6 COMPANY NEWS The Business Times, Thursday, October 15, 2009

UOB-Kay Hian makes ‘sell’ call on SIA, citing ROE concern

It puts a fair value
price of $11.90
on the stock
By VEN SREENIVASAN
UOB-Kay Hian Research
has called a “sell” on Singa-
pore Airlines, putting a fair
value of $11.90 on the
stock.
In a report, the research
house cited three factors –
a fall in market share at
Changi, a decline in premi-
um traffic and yield com-
pression due to intense
competition.
The report – “Fully Fac-
toring In Blue Skies Scenar-
io”, by analyst K Ajth – says
SIA’s share price has recov-
ered on expectations of an
influx of tourists sparked
by the upcoming integrated
resorts (IRs) at Marina Bay
and Sentosa.
“Affirming the strong
likelihood of an initial surge
in visitor arrivals, we have
raised our passenger traffic
growth assumption for FY
2011 from 3.5 per cent to
7.1 per cent after factoring
in a 14.7 per cent rise in vis-
itor arrivals, a correspond-
ing 16.9 per cent rise in visi-
tor arrivals via air and final-
ly, a 46 per cent share of
passenger traffic at Changi
Airport,” the report says.
“We have also factored
in an improvement in
yields, with just a 5 per cent
fall in FY 2010 and a rever-
sion in yields before sur-
charge at close to FY 2009
levels.”
UOB-Kay Hian has
raised its FY 2010 and FY
2011 net profit forecasts by
32 per cent and 84 per cent
respectively. But still, it
says SIA’s return on equity
(ROE) will not head to-
wards the previous mean
price/book levels and there-
fore does not justify a “buy”
rating.
Of particular concern is
SIA’s steady loss of market
share at Changi Airport.
The report questions
whether the airline, faced
with growing competition
from full-service and
low-cost rivals, will be able
to regain its share without
significant fare discounts. It
notes that SIA’s passenger
carriage as a proportion of
passenger throughput at
Changi Airport declined
from 53 per cent in August
2008 to 43 per cent at
end-June 2009.
“We presume this was
due to low-cost carriers
and other full-service carri-
ers gaining market share,”
it says.
Meanwhile, premium
traffic has softened signifi-
cantly over the past year,
particularly on regional
routes. And SIA has tradi-
tionally obtained about 40
per cent of its income from
this segment.
“We believe the days of
high-yielding premium traf-
fic will not return any time
soon, and this has been ech-
oed by Cathay Pacific’s CEO
Tony Tyler, also chairman
of International Air Trans-
port Association,” the re-
port says.
“The market has not ap-
preciated the significance
of this, believing instead
that this is just a cyclical ad-
justment and not a structur-
al change.”
UOB-Kay Hian has fac-
tored in yields of 10.8 cents
per revenue passenger kil-
metre (RPK) for FY2010
and 11.2 cents/RPK for FY
2011.
“A swing factor for
yields is forex movements,
and strength in the Singa-
pore dollar will hurt
yields,” it points out.
UOB-Kay Hian’s report
contrasts sharply with a
Sept 22 DBS Vickers report
that called a “buy” on SIA
with a target price of
$15.25. That report cited
steady demand recovery,
improving yields and the po-
tential tourism boost from
the IRs.
SIA’s stock closed at
$14.28 yesterday, up 12
cents. The stock has risen
45 per cent this year.

