DBSVickers - 15 Nov 2007

Hotel Properties Benefiting from a rejuvenated Orchard Road

Story: HPL released 3Q07 results with topline increasing 44% to S$110m and net profit turning in at S$15.2, up 40%. However, despite the growth in earnings, it is slightly below our estimates as we have envisioned a stronger hotel showing.

Point: We have adjusted down our forecast to factor in lower hotel earnings that led to a 27% and 48% reduction in revenues for FY07 and FY08. We believe that HPL will be able to benefit from Government’s plan to revitalise Orchard Road through enjoying higher capital values. With a structural increase in planning parameters based on a 6.5m population, we look forward for an upcoming revised master plan in FY08 that will draw an indication of potential plot ratio increases that provides an impetus to our Orchard Redevelopment Scenario.

Relevance: We believe that the value is emerging after the recent share price pull back. Our RNAV estimates, including our Orchard Redevelopment Scenario, is maintained at S$5.03 that gives the HPL a 23% upside.

Pacific Andes Factoring lower margins from China Fishery

Story: PAH’s 2Q and 1H results were strong, but it was below the high expectations we had for the Group.

Point: 2Q revenue grew 111% to HK$1.59bn, from HK$751.9m, largely from higher contributions from its subsidiary, China Fishery Group (CFG) as a result of its increased stake (from 28.8% to 63.9%). Net profit grew 46% to HK$85.1m, a lower increase than topline due to higher operating expenses (bunker and wages) from CFG’s operations and interest costs incurred. We had previously assumed more aggressive margins for its subsidiary, CFG. However, as a result of higher operating costs for CFG and lower fishmeal prices, hence, lower contributions, we have revised our ‘08F – ‘09F forecasts for PAH down by 17%-21%.

Relevance: Nonetheless, we remain positive of the Group’s prospects, with growth largely buoyed by CFG. Our TP is revised to S$0.99 as we lower our forecasts and peg our valuations at blended FY08/09F earnings. Our TP presents a 33% upside. Currently, this counter is trading at an undemanding 8.9x and 6.8x on FY08F and FY09F earnings respectively. Maintain BUY.

Midas Holdings Slow start for JV continues but RMB3.5bn order book signals bright future ahead

Story: 3Q07 results were good but below expectations due to lower than anticipated contribution from the Nanjing Puzhen JV. Earnings for the quarter grew by 45% yoy to S$9.5m on turnover growth of 45% yoy to S$39m. A S 0.5ct dividend was declared.

Point: Whilst we have cut our FY07 estimates by 15% to account for lower contribution from the Nanjing Puzhen JV in FY07, we remain upbeat about the Group’s prospects and have maintained our FY08 and FY09 estimates. This is due to a) a huge RMB3.5bn order book for Nanjing Puzhen that should see delivery from FY08 onwards, with the bulk delivered over FY09-FY11 and b) continued strong performance and outlook for the Group’s core aluminium extrusion business.

Relevance: We maintain our BUY call and S$1.84 target price, which is based on 24x FY08 earnings.