Singapore Corporate News - 2 Feb 2008

DBS wins bid to acquire Bowa Bank

DBS Group Holdings has won the bid to take over Taiwan's failed Bowa Bank with a government subsidy of NT$44.5 billion or about S$1.9 billion, making it the first Singapore bank to gain a foothold in Asia's third richest country and fourth largest economy.

It is also DBS's first significant acquisition since it bought over Dao Heng Bank in Hong Kong in 2001 for S$10 billion.

In a statement yesterday, DBS said it was the successful bidder in a government auction to acquire the 'good bank assets' of Bowa Bank.

The Taiwan government's Central Deposit Insurance Corporation (CDIC) took control of Bowa in August 2007. Under the terms of the transaction, DBS will acquire Bowa's 'good bank assets' of about NT$66.3 billion of net loans, NT$92.3 billion of deposits, 39 branches, three business units and over 750,000 depositors, with a payment from the CDIC. Following the acquisition, DBS will have a total of 43 distribution outlets across Taiwan, of which 20 are in the Taipei area.

DBS spokeswoman Edna Koh told BT the CDIC payment amounts to NT$44.5 billion.

DBS will still have to invest considerable amounts of money to recapitalise and rebuild Bowa's franchise. All branches will be rebranded DBS branches. Bowa Bank is one of Taiwan's smallest banks by assets, ranking 37th out of 39 banks on the island.

'DBS will be investing capital and resources during the initial period to enhance the long-term profitability of the business,' said Ms Koh when asked about DBS's capital commitments to Bowa. She added that DBS will have the largest branch network among foreign banks in Taipei.

DBS's bold move in Taiwan follows on other international financial institutions and private equity funds which have been buying up distressed banks in Asia's fourth largest economy - with an eye to China.

Taiwan is Asia's num-ber three wealth management market and its companies have invested billions of dollars in China.

HSBC, Citigroup, Standard Chartered and ABN Amro all bought Taiwan lenders over the past two years. GE Money and US private equity firm SAC Private Capital last month completed a US$900 million recapitalisation of Cosmos Bank, a second-tier lender and one of the largest issuers of cash cards in Taiwan.

DBS said its Taiwan investment reinforces DBS's Greater China strategy, and enhances the bank's position as a leading provider of financial services in Asia and a pioneer in wealth management. The acquisition presents a sizable platform for DBS to grow and extend its footprint in an attractive market.

DBS chairman Koh Boon Hwee said: 'Taiwan is an attractive market, and an important part of our Greater China strategy. We intend to fully leverage our extensive footprint in Hong Kong, and our growing presence in China, to intermediate the increasing trade and investment flows between Taiwan, Hong Kong and China.'

He added: 'Today, DBS counts many Taiwanese small and medium enterprises among our customers in Greater China. With this acquisition, we will be able to better service our existing clients given our ability to reach out to their Taiwan-based parent companies as well.'

DBS said the transaction is subject to regulatory approval and is expected to close by end-May.

Bowa Bank was established in March 1992.

SIA posts $590m Q3 net profit

SINGAPORE Airlines (SIA) reported a group net profit of $590 million for its third quarter ended Dec 31, 2007, comparable to the previous corresponding quarter's $589.2 million, which included a one-off gain of $198 million.

Excluding the previous year's $198 million exceptional gain from SIA's sale of its 35.5 per cent stake in Singapore Aircraft Leasing Enterprise (SALE), Q3 group net profit attributable to equity-holders was $199 million or 50.7 per cent higher.

Top-line revenue rose 13 per cent to $4.28 billion.

Significantly, the parent airline company boosted operating profit 67.6 per cent to $513 million. As a result, the airline company's contribution to group operating profit rose 7.7 percentage points to 76 per cent.