Ying Li eyes forming China

a Reit by 2013
Odds are high once
its rental income is
steady and asset
size exceeds $1b
By LYNETTE KHOO
YING Li International Real
Estate may spin its assets
into a real estate invest-
ment trust (Reit) by 2013
once its rental income is
steady and asset size ex-
ceeds $1 billion.
This could materialise
when its current project In-
ternational Financial Cen-
tre (IFC) is completed and
revalued on a mark-to-mar-
ket basis.
“We wish to go into an
asset-light model. We are
talking to established inter-
national players to eventual-
ly securitise our assets – to
inject our properties into a
Reit,” Ying Li chief execu-
tive Fang Ming told BT yes-
terday in an interview.
The group may tie up
with other established pla-
yers, such as Macquarie Pa-
cific Star, to tap their exper-
tise, he added. The Reit
could potentially be held by
a 50-50 joint venture.
Ying Li’s current asset
size is slightly less than
three billion yuan (S$612.0
million). The IFC, an inte-
grated commercial project
now being constructed, and
the Future International
Building – the highest build-
ing in Jiangbei district –
would be natural candi-
dates for the Reit, he add-
ed.
IFC’s retail component
is expected to be completed
in June next year, while the
entire development is ex-
pected to be completed by
the end of next year. The
usual gestation period for
Ying Li’s projects is about
one to two years.
Mr Fang: He says the group may tie up with other established players, such as
Macquarie Pacific Star, to tap their expertise
No rental contracts have
been inked for the 36,920
sqm of retail space at IFC
yet but Ying Li is working
with the project’s broker
Jones Lang LaSalle to get
the right mix, Mr Fang
said. Some names that
could soon be spotted at the
upcoming iconic develop-
ment include Louis Vuitton,
Liberty Insurance, and Chi-
na Development Bank.
Given the shortage of
Grade A office space in
Chongqing, demand for the
108,388 sqm of office space
in IFC is also expected to be
strong, Mr Fang said.
But until the IFC is com-
pleted, revenues and pro-
fits are expected to be mut-
ed. Other high-end proper-
ties for residential, retail
and office uses will be
rolled out from 2010 to
2013.
Still, the group expects
to stay in the black, he add-
ed. Its earnings are expec-
ted to be stronger in 2010
and 2011 when the IFC
comes on stream.
Ying Li’s net profit for
the second quarter ended
June 30 plummeted to
278,000 yuan from 491.39
million yuan in the second
quarter and net profit for
the first half slumped to
751,000 yuan from 501.83
million yuan despite stable
rental income. A key factor
was that it enjoyed “other
income” of some 499 mil-
lion yuan in Q2 2008 rela-
ting mainly to a non-recur-
ring negative goodwill.
Mr Fang explained that
group earnings were den-
ted by the costs of building
IFC and San Ya Wan Phase
2 project – a mixed develop-
ment with residential and
retail components.
It has since secured a 50
million yuan loan facility
from OCBC for working cap-
FILE PHOTO
ital and 450 million yuan of
project financing loan from
China Construction Bank
for IFC. This followed a pri-
vate placement last month
that raised gross proceeds
of $30 million to fund the
development of IFC and re-
pay loans.
Mr Fang noted that Ying
Li’s current gearing of
8 per cent is still one of the
lowest among developers
in Asia. Further capital re-
quirements will come from
rental income from IFC and
pre-sales of residential
units.
According to him, Ying
Li is the only Chongqing
property developer in the
consortium that is working
with the Singapore govern-
ment on the possibility of
developing Wuyi road into
a world-class financial cen-
tre. A delegation from
Chongqing is coming to Sin-
gapore next month to dis-
cuss this.
Gaoxian’s
Q2 profit
falls 7.7%
By LYNETTE KHOO
RECENTLY-listed textile
company China Gaoxian re-
ported net profit of 91.2 mil-
lion yuan (S$18.7 million)
for its second quarter en-
ded June 30, a year-on-
year fall of 7.7 per cent.
The quarter’s revenue
slipped 5.3 per cent to
422.4 million yuan. The
company said that despite
the textile industry slow-
down in China, half-year
revenue grew 1.9 per cent
from a year ago to 841.1
million yuan. And net profit
climbed 1.3 per cent to
185.1 million yuan.
Sales volume in the first
six months rose by 16 per
cent year-on-year while
gross margins held steady
at about 31 per cent.
The group expects the
worst to be over and
growth momentum to con-
tinue in the second half on
the back of higher sales vo-
lumes.
China Gaoxian’s order
book grew to 302 million
yuan as at Sept 30 from
273 million yuan as at end
June this year.
“We believe our strate-
gic focus on the domestic
market will continue to pay
off as domestic textile and
garment manufacturers are
increasingly turning to-
wards local suppliers for
premium differentiated po-
lyester yarn products,” the
group’s chairman and chief
executive officer Cao Xiang-
bin said. “This is inevitable
as local suppliers are capa-
ble of providing more com-
petitive pricing and under-
stand local needs better
than our foreign counter-
parts,” he added.
Almost all products ma-
nufactured by the group
are sold domestically. The
group produces differentia-
ted polyester – the segment
where imports are still
needed to fill demand.
Mr Cao said that the
group has embarked on an

OCBC Cycle S’pore to benefit cancer research aggressive pricing strategy

By ARTHUR LEE
OCBC Cycle Singapore 2010, which
will be held on March 6 and 7, has
named the National Cancer Centre Re-
search Foundation as the event’s cho-
sen charity.
Through various pre-event activi-
ties and the event itself, OCBC Cycle
Singapore hopes to raise public
awareness and funds for cancer re-
search. In addition, participants can
create their own fund-raising page on
the event’s website to encourage on-
line donations to OCBC Bank’s adopt-
ed charity, the Singapore Children’s
Society.
Strong feedback from many partici-
pants of the first Cycle Singapore held
in February this year encouraged
OCBC Bank to continue its title spon-
sorship. The event, which is support-
ed by the Singapore Sports Council,
seeks to encourage an active and
healthy lifestyle across all age, gender
and fitness levels.
to capture market share
while raising its production
Next year’s event will include a tri- capacity for higher value
cycle ride category for children aged products.
two to five years. There are also two The group has proposed
elite events – the 40km Challenge and an interim dividend of
0.66 cents per share.
the 50km Super Challenge.
“As long as we can, we
The new 10km circuit of the Super want to maintain a stable
Challenge takes in city landmarks dividend policy,” chief fi-
such as Esplanade Drive, Shenton nancial officer Raymond
Way, Sheares Bridge and East Coast Wong said.
Park. It follows the same course as The company’s shares
next year’s Youth Olympics road ended trading up 1.5 cents
race. at $0.26 yesterday.