Singapore Corporate News - 19 Feb 2008

Parkway dives 8.3% on record bid for site

SHARES of Parkway Holdings took a beating yesterday as concerns emerged that the healthcare provider might have overpaid for a hospital site at Novena.

Parkway's stock slipped as much as 9.7 per cent yesterday following Friday's news that the company had put in the top bid of $1.25 billion for a 1.7 ha site at Novena Terrace/Irrawaddy Road.

The stock ended the day down 30 cents, or 8.3 per cent, at $3.30. The Urban Redevelopment Authority (URA) officially awarded the site to Parkway yesterday.

Parkway's bid, which works out to be about $1,600 per square foot per plot ratio (psf ppr) is a record price for land, and tops the previous record set by Australia's Lend Lease, which paid $1,455 psf ppr for a commercial site above Somerset MRT station in August 2006.

The bullish bid was also more than twice the $540.9 million offered by second highest bidder, Napier Medical.

Analysts, who estimate that Parkway's total development cost could be about $1.6 billion-$1.8 billion, said that Parkway had overpaid for the site.

'We believe capacity constraints at Mount Elizabeth Hospital and Gleneagles Hospital have pressured Parkway Holdings to be overly aggressive to secure the site,' said UOB-Kay Hian analyst Jonathan Koh. 'Parkway also does not want a competitor to secure the hospital site.'

Mr Koh's recommendation on Parkway is under review due to the massive bid. He previously had a 'buy' call on the stock.

Citigroup analyst Lim Jit Soon reiterated his 'sell' call on the stock, pointing out that the project will stretch Parkway's balance sheet.

'Gearing could rise to 171 per cent even before development costs are factored in,' Mr Lim said. 'In a credit crunch environment, securing financing might be an issue.'

Mr Lim added that Parkway's strategy could be to finance the development of the hospital by selling the medical suites to doctors at between $4,000 and $5,000 psf. But while this strategy could work, 'the company will have to convince investors that it did not overpay for the site', he said.

CIMB Research agreed that Parkway has overpaid, especially when looking at prices in the Novena area.

'Compared to bids for land sites in the Novena area, (Parkway's) bid is more than three times that of Far East Organization's bid of $501.2 psf ppr for a hotel site at Sinaran Drive in January 2007 and Frasers Centrepoint's bid of $506.9 psf ppr for a residential site at Sinaran Drive in July 2006,' said analyst Tan Wei Ling.

Ms Tan cut Parkway's target price to $4.19 from $4.53 due to rising risk aversion.

But she is maintaining Parkway's 'outperform' rating for now due to the company's growing regional franchise, good earnings prospects and relatively attractive dividend yields, she said.

RMG 'happy to lose' tender for Novena site

RAFFLES Medical Group (RMG) executive chairman Loo Choon Yong says he is 'happy to lose' the tender for a hospital site at Novena, seeing the record bid of $1,600 psf per plot ratio (ppr) by Parkway Holdings makes the site one of the most expensive commercial land buys in recent times.

'This is one tender we are quite happy to lose,' said Dr Loo. 'As you can see, it's a different risk appraisal, I suppose.'

The tender for the Novena site closed last Friday. At $344.1 psf ppr, RMG's bid fell a long way short of even the $694.5 psf ppr put in by second-highest bidder Napier Medical. The site was awarded to Parkway yesterday afternoon.

Although it missed out, RMG intends to keep looking for opportunities to grow locally. 'We can of course move out backroom services,' said Dr Loo. 'We can move out even my office and use every square inch to serve patients.'

At the rate business is growing, it may not be long before that happens. RMG announced yesterday its full-year net profit more than doubled to $35.9 million, from $15.7 million in FY2006. This was helped by a 46.9 per cent or $9 million rise in operating profit to $28.2 million and a one-time gain of $12.5 million from its 50 per cent interest in Raffles Hospital Properties. The gain resulted from a revaluation of the Raffles Hospital building, which RMG previously co-owned with a CapitaLand unit.

Revenue for the 12 months ended Dec 31, 2007, jumped 25.6 per cent to $168.7 million. This was driven largely by hospital services which saw revenue surging 34.3 per cent to $106.3 million. The increasing complexity of cases resulted in more intensive use of facilities and higher value-added services.

