outlook 2014

First Edition

A Look Into Singapore’s Stock Market In 2014

Outlook2014

Introduction

2

Engaging You, The Retail Investor!The shift of media consumption has long been in the making. The digital and social media revolution is upon us and this e-publication is just one of the many channels in which we hope to engage our readers.

In this e-publication we have sought to bring all that is good be-tween the two brands, namely, Shares Investment and Trade-able.

With Shares Investment, we hoped to encapsulate the detailed analysis and stock picks that our sister publication is known for. Coupled with expert analysis from investment gurus such as Hu Li Yang, with whom they have cultivated a very good relation-ship with.

At the same time, we hope to bring elements of Tradeable’s granular and easily understood style to this e-publication. To-gether with visuals that compel and educate the reader, we are sure that this e-publication will be a hit with retail investors.

Organisation And ContentThis e-publication is composed of three main sections that are fairly independent and may be read in a variety of sequences.

However, I would recommend that you read from the beginning to the end so as to get a richer reading experience.

Part 1 is a broad introduction section which sets the global eco-nomic picture moving forward into 2014. It is in this section where we will feature an exclusive interview with investment guru, Hu Li Yang.

Part 2 will delve deeper into specific sectors which we feel will perform well in 2014. Look out for those specific catalysts that could underpin growth in each sector.

Part 3 will look at stock picks for the new year. These stock picks have been done through a thorough phase of fundamen-tal analysis in which specific developments and possible future catalysts could propel share price appreciation.

By the end of this e-book, I hope that you would have grown just a little bit wiser when it comes to investing in stocks in 2014.

Here’s wishing all readers a healthy and prosperous 2014!

Simeon AngEditorTradeable

1 In this section we will look at the macroeconomic factors that might affect the Singapore stock markets.

This section will be comprised of:• Investment guru, Hu Li

Yang’s overall outlook• The Shares Investment

team’s outlook on:• Developed markets• Emerging markets

Macroeconomic Outlook

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If the previous 10 years were years of wealth appreciation, then the next 10 years will be years of wealth depreciation. This is the grim and stark prediction that Asian investment guru, Hu Li Yang had when I caught up with him when he was in town over the weekend.

Eager to find out more, I asked him about his outlook for 2014 as well as what investors should look out for in the year of the horse.

Outlook 2014 – High US Stock Prices A Bad OmenOff the bat, Hu was very pessimistic. When asked about his out-look for 2014, he mentioned two major factors that have fed his naysaying. The first factor being that US stock indices are cur-

rently at their peaks. And as with most situations, when prices have hit peaks, they usually fall dramatically.

In fact, all three major US stock indices (S&P 500, NASDAQ, Dow Jones) are currently at historic highs. Hu felt that US mar-kets are currently reflecting all future expectations of an eco-nomic recovery. In fact, he feels that US markets are currently overpriced.

Source: FactSet, 5 year chart on S&P 500 (Blue) versus Dow Jones Industrial (Green) versus NASDAQ (Red)

Hence, in an overpriced market, all that is needed is a small nudge in the opposite direction and the house of cards would fall.

Section 1

Hu Li Yang: Don’t Fall Off The Horse’s Back in 2014!

5

The second major issue that Hu noticed was that during the first few days of trading, the broad Straits Times Index (STI) had black candles for four out of five days.

In his analysis over the years, Hu found that the yearly perform-ance of the STI can be extrapolated from the first five days of trading. He realised that this extrapolation had a 70 percent probability of being true.

Source: FactSet, candlestick chart of the STI in the first few days of 2014 trading

A quick screening of the past two years revealed that Hu’s as-sertion seems to bear some weight. In the beginning of 2013, the STI had black candles for four out of five days while in 2012, the STI had white candles for four out of five days.


Coincidentally, the STI recorded double digit growth by the end of 2012 while by the end of 2013, the STI barely managed to eke out growth.

In Agreement With Goldman And The Two MorgansWith this much foreboding, I asked Hu if he agreed with an equally pessimistic report on emerging markets by three top US banks. Without hesitating, Hu replied with a resounding yes.

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He mentioned that back in 2003, he had written that the decade to follow would result in wealth accumulation in which asset prices will appreciate. Except for the Great Recession of 2008/09, asset prices did appreciate.

However, from 2014 onwards, Hu feels that the decade to fol-low will be that of wealth depreciation. He feels that asset prices are currently in the overpriced region and will have to cor-rect.

