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Investors’ Corner (Hongkong Land, SMRT, First Resources, Sarine Tech)
Investors' Corner | 12 March 2015
Related stocks:
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EB5
U77
By:

Hongkong Land Holdings
Price – US$7.73
Target – US$8.56

FY14 underlying net profit of US$930m beat consensus’ by 5% and ours by 4%. Management sees a stable office-leasing market in Hong Kong in 2015. We welcome its lower vacancy rate of 5.4% as of Dec-14. Rental reversions for office space were neutral to slightly negative for the first 2 months of 2015. We expect positive rental reversions in 2015 for its Hong Kong retail portfolio since rents set 3 years ago are considerably lower than current rates. Singapore’s vacancy remained low at 1.7%. We move some of our earnings from 2015 to 2016, to incorporate lower Singapore property development booking. Separately, we bring forward booking of Singapore’s LakeVille from 2017 to 2016. Management said the overall impact of Occupy Central was insignificant even though shopper numbers were down. Maintain BUY. – Maybank Kim Eng (9 Mar)

SMRT Corporation
Price – $1.69
Target – $1.85

With LTA deeming SMRT’s recent 5 disruptions as unacceptable, we updated our forecasts to provide for fines in FY16 with an amount slightly more than twice the $1.6m paid in FY15. SMRT announced its plans to improve rail reliability: 1) Expand its workforce of engineers and technicians by another 39% and 24% respectively, by 2018, and 2) Provide more training to ground staff, setting up maintenance operations centre to support and coordinate response during rail incidents as well as investing to equip maintenance teams with computer tablets. However, we believe its growth catalysts are still valid: 1) taxi rental income growth through fleet renewal, 2) core bus operations to turn profitable with forecasted margins of about 9% from 2Q17, 3) potential LTA’s purchase of SMRT bus and train assets resulting in possible acquisitions for growth. Reiterate BUY although fair value decreases from $1.90 as we incorporate higher expenses and potential fines. – OCBC Investment (9 Mar)

First Resources
Price – $1.92
Target – $2.80

Management believes that crude palm oil (CPO) price will be better in 1H15 with the tight CPO supply. Demand is likely to pick up in post winter seasons. However, 2H15 CPO price direction will depend on whether Indonesia is able to execute its biodiesel programme, which will support CPO price. Approval of higher diesel subsidy and new biodiesel pricing formula would provide incentive for biodiesel producers to supply. There might be more demand for biodiesel if penalties for the non-compliance of the blending mandate are imposed. First Resources (FR) is slowing down new planting activities to comply with sustainability requirements. Management expects fresh fruit bunch (FFB) yield recovery for its Riau estate in 2015 and better FFB yield as its young mature areas move towards prime age. FR’s high oil extraction rate would increase as it processes more of its internal crop when more of its nucleus area reaches maturity and its low cost of production is expected to stay flat in 2015 as FR will continue to benefit from the depreciation of the rupiah and better production growth. FR remains one of our top picks in the plantation sector. Maintain BUY. – UOB-Kay Hian (6 Mar)

Sarine Technologies
Price – $2.81
Target – $2.88

Management explained how Sarine Technologies has become the key player in the diamond manufacturing industry, with an estimated 85% of all diamonds manufactured passing through Sarine-related equipment. The company’s economic moat is its one-stop integrated solution for customers and the patenting of all its key technologies. Management also touched on 2 new offerings: 1) a yet-to-be named version of inclusion scanning machine for smaller diamonds which it targets to commercialise in late 2015 or 2016 and 2) Allegro, a scanning and cutting system to process gemstone excluding diamonds, which could translate into US$10m to US$20m revenue opportunity over the years, that it targets to commercialise in late 2015 or early 2016. We continue to expect a weaker first half vis-à-vis second half as the effects of the credit crunch in India and high rough diamond prices work their way through but we believe the second half could be a good time for investors to relook at the stock. Maintain HOLD. – CIMB Securities (5 Mar)

Hongkong Land Hldgs  6.410 -0.29 -4.33%   
Business: Co is principally engaged in the business of investment, management and development of properties in key Asian cities of Singapore and Hong Kong. [FY17 Turnover] Rental income (46.5%), sales of properties (46.3%), service income (7.2%).

Insight: Jul-18, 1H18 revenue jumped 85.7% due to positive ... Read More
First Resources  1.560 -0.030 -1.89%   
Business: Co engages in the cultivation and maintenance of oil palm plantations. [FY17 Turnover] Refinery and processing (92.8%), plantations & palm oil mill (7.2%).

Insight: Aug-18, 1H18 sales dipped marginally by 3.7% mainl... Read More
Sarine Technologies  0.510 +0.010 +2.00%   
Business: Co manufactures & sells precision technology products for the processing of diamonds & gemstones. [FY17 Geographical] India (69%), Israel (6.6%), Europe (4.8%), Africa (8.9%), N America & others (10.7%).

Insight: Aug-18, 1H18 revenue remained flat at US$34.6m, of... Read More


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