According to Dr Loo, the hospital is operating at 40-60 per cent capacity, with some of the bed space making way for outpatient operations.

The healthcare services segment, which encompasses the clinics business, grew 14.4 per cent to $69.7 million. During the year, the group opened three new clinics - at Science Park, TechPark, TechPlace and a 24-hour medical centre in Terminal 3 of Changi Airport.

Basic earnings per share for the year went up to 7.36 cents, from a restated 3.50 cents the year before. Net asset value per share was 38.98 cents at Dec 31, up from 24.87 cents at end-2006. The group is proposing a final dividend of 1.5 cents a share, bringing the payout for the year to 2.5 cents a share.

Dr Loo is optimistic about the group's prospects in 2008 but says the state of the global economy is important. 'Because we are actually serving regional patients, if they do less well, they may be less inclined to come,' he said. 'Singaporeans will always have the option of going to government hospitals.'

More than one-third of RMG's patients are from overseas, with the top sources being Indonesians, Malaysians and expatriates living in the region.

Analysts stay bullish on luxury watch retailers

THE growth of luxury watch retailers has been known to be closely tied to economic growth, and a bellwether of consumer confidence.

Despite worries about fears of a US and global recession, time - as captured by exquisite timepieces - is still money, at least for luxury watch retailers, on which analysts remain bullish. In particular, high-end timepieces - some define these as those valued above 3,000 Swiss francs (S$3,840) - are seen to be most resilient during an economic downturn.

'Overall, the industry is still quite positive. If you look at the industry statistics, Swiss watch exports have been growing quite nicely - year-to-date is above 10 per cent year-on-year and momentum is picking up,' says Kim Eng analyst Pauline Lee.

'It seems sustainable because countries like Hong Kong and Singapore have emerged as one of the top Swiss watch exporters and the growing affluence in Asia will help to contribute to the growth.'

The big brand-name luxury timepieces, which are popular status symbols, have been riding the wave of growing affluence in Asia, which accounts for almost half of all Swiss watch exports in the world. According to the World Wealth Report 2007 by Merrill Lynch and Capgemini, the Asia-Pacific wealth market is estimated to grow 8.5 per cent a year to US$12.7 trillion by 2011.

Despite Singapore's small size, it is ranked sixth in the global watch trade, with demand coming from locals, tourists and the region for re-exports, data from the Federation of Swiss Watch Industry shows. The distribution of Swiss watch exports in Singapore grew 26 per cent in 2007 from a year before to 66.1 million Swiss francs.

Analysts believe that the Formula One Grand Prix in September and the two upcoming integrated resorts, which will be a huge draw for the high rollers, will further spur demand for big-ticket items here, of which luxury watches form a key segment.

Retailers of luxury watches would be 'a good proxy to the IR and booming tourist arrivals', with some already securing stores near the IR, Ms Lee said.

Phillip Securities analyst Ng Chen Hao predicts that the growth of luxury watch retailers is expected to remain in positive territory, although there might be some easing from the current industry growth of some 10 per cent.

'Cortina, The Hour Glass and Sincere Watch are targeting the very rich. If there is a US recession, I don't think they will be affected as the extreme rich are more sheltered (from the slump),' Mr Ng says.

For now, consumers in Asia appear insulated from a slowdown in the US economy, with sales of timepieces still growing in the main markets, a watch retail analyst at a local brokerage observes, noting that some watch retailers are still expanding aggressively at this point.

Among them, The Hour Glass is doubling the size of its boutique at Raffles Hotel Arcade here and launching a new 1,300 square foot Montblanc mono-brand boutique in Sydney by April. It is also opening South-east Asia's first Hublot mono-brand boutique in Kuala Lumpur in May. China's watch retailer Time Watch Investments has opened an additional 85 retail stores since mid-2007 for its 'Tian Wang' and 'Balco' brands across 35 cities.

Sincere Watch is also actively expanding, particularly in North Asia, where it has opened new Franck Muller boutiques in Ocean Terminal in Kowloon, Shin Kong Place in Beijing, Plaza 66 in Shanghai and at the Venetian Casino and Resort in Macau. Its existing flagship FM boutique in Central Hong Kong was considerably refurbished and enlarged.

