Taken from https://www.fool.sg/2017/08/14/a-warning-to-penny-stock-investors-do-you-know-about-death-spiral-financing/
Category: SG Stocks And Shares
No, Maximizing the Stock Price Is Not Job 1 for Company Directors
|Martin Shkreli, the ousted pharma executive, used to scoff at people who criticized him for raising the price of a pill of Daraprim, a drug for toxoplasmosis, from $13.50 to $750 overnight. “In capitalism you try to get the highest price you can for a product,” he told|
|Bloomberg TV in 2016. “No one wants to say it, no one’s proud of it, but this is a capitalist society, capitalist system, and capitalist rules, and my investors expect to me to maximize profits,” he said at a Forbes conference in 2015. “I could have raised it higher and made more profits for our shareholders. Which is my primary duty.”
Is Shkreli (who’s on trial now on an unrelated matter) correct that the primary duty of a company’s executive and board is to maximize profits and the share price? Even some people who don’t like the “Pharma Bro” are inclined to concede that maximizing shareholder value is, after all, a company’s Job No. 1. The authority on this is the late Milton Friedman, a conservative giant of the Chicago School of economics, who preached that executives should “make as much money as possible while conforming to the basic rules of the society.” If people want to do good in society, Friedman argued, they should do it through personal charity, not through companies they manage, direct, or invest in.
An important new academic paper rejects the principle that profits are the ne plus ultra of business management. Intriguingly, one of its authors is a prominent member of the University of Chicago faculty, and the other is a Nobel Prize winner from Harvard University. The authors’ credentials are likely to attract attention to an argument that’s more typically made by social activists and corporate gadflies.
Luigi Zingales of Chicago’s Booth School of Business and Oliver Hart of Harvard start with the proposition that company managers and boards do indeed have a fiduciary duty to shareholders, but their duty is to maximize the shareholders’ overall welfare, which includes things other than the value of their shares. They argue that most shareholders are “prosocial,” meaning they care about such things as helping the poor or saving the planet. That point isn’t controversial: Even Friedman, in citing the basic rules of society as the standard, went on to specify that he meant “both those embodied in law and those embodied in ethical custom.”
The classic Friedmanian argument is that if shareholders don’t like something a company does, they’re free to use their own time and money to offset or reverse the effects of the company’s actions. For example, if the company pays workers less than you think it should, donate money to groups that help low-wage workers. Don’t drag others into supporting your pet causes.
The innovation of Zingales and Hart is to point out that reversing a company’s actions through private charity can be more expensive and troublesome than getting the company to do the right thing from the start. They give the example of Wal-Mart Stores, which used to sell high-capacity gun magazines of the kind used in mass killings. “If shareholders are concerned about mass killings,” they write, “transferring profit to shareholders to spend on gun control might not be as efficient as banning the sales of high-capacity magazines in the first place.” (They mean getting Wal-Mart to stop its own sales, not changing the law.)
You can think of other examples: It’s cheaper to refrain from polluting a stream than to pollute it and then clean it up with charitable donations. It’s cheaper to stop companies from putting greenhouse gases into the atmosphere than to build dikes around coastal cities when the ice caps melt.
An obvious question is, if shareholders are “prosocial,” why don’t more of them act on it by raising hell at annual meetings or divesting shares of companies they disapprove of? Zingales and Hart say shareholders who don’t think their individual choices will be enough to make a difference will give up and pick a dirty, profitable investment over a clean, less profitable one. This phenomenon they label “amoral drift.” The authors say there should be socially responsible mutual funds that specialize in proxy voting on certain issues—say, assault weapons. “Prosocial investors should rush to such product,” they write. They also say companies should routinely survey their shareholders on social issues and follow the wishes of the holders of the majority of shares.
Shareholders are happier—have more “utility,” in economic lingo—when the companies they invest in do good while doing well, the authors argue. As for the stubborn idea that corporate directors’ sole duty is to maximize shareholder value, even if that means cutting ethical corners, they offer a simple thought experiment: “If a company has a single shareholder, nobody would suggest that this single shareholder cannot instruct directors to maximize her utility rather than her financial return. Why should things be different when there are multiple shareholders?”
I asked Zingales if he feels that he’s trashing Friedman’s legacy. Not at all, he said. His paper with Hart doesn’t say managers and boards should ignore shareholders, but rather that they should take all of shareholders’ interests into account, both the financial and the social ones. “I’m not saying you should not follow what shareholders want to do,” he said. “I’m saying you ought to do it more.(Corrects name of disease to toxoplasmosis in
(Corrects name of disease to toxoplasmosis in first paragraph.)