The operating results of SIA's three major subsidiary companies were:

-Singapore Airlines Cargo: $73 million profit (up 39.5 per cent year on year);
-Singapore Airport Terminal Services: $47 million profit (up 2 per cent);
-SIA Engineering Company: $19 million profit (down 27.9 per cent).

The Q3 results lifted group net profit attributable to equity-holders for the nine months ended December 2007 to $1.52 billion, from $1.46 billion a year earlier. Stripping out exceptional gains of $421 million in the first nine months of the previous year from the sale of SIA Building and the SALE stake, net profit attributable to equity holders in the latest nine months was 46.8 per cent or $485 million higher.

Group expenditure increased $255 million or 7.6 per cent in the latest Q3 to $3.6 billion. In particular, fuel costs rose $99 million or 8 per cent to $1.3 billion as prices soared to new highs. Fuel accounted for 36.9 per cent of group expenditure. On the operating side, yield and load factors rose.

The airline carried 4.96 million passengers, 3.5 per cent more than a year earlier. Traffic grew 2.7 per cent while capacity grew 2 per cent, resulting in a 0.6 percentage point improvement in the passenger load factor to 81.3 per cent.

The breakeven passenger load factor, at 67.7 per cent, was 3.2 percentage points lower than a year earlier as passenger yield grew at a higher rate of 12.7 per cent versus a 7.7 per cent rise in unit cost.

On the freight side, SIA Cargo's traffic was down 2.6 per cent year on year, in line with a decline in cargo capacity of 2.4 per cent.

SIA said demand for air travel was firm during the three months, with advance bookings strong.

'Beyond the near term, however, the prospects are uncertain, with financial markets under stress and growing concerns about potential recession in America,' it said. 'Pricing of futures indicates that oil prices will hold at current high levels, and expenditure on fuel will be partially mitigated by hedging and recovery of incremental costs from surcharges.'

SIA shares closed 24 cents higher at $15.64 yesterday. This week, Merrill Lynch cut its price target for the stock from $23.60 to $18 but maintained a 'buy' rating.

CapitaLand's record $1.3b bond

CAPITALAND has raised $1.3 billion through a 10-year convertible bond, said to be the largest ever done in Singapore. The bonds, which have been fully placed with institutional and 'sophisticated' investors, have a 46 per cent conversion premium, translating into a conversion price of $8.614. This exceeds its highest ever closing share price of $8.60. The reference share price is $5.90 per share.

The convertible bonds, which are convertible into new CapitaLand ordinary shares, bear a coupon rate of 3.125 per cent per annum, payable semi-annually in arrear.

CapitaLand group president and CEO Liew Mun Leong said: 'It is gratifying that in the midst of the tough global economic and financial landscape, CapitaLand is still able to successfully launch its forth convertible bond issue.'

Full conversion of the bonds will result in the issue of 150.9 million new shares or 5.38 per cent of the existing issued shares.

Macquarie Research (MR) said in a note said that while CapitaLand shares corrected by 28 per cent in the past three months, it believes refinancing is not a risk as it fixed more than 70 per cent of its total debt and has 'a very well spread debt maturity profile over the next five years'. MR said: 'We view this convertible bond issue as opportunistic to take advantage of the window to lock in interest rates on its core term, thereby extending its maturity profile.'

CapitaLand group CFO Olivier Lim said it is prudent capital management, especially during these turbulent times. The group has a 0.46 debt/equity ratio.

CapitaLand said it expects to use the net proceeds of about $1.27 billion to finance new investments, refinance its existing borrowings, and for working capital.

JP Morgan was the sole bookrunner and lead manager for the issue. Its CEO of investment banking (South-east Asia) Philip Lee said that raising $1.3 billion in today's global market is 'fantastic'.

But he added that CapitaLand is a well-known name in the market and that investors are 'comfortable' with its business model which adopts a 'reach strategy'.

CapitaLand is exposed to several Asian markets and 'people are still interested in Asia', added Mr Lee.

CapitaLand shares closed 10 cents down at $5.80 each yesterday.