Meanwhile, the recent market correction has uncovered value in these watch retailers, with some trading at a forward price-to-earnings (PE) ratio of less than 10 times.

'It's a good time to accumulate in terms of valuation. If you can find PE valuation below 10 times, it may be a good investment for the long-term,' Ms Lee says.

Of these watch retailers, Mr Ng of Phillip Securities is most bullish about Sincere Watch, given its expansion plans in Macau, Hong Kong and China. He has a 'buy' call on the stock with a target price of $3.00, in anticipation of an upside from the takeover bid by Hong Kong-listed Peace Mark Holdings, which priced each share at $2.564.

After acquisition, Sincere will have a strong backing from Peace Mark and a broader retail network to seek distributorship for new Swiss brands and command better earnings margins, he said.

Ms Lee of Kim Eng is pegging her 'hold' call on Sincere Watch with a $2.56 target price, on the belief that its upside is capped by the takeover offer price. Uncertainty also clouds any potential synergy between Sincere's luxury watch brands and Peace Mark's predominantly mid-range watches, she said.

But once this takeover is approved and completed, Sincere shares would become less liquid and investors who still want to play the watch theme may find fewer options left. Analysts believe trading focus may shift to its rival The Hour Glass, which has a similar product offering but is trading at an undemanding valuation of 7.52 times forward PE versus Sincere Watch's 18.75 times.

Analysts said they are not particularly intrigued by Time Watch Investments' exposure in China as the company is largely seen as a volume play rather than a premium player.

Any uptick in sales triggered by the Beijing Olympics this year will likely be a one-off event, Mr Ng says.

SGX tops in H1 earnings with $286m

AS of yesterday, some 91 companies had reported their half-year results for the six months ended December 2007, recording a combined total of just over $1.2 billion in group profits, up 22.8 per cent compared to the same period last year.

Prominent firms that have reported their half-year results so far include the Singapore Exchange, Wing Tai, Olam International and GuocoLand, all of which reported double digit growth in profits.

In fact, 80 of the firms that have reported so far are in the black for the first six months, with 46 reporting higher profits, though 26 firms saw lower profits.

In terms of absolute numbers, the SGX has pulled in the largest profits for the first half, with $286.4 million in net profits, up 83 per cent from the year before.

The fastest growing, however, was mining and logistics firm Abterra, which multiplied its net profits to $5.2 million in the last six months, from a small base of just $100,000 in the first half of its last financial year.

Abterra was also the fastest growing firm in terms of revenue, with topline quadrupling to $217.6 million.

Olam proved the largest firm by revenues, growing topline 40 per cent to $3.3 billion, while net profits climbed 23 per cent to $47 million.

The profit-making companies included eight which saw their losses turn to profits. The turnarounds included investment firms K1 Ventures and Equation Corp.

Among those who saw lower profits, Creative Technology was one of the hardest hit, with net profits falling 87 per cent to just $12.9 million.

Others with lower profits include marine firm CH Offshore, lifestyle retailer Aussino, jewellery tele-retailer Gems TV and property developer China Yuanbang.

Of the reporting firms, 11 were in the red for the first six months, with eight seeing their profits from the previous year turn into losses.

Two companies saw worse losses, and one firm cut its losses.

The loss-making firms include Goldtron, a distributor of electronics components that plans to reorient itself in healthcare products in China, and hard-disk maker Digiland International.

Radiance Electronics, which provides manufacturing services, saw the largest loss of $13.7 million, down from net profit of about $2.2 million the previous year.

Jade's president makes $117m offer

DOCTOR-turned-investor Anthony Soh yesterday made a $117 million cash offer to acquire the remaining 53.46 per cent stake in Catalist-listed Jade Technologies at 22.5 cents a share, saying the company's lucrative coal mines in Indonesia would multiply its value significantly.

The offer by Dr Soh, who is Jade's group president and single largest shareholder with a 46.54 per cent stake, values the company at some $218 million.

Dr Soh is making the acquisition through his investment vehicle Asia Pacific Links.

He told BT, in his capacity as group president, that the company's concession to mine coal in Sumatra, Indonesia, is a 'gold mine' that will unlock a lot of value.

