(Nov 6): Shares in egg producer Chew’s Group have taken a tumble since the Oct 25 announcement that negotiations with external parties about a possible offer have been terminated. The counter, which closed at 59 cents on Oct 25 before the announcement, opened eight cents lower at 51 cents on Oct 26. The stock has since rallied slightly to end at 52.5 cents on Oct 27.

At that level, Chew’s trades at 1.6 times its earnings for FY2016 ended Sept 30. However, the company’s FY2016 earnings include a oneoff income from the disposal of land use rights and a substantial part of its property, plant and equipment in May 2016. Excluding this disposal gain, Chew’s is trading at 22.2 times its historical earnings.

We have decided to take profit on our investment in Chew’s. We purchased our stake of 30,300 shares on Jan 10 at 32.5 cents a share. A sale at 52.5 cents a share gives us a profit of $6,060. We had also collected dividends of $148.47. Our total return therefore comes to 63%.

We continue to see growth ahead for Chew’s as it is moving to a new site where it will be able to expand its capacity substantially. However, the move is expected to be completed only in May 2019. Meanwhile, we expect that Chew’s may have to incur significant capital expenditure for the new facility. As such, we think the upside for the stock may be limited.

Second Chance reports earnings jump A number of companies within our portfolio have reported their results recently. For FY2017 ended Aug 31, Second Chance Properties reported an 11% y-o-y decline in revenue to $34.8 million. Its earnings, however, increased 35.9% to $9.4 million. The rise in earnings was attributed largely to a gain of $2.2 million from the acceptance of a cash offer for the de-listing of a stock.

The drop in revenue was driven mainly by the apparel business segment, which shrank 30% from $10.8 million to $7.6 million, owing to the closure of 13 shops in Malaysia, the weakening of the Malaysian ringgit and competition from e-commerce.

Revenue from the property segment also dipped, by 9.5% to $7.5 million, owing to the loss of rental income after the sale of three investment properties as well as lower rentals from lease renewals. And, revenue from securities fell 6.7% to $3.9 million, owing to a drop in coupon payments and dividends from fixed income and equity investments that were redeemed or sold. Only the gold business segment posted a marginal 0.1% increase to $15.7 million, on the back of positive market conditions.

Second Chance announced a dividend of 0.3 cent a share for FY2017. In its filing with the Singapore Exchange, Second Chance management says it believes Singapore’s economic outlook for 2018 will improve and that its gold business will remain profitable. “The retail apparel business remains very challenging, especially in Malaysia. Increased competition, higher operating costs, [the] weakening ringgit and poor consumer spending continue to negatively affect this business segment,” the company adds. For the property segment, it is expecting lower rental income.

Analysts mixed on SGX results SGX has reported its numbers for 1QFY2018 ended September. Revenue increased 7% y-o-y to $204 million while earnings increased 9% to $91 million.

Ngoh Yi Sin, an analyst at CIMB Research, highlights the 18% y-o-y increase in the securities daily average value to $1.2 billion. “We believe such growth is sustainable, underpinned by improving sentiment in the property, industrials, technology and finance sectors,” she says in an Oct 25 report. Ngoh has an “add” call on the stock, with a price target of $8.25.

Leng Seng Choon, an analyst at RHB Research Institute Singapore, is even more bullish. He has a “buy” call, with a price target of $9. For FY2018, Leng forecasts earnings growth of 16.9%, to $397 million, and dividend per share of 33 cents. Based on SGX’s close on Oct 31 at $7.67, that works out to a forward dividend yield of 4.3%. “The key risks to our recommendation include global economic and geopolitical developments,” says Leng.

However, OCBC Investment Research analyst Carmen Lee is less optimistic. Lee has a “hold” call, with a fair value of $7.87. In an Oct 26 report, she notes that management is guiding for higher operating expenses of $425 million to $435 million for FY2018. “While most leading indices are up for the year, we expect higher valuations to rein in some of the buying interest, especially as we head towards the lull months in late November to December,” Lee says.

Credit Suisse analyst Rikin Shah agrees. “[A] seasonally slow 4Q in terms of turnover (10% lower than 3Q on average) and lack of any major catalysts may cap the stock price performance in the near term,” he says in an Oct 26 report. He has a “neutral” call, with a price target of $7.60.

Developments at CapitaLand CapitaLand Malaysia Mall Trust (CMMT), a Malaysia-listed unit of CapitaLand, reported its results for 3QFY2017 ending Sept 30 on Oct 25. Revenue dipped 0.9% y-o-y to RM92.6 million and distributable income fell 2% to RM42.3 million. The REIT announced a 2.08 sen distribution per unit for the quarter.

The fall in revenue was driven mainly by negative rental reversions from Sungei Wang Plaza. Another property, The Mines, saw lower rental and occupancy rates. Tropicana City Property reported lower occupancy for its office tower. However, rental rates were higher for Gurney Plaza and East Coast Mall.

Operating expenses increased 1.6% to RM32.6 million. This was driven mainly by the increase in service charge at Sungei Wang Plaza, higher property maintenance and higher utilities consumption.

“The operating environment for the retail sector continued to be affected by cautious consumer sentiments and increased competition from new malls,” says David Wong, chairman of CapitaLand Malaysia Mall REIT Management in a statement. “Notwithstanding the challenges, we remain optimistic that the underlying strength of CMMT’s portfolio of quality malls will continue to offer sustainable income distributions to unitholders in the long term.”

Meanwhile, CapitaLand’s serviced residence unit Ascott announced it has secured contracts to manage two properties — one in Raffles Place and another in Rochor. Both properties will operate under Ascott’s Citadines brand, and will have over 600 serviced residence units, representing Ascott’s two largest properties in the country.

“With the addition of these two well-located properties, Citadines will become Singapore’s leading serviced residence brand with the most number of units — 989 units across five properties. This will increase our management contracts in Singapore, which will generate a steady stream of recurring income for Ascott,” says Ervin Yeo, Ascott regional general manager for Singapore and Malaysia. “Ascott remains the largest and fastest-growing serviced residence operator in Singapore with close to 2,300 units across 13 properties.”

Our portfolio has returned 15.4% since its inception, in line with the Straits Times Index’s 15.4% gain.

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