In particular, the following two to three years will see price cor-rections that will hurt. Immensely. Given that the US is expected to start increasing interest rates in 2015, Hu feels that the sec-

ond half of 2014 and 2015 will prove to be immensely challeng-ing for traders or investors who are holding on to assets.

Cash Will Be KingConversely, Hu said that investors or traders who are sitting on hoards of cash will stand to benefit from the price correction. However, Hu cautions that such value investments will be long term and investors who value invest should not be eager to cash out.

Value investing is a form of investing in which investors buy oversold or underpriced assets. High profile proponents of value investing include the Oracle of Omaha, Warren Buffett as well as Benjamin Graham.

But as so often repeated by Hu during his seminar as well as during the interview with me, caution should reign supreme in investors’ minds. In the year of the horse, it is pertinent that in-vestors not fall off the horse’s back in the search for yield and returns. Hence, hold onto your cash tightly and only invest after you have done your homework.

Hu Li Yang is one of the most popular investment and finance experts among Chinese from all over the world. He is widely ac-credited with bringing Wall Street terms to the orient. He has ac-curately analysed and predicted various global financial trends and is well-received by retail investors.

7

As we gallop into the year of the horse, based on the China al-manac, one of the sure signs we are seeing this year is the gradual recovery of major economies worldwide supported by better numbers and data, suggesting that we are nearing the light at the end of the tunnel after sinking into the global finan-cial crisis five years ago.

According to the International Monetary Fund (IMF), global growth is projected to be better this year at 3.7 percent, up from 3 percent in 2013.

The World Bank is also raising its global growth forecasts as easing of austerity policies in advanced economies supports their recovery, boosting prospects for emerging markets’ ex-ports. It expects the world economy to expand 3.2 percent this year, compared to a June projection of 3 percent and up from 2.4 percent in 2013.

On the developed economies, IMF estimates growth to con-tinue on an increasing trajectory from 1.3 percent in 2012 and

1.5 percent in 2013 to improve further to 2.5 percent in 2014, while the rest of Asia is also expected to improve to 5.4 percent in 2014 from 4.8 percent in 2013.

Let us explore some of the major themes that will be surround-ing the developed economies this year.

United StatesIn the US, a continuing theme from last year is the tapering of the US$85 billion bond-buying programme, which has been set in motion beginning in January 2014. The Federal Reserve (Fed) has launched the cut back on its asset purchases by US$10 billion, which would be gradually increased if the eco-nomic recovery holds.

This move could likely see interest rates climb in later part of 2014 although the Fed has pledged not to consider raising its benchmark interest rate until the unemployment rate has fallen to at least 6.5 percent. That aside, the improving economy will also likely help boost the US dollar.

The new Fed Chair, Janet Yellen, is hopeful of a stronger growth in US this year, with gross domestic product (GDP) growth rate to accelerate to 3 percent or more and the persis-tently low inflation to move up towards the central bank’s target of 2 percent annual inflation.

Section 2

Developed Markets To Regain Luster?

-9

-6.75

-4.5

-2.25

0

2.25

4.5

6.75

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

US Eurozone Japan

Sources: US Bureau of Economic Analysis, Eurostat, Cabinet Office of Japan

Chart on the quarterly GDP growth of US, Eurozone and Japan from 2008 to 2013.

9

The strengthening of the world’s largest economy may be enough to rally equities in the US and abroad, according to head of global strategy and research at Pavilion Global Markets in Montreal.

EurozoneDespite lingering debt issues and high unemployment, the out-look for Eurozone is improving where the Purchasing Manag-ers’ Index is on an uptrend, signaling broad-based manufactur-ing improvement.

Further signaling its course is on a gradual economic turn-around, the Eurozone achieved two successive quarters of ex-pansion in 3Q13, ending the longest contraction in continental Europe in over 40 years.

3Q13 GDP grew only 0.1 percent quarter-on-quarter but lower than the 0.3 percent growth rate posted in 2Q13. This was, how-ever, supported by a stronger domestic demand with both pri-vate consumption and investment growing mildly.

Nonetheless, the recovery remains brittle given the record un-employment and low inflation. The spotlight remains on the European Central Bank for fresh monetary stimulus, should de-flationary risks intensify.

JapanJapan’s economy has improved dramatically since Prime Minis-ter Shinzo Abe took office and ‘Abenomics’ could likely end Ja-pan’s two decades of deflation after driving the Nikkei 225 up substantially in 2013.

Nonetheless, 2014 would likely continue to see Japan balanc-ing a fine line with ‘Abenomics’ and tax hike to rein in debts as well as its fiscal reforms to transform the stimulus-based recov-ery into a sustainable long-term growth.