'A recent expert report indicated the reserve in the initial 184-hectare mining area is at least five to seven times more than the initially reported 4.5 million tonnes,' he said.

'We hope to lift much more than the initial 30,000 to 60,000 tonnes per month, hopefully reaching 200,000 to 300,000 tonnes or more per month.

'Since this is coking coal of high quality or high calories, Jade is sitting on a 'gold mine'. Hence the offer is made, as I believe the coal mine will bring the value of the company up to several-fold what it is today.'

The 22.5-cent-offer is a 15.4 per cent premium to Jade's last-traded share price of 19.5 cents on Feb 13. The stock was suspended from trading that afternoon.

The offer price is also a 17.3 per cent premium to the volume-weighted average price of the stock in the three months before the takeover offer.

Trading volume has spiked since Jan 21, when Dr Soh announced that Jade, with another listed company, E3 Holdings, would buy a 49 per cent share in an oil refinery in China, plus a plot of land to develop another refinery. On that day, he bought 5.5 million shares at between 17 and 22.5 cents.

Despite the news, the share price slid to a low of nine cents on Jan 30, before recovering to hit a high of 20.5 cents on Feb 12, the day before trading was suspended.

This is still, however, a considerable discount from its 12-month high of 47.5 cents, reached last July.

In its last financial year to Sept 29, Jade made a net loss of $458,000 on revenue of $35 million. Operating profit was $506,000, reversing a $1.01 million loss from operations the previous year.

The present offer price is a 1,097 per cent premium to audited net asset value per share of 1.88 cents at the end of Jade's last financial year, but the company has changed much since then.

In recent months, with its coal and oil refinery investments, Jade has become almost a pure energy play.

Earlier this month it entered into an agreement to sell its loss-making principal business of manufacturing semiconductor lead frames for about $6 million in total.

It has also become an oil trader, with a deal for 2.4 million tonnes of high-grade Russian diesel oil reportedly set to gain the company revenue of at least US$10 a tonne when trading begins in March or April.

To fund significant capital expenditures, previously estimated at some $150 million this financial year, Jade has raised about $23 million from private placements of new shares. It has also issued $150 million in convertible notes to Pacific Capital Investment Management.

Jade announced yesterday that Pacific Capital will only subscribe to the first tranche of the notes in three months' time.

Nod for GKE's purchase of VDH Biodiesel

SHAREHOLDERS of GKE International yesterday voted to purchase Van der Horst Biodiesel (VDH Biodiesel), a jatropha-based biodiesel venture, for $13 million, financed partly by the placement of 120 million shares to Kwan Chee Seng, chairman of the Van der Horst Group.

GKE will place the shares at $0.11 each, and issue a call option for another 100 million shares at the same price to Mr Kwan.

In return, the latter will sell his majority stake in VDH Biodiesel to GKE, which will issue shares to the firm's smaller shareholders in exchange for their stakes.

The re-formed group, to be renamed Van der Horst Energy, plans to build a 200,000-tonne per annum biodiesel facility in Singapore or Johor. It also owns rights to plant some 87,000 hectares of land in Cambodia and China, with MOUs to acquire another 67 ha in China and Myanmar, according to Peter Cheng, CEO of VDH Biodiesel.

The group will retain GKE's logistics business, which earned about $1.7 million in net profit in 2007 but needs short-term cash, according to a circular.

The resolutions were passed at an EGM and took place after about 10 months of clearing regulatory hurdles.

The placement will boost Mr Kwan's stake in GKE from under 4 per cent to over 37 per cent, and would have diluted the equity interest of its original major shareholders, the Neos.

Under the rules, this would require Mr Kwan to make a general offer for all the shares of GKE. Thus, yesterday's resolutions include a whitewash resolution where GKE's shareholders waived their right to receive a general offer.

GKE will also grant call options for 20 million shares at $0.11 a piece to its chairman and chief executive Neo Kok Ching and executive director Neo Cheow Hui, which will raise the family's interest to a total of nearly 18 per cent.

Meanwhile, Mr Kwan has undertaken not to raise his stake in the new firm beyond 37.01 per cent for two years, after which his call options expire. This is unless the exercise is made in conjunction with external investment, such that his stake does not rise about that stipulated percentage.