SP Chemicals reports 52% fall in net profit for Q4

SP Chemicals, one of the largest producers of ion-membrane chlor-alkali and aniline in China, yesterday reported a 52 per cent year-on-year fall in net profit to 38.2 million yuan (S$7.5 million) for its fourth quarter ended Dec 31, 2007.

Revenue for the three months dropped 15 per cent to 371.7 million. But full-year revenue rose 9 per cent to a record 1.64 billion yuan boosted by higher production output.

However, generally weak product prices and high raw material prices, particularly in the fourth quarter, caused full-year net profit of 263.5 million yuan to be marginally lower than the previous year's 263.7 million yuan.

Said SP Chemicals chief executive officer Chan Hian Siang: '2007 was a challenging year. While we delivered an extremely strong first half, the second half of the year was clearly impacted by the weak product prices and high raw material prices. But ... we continued to deliver commendable sales and earnings in 2007 against a very strong 2006.'

SP Chemicals' FY2007 results translate to earnings per share of 0.721 yuan and a net asset value per share of 3.13 yuan as at Dec 31, 2007. The company has recommended a dividend of 7.2 fen per ordinary share and a one-for-two bonus issue for shareholders.

Mr Chan expects the firm's operations in the first quarter of this year to be hit by the current storms raging in China.

Over the longer term, the company will expand its chlor-alkali and aniline production capabilities and build new styrene monomer production facilities in Q308.

Datacraft posts 51% rise in Q1 earnings

DRIVEN by strong demand in key markets, IT solutions and services provider Datacraft Asia yesterday announced a 51 per cent jump in net profit in the fiscal 2008 first quarter which ended on Dec 31, 2007.

The company reported a net profit of US$9.4 million for the quarter, up from the previous corresponding quarter's US$6.2 million. Revenue grew 35 per cent from US$128.7 million to US$173.2 million.

Bill Padfield, Datacraft's CEO, said the company witnessed strong double-digit growth from all four geographic regions - Asean; East Asia; Greater China; and India and New Zealand.

He particularly mentioned strong growth in Singapore, Hong Kong, Indonesia and India.

'Reflecting the positive momentum of the business, the company's Q1 ending order backlog stood at a record high of US$202 million,' Mr Padfield noted.

During the quarter, services and hardware revenue both contributed to the strong revenue momentum.

Services revenue grew 26 per cent to US$60.8 million while hardware revenue grew 40 per cent to US$112.4 million over the previous year's corresponding period.

'The stronger than expected revenue performance was driven by strong orders from the financial and manufacturing sectors,' Mr Padfield said.

The overall blended gross margin for the quarter was 18.9 per cent, slightly lower than 19.2 per cent in Q1 FY2007 and 19.6 per cent in Q4 FY2007, because the balance of sales shifted slightly in favour of the lower margin hardware business for this period, Mr Padfield noted.

During the quarter, Datacraft acquired the business of Security-Assessment.com, a New Zealand-based high-end IT security consulting firm, for about US$3.7 million.

'The business complements Datacraft's existing security practice and will help enhance the company's ability to provide the highest level of security advisory and assessment services to clients regionally and globally,' Mr Padfield said.

The company continued to maintain a healthy balance sheet and cash position. As at Dec 31 last year, the company had net cash and short-term investments of US$165.3 million, an increase of US$14.9 million from the prior quarter after factoring in the US$3.7 million paid for the acquisition of Security-Assessment.com.

'The strong cash performance was largely due to the US$19.1 million cash flow generated from operations, driven by growth in operating profit and improved working capital. Days sales outstanding improved to 58 days, the best performance in Datacraft's history, compared to 61 days in the prior quarter and 68 days a year ago,' Mr Padfield noted.

During the quarter the company acquired 300,000 of its shares at a cost of US$333,000. The cumulative total of shares purchased since the inception of the buy-back programme in January 2006 is 23.4 million shares at a cost of US$24.9 million and the scheme was renewed at the company's annual general meeting on Jan 29.

