Singapore Corporate News - 16 Feb 2008

DBS Q4 net profit slides 18%

DBS Group Holdings beat analysts' expectations with a fourth-quarter net profit of $491 million despite further investment writedowns relating to collateralised debt obligations (CDOs).

The net profit - after one-time items and goodwill charges - for the three months ended Dec 31, 2007 was 18 per cent lower than the previous corresponding quarter's $596 million but higher than the $435.5 million median estimate of eight analysts Bloomberg News surveyed.

The quarter saw South-east Asia's largest lender make a further allowance of $170 million for its $267 million of asset-backed securities (ABS) that have exposure to US sub-prime mortgages. Together with the $70 million provisions made in Q3, the total allowance came to $240 million, or 90 per cent of such CDOs.

'We consider this to be more than adequate, as the asset-backed securities CDO portfolio does not consist only of US sub-prime mortgages,' said Jeanette Wong, DBS chief financial officer. The portfolio includes exposures to high-grade mortgages.

The bank said that it made general allowances of $30 million for Q4 as a 'prudential measure' for the remaining $944 million of CDOs with no exposure to sub-prime mortgage.

Ms Wong said that the bank's $1.21 billion of CDOs currently has no defaults and interest payments are still being received. 'We have no further exposure to US sub-prime,' she added.

The bank incurred a mark-to-market loss of $91 million charged to its net trading income, relating to CDOs held by Red Orchid Secured Assets (Rosa) - its fully consolidated conduit. DBS decided to liquidate Rosa at the end of January to give it flexibility in managing the risks of assets in it, said Ms Wong.

Some $347 million of CDOs have been transferred to DBS, which the bank says are still performing. These are made up of short-term loans and bonds that the bank bought from other global banks. But a further loss of at least $86 million will be booked under its Q108 results.

Frank Wong, DBS chief operating officer, said: 'We believe we've made most of the provisions and we want to close this chapter because we do believe we've done the best we can.'

Another dent to the bank's Q4 bottom line came from taking a $67 million charge for its stake in TMB Bank, taking one-time impairment charges for the year to $209 million. Its stake of 16.1 per cent in the Thai lender has been diluted to 6.8 per cent worth $209 million from its original $418 million book value. But, Ms Wong said, the bank will 'continue to hold TMB shares as an investment'.

DBS's full-year net profit remained flat at $2.28 billion from $2.27 billion a year ago.

Operationally, the bank performed well in its core businesses of net interest income and fee income.

'For 2008, our stance is to be cautiously optimistic,' said DBS chairman Koh Boon Hwee. 'We believe that there is still room for growth in Asia but we do not believe we will be completely immune to what is happening in the US.'

The bank is recommending a quarterly one-tier dividend of 20 cents per share, taking the total dividends for the year to 80 cents.

Mr Wong, who has expressed his intention to retire at the end of this year, did not elaborate on his retirement plans. The British citizen, who spends much of his working life in Hong Kong, also said that he might stay in Singapore for his retirement.

Shares of DBS ended 60 cents or 3.5 per cent higher at $17.90 yesterday.

OCBC Investment Research said in a note that it believes that DBS has prudently provided for its CDOs that have exposure to US sub-prime assets. 'We reiterate our view that Singapore banks are still in a healthy position with manageable CDO exposure, and still likely to see loan growth in 2008, albeit at low single-digit.'

Moody's Investors Service, the ratings agency, also said that DBS Bank ratings have not been affected by the announcement of additional provisions or by its recent acquisition of Taiwan-based Bowa Commercial Bank.

DBS's core business income up 15% at $6.16b

WRITEDOWNS and charges aside, DBS saw 15 per cent growth in its core businesses of lending and fee income for the full year. Total income was $6.16 billion, up from $5.34 billion.