If not for these measures, the transactions would have been categorised as a reverse takeover and barred, as VDH Biodiesel does not have a long enough operating history to meet the requirements for an RTO, said Mr Kwan.

The $0.11 price for the placement shares is at a discount to the weighted average price of GKE's shares of over $0.34 prior to April 19 last year, when the transactions were first announced.

But the price, which was negotiated earlier, is seen as fair, as the discount was due to a surge in GKE's price before the announcement. GKE's shares closed unchanged at $0.395 yesterday.

SPH launches online video advertising platform

MEDIA group Singapore Press Holdings has launched an innovative online advertising platform - allowing Internet users to view high quality video commercials that 'float' over SPH websites.

The platform is available on the online versions of The Straits Times, The Business Times and The New Paper as well as on the AsiaOne, STOMP and omy portals.

It could also deliver other video content in future, turning SPH's online stable into rich multimedia platforms where visitors can get a viewing experience akin to watching TV.

Launched yesterday, the SPH Targeted Video Commercial (SPH TVC) is a partnership between SPH and MediaOne Network, a Canadian-based media company which also operates in New Zealand and Australia.

With the platform, SPH aims to attract more advertisers to the online audience. 'Advertisers can now look forward to optimising their brand's exposure, as well as receive figures and statistics to help them better determine their campaign's effectiveness,' said Raymond Teoh, assistant vice-president of the Interactive Business Unit of SPH.

Besides making their advertisement work harder by featuring it on one of SPH's many websites, advertisers have an added benefit of being able to select their target audience.

MediaOne's technology promises high-quality video with smooth playing quality more akin to that of TV commercials.

On websites that feature SPH TVC, users will see a video player application that 'floats' above the webpage that they are viewing. This scheme - called over-the-page format - is meant to give users more control. 'It gives you full functionality of the webpage, and one can continue scrolling up and down the page during content delivery without 'freezing' their experience,' said Media-One Network chairman Paul Cooper.

The video screen is found on the right side of the page, attached to the scroll bar.

The platform is also built for user interactivity. There are functions which let users seek more information via the player.

Customisation will be one key selling point of the TVC platform. For instance, a mobile phone advertisement can be played on the screen of a mobile phone-lookalike player. Mobile phone maker Nokia has already signed up with SPH to create such advertisements.

Besides advertisements, SPH plans to deliver other content via the platform. 'This is to promote our own video content from straitstimes.com, stomp, asiaone and omy.sg and attract more eyeballs,' said Mr Teoh.

SPH plans to extend the TVC platform to non-SPH websites, both locally and in the region, he added. 'We are in the midst of establishing the network in Malaysia and Hong Kong.'

Sunpower bags contracts worth 94.26m yuan

SUNPOWER Group, a specialist in the design and manufacture of customised energy-saving and environmental protection products with heat transfer technologies in China, has clinched contracts with China Petroleum & Chemical Corporation and Wuhuan Engineering Corporation to install special materials pressure vessels worth a total of 94.26 million yuan (S$18.6 million). The pressure vessels will be delivered progressively and will be fully delivered by H1 2009. Part of the financial benefits of the contracts will be reflected in Sunpower's FY2008 earnings.

Memstar unveils 64m yuan deals

MEMSTAR Technology has announced contracts amounting to about 64 million yuan (S$12.6 million) to supply and deliver submerged membrane modules to its clients in China and Indonesia for industrial and municipal wastewater treatment and recycling projects. The contracts are expected to contribute positively to group revenue for the financial year ending June 30.

Delay in Best World's FY2007 results

BEST World International, which was to have announced its FY2007 results yesterday, said there will be a delay as a result of the bad weather conditions in China and Indonesia in the past few weeks. The company said it will need more time to finalise the details of the financial results from its China and Indonesian operations. 'The company will expeditiously announce its group's results as soon as it ascertains the relevant information from its China and Indonesian operations,' it announced.

MacarthurCook Industrial Reit's CEO resigns

MACARTHURCOOK Industrial Reit said yesterday that its chief executive officer, Chris Calvert, has resigned. His last day will be March 14. Craig Dunstan, managing director and chief investment officer of the MacarthurCook Group, has been appointed acting chief executive officer.