Looking ahead, Mr Padfield cautioned that the good first quarter growth may not be immediately repeated in the second quarter, which is a seasonally slower quarter. 'However, the current outlook is positive backed by a strong order backlog of US$202 million.'

Mr Padfield added: 'The prevailing turbulence and uncertainties in the global financial markets, in particular the global financial services sector, will be closely monitored and reacted to if necessary.'

Chartered's Q4 profit up 9.3%

THANKS to a tax benefit, Chartered Semiconductor Manufacturing reported a 9.3 per cent rise in fourth-quarter net income. But the Singapore-based semiconductor foundry warned of a possible slowdown due to a seasonal decline in chip bookings for its current quarter.

Chartered, which supplies chips for Microsoft's XBox 360 gaming console, chalked up a Q4 net income of US$5.9 million or one US cent per American Depositary Share (ADS), up from US$5.4 million or one US cent per ADS a year earlier.

The fourth-quarter profit, which included a US$14.6 million tax benefit, came in at the mid-range of the firm's earlier forecast of between US$1 million and US$11 million. The tax benefit arose from the difference between the actual tax expense for the financial year and the cumulative tax expense recognised for the first three quarters.

'We note that the bottom-line strength came mainly from a tax credit of US$14.6 million, and without it, the foundry made a loss of US$8.7 million, versus a profit before tax of US$6.3 million in 4Q06 and US$7.1 million in 3Q07,' OCBC research analyst Carey Wong noted in a report.

Excluding contributions from its stake in Silicon Manufacturing Partners (SMP), Chartered's Q4 sales totalled US$352.6 million, up 4 per cent from US$339.1 million in the previous corresponding quarter. Revenue including SMP rose 3.9 per cent to US$377.8 million from US$363.7 million.

For the year ended Dec 31, Chartered's sales were down 4.2 per cent to US$1.36 billion, while net income jumped 51.8 per cent to US$101.7 million helped by a tax benefit of US$91.4 million relating to prior year allowances.

Although the first three months of a new year is typically slow for chipmakers as customers work through their pent-up inventory following the year-end boom, Chartered is still expecting sales excluding SMP to increase sequentially by 2 to 6 per cent this quarter, in the range of US$361 million to US$373 million. However, net income for the three months ending March 31 is projected to come somewhere between a loss of US$5 million and a profit of US$5 million, the firm said in a statement.

'Moving into Q1, which is a seasonally slow quarter, we are still hoping to grow our revenue. Four per cent is our expectation,' Chartered chief executive officer Chia Song Hwee told BT in a phone interview. 'This is mainly driven by our continued strength in the communications sector, by handsets followed by LAN (local area network) switches and routers.'

Chartered counts networking equipment maker Broadcom, handset chip provider Texas Instruments and PC processor supplier Advanced Micro Devices as its major customers.

Semiconductor prices have plunged in the past year as a result of a supply glut and intensifying competition, prompting major chipmakers to trim investments in areas like factory equipment and expansion. Chartered expects average prices of its semiconductors to drop by 2 to 6 per cent to US$845 to US$885 per wafer this quarter.

Against this backdrop, the company has earmarked capital expenditure of US$630 million in 2008, down from US$758 million last year. Research and development spending, however, will be upped by 12.5 per cent to US$180 million.

'The most immediate issue is for Chartered to improve its operational efficiency to lower its breakeven point,' OCBC's Mr Wong said, maintaining his 'hold' rating on the stock.

Chartered's share price rose by six cents to close at $0.83 yesterday.

Keppel shares tumble despite strong results

AFTER some initial euphoria over its strong results, the price of Keppel Corporation shares yesterday took a tumble over fears of margin erosions, a slowdown in orders and foreign exchange hedging concerns.

