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Stocks In Focus (City Developments, Super Group, United Engineers) – 14/05/13
Subdued Trading Conditions And Lower Other Income Hit City Development’s Earnings
Property developer City Developments reported a 12.2 percent slide in net profit to $137.6 million for the first quarter ended 31 March 2013. The drop was attributed to lower earnings from its hotel operations and other operating income. Ongoing refurbishment programme, regional geo-political tensions in Korea as well as harsh weather conditions in Europe and the US were the factors affecting its hotel business. Profit before tax for the hotel segment plunged 35.1 percent to $26.2 million. Meanwhile, revenue fell 9.8 percent to $763.5 million, mainly due to recognition of the disposal of a warehouse at Tagore Avenue in the year-ago period. Results aside, three projects, of which two are residential developments while the remaining is a mixed development, are expected to be launched over the next few months.
Significance: City Developments noted that while investment sentiment in the residential high-end segment remains subdued, buying interest in mass and mid-market projects remains strong due to abundant liquidity in the market supported by the low interest rate environment.
Operational Efficiencies And Forex Gains Send Super’s Earnings 25.2% Higher
For the first three months of fiscal year 2013, Super Group posted year-on-year increases of 8.8 percent and 25.2 percent in its revenue and earnings respectively. The stronger performance largely stemmed from effective costs management and operational efficiencies arising from increased production capacity. This led to an improvement of 3.2 percentage points in gross margin to 37.1 percent. A foreign exchange gain of $2.6 million in the period under review due to appreciation of the US dollar against the local currency, compared to a foreign exchange loss of $0.2 million in the last corresponding quarter, also lent a helping hand. While Branded Consumer segment continues to be the key contributor, accounting for 71 percent of revenue, it was the Food Ingredient sales that provided the main impetus. Increased production capacity and robust demand for soluble coffee powder and non-dairy creamer from key Asian markets drove Food Ingredients sales up 33.1 percent to $38.5 million.
Significance: Commenting on the results, chairman and managing director David Teo said, “We continue to see strong growth momentum from our integrated Branded Consumer and Food Ingredients businesses in our key South-east Asian markets despite the ongoing economic uncertainties including volatile currency markets and raw material prices.”
United Engineers Takes Over WBL
Property developer United Engineers (UE) was successful in the bid to take over luxury-car dealer WBL Corporation after its largest shareholder The Straits Trading Company, a local conglomerate agreed to sell its 44.58 percent stake. It came only after raising the takeover price by 8.4 percent from $4.15 a share to $4.50 a share. KPMG Corporate Finance, a financial adviser to WBL’s independent directors, have previously commented that UE’s earlier $4.15-a-share offer is “not fair”. The deal raised UE’s holding to 87.73 percent therefore making the takeover for WBL unconditional. UE is now urging other shareholders who have yet to send in their acceptances to seriously consider the offer before it expires on 29 May 2013.
Significance: This deal will diversify UE’s business enabling them to counter the choppiness from real estate and construction, which are driven by the timing of contracts through the “recurring income” from luxury-car dealerships. Still, the market may not react well to the news as UE’s post-purchase gearing will be going up considering that the target company is bigger than itself in terms of market capitalisation.
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