Japan’s outlook is likely to be shaped by the consumption tax hike come April.

A double-edged sword, this hike would help raise revenue and prove that Japan is committed to fiscal reform but it may also be a drag on the economy. However, the effect would be cush-ioned by a 5.5 trillion yen stimulus package and a reduction in corporate tax revenue.

10

While the developed markets are enjoying a steady recovery, how will the actions taken by the developed world implicate emerging markets this year?

According to Schroders, as a whole, emerging markets have lit-tle to fear about the US quantitative easing, as they enjoy, in ag-gregate, a current account surplus and as a group, are not reli-ant on external financing.

However, the ‘fragile five’ countries – Brazil, India, Indonesia, South Africa and Turkey, which have substantial current ac-count deficit, would suffer some currency weakness.

Although their relatively low levels of external indebtedness compared to past crisis levels should help them avoid any se-vere negative consequences.

For 2014, the asset management house views that emerging market stocks are currently trading cheaply which suggest that bad news have been discounted and factored into current stock prices.

Therefore, they expect emerging markets to perform better, both in absolute terms and relative to developed markets, com-pared to their performance in 2013.

ChinaChina, part of the ‘fab four’ group of emerging countries, has lit-tle to fear about the US quantitative easing as it does not rely heavily on foreign capital inflows to fund domestic growth, though the strengthening of the US dollar might minimally affect trade and capital flows.

Evidently, China’s economic momentum slowed in 4Q13, as manufacturing output and investment spending fell in Decem-ber last year.

GDP increased 7.7 percent for the quarter year-on-year, accord-ing to the National Bureau of Statistics of China, compared with 7.8 percent in 3Q13.

Section 3

Emerging Markets Strong Enough, But Could Still Face Issues

11

For the full-year, GDP expanded 7.7 percent in 2013, the same pace as in 2012, and is forecast to grow 7.4 percent this year.

While China is at a stage of transition from an export driven country to a consumer based country, its slowdown presents the greatest systemic risk to commodity exporting nations such as Indonesia, Australia, Brazil and Canada.

And within this group, the hardest hit would be those emerging countries, which are less diversified and has less developed economic structures.

IndonesiaIn Indonesia, slower trade with China added on to a pullback of easy money in the US could exert more pressure on the trade balance, causing the Indonesia rupiah to depreciate substan-tially, thus triggering a potential capital outflow.

This could force the Bank of Indonesia to implement significant interest rate hikes, which would in turn dampen consumer and investment spending.

The Southeast Asian nation’s current account deficit swelled to a record 4.4 percent in 2Q13, weakening investor confidence just as the Fed showed signs to curb monetary stimulus that fu-eled demand for emerging market assets.

The Indonesia rupiah as a result fell to its lowest at 12,278 ru-piah per US dollar on 7 January.

Since then, the Indonesian currency has rallied to 12,120 ru-piah per US dollar on 16 January on news that Indonesia posted a trade surplus of $777 million in November last year as imports fell 11 percent, the most in four years.

The IMF predicts Southeast Asia’s biggest economy will grow 5.5 percent this year, compared with an average 5.1 percent ex-pansion for emerging nations.

2 In this chapter, we will take a closer look at two major sector plays in the Singapore stock market.

• Oil and Gas• Consumables and Retail

How did these sectors fare in 2013?Most importantly, what potential catalysts are there that could underpin growth in each sector?

Sector Outlook

13

Singapore’s Oil And Gas, More Than Just DrillingUndoubtedly, every developing country in this world needs oil and gas. But did you know that the world consumes at least 89.4 million barrels of oil daily and 3.3 trillion cubic meters of natural gas in a year?

With the ever increasing human population and the expansion of emerging markets, the oil and gas industry will always be ex-panding to supply growing demand.

In order to do so, nonstop Exploration and Production (E&P) processes have been on going. The is especially after discover-ies of unconventional oil and gas fields in new territories.

Of course, when one speaks about the market of oil and gas production, it comes down to the most fundamental way of sup-port which is transportation of supplies and equipments, as well as extraction.

Oil rigs and offshore support vessels (OSV) operate in many ways to support E&P operations of offshore energy resources.

DevelopmentsAs the world continues to dabble wholeheartedly in exploration and production of energy resources, interest in offshore support

Section 1

Oil And Gas - The Continuance Of A Love Affair

14

vessels (OSV) have been picking up along with increased de-mands for high specification rigs.