This despite the announcements of record earnings and turnover on Thursday, and the securing of new contracts from repeat customer Maersk Contractors and the first US Gulf of Mexico floating production offloading and storage (FPSO) facility for BW Offshore, worth $215 million in total.

Although most analysts have maintained their 'buy' rating on Keppel, several have revised downwards significantly their earnings forecast for the current financial year, and also their target prices for the stock, fearing that cost escalation, lower margins, a slowdown in orders and a tepid property market could have an adverse impact on the company.

CIMB-GK, for example, said that Keppel's Q407 core net profit of $268 million was 25 per cent below its expectations and 9 per cent below consensus forecasts due to margin pressures faced by Keppel Offshore & Marine from rising labour costs.

So it has cut its earnings estimates for this year by 9.7 per cent and for next year by 7.7 per cent 'to reflect further margin pressure' on O&M and slower growth for the infrastructure division for 2008. It has also cut its target price to $13.70 from $17.90. 'Nevertheless, (we) maintain 'outperform' as we continue to like Keppel for its strong order book with predictable earnings that could provide some buffer against a global recession,' it added.

OCBC Investment Research, while maintaining its 'buy' call, has revised its earnings estimates for this year downwards to $962.8 million in view of potential margin erosion and slowdown in orders, and has reduced its target price from $17.10 to $14.80 a share.

Goldman Sachs said there was no change to its 'buy' ratings, 'as we like Keppel for its strong three-year earnings CAGR (compounded annual growth rate) of 21 per cent, and relatively more visible earnings with leverage to the current offshore new build cycle'. But it reduced its target price from $15.90 to $13.75 a share and forecast this year's net earnings at $1.37 billion.

Stockbroker Kim Eng was the most optimistic, with a revised target price of $15 a share. 'We are adjusting our FY08 net profit down slightly to $1,146.8 million, implying just 12 per cent earnings growth, versus earnings CAGR of 23 per annum over the last five years. However, we expect a near term plateau from O&M, as its yards are already heavily utilised. We expect Keppel's growth trajectory to resume from FY09 onwards as contributions from the infrastructure business start to kick in,' analyst Rohan Suppiah said.

Keppel's latest contract is for the conversion of Maersk's second FPSO out of Singapore. The FPSO will have a new VLCC (very large crude carrier) hull that is due to arrive in the yard from China in the fourth quarter of 2008, and is expected to be completed by end 2009.

The Maersk FPSO will operate in water depths of around 100 metres at the Peregrino field in Brazil's Campos basin, and is capable of producing 100,000 barrels of oil a day with a storage capacity of 1.6 million barrels.

BW Pioneer Ltd, an affiliate of BW Offshore, has awarded Keppel a contract to convert the first FPSO for the Cascade and Chinook fields in the US Gulf of Mexico. It is scheduled for completion in the third quarter of 2009.

Despite the good news, Keppel saw its share price shaving 56 cents at $10.76 after having hit an intra-day high of $11.50.

Bio-Treat's H1 profit dips on higher tax expenses

BIO-TREAT Technology's net profit for the first half ended Dec 31, 2007, dipped 2.9 per cent from a year ago to 151.93 million yuan (S$29.9 million) as higher tax expenses erased the gains achieved in revenue.

The 79.26 million yuan of taxes it paid for the six-month period was 181.9 per cent higher than the 28.1 million yuan it paid a year back due to the expiry of the tax concession that was granted to its subsidiaries in China.

Profit before tax grew 25.2 per cent to 231.19 million yuan on the back of an 11.2 per cent rise in revenue to 792.56 million yuan. Its operating margin also improved to 32.3 per cent from 28.9 per cent in the preceding year.

Its revenue from wastewater treatment services grew 11.8 per cent year-on-year to 630.3 million yuan, representing about 80 per cent of group sales while the remaining 20 per cent comes from discharge fees received for built-operate-transfer (BOT) and transfer-operate-transfer (TOT) projects and the sales of BMS products.