CapitaLand Mall Trust (CT SP) HOLD Divestment of Serviced Residence Portion of Funan CMT divested its interest in Victory SR Trust, which holds the serviced residence component of the Funan integrated development, to The Ascott Limited for S…
Price/Tgt: S6.53 / S$6.86 Mkt Cap: US$8,641m 52-wk avg daily value: US$15m 1-Yr Hi/Lo: S$7.22/S$5.18
2Q17: Earnings below expectations, Keppel Capital to drive growth
|Year to 31 Dec (S$m)||
yoy % chg
yoy % chg
|Lower turnover from O&M.|
|Impacted by marginal profitability of O&M unit.|
|Helped by higher associate results and divestments.|
|Net Profit (ex EI)||
|Excludes S$12.9m in net one-offs.|
|Op. Margin (%)||
|Segment Net Profit|
|Higher operating profit offset by higher interest expense.|
|Strong home sales in China and Vietnam.|
|Absence of contribution from KDC SG 3.|
|Segment EBIT Margin (%)|
|Improved performance from right-sizing.|
Source: Keppel Corp Ltd, UOB Kay Hian
· 2Q17 core net profit of S$147.3m, below expectations. Keppel Corp (Keppel) reported headline net profit of S$160.3m (-22.1% yoy, -38.4% qoq). Included in the results were S$12.9m in net one-offs, which included fair value losses on KrisEnergy warrants, forex gains, profit on sale of fixed assets and investments. Excluding these one-offs, core net profit was S$147.3m (-21.8% yoy, +42.1% qoq). Results were below expectations, with 1H17 core net profit coming in at 33% of our core full-year estimate of S$754m. The weakness stemmed mainly from the Offshore & Marine (O&M) segment, which recorded 1H17 earnings of S$1.4m, significantly below our estimates.
· O&M improves in 2Q17, but barely breaks even. The O&M division reported an improvement in operating profit, which came in at S$32.3m and a operating margin of 6.4% (1Q17: S$3.7m, margin: 0.8%). Despite the improvement, this was largely offset by higher net interest expense. Owing to results from share of associates, the division was able to report a marginal net profit of S$1.3m. Bottom-line could have been worse, if not for the sale of fixed assets (S$17.1m), which we understand to mostly comprise of yard fixed assets from the O&M division.
· Property earnings flat at S$96.6m. Keppel’s property unit reported higher revenue of S$542.2m (+15.7 yoy, +106.9% qoq), with net profit largely flat at S$96.6m (+5.2% yoy, -6.0% qoq). The division saw strong home sales for the quarter at 2,470 units, driven mostly by strong sales in China (1,080 units, +6% yoy) and Vietnam (280 units, +600% yoy). Profit from sale of some 5,860 units of overseas homes sold is expected to be progressively recognised over 3Q17 to 2019.
· Infrastructure earnings lower at S$24.6m. The division saw higher revenue of S$521m (+28.9% yoy, +11.5% qoq) but lower earnings of S$24.6m (-11.2% yoy, -23.5% qoq). The quarterly difference was due to the inclusion of a one-off divestment gain of GE Keppel Energy Services (est. S$4.5m). Keppel’s Logistic business is undergoing a transformation that is not expected to see a turnaround till 2019.
· Investments sees net profit of S$37.8m. Net profit was higher at S$37.8m (+52.0%), driven by higher asset management earnings of S$20m (+43% yoy, +54% qoq) and higher other investment income of S$18m (+64% yoy, -84% qoq). The higher investment income was likely due to the disposal of listed equities and equity funds, offset by losses from fair value losses on KrisEnergy warrants.
· Net gearing largely unchanged at 0.58x, compared with 0.57x in 1Q17. Management opined that debt has largely stabilised, and the combination of fixed and floating rate on their debt should help them manage a rising interest rate environment.
· O&M: Subtle shift in language on non-drilling, oil-related contracts. The contracting outlook for the O&M division remains moribund. Keppel’s language on its targeted opportunities has subtly shifted from “non-drilling solutions” to “non-oil and gas plays” and “gas industry”. This hints at the difficulty of securing non-drilling orders (ie FPSOs, FSOs, etc.) despite the uptick in oil prices. We envision that going forward, Keppel will focus more on developing its gas solutions product offering as detailed in its earlier gas strategy presentation. This venture looks promising, given the potential recurring earnings stream from being a co-owner (and co-developer). We re-iterate that this strategy will take a few years to play out.
· Keppel Capital targets to double S$25b AUM in next five years. In a growing shift towards developing Keppel as an asset manager, it was announced that Keppel Capital aims to double its S$25b AUM in the next five years. This will be achieved through its O&M, Infrastructure, Data Center and Property verticals, where Keppel has expertise to create and develop these asset classes and manage them.
· Maintain HOLD, roll over to 2018 target price of S$6.86. We roll our SOTP target price over to 2018, which rises to S$6.86. The changes largely stem from an upward revision of the valuation from Keppel Capital, where we have increased our earnings forecast. Well-implemented cost controls on the O&M front, steady earnings from the Property division and growing Investment income will result in earnings largely bottoming out. While we appreciate Keppel to be on the long-term path of earnings recovery, there are no near-term earnings catalysts. Thus, we maintain HOLD. Entry price: S$6.20.
-The market is likely to drift lower in the holiday-shortened week, with investors focused on next batch of results from Singtel, City Dev and ST Engineering.
-Technically, the STI faces topside resistance at 3,360, with downside support is at 3,275.
– As spoken the current SG market is focusing on property related counters.
– Brisk demand for new private homes continued unabated following another good take-up during the weekend launch of Le Quest, a 516-unit mixed development in Bukit Batok.