Major developments in the high specification rigs industry have primarily taken place in both the North Sea and the Barents Sea. This could primarily be because of the adverse weather ex-perienced by ships operating in those geographical regions.

Comparatively, rig demand has remained strong in most major global markets even in times of economic stress. This was evi-dent with high levels of marketed rigs under contract across most rig types.

Demand eventually caused increasing rates in the deepwater and jack-up segments as well as sustaining favourable day rates in the ultra-deepwater segment.

As the booming industry sparks interest from more investors, spending pervading through the value chain has improved char-ter rates and vessel utilization levels.

At the same time, offshore construction, installation and subsea activities are picking up and in turn benefiting offshore ship-yards and oilfield services companies.

Catalysts For 2014Stepping into 2014, there are multiple streams of progression in the oil and gas industry to keep one’s eyes on. However, we would like to bring your focus to 3 major catalysts.

1. Rising demand compelling oil and gas companies into deeper searches thereby investing in higher technology and younger fleets.

Global trends are pointing towards a buoyant OSV market. Upon depletion of onshore oil, new oil discoveries were 28 per-cent made in deepwater and 49 percent in ultra-deepwater.

Source: FactSet, chart on the price of crude oil.

15

Rig utilisation has reached a point where day rates are facing upward pressure and rig owners are looking to buy more rigs. This increase in demand of high specification rigs would directly translate into higher demand for OSVs as well as younger fleets that will cater to increasingly harsh operating environments.

2. Gulf of Mexico

The bullishness around Mexico is head-on strong. PEMEX (Pe-tróleos Mexicanos), the Mexican state-owned petroleum com-pany, has ten tenders outstanding for integrated project man-agement that would start in 2014.

These tenders are regarded as mega contracts by the industry which will boost activity levels with approximately more than 50 rigs required.

Vital to the industry’s capital structure, many analysts are posi-tive that a constitutional reform in Mexico will break the monop-oly on the oil and gas business and allow private capital to flow in.

Although it may take several quarters, it is likely that these pri-vate capital will go after the five shale plays in Mexico and deep water activity.

3. Threat of the Chinese yards

In recent times, deepwater discoveries in Bohai Bay and South China Sea coupled with potential shale opportunities in China has brought concerns of ‘threat’ to industry players.

Going forward with industry trends, the Chinese government has mentioned that ship and rig building will be one of the major industrial pillars for the country.

However, the Chinese lack technical expertise in areas of shale and deepwater activity. These would place Singapore in a brighter light as companies here have a stronger edge when it comes to deepwater semi-submersibles.

3%5%5%1%

12%

21%26%

27%

Malaysia IndonesiaVietnam ThailandCambodia MyanmarPhilippines Brunei

South East Asian platform estimated capex by region [2011-2015]

Source: ISL

9%5%

6%

11%

21%

48%< 5 yrs 5 to 10 yrs10 to 15 yrs 15 to 20 yrs20 to 25 yrs > 25 yrs

Age profile of Offshore Vessels

Source: Mantrana Maritime Advisory

17

Sector ProfileIn Singapore, where shopping has been so entrenched in the lifestyles of many, it is touted to be one of the national pastimes among locals.The rising population and influx of foreigners have no doubt bolstered the retail industry and kept it in pace with economic growth.

As the economy picks up, Singaporeans are earning higher in-comes than before. This has boosted consumer sentiments which attracted further business expansion in this country. The Eurozone recovery has also shown expansion of European brands into prime locations like Orchard Road.

Naturally, this has attracted more tourists spending for both busi-ness and pleasure. There is no doubt that it has heightened re-tail sales and will continue to boost the industry.

Over the years as the retail industry in Singapore shaped itself into a well known shopping paradise, shoppers are also becom-ing more aware of quality premiums in products.

This is particularly evident when it comes to health related prod-ucts as consumers are more health conscious these days. It was reported on PR Newswire that consumers in Singapore spend up to 72 percent more on healthcare related products and services.

DevelopmentsKnown as the financial hub of Asia and a shopping heaven, Sin-gapore is recognized as the ideal place for international retail-ers to seek space in.

Driven by strong demand and appetite for new retail space, the market expanded exponentially in recent years. Since 2009, ap-proximately 2.21 million square feet of new retail space was added to total private retail supply.

However, as a small country, the lack of space has resulted in the rise of rental rates and operation costs. Growing suburban shopping areas are contributing a bulk of retail supply from out-

Section 2

Consumerism 2014: Banking On Rising Affluence And The Middle Class

18

side the prime area of Orchard. This includes Marina Bay Shop-pes, Resort World Sentosa, Rochester Mall and Changi City Point.