'On the whole, despite the significant increase in tax expense and intense competition in the PRC's wastewater treatment market, Bio-Treat has fared considerably well with continued profitability,' said Dennis Chan, the group's CEO.

'In addition, our ongoing cost containment efforts have shown positive results,' he added.

The group managed to effectively reduce distribution and administrative expenses by 35 per cent and 18 per cent to 13.9 million yuan and 32.2 million yuan respectively.

Raffles Education Q2 profit up 55%; proposal to delist 2 firms

RAFFLES Education Corporation (REC) yesterday reported a second-quarter net profit of $16.3 million, 55.1 per cent higher than a year ago, on increased student enrolment and course fees, and contributions from China Education Limited (CEL) and Zhongfa College.

Revenue for the quarter rose 44 per cent to $39.3 million.

For the half year ended Dec 31, 2007, net profit jumped 56 per cent to $31 million. Revenue for the period was also 44 per cent higher, at $78.4 million.

Earnings per share for H1 rose to 1.43 cents from 1.01 cents. An interim dividend of 1.3 cents per share has been proposed.

The group expects continued growth of its business through the setting up of more colleges in the region, development of proprietary courseware, and strategic acquisitions.

Said REC chairman and CEO Chew Hua Seng: 'We are pleased to deliver another set of good results, and are confident of sustaining the growth momentum.'

Earlier last month, the group announced its intention to list certain of its operations in China on the main board of the Stock Exchange of Hong Kong.

Separately, the group plans to merge the operations of two companies that it controls and delist them. Hartford Education Corporation (HEC) and CEL will be integrated with REC and both will be delisted from the Singapore Exchange. CEL will also be delisted from the Australian Stock Exchange.

REC owns 51.2 per cent of HEC and 63.6 per cent of CEL. As the holding company of the group, REC wants to streamline, reorganise and integrate the management of its business activities under a single listed vehicle.

It wants to avoid duplication and cut costs associated with listing compliance and other regulatory issues. It said that the costs for the three companies are 'rather high and labour-intensive, especially given the relatively small size and low trading volume of HEC and CEL'.

The HEC exit offer will be 0.088 REC shares for each HEC share, or 0.176 REC shares for each HEC share if a proposed REC one-into-two stock split is effected. This is a 10.5 per cent premium over HEC's Thursday closing price of 19 cents.

As for CEL, all CEL shares will be cancelled. REC will pay 50 cents or the Australian dollar equivalent of that amount per CEL share for the cancellation. This represents a 25 per cent premium over Thursday's closing price of 40 cents.

The delisting of the companies and the merging of business operations are subject to approval of at least 75 per cent of shareholders at an EGM. The delisting must also not be voted against by 10 per cent of shareholders.

Koda six-month net profit up 8.7%

FURNITURE manufacturer Koda reported net profit of US$4.2 million for the six months ended Dec 31, 2007, up 8.7 per cent year-on-year. Revenue grew 2.6 per cent to US$35 million.

PCI posts 6.4% rise in six-month net profit

PCI Ltd, an electronic manufacturing services provider, has reported net profit of US$2.46 million for the six months ended Dec 31, 2007, up 6.4 per cent year-on-year. Revenue was US$82.12 million, down 20.5 per cent.

Boardroom Q2 net profit up 23.9%

BOARDROOM Ltd, a professional business services group, announced revenue for the second quarter ended Dec 31, 2007, of $9.7 million, an increase of 19.6 per cent year-on-year. This was attributed to growth in its number of clients across its business units. Profit after tax for the quarter was $3.1 million, up 23.9 per cent.

HG Metal Q1 net profit soars 130.5%

HG Metal Manufacturing Ltd has reported net profit of $8.5 million for the first quarter ended Dec 31, 2007, up 130.5 per cent year-on-year. Revenue increased 15.6 per cent to $117.3 million.