SINGAPORE (Dec 11): The recent results season has seen mostly positive numbers from the 16 companies in our portfolio that reported results in the quarter ending Sept 30. Nine reported earnings growth in the recent quarter, while five saw their earnings decline and two reported losses.

The biggest increase in earnings came from property developer UOL Group, which reported a 609% y-o-y increase in earnings for 3QFY2017 ended Sept 30. The better-than-expected performance was due mainly to the recognition of negative goodwill on an acquisition.

On Aug 31, UOL acquired 60 million shares in United Industrial Corp from Haw Par Corp. Following this acquisition, UIC is now a subsidiary of UOL. Acquisition accounting was applied, resulting in a fair value uplift of $421.1 million for property, plant and equipment. An uplift of $82.3 million was recorded for development property. Further adjustments to fair value may be made until end-August next year.

Two other property-linked counters reported sharp increases in their earnings: Keong Hong Holdings and Chip Eng Seng Corp. The former reported a 213.5% y-o-y growth in earnings for 4QFY2017 ended Sept 30. Revenue increased 70.9% to $97.7 million, driven mainly by higher recognition of construction revenue from existing projects. Variation orders and final billings led to the tandem growth in its profits for the quarter. Chip Eng Seng reported a 145.8% y-o-y jump in earnings for 3QFY2017 ended Sept 30. Revenue increased 37.8%, driven by contributions from the property development division.

The biggest surprise, however, came from tech equipment manufacturer Venture Corp. It reported a 135% y-o-y increase in earnings to $111.4 million for 3QFY2017 ended Sept 30, beating the expectations of several analysts. The earnings growth was driven by a 50.5% increase in revenue to $1.1 billion, marking the second consecutive quarter in which revenue crossed the billion-dollar threshold.

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Weaker links Five companies in our portfolio saw weaker profits, with declines ranging from -6% to -52.8%. Curry puff seller Old Chang Kee clocked the biggest decline in earnings, down 52.8% y-o-y to $738,000 for 2QFY2018 ended Sept 30. The decline was driven by higher costs of sales and raw materials, as well as one-time factory test-runs for the company’s new factory equipment.

Gold miner CNMC Goldmine Holdings saw the second-biggest drop, with earnings for 3QFY2017 ended Sept 30 declining 45.2% y-o-y to US$963,926 ($1.3 million). This was driven by a 44.3% fall in revenue to US$4.7 million, due to a decrease in production and decline in sales volume.

The losers in our portfolio were gemmological equipment maker Sarine Technologies and property landlord Second Chance Properties. Sarine booked a US$500,000 loss for 3QFY2017 ended Sept 30. This was driven by a 34.6% y-o-y decline in revenue to US$11.3 million, which the company attributed to higher-than-normal surplus inventories of polished diamonds. Also, illicit operations of parties infringing on Sarine’s intellectual properties affected equipment sales. The surplus in inventories of polished diamonds is likely to affect Sarine’s results in 4QFY2017 as well, the company says. Second Chance reported a loss of $1.8 million for 4QFY2017 ended Sept 30, driven mostly by fair value and revaluation losses.

SGX’s IPO bonanza a positive The Singapore Exchange’s recent rash of listings is a positive for the market, according to RHB Research Institute Singapore analyst Leng Seng Choon. The higher number of IPOs contributed to a strong securities average daily value of $1.3 billion in November.

“For the first 11 months of 2017, there were 23 new listings on the SGX, including 19 IPOs. Funds raised by the 19 IPOs totalled $4.6 billion, ie two times the $2.3 billion in fundraisings posted in 2016. We believe there ought to be continued momentum of equities trading following these IPOs,” says Leng in a Dec 4 report. He also believes that global developments such as the expected US federal funds rate hike this month could stimulate trading volumes.

Leng is also optimistic about the volume of trading in derivatives. The number of derivatives contracts traded in October averaged at 786,000 a day, higher than the average of 722,000 in 1QFY2018 ended September. Even though trading in the SGX FTSE China A50 Index Futures was lacklustre, with volumes hitting a daily average of just 259,000 compared with 1QFY2018’s 263,000, Leng sees the potential for more trading of the China A50 Index on the back of strong trading volumes in Hong Kong equities.

SGX remains an attractive investment, he says. He expects the company to pay out 31 cents a share in dividends in FY2018, up from 28 cents a share in FY2017. That works out to a projected yield of 4.1%. “This is higher than the Singapore 10-Year Government Bond yield of 2.13%,” he says. Leng maintains his “buy” call on SGX, with a price target of $9.

Chip Eng Seng adds another hotel to portfolio Chip Eng Seng has announced plans to buy the Mercure & Ibis Styles Grosvenor Hotel in Adelaide, Australia, for A$43 million ($43.9 million), adding a fourth hotel to its hospitality portfolio.

The hotel has 245 guestrooms, with 181 rooms operating under the Mercure brand and 64 rooms under the Ibis Styles brand. It is located in the Adelaide CBD and managed by AccorHotels.

“We are delighted to enter into the contract to acquire Chip Eng Seng’s second hotel in Australia within a short span of six months as part of the group’s strategy to expand our hospitality investment portfolio,” says executive chairman Raymond Chia in a statement.

This deal follows the A$15 million acquisition of the AccorHotels-managed Sebel Mandurah in Perth, Western Australia, announced on Nov 2. Other hotels in Chip Eng Seng’s hospitality portfolio are Hotel Alexandra in Singapore and Grand Park Kodhipparu in the Maldives.

As at Dec 5, our portfolio has returned 13.4% since inception. The Straits Times Index’s return in the same period is 17.6%.

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Portfolio sees mixed results over recent reporting season

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