– Developed by Qingjian Realty, the 99-year leasehold project, all 280 units available were snapped up at an average price of $1,280 psf.
– MKE prefers UOL and City Dev for exposure to the residential sector.
– 2Q17 results were in line as net profit jumped 59% to $109.4m on higher sales recognition from Principal Garden condo project, higher contributions from associates and fair value gains on investment properties.
– Revenue climbed 10% to $399.1m, with property development (+19%) accounting for 55% of turnover, while its hotel business was flat.
– The group plans to launch tow condo projects next year – 140-unit freehold development at Amber Road and a 750-init project at Potong Pasir Avenue 1.
– Trades at 0.79x P/B.
– MKE last had a Buy with TP of $9.05.
– 2Q17 net profit surged 61% to $69.8m, beating expectations on improved operational leverage.
– Revenue leapt to to $1.01b (+48.3%) to cross $1b for the first time, underpinned by strong execution of customers’ orders.
– Gross margin dipped 1.6ppt to 21.9%, but pretax margin improved 0.7ppt to 8.3%.
– Last traded at 17.8x FY17e consensus P/E.
– 2Q17 net profit of US$188.7m (+0.9%) was bolstered by fair value gains of US$15.4m. Excluding the non-trading items, core net profit fell 9.4% to US$173.3m, bringing 1H17 earnings to US$375m (+13%), or 43% of full-year consensus estimate.
– For the quarter, revenue rose 6% to US$4.29b, while operating margin was stable at 8.6% (-0.1ppt).
– Astra’s profit contributions fell 5% to US$130.8m on declines across automotive (-21%), financial services (-8%),agribusiness (-35%), infrastructure & logistics (-41%), with only its heavy equipment business (+70%) doing well.
– Direct motor interests (-7%) were also hit by poor earnings from Malaysia (-55%) and Indonesia (-41%), with Vietnam (+10%) and Singapore (+4%) holding up.
– Interim DPS of US$0.18 was maintained.
– NAV/share at US$15.19.
– 2Q17 net loss narrowed to $20.8m (2Q16: $36.8m loss), shored by a positive FX swing of $14m.
– Revenue slid 31% to $524.7m, as persistent weakness in its core shipyard (-31.6%) business overshadowed improved contribution from the dry bulk shipping (+4.7%) due to higher charter rates.
– Gross margin widened 2.4ppt to 3.9%.
– Bottom line was lifted by a $32m write-back on trade receivables, although partly knocked by a $9.6m disposal loss and $7.6m drop in tax credit.
– Last traded at 3x P/B.
*Manufacturing Integration Tech
– Turned around to 1H17 net profit of $2.8m (1H16: $0.8m loss).
– Revenue leapt 52% to $33.1m on strong orders, underpinned by the upcycle in the semiconductor industry and impending new major handset launches, as well as better contract equipment manufacturing business.
– Gross margin expanded 9ppt to 34%.
– Declared maiden interim DPS of 0.25¢ (1H16: nil).
– Order book stood at $22.4m at 4 Aug ’17, with management expecting recent momentum for new orders to persist.
– Net cash increased to $19.7m (8.8¢/share or 34% of market cap) from $14.1m in Dec ’16.
– NAV/share at $0.2234.
*Chip Eng Seng
– 2Q17 net profit plummeted 94.3% to $0.8m, partly hit by higher provisions relating to a construction project.
– Revenue sagged 9.3% to $212.6m, mainly dragged by property development (-8.2%) and construction (-13.8%) divisions, while both hospitality (+5%) and property investments (+13%) improved on higher occupancies.
– Gross margin shrank 5.6ppt to 17% on the shift in revenue mix.
– Bottom line was impacted by higher marketing expenses for Grandeur Park Residences, which was launched in Mar ’17, and the newly opened Maldives resort Grand Park Kodhipparu.
– Construction order book increased to $538.4m (1Q17: $457.2m).
– NAV/share at $1.2025.
*Yeo Hiap Seng
– 2Q17 net profit tumbled 35% to $5.3m despite realising a $5.4m FX gain on liquidation of subsidiaries.
– Revenue dropped 22.7% to $87.2m, as F&B sales were undermined by pricing pressure and transition to new distributors in Cambodia, as well as absence of $1.6m dividend income from the divested Super Group.
– Gross margin contracted 9.3ppt to 30.2%.
– Declared a special DPS of 2¢ (2Q16: nil).
– NAV/share at $1.1464.
– 2Q17 net profit slumped 46.5% to US$3.2m, bringing 1H17 earnings to US$5.7m (-36.9%), or just 27% of full-year consensus estimate.
– Quarter revenue slipped 13% to US$18.2m on lower sales due to the illicit competition in India.
– Gross margin narrowed 0.7ppt to 68.4%.
– Bottom line was weighed by higher operating expenses from R&D (+11.4%) and general & admin cost (+14.5%) due to professional fees.
– NAV/share at $0.3051.
– 2Q17 net profit inched up 2% to $3.8m on lower taxes (-23%).
– Revenue slid 14% to $78.7m, weighed by weak performances in retail and tradeshow divisions.
