Investors’ Corner (Dairy Farm International Holdings, Genting Hong Kong, mm2 Asia, United Overseas Bank)

Dairy Farm International Holdings
Price – US$8.04
Target – US$10.00

Dairy Farm International Holdings’ (Dairy Farm) 1Q17 report revealed that its Health & Beauty segment demonstrated better y-o-y sales and operating profit, and we expect performance of the segment to continue to pick up driven by higher Chinese tourists arrivals in Hong Kong, potential rental reduction as well as improved corporate brands penetration. Moving forward, increased accessibility through opening of new stores and established e-commerce websites would boost sales for the group’s Home Furnishing division. As Dairy Farm open more fresh food distribution centres, this would raise fresh food penetration in its supermarkets and hypermarkets, thereby raising its margins. By and large, we believe that the recent retraction in share prices presents a good opportunity to accumulate the stock. Maintain BUY. RHB Research (16 Jun)

Genting Hong Kong
Price – US$0.31
Target – US$0.26

We expect Genting Hong Kong’s (GENHK) losses from the cruise segment to widen in 2017 as cruise operations are still impacted by Dream’s low occupancy amid stiff competition, as well as significant pre-operating costs for new ships. The newly acquired shipyard operation could have extended its operating losses because most of GENHK’s new ship building plans are still in the designing phase and would not translate into revenue for the shipyard. The group’s net cash pile has plunged to US$9.3m as at Dec-16 primarily due to massive capital expenditure required for fleet expansion. Following the robbery/arson incident at the Resort World Manila, Philippine Amusement and Gaming Corporation has suspended GENHK’s 45%-owned associate company Travelers International’s (RWM) casino license pending further investigation. GENHK has lost its only income source as a result, and it could be a while before RWM be allowed to re-commence gaming operations. Downgrade to SELL. UOB-Kay Hian (16 Jun)

mm2 Asia
Price – $0.62
Target – $0.72

mm2 Asia entered into a conditional sale and purchase agreement with Village Cinemas Australia for a 50% stake in the Golden Village (GV) cinema business in Singapore. GV is Singapore’s leading cinema exhibitor with 44% market share, and the proposed acquisition serves to build up a recurring income stream for the company and complements its current cinema operations. Although the purchase consideration of $184.3m was significantly higher relative to the group’s previous cinema acquisitions in Malaysia, the higher valuation could be justified by GV’s quality cinema assets coupled with strategic locations and superior profitability. We expect the deal to be financed by a mix of debt and equity, and estimated an increase in FY18 earnings-per-share by 18.1% offsetting additional financing costs and new share dilution. Maintain ADD. CIMB Securities (14 Jun)

United Overseas Bank
Price – $23.63
Target – $18.80

We noticed that “stressed” non-performing loans (NPLs) have not slowed, and allowances have so far been made for NPLs without collateral while other NPLs (substandard + doubtful) allowances look minimal. This under-provision coupled with continued pressure on oil and gas cash flows and collateral value stress could lead to high future allowances and rerating of bank stocks. Consensus fP/E is now at the top end of the 5-year range not because of depressed EPS. Moreover, the cyclical momentum is likely to fade into 2H17 given the weak transmission of US to SG rates. In addition, higher rates may create asset quality headwinds for rate sensitive domestic sectors with high leverage and low profitability. We opine that United Overseas Bank is likely to be most impacted from the weakness in the SME sector given its largest exposure relative to its peers, and we think that there are still multiple years of higher than average credit costs ahead for the bank. Maintain SELL. UBS Research (14 Jun)