 2014, versus 13 vessels in 2012.

Stock Information

Nam Cheong Limited (“NCL”) was listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”) on 27 May 2011. Nam Cheong limited (SGX:NCL) share price closed at S$0.25 a share. The average volume of shares traded is 13.3Million at the Singapore Stock Exchange.

Reasons to Buy

With increasing net sales and net profit, NCL appears to be a safe haven. The management has successfully utilized half of its S$160Million fresh capital which was raised through MTN issuance of shares in 2013 improving the gearing ratio to 0.40x by the end of FY2012 comparable 0.63x in FY2011. NCL has an expanding balance sheet with MYR 216.3Million in total assets at the end of FY2012 compared to MYR 26.7Million in FY2011. Furthermore, the Malaysian offshore industry looks robust and the demand for small AHTS vessels & PSVs seems to be gaining grounds as obsolete models are replaced by technologically advanced & greener vessels.  It is no wonder that various analyst have been giving BUY calls on this stock.

ARA Asset Management - Good Business, Great Stock?

ARA Asset Management is an Asian real estate fund management company that focuses on the management of public-listed real estate investment trusts (REITs).  ARA is listed on the Singapore Stock Exchange and is also an affiliate of Cheung Kong Group (whose chairman is currently Li Ka Shing).

Company Info

ARA was listed on SGX on 2 Nov 2007.  It manages various REITs that are listed on both the SGX as well as the HKSE and Malaysia Stock Exchange.  REITs that it manages includes Hui Xian REIT (HKSE), Cache Logistics Trust (SGX), Fortune REIT (SGX).

Based on its website, its business strategies include generating attractive returns for investors in REITs and private funds as well as growing real estate assets under management of the REITs managed by ARA.  It has also started to grow its private real estate fund management business through the establishment of closed-end funds that focuses on Asian real estate.

Reasons to Buy

While the stock trades above its net asset value (NAV), ARA has been growing its business steadily over the years.  Its earning are almost recession proof. Rain or shine, it earns recurring frees from its managed REITs and private funds.

ARA has also been able to increase both its revenue and earnings since the time it was listed on the SGX.  This is even during the global financial crisis period.  It also has plans to grow its business and assets under management.

Reasons to be Cautious

With its current stock price of S$1.875, it is trading at PE of almost 20 which is a premium to other global asset managers.  DBS also has a HOLD call on ARA with target price adjusted to S$1.94.

Latest News

ARA has proposed a 1-for-10 bonus issue.  It has also declared a final dividends per share of 2.7 Singapore cents.  Bonus units will also be entitled to this dividend.

Global Premium Hotels - A Buy?

Global Premium Hotels (GPH) operates one of largest chain of budget hotels in Singapore. Its established track record and reputation of providing affordable accommodation has led to its "Fragrance" brand of hotels becoming well-established in the local and regional hospitality industry. Most of GPH’s assets and hotel operations are located in the city or city-fringe areas in Singapore.                                      

Global Premium Hotels runs 23 hotels across the country out of which 22 are wholly owned under the brand name Fragrance and one under Parc Sovereign brand. GPH provides economy and middle class hotels under two segments budget hotel operations and Boutique hotel operations.

Financial Results

4Q2012 revenue increased from S$14.2Million to S$15.7Million an increase of 6.8% Year on Year. Hotel room revenue increased S$1.4Million YoY. Gross Profit for the fourth quarter 2012, was S$13.06Million against S$12.43Million QoQ. Profit after tax declined almost 18% from S$5.3Million to S$4.36Million QoQ.

Operational Challenges

The main reason for the decrease in the Net Income Margin is due to increased labor cost; in relation to the wage rise and additional staff recruited for Fragrance Riverside. Despite this, the revenue increased because of a rise in hotel room charge and revenue contributed by Fragrance Emerald that offset the performance of its remaining hotels. Income for Global Premium Hotels also increased on account of a significant gain from revaluation of land and hotel buildings, resulting NAV per share climbed a whopping 25% Quarter on Quarter and valued at S$38.98.

Dividend Payout

Dividend paid for the reported quarter is S$ 1.4 cents which accounts for 80% payout ratio of net profit after tax and the yield works out to 5.2%. There is no dividend forecast for the current year FY13.

Looking Forward

Revenue estimates for the current year is at an average of S$62.5Million against the last year revenue of S$60.15Million. Contribution from Fragrance Ruby is expected to help achieve the increased estimates by going operational in the current year which is closed down temporarily for asset enhancement initiative. The company has also given open tender for acquiring more lands to develop and expand their business.

Stock Information

Global Premium Hotels Limited (“GPH”) was listed on the Singapore Exchange Securities Trading Limited (“SGX”) on 26 April 2012.

Global Premium Hotels (SGX:P9J) share price closed at S$0.27 a share. The average volume of shares traded is 4.02Million at the Singapore Stock Exchange. Analysts feel that the stock will further move past the 52 week high price of S$0.31 in the coming weeks.

Reasons to Buy

Majority of GPHs properties are freehold, and fair value has been increased from S$0.29 to S$0.33 using a 10% increase in Rectified Net Asset Value (RNAV). In addition, the founder, Mr Koh Wee Meng, has been buying up shares of his own company lately.  So that might be one good reason to buy this stock.  Some analysts have also issued Buy Calls on this stock.

