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Investors’ Corner
Investors' Corner | 20 March 2009
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By: Lai Wyai Kay
Articles (53) Profile

Oversea-Chinese Banking Corp
Price – $4.11           Target – $5.66

Oversea-Chinese Banking Corp (OCBC) had the highest Tier 1 CAR of 14.9% at the end of FY08. We expect this to be maintained, providing it with a strong cushion in this downturn. We are not overly concerned with retreating Tier 2 capital, although OCBC has sought to address it. Post FY08 results, we downgrade FY09 net profit by 26% to $951m, on weaker non-interest income and higher loan-loss provisions. OCBC had the second-lowest holding of available-for-sale securities, compared with its peers, and of this, 58% was in government securities. OCBC saw a net marked-to-market loss of $1.5b in FY08 (FY07: $1.5b gain). Right now, barring a significant increase in default rates, we are not expecting such losses to have a significant impact. OCBC had the slowest q-o-q rise in its NPLs of 12%, bringing its NPL ratio to 1.5%. To the extent that it has maintained a low loan-to-value and diversified its portfolio, the rise in NPLs should not be destabilising. Maintain OUTPERFORM. – Macquarie Research (16 Mar)

Singapore Airlines
Price – $10.14           Target – $9.00

Singapore Airlines’ (SIA) Feb-09 operating statistics were shocking, with passenger numbers drastically depressed despite a cut in capacity. Judging from the 3Q passenger breakeven load factor of 72.7%, we suspect this division has slipped into the red. We hold a negative view on premium traffic, which accounts for 40% of SIA’s revenue, on intensifying down-trading activities. Aggressive capacity management has lent support to the cargo division’s load factor but the harsh economic environment prompts us to believe the division may only return to the black in FY11. Jet fuel price has plunged from the peak of US$171 per barrel in July ’08 to below US$50 currently. As SIA still has a 44% hedging position on the group’s fuel requirement at US$131 per barrel, we expect to see a few quarters of hedging losses. Evidence of growing competition points to a price war on the horizon. The bleak outlook may prompt a cut in dividends. Downgrade to SELL. – OSK Research (17 Mar)

Price – $2.07           Target – $2.68

We continue to stay clear of developers heavily exposed to Singapore, with the exception of CapitaLand, which we like for its diversified business model, strong balance sheet and cash flow. Its decision in early 2008 to step up efforts to dispose investment assets in order to raise cash has positioned it well to reinvest in the next cycle. We think that once investors start to appreciate this and see it as less vulnerable to weak capital markets, CapitaLand’s share price could start to recover from its recent lows. Our stress tested valuation (further 10ppt below 1998 prices) shows that the stock has moderate downside, at 7% below current prices. We think CapitaLand has mitigated an increasing risk from DPS defaults to a large extent by securitizing most of its DPS units, save for the units at Orchard Residences and Seafront at Meyer. We view the group’s China exposure positively, as China is more likely than other regions to stabilize in the near term. Upgrade to BUY. – Goldman Sachs (18 Mar)

Golden Agri-Resources
Price – $0.28           Target – $0.21

Some 55% of Golden Agri-Resources’s (GAR) book value stems from revaluations of biological assets. The company’s gearing would be 20% instead of 9% and ROE 19% instead of 35% if we exclude such gains. An unfavourable supply-demand balance is likely to reduce crude palm oil (CPO) prices further down 42% y-o-y. As more than 90% of GAR’s profit comes from CPO plantations, we expect core earnings to drop by 63% as the company contends with low CPO prices and high production costs. Given that the firm is using US$670/tonne CPO prices to value its plantations, versus our estimates of US$500, revaluation losses in 2010 are also likely. GAR appears overvalued based on our discounted-cashflow derived target price. At 13x FY10CL PE, it is also expensive relative to peers. The company’s earnings are highly sensitive to CPO prices and the stock trades closely in line with CPO commodity prices, which we expect to drop another 10% from here. Initiate with SELL. – CLSA (18 Mar)

Oversea-Chinese Banking Corp  10.950 -0.08 -0.73%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More
Singapore Airlines  9.150 +0.04 +0.44%   
Business: Co provides air transportation services to destinations spanning a network spread over 6 continents. [FY19 Turnover] SIA (80%), Budget Aviation (10.5%), SilkAir (6.2%), SIAEC (3.1%), others (0.2%).

Insight: May-19, FY19 revenue edged up 3.3% to $16.3b. Pass... Read More
CapitaLand  3.510 -0.03 -0.85%   
Business: Co develops, owns, and manages real estate properties. [FY18 Geographical] China (41.2%), S'pore (38.5%), Europe & others (18.6%), Vietnam & Others (1.7%).

Insight: Apr-19, 1Q19 revenue fell 23.8% while net profit d... Read More
Golden Agri-Resources  0.255 -0.010 -3.77%   
Business: Co is engaged in cultivating & harvesting oil palm trees, processing fresh fruit bunches (FFB) into crude palm oil (CPO) & palm kernel (PK), & refining CPO into industrial & consumer pdts.

Insight: May-19, 1Q19 revenue fell 11% due to softer crude ... Read More

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