– Gross margin widened 2ppt to 22.3% following closure of several underperforming retail outlets.
– Maintained interim DPS of 1.1¢.
– NAV/share at $0.2336.
– 1H17 net profit declined 22.7% to $3.6m, as revenue slipped 2.1% to $67.5m.
– Operating margin contracted 1.8ppt to 6.3% due to absence of a $0.5m write-back of provision, and higher staff cost amid increased headcounts to support higher order book for 2H17.
– Order book increased to $53.1m (FY16: $46.8m), and majority of orders are expected to be fulfilled in 2017.
– Maintained interim DPS of 1.04¢, but cut special DPS to 3¢ (1H16: 3.76¢).
– NAV/share at $0.453.
– 2Q17 net profit dropped 40% to $1.4m, as taxes spiked more than double, albeit pared by absence of an FX loss (2Q16: $1.8m).
– Revenue slipped 1.3% to $50.3m amid lower sales for network infrastructure in Singapore and Australia.
– Gross margin shrank 2.6ppt to 23.4% on a shift in product mix and lower project write-back.
– Bottom line was also eroded by higher staff costs.
– Maintained interim DPS of 1¢.
– NAV/share at $0.1899.
– Turned around to 2Q17 net profit of $71.7m (2Q16: $3.2m loss), mainly due to a $74.9m disposal gain arising from sale of its entire 51% stake in GSH Plaza.
– Revenue surged 73% to $30.6m on stronger property development (+146%), as well as hospitality (+40%) due to higher occupancy and average room rates at its two hotels in Sabah, Malaysia.
– Gross margin narrowed 2ppt to 45%.
– Excluding disposal gain, however, bottom line was hurt by a spike in staff costs and increased finance expenses.
– Proposed special DPS of 1¢ (2Q16: nil)
– NAV/share at $0.212.
– 2Q17 net profit of $3.9m (+175%) was boosted by $3.5m disposal gain.
– Revenue grew 31% to $105.6m, bolstered by core IT division (+39.3%), which outweighed a drop in the PCB segment (-56.9%) due to lost capacity after the disposal of drilling machines in China.
– Gross margin shrank 2.9ppt to 13.7% amid reduced profitability in IT.
– Net cash position improved to $44.7m ($0.49/share, or 54% of market cap) from $39.2m in FY16.
– Maintained interim DPS of 1.11¢.
– NAV/share at $1.0755.
– 2Q17 net profit slumped 33% to $1.5m on absence of FX gains (2Q16: $1.4m).
– Revenue rose 5% to $12.9m, bolstered by higher hotel contribution, while leisure and property businesses were muted.
– Gross margin widened 1.2ppt to 46.1%, and bottom line was also cushioned by higher JV profit (+$0.9m).
– NAV/share at $0.25.
– 2Q17 close to breakeven with net profit of RM0.3m (2Q16: RM4.4m loss).
– Revenue spiked 113% to RM5.2m, due to increase in orders of ground calcium carbonate (GCC) stones.
– Gross margin expanded to 76% (+20ppts) due to ready stocks of GCC limestone from previous extraction activities.
– Group expects performance in the following months to be sustained by a step-up contract from another major customer.
– NAV/share at RM0.07.
– 2Q17 net profit edged higher to US$3.4m (+3%) on lower taxes (-26%) and reduced associate losses (-20%).
– Revenue slipped 1% to US$373.9m as stronger contribution from distribution of electronic components (+14%) was offset by a slump in consumer products (-83%).
– Gross margin expanded to 7% (+0.4ppts) on a favourable shift in sales mix.
– Interim DPS hiked to 0.29¢ (2Q16: 0.18¢).
– NAV/share at US$0.1511.
– 2Q17 net profit rose 10.2% to $1.2m, despite a 137.1% spike in revenue to $43.7m, led by higher sales from the Zawtika 1C project.
– However, gross margin narrowed 8.1ppt to 14.4% due to lower profitability from the trading segment.
– Bottom line was further impacted by higher admin costs (+8.6%) on increased insurance for its land rig and professional & consulting fees arising from to its Indonesian operations.
– NAV/share at $0.601.