Tough time ahead for Tiger Airways

Tiger Airways (TGR SP) is a low cost airline based in Singapore and Australia that aims to grow through strategic joint ventures across the Asia Pacific. Tiger Airways is making all efforts to increase its fleet size to 68 by the end of 2015. 

COLLABORATION ADVANTAGES AND DISADVANTAGES

Tiger Airways has moved to Cheng’s Airport Terminal 2 following the closure of the Budget Terminal in Singapore. There are many positive benefits such as improved connectivity with links to the rail network and opportunities for collaboration with other airlines. Due to the common operating terminal, Tiger Airways and Scoot signed a partnership agreement to offer joint itineraries in Singapore. This collaboration is expected to extend in Australia in the long run. This move was widely anticipated and will not affect the prices of TGR SP.

Moreover, the budget airfares in Australia have fallen by 11.8% year on year for the quarter ending September 2012. The sharp decline is exaggerated due to the high base effects due to the grounding of Tiger Australia in the same period. In addition to this, the rise in airport related charges will increase the operating expenses. These increased expenses could be passed onto the customers and could lead to lower demand due to price sensitive nature of the market. It is expected that if Tiger Australia would want to attract customers, it would keep airfares low.

CARBON TAX IMPLICATIONS

The carbon tax regime has been implemented in Australia since July 2012. TGR SP would experience higher operating costs around A$3-A$10, in the range of Virgin Australia (A$1.5-A$6) , Jet star (A$10) and Qantas (A$3-A$6). These costs are expected to be passed on to the consumers, leading to a rise in airfares of almost all airlines. This would lead to a reduction in fares and narrow margins, especially for TGR SP.  

VALUATION

It is expected that there would be a loss in the FY13E. The current valuation (Valuation Multiple: 1.7XFY13E BVPS) of the stock is too high due to another year of expected losses and a further erosion of the equity base. The market focus is on the operational turnaround ignoring the excessive valuation of stock. The stock is being downgraded with a recommendation to sell at a revised target price of S$0.45. 

FINANCIAL ANALYSIS AND RECOMMENDATION               

The revenue and EBITDA (Earnings before Interest, Taxes, and Depreciation) of Tiger Airways have increased in FY13E as compared to previous year and is projected to increase in FY14E as well as in FY15E.  However, the EBIT is negative for FY13E. Net income is also negative (-5) and is expected to continue to be negative till FY15E (-8). Cash flow from investments is also in the red and is expected to remain so. Dividends have not been declared to the shareholders and with decreasing profits, it is not expected that dividends would be declared. Loans are expected to rise in FY14E (242) and FY15E (242) from FY13E (125). While assets are expected to increase, liabilities are expected to rise at a faster rate. It is recommended to sell.

Time to hold Neptune Orient Lines

Neptune Orient Lines (NOL) belongs to the G6 Group. It recently pulled the LOOP 3 service on the Asia-Europe route after carriers cited the forecast lack of improvements in the trade lane. In May, Neptune Orient Lines decided to drop plans for a seventh loop service, which it attributed to weak market conditions. Even in the peak season, cargo volumes on the AE route are not expected to experience the traditional bump. Evergreen is expected to start loop service on the AE route; demand could be further weakened due to potential rate cuts.

BUSINESS ANALYSIS

Although the AE route is weak, the transatlantic route remains strong. In August, the incremental rate changes occurred, which have held well, defying market expectations. This route contributes about 40% of the trade revenue and with good business here, the fallout from AE in 3Q could be cushioned. Since it is unclear whether the in season demand would pick up, the QOQ earnings increase of 6% is unchanged.

KEY RISKS

Key risks are the rise in furl rates as well as diminished returns from diminished freight rates. Although a decline in air freights is not expected in 4Q, larger declines in AE and Intra-Asia, would raise concerns over earnings. Potentially, increases in August prices would be given back. Bunker fuel prices have also been rising, leading to further dampening of an already weak environment. 

BETTER PROSPECTS

Despite the weak environment, the industry is expected to withdraw service/capacity as it is aware that the management of shipping capacity is essential. There could also be cost savings based on Neptune Orient Lines’s Efficiency Leadership Programme (ELP).  NOL maintains a P/B based Fair Value estimate that is unchanged at S$1.38.

FINANCIAL ANALYSIS

The revenue of Neptune Orient Lines has increased, however, the Net Profit after tax has just turned positive after being negative for the last two years. The Return on Investment is also just 2.2% in FY13F after being negative in FY12F. Debt of the company has increased considerably in FY13F as compared to the previous years. Total assets have increased but not at the rate of debt and liabilities. However, with the expected increase in business, it is possible that the company could perform well in the future.          NOL has not declared dividends and is not expected to do so in the future. Bank and Cash Balances have decreased in FY13F but debt has increased in the same period. This is something that needs a closer look.   

Cash flow from investing activities has become negative, indicating a loss. This has also had an effect on the net cash flow, which has also turned negative. But cash has been raised through financing activities. Operating cash flow has also increased, signalling a positive trend.EPS has also increased as compared to the previous two years, signalling a positive trend. Return on Equity (ROE) has also increased as compared to the two previous years.

RECOMMENDATION

It is recommended to hold the share of Neptune Orient Lines based on better forecast ed earnings in the future.