Net interest income - or profit from loans - for the fourth quarter ended Dec 31, 2007 grew 14 per cent from a year ago to $1.06 billion. On a yearly basis, it increased 14 per cent to $4.11 billion. Customer loans hit $108.4 billion, up 25 per cent, led by corporate and SME borrowing across the region and housing loans in Singapore.

The loan pipeline remains healthy, said Jeanette Wong, DBS' chief financial officer. 'Deferred payments are coming up for mortgage financing,' she noted.

Interest margins for the year declined from 2.20 per cent to 2.17 per cent as spreads between prime lending rates and funding costs fell in Hong Kong, said the bank.

For the quarter, net fee income expanded 25 per cent to $379 million. Income from some capital markets activities such as investment banking and loan syndication declined, but stockbroking commissions and wealth management fees were higher. For the year, it rose 27 per cent to $1.46 billion.

However, trading income for the quarter recorded a net loss of $25 million compared with a net trading income of $65 million in the previous Q4. Volatile credit markets were blamed for the fall.

On a yearly basis, trading income plunged 66 per cent to $180 million from $522 million a year ago. Trading gains in foreign exchange and interest rate instruments were offset by losses in credit trading and structured credit activities.

The decline in net trading income also included a marked-to-market loss of $136 million for CDOs held by Rosa, a fully-consolidated conduit.

For the quarter, expenses increased 3 per cent to $648 million, while for the year, the figure was 11 per cent higher at $2.62 billion. This improved the cost-income ratio to 42 per cent from 44 per cent in 2006. Staff costs rose on higher headcount to support business expansion.

DBS chairman Koh Boon Hwee commented that the bank's fourth quarter performance caps a year of 'good growth' for DBS.

He added: 'With the additional allowances we took this quarter, we are well covered for risks associated with US sub-prime assets. I believe that despite the turmoil in the global financial market today, banks in Asia are much less affected.

'At DBS we will continue to stay vigilant and strengthen our risk management capabilities. Our balance sheet is strong and I remain cautiously optimistic about the year ahead.'

Chartered buys Hitachi Semicon for US$233m

CHARTERED Semiconductor Manufacturing said yesterday that it has agreed to buy 100 per cent of Hitachi Semiconductor Singapore Pte Ltd (HNS) from Hitachi Ltd and Hitachi Asia for US$233 million in cash.

HNS owns and operates an eight-inch wafer fabrication facility here, which will add to the capacity of four eight-inch fabs that Chartered currently operates.

'This announcement reflects the progress we have made so far with our value-added technology offerings and allows us to capitalise the investments we have already made in that area by adding immediately available capacity near our existing campus with a trained employee base of approximately 800 people,' said Chartered president and chief executive officer Chia Song Hwee.
According to Chartered, this incremental capacity will enable the group to meet some of the additional requirements of existing customers, capture new business opportunities and further diversify its customer base.

The agreement also includes a manufacturing agreement with Renesas Technology Corp, an existing customer of HNS, to provide about US$250-300 million worth of future wafer fabrication services.

The acquisition, which is scheduled to be completed at the end of the first quarter, will be funded through a combination of existing cash balances, cash flow from operations and credit facilities. It is expected to be 'neutral' to Chartered's earnings this year.

HNS's bulk CMOS logic wafer fabrication facility is capable of producing about 24,000 eight-inch wafers a month at the 0.15-micron to 0.25-micron technology nodes.

Based on the purchase consideration, Chartered's investment translates to about US$7 million per 1,000 wafers output per month capacity, excluding the carrying value of the building and other current assets and liabilities acquired as part of this transaction.

Excluding the cost of this acquisition, Chartered's 2008 cash-flow based capital expenditures are now expected to be US$590 million, US$40 million lower than what it said earlier, due largely to lower capital expenditure requirements in its existing eight-inch fabs.

Chartered recently reported its 2007 net profit (including a US$91.4 million tax-related benefit) jumped 51.8 per cent to US$101.7 million.