News for today 7/8/2017:
– July job creation better than expected in UShttp://www.straitstimes.com/business/july-job-creation-better-than-expected-in-us?xtor=CS3-18
– Malaysia sees slower export growth in June https://asia.nikkei.com/Politics-Economy/Economy/Malaysia-sees-slower-export-growth-in-June
– Strong response on first day of sales at Le Quest in Bukit Batok http://www.straitstimes.com/business/property/strong-response-on-first-day-of-sales-at-le-quest-in-bukit-batok?xtor=CS3-18
– ‘Gig’ workers get their due http://www.straitstimes.com/business/economy/gig-workers-get-their-due?xtor=CS3-18
Stocks to watch today 7/8/2017:
– BHG Retail Reit last close $0.735, 52wk high/low $0.76/$0.57 – Company banks on growth of Chinese economy http://www.straitstimes.com/business/companies-markets/bhg-retail-reit-banks-on-growth-of-chinese-economy
– Chip Eng Seng last close $0.74, 52wk high/low $0.77/$0.615 – Company’s Q2 profit down on reduced margins, higher expenses http://www.businesstimes.com.sg/companies-markets/chip-eng-sengs-q2-profit-down-on-reduced-margins-higher-expenses?xtor=CS3-25
– Challenger last close $0.45, 52wk high/low $0.515/$0.44 – Company’s Q2 profit up 2% http://www.businesstimes.com.sg/companies-markets/challengers-q2-profit-up-2?xtor=CS3-25
– Courts last close $0.43, 52wk high/low $0.48/$0.38 – Courts planning $10m revamp of 7 Singapore outlets http://www.straitstimes.com/business/companies-markets/courts-planning-10m-revamp-of-7-spore-outlets
– Cosco Shipping last close $0.31, 52wk high/low $0.36/$0.24 – Company shrinks Q2 net loss by 43% http://www.businesstimes.com.sg/investing-wealth/cosco-shipping-international-s-shrinks-q2-net-loss-by-43?xtor=CS3-25
– DBS last close $21.49, 52wk high/low $22.25/$14.72 – The (bad loan) woods are dark and deep for DBS http://www.straitstimes.com/business/the-bad-loan-woods-are-dark-and-deep-for-dbs?xtor=CS3-18; DBS shares down on warning of higher provisions over O&G stress http://www.businesstimes.com.sg/companies-markets/dbs-shares-down-on-warning-of-higher-provisions-over-og-stress?xtor=CS3-25
– Dukang Distillers last close $0.24, 52wk high/low $0.82/$0.24 – Can Dukang offer the cigar butt’s last puff? http://www.businesstimes.com.sg/opinion/can-dukang-offer-the-cigar-butts-last-puff
– GSH Corp last close $0.57, 52wk high/low $0.60/$0.27 – Company in the black with Q2 profit of S$71.7m, helped by disposal gain http://www.businesstimes.com.sg/investing-wealth/gsh-corp-in-the-black-with-q2-profit-of-s717m-helped-by-disposal-gain?xtor=CS3-25
– Jardine C&C last close $40.08, 52wk high/low $48.50/$38 – Company posts 22% profit rise in first half http://www.straitstimes.com/business/companies-markets/jardine-cc-posts-22-profit-rise-in-first-half?xtor=CS3-18
– Jardine Matheson last close US$64, 52wk high/low US$67.27/US$52.90 – Company’s H1 profit more than doubles to US$2.08b http://www.businesstimes.com.sg/companies-markets/jardine-mathesons-h1-profit-more-than-doubles-to-us208b?xtor=CS3-25
– Noble last close $0.37, 52wk high/low $2.80/$0.285 – SGX, MAS draw further fire over Noble saga http://www.businesstimes.com.sg/companies-markets/sgx-mas-draw-further-fire-over-noble-saga?xtor=CS3-25; Noble says it does not wish to comment further on Iceberg’s allegations http://www.businesstimes.com.sg/companies-markets/noble-says-it-does-not-wish-to-comment-further-on-icebergs-allegations
– Rowsley last close $0.112, 52wk high/low $0.198/$0.065 – Albert Hong ceases to be substantial shareholder of Rowsley http://infopub.sgx.com/FileOpen/_Rowsley_AH_Form3_270717.ashx?App=Announcement&FileID=465683
– Sabana REIT last close $0.445, 52wk high/low $0.52/$0.34 – Warburg Pincus-backed ESR in talks to buy Singapore’s Sabana REIT: sources https://www.reuters.com/article/us-sabana-shariah-m-a-esr-idUSKBN1AM0W1
– SPH last close $2.88, 52wk high/low $3.86/$2.85 – Company investing $8.5m in Han Language Centre http://www.straitstimes.com/business/sph-investing-85m-in-han-language-centre?xtor=CS3-18
– Stratech Group last close $0.061, 52wk high/low $0.19/$0.059 – Company in preliminary talks with potential investors http://www.businesstimes.com.sg/companies-markets/stratech-group-in-preliminary-talks-with-potential-investors
– Serial System last close $0.183, 52wk high/low $0.193/$0.128 – Company posts 3% growth in Q2 profit http://www.businesstimes.com.sg/companies-markets/serial-system-posts-3-growth-in-q2-profit?xtor=CS3-25
– UOL last close $8.06, 52wk high/low $8.25/$5.50 – Company’s Q2 profit surges 59% on back of residential sector http://www.straitstimes.com/business/property/uols-q2-profit-surges-59-on-back-of-residential-sector?xtor=CS3-18
– Venture last close $13.85, 52wk high/low $14.38/$8.89 – Company’s Q2 profit grows 61% to S$69.8m as net margin improves http://www.businesstimes.com.sg/companies-markets/ventures-q2-profit-grows-61-to-s698m-as-net-margin-improves?xtor=CS3-25
– World Class Global last close $0.245, 52wk high/low $0.28/$0.235 – Company’s H1 bottomline still mired in red ink with S$2.9m loss http://www.businesstimes.com.sg/companies-markets/world-class-global-h1-bottomline-still-mired-in-red-ink-with-s29m-loss
– YZJ Shipbuilding last close $1.46, 52wk high/low $1.50/$0.705 – From Singapore’s worst-performing stock in 2016 to best this year http://www.straitstimes.com/business/companies-markets/yangzijiang-shipbuilding-from-singapores-worst-performing-stock-in-2016
Key Takeaways From Results Briefing
Analyst: Jonathan Koh, CFA Tel: (65) 6590 6620
- Guidance for 2017. Management expects loan growth of another 3% in 2H17, bringing full year loan growth to 6%. NIM is expected to improve by 2-3bp in 2H17 and should averages 1.75-1.76% for the full year. Specific provisions could creep up due to deterioration in valuations of collaterals.