With recent pandemics scare in the last few years, Singapore-ans, like the rest of the world are becoming more sophisticated at coping with potential health hazards.

Health and wellness retailers are spotting one of the fastest and strongest growing retail channels in Singapore. According to Euromonitor, the sector grew 5 percent last year to reach S$3.3 billion.

It also accounts for 11 percent of the country’s retail market. Above all, the industry bucked the trend of negative growth even amid the financial crisis of 2008-2009.

Catalysts for 2014Looking into 2014, data points from both domestically and abroad have indicated that consumer spending may not be as forthcoming.

It is analysed that consumer’s concern over inflation impacts and global economic issues may contribute to lower discretion-ary spending. Revenue growth for the retail industry is expected to be a tad more challenging.

However, some analysts believe that consumer confidence should remain positive due to the healthy domestic economy and rising household incomes and spending power. As Singa-pore remains in the spotlight for international brands, tourism and retail occupancy will continue to enjoy growth.

Retail supply is becoming more geographically diverse with de-veloping suburban shopping areas. Projects with retail space sold on strata titled basis will dominate the supply. Retail leas-ing demand should also remain relatively steady, particularly from international fast fashion retailers and F&B startups.

However, challenges remain. The implementation of the new la-bour employment restrictions to promote less reliance on for-eign labour have been rather punitive on most retail companies.

19

An overall increase in wage costs and operating expenses with greater competitive pressures, may lead to an eventual further compression of margins.

Despite this, we believe that the retail industry will be resilient in 2014 given the growing middle class both in Singapore and the

region. This is particularly so for health-related products that will be largely protected from any possible global economic shocks.

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3 Probably something most investors are interested in. Stock picks for 2014.

Join the Shares Investment team as they unravel potential gems for 2014.

Take note of individual corporate developments as well as what is possibly in store for these counters in 2014.

Stock Picks For 2014

22

Corporate ProfileCapitaLand is one of Asia’s largest real estate companies with operations in Australia, Europe and other Asian countries and is focused on its core markets of Singapore and China.

The company’s diversified real estate portfolio primarily in-cludes homes, offices, shopping malls, serviced residences and mixed developments, spanning over more than 110 cities in over 20 countries.

The company also has one of the largest real estate fund man-agement businesses with assets located in Asia.

The listed entities of the CapitaLand Group include Australand, CapitaMalls Asia, Ascott Residence Trust, CapitaCommercial Trust, CapitaMall Trust, CapitaMalls Malaysia Trust, CapitaRe-tail China Trust, and Quill Capita Trust.

Latest Developments! •! CapitaLand has streamlined its organisation structure into four main businesses, CapitaLand Singapore, CapitaLand China, CapitaMalls Asia and The Ascott to create greater focus and deepen expertise and maximise international network for its businesses.

Section 1

CapitaLand

Former market darling now poised for greater things abroad.

Stock Information Details

Listing Singapore Exchange (Mainboard)

Ticker Symbol C31

Number Of Shares Outstanding 4,257.470 million

Last Done $2.930 (15 January 2014)

Free Float 59.9%

Major Shareholders (percentage held)

Temasek Holdings (39.0%)

Market Capitalisation $12,474.4 million

23

! •! Granted options to Sun Venture Holdings and Low Keng Huat to buy Westgate Tower for $579.4 million, which can be exercised by 24 January 2014.

! •! Sold a 20 percent stake in Australand following the secondary placement at A$3.685/share, amounting to $485.3 million in proceeds to be deployed for new opportunities in Sin-gapore and China.

! •! Development of an iconic mixed-use development, Project Jewel, worth $1.5 billion at Changi Airport through Capi-taMalls Asia.

Key Catalysts: ! •! Positive long-term prospects of real estate markets in Singapore and China, underpinned by strong economic funda-mentals, growing population, rising disposable income and im-proving consumption patterns.

! •! Change of key management from 2013 to bring mean-ingful impact, with new chief executive articulating a new ROE target of 8 percent to 12 percent and stronger emphasis on China to up exposure to 50 percent from 39 percent currently.

! •! Singapore’s property market remains supported by resilient economy and policies to support population growth and given a backlog of demand from undersupply in previous years.

