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Investors’ Corner (K-Green Trust, Singapore Airlines, Singapore Exchange, Yongnam Holdings)
Investors' Corner | 19 April 2013
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By: Choo Hao Xiang
Articles (151) Profile

K-Green Trust
Price – $1.12
Target – $0.80

K-Green Trust’s (KGT) 7% yield comprises both a partial return of capital and free cash flow yield. We estimate that KGT’s partial return of capital makes up about 68% of its overall distributions, implying that its true free cash flow yield is merely a low 2.2%. A 7% yield is insufficient to compensate for the cost of its lease runoff and declining net asset value. The concession agreement for the Senoko Plant expires in 11 years’ time while that of the Ulu Pandan Plant would cease in 2027. Both will result in step‐down in distributions. There is also limited scope for organic growth to take advantage of higher energy demand as Tuas DBOO Plant and Senoko Plant are already operating at near full capacity. Although KGT’s zero gearing level is a plus, its inability to act on any acquisitions since its IPO listing probably brings into question its ability and willingness to build on its existing cash flow stream. Initiate SELL. – AmFraser Securities (16 Apr)

Singapore Exchange
Price – $7.66
Target – $7.15

Though the local market was buoyed by strong trading volumes in the first quarter of 2013, average trading values only stood at $1.7b. This in turn led to securities volume-to-value ratio dipping to its lowest point at 0.32. Average trading values have increased q-o-q, implying securities revenues should improve q-o-q. On the other hand, derivatives revenues could continue to be hurt by lower yielding products (similar trends as in previous quarter). We are hence cutting our derivatives revenues forecasts by 4-9% for FY13-15F. The downward adjustment in derivatives and other revenues attributed to our FY13-15F earnings cut by 10-13%. Still, downside to the stock should be limited, as it is supported by dividend yield of 4%. Maintain HOLD. – DBS Vickers (16 Apr)

Singapore Airlines
Price – $10.60
Target – $11.00

After 7 straight months of improvement, March load factors at SIA’s mainline softened across all route regions except for East Asia and Americas. The deterioration was due to lagged y-o-y passenger traffic growth of 2.7% versus capacity growth of 3%. We think that competitive pressures will continue to weigh on passenger traffic. SIA’s effort to boost loads and persistent Singapore dollar strength are also expected to place downward pressure on profitability. Meanwhile, cargo traffic remains muted. Although load factors jumped 2 percentage points last month, this rise was a result of traffic (down 2% y-o-y) declining more slowly than capacity (down 5% y-o-y). We prefer Cathay Pacific to SIA due to the former’s greater reliance on traffic and revenues from North America. We believe SIA is currently undergoing a de-rating and thus reiterate our NEUTRAL rating. – CIMB (15 Apr)

Yongnam Holdings
Price – $0.295
Target – $0.45

Yongnam is ready for a sharp re-rating. 6 consecutive years of profit growth prior to FY12 and margin outperformance speak volumes of Yongnam’s market position. Unmatched technical expertise in structural steel and strutting coupled with an unparalleled track record of iconic projects makes it the go-to firm for most major international contractors. The long-established relationships with major reputable contractors also give the company a leg up in its quest to venture abroad. Another deterrent to new entrants is the largest reusable strutting asset worth $300m in Asia ex-Japan Yongnam accumulated over the years. This investment also puts Yongnam in pole position to win big projects. With most market watchers expecting Asia’s growth to drive infrastructure spending, Yongnam’s regional presence places the firm in a favourable position to ride this boom. We believe a major share price overhang has been removed after the expiry of 365m warrants in Dec-12. Other catalyst includes a winning bid for the Myanmar International Airport. Our target price is pegged at 10x P/E of FY13F, which is in line with its peers. Initiate BUY. – Maybank Kim Eng (15 Apr)

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

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Singapore Airlines  9.110 -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
Singapore Exchange  8.470 -0.06 -0.70%   
Business: [FY18 Turnover] Equities & fixed income (48.2%), derivatives (40.2%), mkt data & connectivity (11.6%).

Insight: Jan-19, 1H19 operating revenue increased 5.7% to $... Read More

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