Venture banks on continuing outsourcing trend

CONTRACT manufacturer Venture Corporation says it is well-placed to ride on the outsourcing trend even in the face of economic uncertainty.

Yesterday, the company also reported a 5.1 per cent dip in Q4 net profit to $74.3 million, even though sales rose 14.5 per cent to $963.37 million.

The slight profit dip resulted from a loss of $16.23 million from fair value changes in embedded derivatives, an amortisation expense from intangible assets, plus a non-recurring gain incurred in the previous year.

For the year ended Dec 31, 2007, Venture's net income rose 25.4 per cent to over $300 million, while turnover was up 23.9 per cent at $3.87 billion. Earnings per share rose to $1.096 from 88.2 cents previously.

At a briefing, CEO Wong Ngit Liong said that 'outsourcing is still a strong value proposition for original equipment manufacturers (OEMs), and we expect more OEMs to seek innovative business arrangements like outsourcing to strengthen their competitiveness'.

While Mr Wong acknowledged that the business environment will be challenging, he pointed out that some firms may wish to cut operating cost during this period, and therefore opt for outsourcing as an alternative. Therefore, he does not expect Venture's business to be significantly affected by the expected US economic slowdown.

For 2007, the firm reported revenue contributions from all its business segments. Printing & imaging accounted for 28 per cent of full-year turnover, while retail store solutions & industrial products took up 21 per cent. PC peripherals & data storage contributed 18 per cent, while test & measurement/medical and others took up 15 per cent. Networking and communications products accounted for the rest.

During the year, the firm added a number of key partners and strengthened its relations with major OEM partners. Venture said it also selectively moved into many new product areas, thereby diversifying its portfolio of products, value-add activities plus technologies.

The company makes printers for Hewlett-Packard, the world's largest computer and printer maker, which accounts for about a quarter of the Singapore company's sales. It also produces hard drives for computer storage firm Iomega Corp and networking devices for electronics and testing equipment maker Agilent Technologies.

Looking ahead, there are plans to expand towards the precision manufacturing and consumables business, under its component technology segment. The company also declared a final dividend of 50 cents per share, tax-exempt one- tier. Its shares rose 19 cents to close at $9.85 yesterday.

ComfortDelGro's full-year profit falls 8.8% to $223m

COMFORTDELGRO'S net profit for the full year ended Dec 31, 2007 slipped 8.8 per cent to $223 million, despite revenue growing 8 per cent to $3.02 billion on the strong performance of its overseas bus and taxi operations.

The drop in earnings was due to an exceptional gain of $42.1 million the previous year from a share exchange with partner Cabcharge Australia, a taxi charge card company. Stripping out that gain, net profit would have increased 10.1 per cent.

The land transport giant said that this is the first time that revenue has crossed the $3 billion mark. Overseas turnover, led by the UK, China and Australia, accounted for 47 per cent of the group's total turnover, up from 45 per cent the previous year.

Operating profit grew by 9.6 per cent to $334.8 million, with overseas operations accounting for 46 per cent of this record figure - up from 42 per cent the year before. But total operating expenses rose 7.8 per cent to $2.68 billion, with the biggest component - staff costs - spiking 10.2 per cent to $950.7 million. Energy and fuel costs were up 10.7 per cent to $216.9 million.

Full-year turnover for the bus business rose 11.9 per cent to $1.5 billion. Turnover from overseas bus operations accounted for 62 per cent of this figure - the fourth consecutive year that it has been higher than that of Singapore operations.

Listed unit SBS Transit's revenue for the full year to Dec 31, 2007 rose 6.6 per cent to $670 million on higher bus and rail fare, as well as higher advertisement revenue. But its net profit fell 10.9 per cent to $50 million on higher operating expenses from depreciation, repairs and maintenance, and staff and fuel costs. SBS, whose 2007 earnings per share were 16.37 cents (down from 2006's 18.52 cents), proposed a final dividend of 3.25 cents a share.