! •! Despite a reduction in office occupancy rate with an increased office supply, there was an uptick in the Grade A of-fice market rents by 0.6 percent to 1.9 percent to a rental range between $9.14 to $10.45 per square foot in 3Q13. Furthermore, CapitaGreen, slated for completion by end-2014 is the only new Grade A development in Raffles Place over the next three years, which will generate high interest.

! •! Possible higher dividend in FY14 following the reduc-tion in its stake in Australand.

FY12

FY11

FY10

FY09

FY08

0 1250 2500 3750 5000

2752

2957

3571

3103

3400

1260

1053

1273

1057

930

PATMI (S$’m)Revenue (S$’m)

1%6%4%

18%

36%

35%

Singapore AustraliaChina Other AsiaEurope Others

25

Corporate ProfileDevelopment Bank of Singapore (DBS) Group Holdings was in-corporated in 1968 as a domestic bank to provide financial serv-ices across different industries in Singapore, for the purpose of Singapore’s economic development and industrialisation.

Across the years, DBS has transformed itself into a regional fi-nancial institution, providing a wide range of banking and fi-nance services to serve customers in Hong Kong, China, Tai-wan, Indonesia, India, Malaysia, Philippines, Middle East and Thailand.

In Singapore, DBS operates under the brands of DBS and POSB, where it has 89 branches and 1,100 ATMs island-wide.

Latest Developments! •! DBS’ 3Q13 results were in-line with market expecta-tions arising from sound underlying fundamentals. Results could have been better in absence of weakness in treasury in-come caused by strategies implemented while pre-empting for QE tapering by the Federal Reserve, such strategies appeared to have paid off as seen with its most liquid Singapore-dollar bal-ance sheet among the three local banks.

! •! With Hong Kong being the second largest revenue contributor after Singapore, DBS is seen to further fortify its eco-

Section 2

DBS Group HoldingsLocal banking giant expands reach beyond local shores.



Ticker Symbol D05

Number of Shares Outstanding 2,445.2 million


Free Float 70.5%


Temasek Holdings (29.0%)


26

nomic moat in Hong Kong with a series of improvisation includ-ing the strengthening of its management team in the country and improvement of customer segmentation to provide better targeted product offerings to mid-caps companies, small-medium sized companies as well as affluent customers.

! •! Following the divestment of its remaining 9.9 percent stake in Bank of The Philippine Islands, the move is in line with DBS’ commitment to re-calibrate focus on its core markets of Singapore, Hong Kong, Taiwan, India and Indonesia. In addi-tion, having generated 15 quarters of consistently strong earn-ings despite headwinds such as the banking sector’s compres-sion of net interest margins, DBS is expected to remain resilient and well-positioned in the face of uncertainties.

Key Catalysts! •! By far and large, the banking sector as a whole will benefit from the eventual rise in interest rates. Out of the three local banks, DBS will be the key beneficiary in the event of inter-est rates increase owing largely to its strongest deposit fran-chise out of the other two local banks as well as its most liquid Singapore-dollar balance sheet supported by the lowest loan-to-deposit ratio (DBS: 75 percent, OCBC: 85 percent, UOB: 95 percent).

! •! Based on P/E, P/B and dividend yield of 10.7, 1.3 and 3.3 percent respectively, DBS is relatively undervalued as

compared to UOB (11.6, 1.4 and 2.9 percent) and OCBC (12.9, 1.5 and 3.5 percent). DBS’ attractive valuations are expected to boost share price to the levels of its competitors granted by the gradual global economic recovery.

! •! Despite absolute amounts in non-performing loan (NPL) rose 12 percent in 9M13, contributed mainly from the In-dian mid-cap space, DBS takes the view that the pace of new NPL formation has peaked and expects its NPL position to im-prove moving forward.

FY12

FY11

FY10

FY09

FY08

0 3750 7500 11250 15000

8122

6114

5699

6591

7670

1929

2041

1632

3035

3800

PATMI (S$’m)Interest Income(S$’m)

4%7%

8%

19% 62%

SingaporeHong KongRest of ChinaSouth and South-East AsiaRest of the World

28

Corporate ProfileHeadquartered in Hong Kong, Genting Hong Kong has a pres-ence in more than 20 locations worldwide with offices and repre-sentation in Oceania, Asia, Europe, Middle East and North America.

Genting Hong Kong is a leading global leisure, entertainment and hospitality enterprise, with core competences in both land and sea-based businesses. Its business segments include Star Cruises, Norwegian Cruise Line, Resorts World Manila.