- NIM was flat at 1.74% in 2Q17. Singapore provided positive impact with NIM expansion of 2bp qoq. However, Hong Kong was affected by the drop in HIBOR, especially 1M HIBOR, as a result of excess liquidity, resulting in negative impact with NIM compression of 2bp qoq.
- Integration of ANZ’s wealth management business underway. DBS has completed the acquisition of ANZ’s wealth management business across five markets, namely Singapore, Indonesia, Hong Kong, Taiwan and China, at S$110m above book value. The acquisition would progressively add AUM of about S$20b (S$8-9b in 2H17). Management estimated that the acquisition would contribute income of S$125m in 2017 and S$475m in 2018.
- Remnants of NPLs from the Oil & Gas sector to be recognised in 2H17 and 2018. Management expects asset quality to be under pressure and heightened credit costs to persist due to the depressed level of crude oil prices. DBS has exposures of S$3b to 90 smaller offshore support companies. 60% or S$1.8b of these smaller accounts are deemed vulnerable, of which S$0.8b is already recognised as NPLs as of Jun 17. S$500m of new NPLs could be recognised in 2H17 and the balance of another S$500m in 2018. This would necessitate specific provisions of S$250-300m each during 2H17 and 2018.
- Good to receive more dividends. DBS’ fully loaded CET-1 CAR is the highest among the three local banks at 14% and its payout ratio is 36% even after the current increase in dividends. The review of Basel 4 by the Basel Committee could be completed by Oct 17. Management might review DBS’ dividend policy again if capital requirements from Basel 4 is clarified and finalised.
Attractive as this may sound, consider carefully before you part with your money. Even if you are presented with financial reports showing the possibility of consistent and high returns for the investment, or testimonials of how other investors have benefited from land banking, take a step back and consider what the risks are. This is critical.
After all, where there is an opportunity for you to make some money, there is always a chance that you can lose some or all of your money. There is no free lunch. In the case of land banking, you may have seen media reports about investors losing money in land banking schemes in various countries. Some schemes have also turned out to be scams!
This article explains what land banking is, highlights the key risks and important questions you should consider before deciding whether to place your money in a land banking proposition.
1) What is land banking?
Land banking companies typically seek investors to buy small plots of land and promise them high potential returns. Some may also promise regular payouts for a fixed period.
The land is usually on the outskirts of a city, where urban development appears to be likely to take place. Investors are often told that developers would be willing to buy the land at much higher prices when the land is developed or when plans for urban development are drawn up.
2) What are the key risks?
Investing in land is not always equivalent to investing in solid ground. Some land banking schemes have turned out to be scams.
Investors should be cautious of land banking when the land is being sold in a location with which they are not familiar. It is also useful to check if warnings have been issued to caution investors.
b) What if plans to develop the land are derailed?
Consider what factors could derail the land banking firms’ plans to develop the land plots as planned.
Land banking schemes generally project that the value of the land would increase exponentially when permission is obtained from the relevant authorities to develop the land, be it for housing or other purposes. This may sound promising. But if permission to develop the land is not obtained, the value of the land plots would be affected. Do also note that in some countries, “green belt” or agricultural land are often protected from development by planning law. Selling these land plots would be very difficult, especially at a profit.
Also, even though the company may project that the value of the land would increase in, say, four or five years time, this is only a projection and ultimately still depends on an acceptable offer coming in to buy the land.
Once an offer does come in, the sale may be conditional on a majority (for example 60%) of unit holders in the land parcel agreeing to sell. So when an offer comes in, there will be a vote. You may be willing to sell but if the majority wants to hold out for a higher price, your money will be tied in for longer.
If no offer comes in, your money could also be stuck in the scheme for longer than the projected period.
It is also useful to find out what could happen if the firm is unable to sell the land plots within a certain time frame. How would the timeline for developing the land be affected? Drawing up development plans and developing a piece of land takes time, at least a few years. What could happen to your investment if the firm does not have financial resources to see through the project?
c) What if you need cash urgently?
For land banking, you must be prepared to wait. If you find that you need cash urgently before the land banking operator sells the land to say a developer, you may find it difficult to sell your land plot to other parties.
d) Foreign exchange risks
Land banking propositions are usually marketed to overseas investors. If you purchase a land plot in a foreign country such as Canada, USA or the United Kingdom, you would be exposed to foreign currency risks.
3) Is land banking regulated by the Monetary Authority of Singapore (MAS)?