Meanwhile, turnover from ComfortDelGro's taxi business grew 5.9 per cent to $917.3 million, with overseas taxi operations making up 40 per cent of total taxi turnover. In Singapore, turnover grew 4.9 per cent to $552.7 million due to a surge in corporate jobs and call bookings.

The rail business rolled to an 18.2 per cent increase in turnover to $90.5 million on increased patronage of the North-east MRT Line and the two LRT lines. Operating profit was $9.2 million, up from $600,000 the year before, marking its second year in the black.

ComfortDelgro's earnings per share fell to 10.73 cents from 11.82 cents the previous year, while net asset value for the group rose to 71.11 cents from 69.61 cents a year ago.

SIA picks Rolls-Royce engines for A380

SINGAPORE Airlines has selected the Rolls-Royce Trent 900 engine to power its nine additional Airbus A380-800 aircraft which it ordered two years ago. These planes are due to be delivered between 2010 and 2011.

Delivery of SIA's first 10 Trent 900-powered A380s has started, with two of the giant planes already in use. A third is due this month and two more should arrive within the next year.

SIA became the first airline in the world to fly the A380 in October last year, when it put its first such plane on its scheduled flights between Singapore and Sydney.

Under the terms of the aircraft order with Airbus, SIA was given a choice of the Rolls-Royce engines or power plant from the US consortium Engine Alliance. The airline said the selection was made following the technical assessment of the engines and evaluation of offers from both engine manufacturers.

SIA has signed a Letter of Intent with Rolls-Royce to provide engines, spares and maintenance under a TotalCare Services Agreement.

Rolls-Royce will be responsible for the provision of off-wing maintenance, repair and overhaul of engines, as well as spare engine support. The engines will be repaired and overhauled at Singapore Aero Engine Services Limited - a joint-venture between SIA Engineering Company Ltd and Rolls-Royce.

Temasek MD to rejoin ST Engg as its CFO

ELEANA Tan Ai Ching, managing director (finance) of Temasek Holdings, is rejoining Singapore Technologies Engineering (ST Engg) as chief financial officer on March 1. Ms Tan is no stranger to ST Engg, having previously worked in various finance positions in the group, last holding the position of group financial controller.

MI-Reit posts $6.3m Q3 net property income

MACARTHURCOOK Industrial Reit (MI-Reit) reported net property income of $6.3 million for the third quarter ended Dec 31, 2007, exceeding forecast by 6 per cent. This is largely due to contributions to rental income from completed acquisitions during the quarter. Distribution per unit was 1.92 cents, 3.2 per cent above forecast.

Select unlikely to meet 2007 expectations

SELECT Group has warned that the group's performance will not meet expectations for the year ended Dec 31 2007. It said operations in China have continued to underperform and it expects to provide for impairment loss relating to its overseas properties. Select will announce full-year 2007 results before the end of this month.

OCBC rejects bids for Straits Trading

OCBC Bank has rejected the respective takeover bids for The Straits Trading Company (STC) by the Lee family's Knowledge Two Investment and the Tan family's The Cairns.

'The 6.2 per cent stake in STC held by OCBC represents a long-term investment, not a trading position, notwithstanding that it is classified, for accounting purposes, as 'available for sale',' it said yesterday in its first response to the takeover battle for STC.

Knowledge Two raised its offer on Thursday to $6.55 per STC share, in response to The Cairns's renewed offer of $6.50 per share on Jan 28. It had similarly pipped its rival's initial offer of $5.70 early last month with a bid of $5.76.

Quipped a Lee insider, don't forget 'OCBC stands for only can borrow coins'.

The Cairns is a privately held investment firm controlled by family members of the late Tan Chin Tuan who was chairman and managing director of OCBC for two decades. Mr Tan had been a faithful employee of the Lee family who founded OCBC and he had been instrumental in acquiring a stable of companies and properties for them.