Incorporated in September 1993, Genting Hong Kong operates its fleet under Star Cruises, to take on a bold initiative to grow the Asia-Pacific region as an international cruise destination. Star Cruises with Norwegian Cruise Line is the third largest cruise operator in the world, with a combined fleet of 19 ships cruising to over 200 destinations, offering approximately 39,000 lower berths.

Resorts World Manila is Genting Hong Kong’s first foray in a land-based attraction. The Philippines resort opened its doors to the public in August 2009 and is the first one-stop vacation spot for top notch entertainment and world-class leisure alterna-tives in the country.

Section 3

Genting Hong KongKey catalysts banking on Asia’s growth as an economic powerhouse.


Listing Hong Kong Stock Exchange

Ticker Symbol S21 (SGX GlobalQuote)



Free Float 20.0%


Lim Kok Thay (57.5%), Genting Malaysia (18.4%)


29

Latest Development! •! Star Cruises’ 1H13 revenue showed a healthy 22.9 percent increase from new routes based out of Shanghai, but it was not enough to offset the startup costs involved and the added depreciation of the Gemini. 1H13, it does not seem that Resorts World Manila’s (RWM) business was affected by com-petition from the new Solaire Casino that opened in 2Q13, as it raked in healthy top and bottom line.

! •! Genting Hong Kong (GHK) is expected to receive at least US$375 million from the recent secondary share place-ment by its subsidiary, Norwegian Cruise Lines (NCL). GHK’s stake in NCL should fall from 37.5 percent to 32.2 percent.

! •! Following the US$150 million received in pre-initial public offering dividends from Travellers, the US$331 million from NCL’s secondary placement in August 2013 and an ex-pected US$375 million from this placement, GHK is estimated to have about US$1.3 billion in cash. Currently, it has no new projects and intends to use the cash to shore up its balance sheet.

Key Catalysts! •! As part of the third phase of RWM’s expansion pro-ject, two new global brand hotels, Sheraton Hotel and Hilton Ho-tels & Resorts are set to rise at Newport City, along with second

phase extensions for Maxims Hotel and Marriott Hotel Manila as well as additional gaming area within the property.

! •! GHK ordered a new US$957 million mega ship for Star Cruises increasing its berth capacity in Asia by 44 percent. The ship will be the biggest cruise ship operating in Asia with 1,600 cabins and a carrying capacity of 4,500 passengers. It is estimated that the new cruise ship would have 200 to 300 gam-ing tables.

! •! The new cruise ship is effectively a floating integrated resort as it will also feature 1,000 square metres of duty free re-tail space – which is GHK’s new emphasis to boost ancillary in-come to complement gaming revenue.

FY12

FY11

FY10

FY09

FY08

-1500 0 1500 3000 4500 6000

3400

2921

3021

4013

4037

-619.1

-196.4

527.2

1418.4

1424.9

PATMI (HK$’m)Revenue (HK$’m)

31

Corporate ProfileNam Cheong is Malaysia’s largest shipbuilder of OSVs; the world’s largest OSV builder with a 10 percent share of the global shallow-water market.

It specialises in building small-to-mid sized AHTS, PSVs and ac-commodation barges.

The company is the second largest OSV shipbuilder east of the Suez Canal, and focuses on the construction and engineering of complex, sophisticated and environmentally friendly OSVs that are equipped with the latest technology for use in the off-shore oil and gas exploration and production and oil services industries.

Nam Cheong’s shipbuilding business is also complemented by its vessel chartering operations. It currently has a fleet of about 14 vessels which consists of nine SSVs, two AHTS, two landing crafts, and one accommodation vessel.

Latest Developments! •! Nam Cheong’s build-to-stock (BTS) programme is growing in tandem with the global push towards offshore explo-ration and production in the oil and gas industry, thus alleviating the key risk of the company being unable to sell off vessels un-der its BTS model.

Section 4

Nam Cheong

World’s Oil and Gas demand lifts Malaysian shipbuilder.



Ticker Symbol N4E



Free Float 42.0%


SK Tiong Enterprise (27.3%), Hung Yung Enterprise (15.2%), Su

Kouk Tiong (7.8%)

Market Capitalisation $694.0 million

32

! •! Year-to-date sales of 20 vessels worth approximately RM1.34 billion have surpassed 2012’s 21 vessel sales valued at approximately RM1.31 billion.

! •! The firm’s robust orders over the last 18 months have more than doubled its current orderbook to RM1.7 billion. At pre-sent, orderbook comprising 25 vessels to be delivered in 4Q13, FY14 and FY15 respectively provides good earnings visibility.

