Company News

CapitaLand - 3Q12: Encouraging China sales.
(CAPL SP/BUY/S$3.27/Target: S$3.70)
FY12F Dividend yield (%): 2.1
FY13F Dividend yield (%): 2.4

Results below expectations on lower China contributions. CapitaLand reported 3Q12 net profit of S$148.5m (+85%yoy), bringing 9M12 net profits to S$667.6m (+15% yoy). Excluding fair value gains, 9M12 net profits of S$435.2m (+69% yoy) were below our expectations (65% of our full-year forecast) mainly due to lower-than-expected earnings recognition from China projects. Geographically, the Singapore market accounted for 55% of EBIT (ytd), followed by China (26%), Australia (17%), Other Asia (11%) and Europe (1%). Segmentally, CapitaMalls Asia accounted for 31% of EBIT followed by CapitaLand Residential Singapore (16%) and CapitaLand China Holdings (14%). NTA/share stood at S$3.42/share (+1% ytd).

Maintain BUY, unchanged target price of S$3.70 pegged at 15% discount to RNAV of S$4.33/share. The stock is currently trading at an attractive 26% discount (0.96x P/B) to its RNAV. We maintain our earnings estimates as we expect a better last quarter to compensate for the shortfall.

SIA Engineering - 2QFY13: Raises interim dividend.
(SIE SP/BUY/S$4.16/Target: S$4.55)
FY12 PE (x): 16.9
FY13F PE (x): 16.3

5.8% yoy decline in 2QFY13 net profit, primarily from a S$3.5m exchange loss. Excluding the exchange loss and 2QFY12’s exchange gain, net profit would have risen 10.1% yoy. SIA Engineering (SIAEC) declared a dividend of 7 cents/share (1HFY12: 6 cents), or a payout of 101.7%. Associate and JV contributions accounted for 51% of pre-tax profit (PBT). This segment declined 4.2% yoy and 3.0% qoq. No breakdown was provided but we reckon SIA’s engine maintenance would have been lowered. Operating cash outflow (OCF) declined to S$11.9m from S$24.3m a year ago. Free cash flow for 1HFY13 surged 346% to S$24.1m. Dividends from associates and joint ventures jumped 16.1% yoy and 13.7% yoy to S$35.4m and S$71.4m for the quarter and 1HFY13 respectively. Maintain BUY. SIAEC’s operating earnings are expected to be flat but its strategic links with engine manufacturers will assure long-term viability and cash flow.

Maintain BUY as we expect SIAEC’s strong and relatively stable cash flow generation to result in yield contraction. Based on ROE of 21.6%, required return of 5.9% and 0% terminal growth rate, we value SIAEC at 3.7x P/B to derive at our fair value of S$4.55. At our fair value, the stock would offer a FCF of 5.0% and dividend yield of 4.8%.

Tiger Airways - 2QFY13: Divests 60% of Tiger Australia as losses widen.
(TGR SP/SELL/S$0.74/Target: S$0.60)
FY13F PE (x): n.m.
FY14F PE (x): 22.0

Tiger Australia and SEAir dragged earnings. Tiger Airway’s (Tiger) 2QFY13 loss of S$18.3m was worse than our expectation of a S$2.2m loss. This came on the back of higher-than-expected operating losses at Tiger Australia (S$20m), which offset Tiger Singapore’s S$4.8m operating profit. Tiger also booked S$3.8m in losses from associate SEAir. Yields improved 19% yoy in Singapore but declined 4% qoq. The qoq decline suggests rising competition out of Singapore, but nonetheless, Tiger managed to record a 32% qoq improvement in operating profit. Sells 60% of Tiger Airways-Australia to Virgin Australia. The sale is positive for Tiger, which will book a gain of $120m, based on Tiger Australia's negative book value of S$265.8m as of 30 Sep 12.

Maintain SELL. We raise our target price to S$0.60 from S$0.51, pegged to 1.4x FY14F P/B (previous: average FY13/14).We raise our FY13 net profit forecast from S$25m to S$77m as we factor in the S$120m gain on the disposal of Tiger Australia. The gain is offset by downward revisions following the poor performance of Tiger Australia in 2QFY13. We have assumed that the 60% sale to VA will be completed by 4Q12 and hence treat the unit as an associate. Key risk is a rejection of the Tiger Australia deal by Australian authorities.

CDL Hospitality Trusts - Look beyond weaker 3Q numbers.
(CDREIT SP/BUY/S$1.94 /Target: S$2.20)
FY12F DPU (S$ cent): 11.3
FY13F DPU (S$ cent): 11.4

We hosted a post-results (3Q12) investor meeting with CDREIT management. Queries were centered on the corporate segment’s performance, RevPAR outlook, acquisition plans and cost pressures. Key highlights are as below. Stock Impact Weaker 3Q12 results due to poor September. Management highlighted that the weaker 3Q12 results were mainly due to comparatively weaker performance across its hotels in September. While occupancies and room rates for July and August remained relatively high, September performance across its hotels (particularly Copthorne King) was dragged down by weaker corporate business (mainly due to weakness in the shipping industry). Management guided a low single-digit growth in RevPAR for 4Q12 and 2013. Corporate leases still seeing positive reversions. CDREIT has a mix of 60%-65% business travellers and leisure travellers. Despite macro economic uncertainties, management expects to see flat to low single-digit positive rental reversions for the upcoming corporate lease renewals.

Maintain BUY, target price lowered to S$2.20 (previously S$2.30), factoring in a 2-3ppt reduction in our room rate growth. Our target price is based on our two-stage dividend discount model (required rate of return: 7.2% and terminal growth rate: 2%). CDREIT’s share is currently trading at 2012/13 dividend yield of 5.6% and 5.7%. We believe any significant dip in CDREIT’s share prices should be viewed as buying opportunities considering strong growth in visitor arrivals (CAGR of 7% for the next 3 years) and favourable demand-supply dynamics.