With the focus on financial markets, the SFA regulates the offering of real estate related investments if they are in the form of securities. However, land banking investments typically involve investors acquiring direct interests in real estate rather than securities related to real estate. As such, land banking investment typically falls outside the scope of the SFA and FAA.
MAS advises consumers to deal with regulated persons when it comes to managing their financial affairs such as investments. You can check two lists:
MAS aims to safeguard the interests of investors by authorising competent and professional persons to provide regulated financial services. If investors choose to deal with persons that are not regulated by MAS, they forgo the protection afforded under laws administered by MAS.
4) Key Questions to ask yourself
Even if you have sighted the land, how much do you understand about the property, prices and land development laws in that country, and in that area? How can you be sure if the purchase price quoted to you is a good deal? Do you know what is the likelihood of the land value rising? Do your own research and do not simply rely on the salesman’s advice. They may exaggerate the value of the land in order to close the sale.
b) What do you know about the company you are dealing with?
There might be a professional looking website and an authentic sounding name but what is the background of the company? Have you checked if the firm is regulated in the country that they are set up in or selling the land in? If they offer to “reserve” you a plot of land for a small cost, how can you assess if this is a credible offer? Can you really trust them with your money? Have you found out what recourse options would be available to you if you later find that you have a problem in your dealings with the company?
c) What do you know about the law of the country where you are investing in?
What would be your rights to the land as an investor? What recourse is there if a dispute arises with the company?
d) How can the company afford to offer such high returns or promise of a big profit?What are the returns dependent on and how often will you receive them? Are the returns guaranteed and do you have this in writing? How easily can you find out about any increase or decrease in value of the land? How long must you stay invested for and what are the pitfalls if you need to draw out your money early?
– Acquired a 50% stake in a prime freehold office building (717,000
– Construction is due to start in 3Q17 with completion expected in 4Q19
– The 41-storey office tower will be fully leased to the Victoria state government for 30 years with fixed rental escalation and a market rent review after 15 years.
– It comes with a stable average NPI yield of 6.4% over the first 15 years of the lease and will extend portfolio WALE to nine years.
– This is an accretive purchase with minimal leasing risk, and will lift pro forma FY16 DPU by 1.1% to 6.44¢.
*Del Monte Pacific
– 4QFY17 core net profit rose 16.5% to US$17.2m (+16.5%) bringing FY17 core earnings to US$45.5m (+80.1%), beating
– Quarter revenue grew 3.9% to US$545.2m (+3.9%) on broad-based growth across Americas (+1.5%), Asia (+5.1%) and Europe (+68.8%).
– Gross margin improved to 23.3% (+1.4ppt) on cost improvements but operating margin of 6.7% (-5.3ppt) was marred by higher selling and marketing expenses at its US unit and absence of net US$15.2m one-off gains.
– First and final DPS of US$0.0061 represents 50% dividend payout.
– Updated that offeror HNA Belt and Road Investments has released its EGM circular to seek shareholder approval on the pre-conditional buyout offer at $2.33/share.
– The date for the EGM has not been set, with the long-stop date of the offer on 9 Sep ’17.
– Secured several contracts worth a total of $9.6m, scheduled for completion through to 3Q20.
– Contracts were from both new and repeat customers, comprising MNCs, and companies in O&M, infrastructure and petrochemical industries.
– Trading at 11.2x trailing P/E, above the 5-year average of 8.1x.
– StarHub has agreed to subscribe for 26.3m shares at $0.57 apiece in the proposed placement of 87.7m new shares.
– Post-placement, StarHub’s stake will be lifted from 8.39% to 10.1%.
– Debut trading today following the placement of 38m shares (18m new shares, 20m vendor shares) at $0.29 apiece (7.4x FY16 P/E).
– Net proceeds of $3.4m will be used to fund business expansion.
– No fixed dividend policy, but it intends to distribute not less than 20% of earnings in FY17 and FY18.
– Acquired a 2-storey freehold shophouse at 359 Jalan Besar for $5.2m.
– Store to be opened to sell bearings, seals, gearbox and electrical products.
– Acquired a freehold industrial property in Siang Cavite,
– The 13,600 sqm gfa property will be used to expand its light electric vehicle business in Philippines.
– Broke ground at Keppel Marina East Desalination Plant.
– The facility will be able to produce 30m gallons of drinking water per day.
– Slated for completion by 2020.
– Welcomed Shinhan Investment and Cathay Futures as new derivatives trading members.
– Total members lifted to 59.
Singapore Stocks to Watch
* Singapore signs OECD agreements to improve tax transparency
*Ascendas REIT (AREIT SP): Cut to hold from buy by OCBC, PT S$2.66
* Mapletree Industrial (MINT SP): Offers less growth visibility than Ascendas: BI
*Nam Cheong (NCL SP): Gets writ of summons over OCBC debt: Business Times
* Olam (OLAM SP): Necotrans rejected offer by Olam, Challenges reports
*Singapore Press Holdings (SPH SP): JV with Kajima Development wins tender for 99-year land lease for S$1.1b.