! •! Nam Cheong is estimated to deliver 19 vessels in FY13, and FY14 shipbuilding programme is well-balanced with different types of vessels. In addition, a total of 16 vessels out of the 28 deliveries due for 2014 have already been sold.

Key Catalysts! •! Nam Cheong would be a key beneficiary under Petro-nas’ RM300 billion capital expenditure programme. Nam Cheong holds 75 percent of the Malaysian market and stands to reap the most benefits from the 80 percent increase in Petro-nas’ planned spending.

! •! Global trends point towards a buoyant offshore sup-port vessel (OSV) market in the medium-term. Rig utilisation has reached a point where the day rates are facing upward pressure and rig owners are looking to buy more rigs. The in-crease in the number of rigs would directly translate into higher direct demand for OSVs.

! •! Further upside to earnings forecasts if Nam Cheong clinches built-to-order vessels, as these typically command higher margins. In addition, as Nam Cheong builds many of its vessels in China, attractive payment terms offered by Chinese shipyards remain a key factor.

FY12

FY11

0 125 250 375 500

249.2

354.7

38.3

55.26


5%7%

9%

15%64%

Asia AfricaEurope Middle EastAmericas

34

Corporate ProfileOSIM International creates, designs, develops and markets well-being and healthy lifestyle and nutrition products through its specialty retail outlets worldwide.

Its products include massage chairs, foot massagers, neck and shoulder massages, head massagers, fitness equipment, diag-nostic equipment vitamin and supplements, and luxury tea.

The company has a portfolio of brands including OSIM, Rich-Life, GNC, TWG Tea and Brookstone.

In an independent survey conducted by an international market research company and supported by International Enterprise Singapore, OSIM came up as the number one healthy lifestyle products brand in consumers’ minds across Asia.

The research result embraces Asian-wide consumer support of OSIM’s mission – bringing well-being and healthy lifestyle to customers, inspiring to live their life to the fullest.

Latest Developments! •! OSIM International achieved consistent growth with 19 consecutive quarters profit growth backed by product innova-tion and productivity. New products such as uAngel and uInfin-ity continue to drive positive earnings given their good take-up rates.

Section 5

OSIM International

OSIM banks on Asia’s rising middle class and consumerism.


Listing Hong Kong Stock Exchange

Ticker Symbol S21 (SGX GlobalQuote)



Free Float 20.0%


Lim Kok Thay (57.5%), Genting Malaysia (18.4%)


35

! •! With 596 OSIM outlets, and currently in 45 cities with 266 OSIM outlets in China, it is targeting to open another 20 to 30 OSIM outlets in the coming year. OSIM’s strong positioning is also on track to creating long-term demand and brand loyalty.

! •! OSIM is planning on expanding its network of TWG Tea outlets in Singapore, Korea, Thailand and Malaysia, and has recently incorporated three new subsidiaries in Shanghai, Taiwan and Macau, reflecting its growth plans in these places.

Key Catalysts! •! OSIM can ride on the region’s growing consumption patterns, especially with the number of households with high an-nual disposable income expected to rise to 18 million by 2020 from 11 million in 2010 (China accounting for most of the gain).

! •! Its marketing strategy with tier pricing for different market segments while riding on celebrity appeal will help OSIM capture existing and new opportunities.

! •! OSIM’s increased stake in TWG Tea Company to 53.7 percent may become a meaningful earnings contributor in the medium term as each TWG outlet is profitable with annual 3-5 percent yoy same-store sales.

! •! Strong cash flow and low working capital needs en-able OSIM to pay out healthy dividends, undertake share buy-backs and be on the lookout for potential brand acquisitions.

FY12

FY11

FY10

FY09

FY08

-175 0 175 350 525 700

456.7

476.8

508.7

553.7

601.7

-99.44

23.33

50.07

69.06

86.93


6%

38%56%

North AsiaSouth AsiaAmerica/EMEA/Oceania

Acknowledgements

xxxviii

Tradeable would like to acknowledge the contributions of the following persons:

Hu Li Yang - Investment guru and speaker

Debbie - Hu Li Yang’s assistant

Daxx Chong - Senior Research Editor, Shares Investment

Ong Qiuying - Senior Research Executive, Shares Investment

Nicholas Tan - Research Executive, Shares Investment

Peter Ng - Research Assistant, Shares Investment

Kyaw Myo Htut - Web Developer, Pioneers & Leaders eMedia

And the translator team from Shares Investment as well as anyone else who might have contributed in part to the completion of the e-book that are not mentioned above.

Acknowledgements

xxxix

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