OCBC said that it has held the STC shares as a long-term investment for many years, and the investment has yielded attractive returns. Over the three-year period ended Dec 31, 2007, STC shares achieved a 'total shareholders' return' (income from dividends plus capital gains) of about 40.7 per cent per annum, it said.

The bank noted that it had not sold any STC shares for many years, other than about 27 million shares in 2006 to comply with regulatory requirements.

It also pointed out that the combined stake of 33.4 per cent held by OCBC group, Great Eastern Holdings group and the Lee group of companies represents the single largest block of shares in STC.

'If the three substantial shareholders all wish to realise their investments, such a sizeable single largest block could command a significant control premium from strategic buyers.'

Besides control premium, OCBC also sees the potential for the three to 'exercise their influence' on STC directors to continue or accelerate the unlocking of value for the benefit of all STC shareholders.

'The financials of the STC group suggest that there exists significant room for leverage and accordingly some values to be unlocked from a more efficient capital structure.'

OCBC intends to seek board representation on STC and request that a financial adviser be appointed, after the close of offer, to recommend ways to unlock and enhance shareholders' value.

OCBC noted that Knowledge Two has indicated that it would take similar steps to further unlock value in STC for the benefit of shareholders. 'Knowledge Two's intended efforts are aligned with those of OCBC.'

The bank closed its statement yesterday by saying that should there be any further development, it would further evaluate and decide accordingly.

Parkway's Novena bid poised to set govt land sales record

Hospital operator Parkway Holdings looks set to shatter all records for government land sales (GLS) with its $1.25 billion bid for a hospital site at Novena.

Parkway's bid, which works out to be about $1,600 per square foot per plot ratio (psf ppr), topped the previous record set by Australia's Lend Lease, which paid $1,455 psf ppr (or $617.2 million) for a commercial site just above Somerset MRT Station in August 2006.

The Urban Redevelopment Authority (URA) will assess all bids and award the site in a few weeks' time, but it is unlikely that Parkway's bid will lose out to the two other bidders, Napier Medical and Raffles Medical Management, which put in bids of $694.5 psf ppr and $344.1 psf ppr respectively.

On its likely win, a spokesman for Parkway Holdings said: 'We believe that the value we have placed in this tender reflects ParkwayHealth's desire to enhance Singapore's position as a global medical hub with leadership in specialist services.'

He added that the hospitals that it operates - East Shore, Gleneagles and Mount Elizabeth Hospitals - are operating at capacity and the new hospital will add beds and critical space needed.

The Novena site, which has a permissible gross floor area of 778,768 sq ft, is the first hospital site to have been launched in about 30 years. URA said that the last hospital site launched was at Mount Elizabeth in 1976.

Knight Frank director (research and consultancy) Nicholas Mak, who had earlier estimated that the Novena site could fetch bids of $770-860 psf ppr, said that it is difficult to price the site. However, he believes the broad range of bids received suggests that his estimated price would be closer to market expectations.

Mr Mak also noted that Parkway's bid could boost the value of neighbouring properties, especially Novena Medical Centre, where medical suites sold for around $2,500-3,000 psf last year.

Parkway has not indicated that there could be medical suites for sale if it builds a hospital, but Mr Mak estimates these would have to sell for around $4,000 psf. He added that a unit at Mount Elizabeth Hospital recently sold for around $5,000 psf.

Still, Mr Mak does not believe Parkway's record bid price will be used as a benchmark for future land sales, and may be considered more of an anomaly.

The possibility of injecting the new hospital into Parkway's healthcare real estate investment trust, Parkway Life Reit, also seems unclear. 'To put it in the Reit, the land price should be lower to make the deal yield accretive,' he added.

Napier Medical director Mark Wee also 'cannot fathom' Parkway's bid except to suggest that it could have been a defensive play against competition.

Based on Napier's own projections, a new hospital would probably not make money for the first six years either.