Malaysia Stocks to Watch
* Malaysia to form commission of inquiry to look at forex losses
*Berjaya Media (BMED MK): 4Q loss 14m rgt vs 3.5m rgt loss y/y
* Bursa Malaysia (BURSA MK): Cut to neutral at Nomura, PT 11.40 ringgit
*Comfort Gloves (CG MK): 1Q net 10.1m rgt vs 9.4m rgt loss y/y
*DRB-Hicom (DRB MK): To sign definitive pact with Geely on Proton Friday; Shares suspended
*Glomac (GLMC MK): 4Q net 1.3m rgt vs 22.6m rgt y/y
*Johan (JOH MK): 1Q net 9.1m rgt vs 5.8m rgt loss y/y
* SCGM (SCGM MK): 4Q net 5.1m rgt vs 3.5m rgt y/y
– The market is expected to bounce around as oil prices slumped to a 10-month low on growing worries of excess crude supply.
– However, property counters will be supported by possible privatisation of UIC.
– Technically, the STI breached its 50-dma at 3,212 and has also broken below the intermediate uptrend line drawn from late-2016. Immediate support is now at 3,190, with overhead resistance at 3,268.
– Divested its entire 65% stake in Vietnam-based developer Sparkle Value Homes for US$4.6m ($6.4m), or 1.35x P/B.
– Deal expected to net a divestment gain of US$1.2m ($1.7m).
– MKE last had a Hold with TP $3.75.
– MOA with Boeing to provide aircraft maintenance training services to Southeast Asian airlines.
– Aircraft types include current and new generation models including 737, 777 and 787.
– Placement of 87.7m new shares at $0.57 each has been successfully placed out.
– Obtained favourable data from the 24-month follow-up of patients.
– Treatment was using group’s Chocolate Heart drug-coated coronary balloon.
– Counter still loss-making and has net liability value of US$0.01/share.
– Disposing two Japanese properties (New City Apartments Kuramae and Minowa) for ¥1.12b ($23.4m).
– Deal expected to reap disposal gain of $0.2m.
– Proceeds earmarked for acquisitions of other properties and investments in the Asia-Pacific region.
– Acquiring 51% stake in Tianjin Belong Faith Energy Minerals for Rmb74.2m.
– Funding via 48.6m new Abterra shares at $0.31 apiece, 8.8% below last traded.
– Pro forma FY16 NTA/share to inch up to 23.08¢ (+0.3%), while LPS will narrow from 9.47¢ to 7.34¢.
– Maturity date for the $45m 6% convertible bond extended from 21 Jun ’17 to 21 Sep ’17.
*Genting Hong Kong
– 44.9% associate Travellers Int’l ordered to suspend gaming operations at Resorts World Manila.
– This is pending investigation into its alleged liability in a recent deadly attack at its hotel-casino complex.
– Travellers contributed US$32.7m share of profit to GENHK’s core pretax loss of US$195.6m in FY16.
– Trades at 0.54x P/B.
– Welcomed Taiwan-based Hua Nan Futures as a derivatives trading member.
– Participation to add liquidity and distribution.
– Trades at 22.8x forward P/E vs HKEx 35.3x.
*Perennial Real Estate
– 90:10 JV with Shanghai Broad Ocean Investments.
– JVCo to set up a specialist medical centre in China.
– Local JV partner is an investment firm with businesses in the consumer and logistics industries.
– Counter trades at a 44% discount to its NAV/share of $1.61.
– Appointed Asian Corporate Advisors as its IFA for the proposed RTO of Yoma’s tourism business.
- We maintain our HOLD recommendation on SIA (SIA SP) with a S$10.00 target price. Odds of an earnings recovery is low, given continued yield pressures.
- While SIA’s May pax loads improved 3.9ppt yoy, we believe this could be largely at the expense of yields.
- We expect yields to remain challenged in FY18 as excess capacity and security concerns over terror attacks lead to capacity diversions and impact Asian network carriers. For instance, US airlines are said to be reducing capacity from Trans-Atlantic routes and shifting to Trans-Pacific routes. This will exacerbate capacity pressure and consequently yields for most Asian carriers, including SIA.
- Separately, flight restrictions on Qatar Airways (QR) might not benefit SIA. QR has a 9% share of the Kangaroo route between Australia and Europe. However, competition for QR’s share is keen and might not be in SIA’s favour as the three primary Middle-Eastern carriers have lowered prices, with fares substantially lower than SIA’s.
- We also believe that a disposal of SIA Engineering (SIAEC) is not in SIA’s shareholders’ interest and is unlikely part of SIA’s transformation plan. This is due to a) SIAEC’s ROE is substantially higher than the parent airline and provides a much needed buffer to airline operations, b) about 60% of SIAEC’s revenue is derived from SIA and the unit is vertically integrated with SIA’s operations providing revenue and cost synergies.SIAEC also generally benefits when SIA places new orders and this can be evidenced by an engine JV with GE, following SIA’s purchase of GE9X Engines for the Boeing B777-9s.
SIA will likely provide greater details on its transformation plans by end-November. Until then, we expect the stock to languish sideways.
For now, we maintain our HOLD recommendation and target price of S$10.00. We will be sellers at 5% above our target price, and buyers near S$9.00.
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