Alpha POWER Shares (Lions) Portfolio - August 2008
Stock Performance:
Lion Comments on Major Out-performers
Taiwan Semiconductor – TSMC (+10.64%)
TSMC announced that Philips completed its share disposal through a block trade to long term financial investors. Separately, TSMC announced a share buyback programme to repurchase upto NT$16.5 bn, or no more than 283 m shares from the open market from 13 August to 12 October. TSMC is experiencing order cuts and capacity utilisation is expected to be lower due to slow global demand. Wafer order for 4Q08 is weak with orders falling across handset, PC and consumer segments. TSMC is currently trading at the bottom end of its historical trading valuation range. We believe that TSMC will outperform its major foundry peers given its low valuation, strong market position, technology leadership and strong operating cashflows.
HK Electric – HKE (+9.58%)
HKE released good 1H08 results with revenue rising 0.6 % YoY to HK$5,878 bn and EPS growing 18 % YoY. The good results was despite lower than expected electricity sales which was 1.7 % YoY lower due to cooler weather as well as various energy-saving initiatives rolled out during the period. HKE’s international business recorded a 34.6 % YoY jump in revenues to HK$424 m due to better performance from the company’s electricity distribution business in Australia and the United Kingdom. HKE’s acquisition of six power plants in 2007 though a 50 % stake purchase in Stanley Power in Canada also contributed to the good results.
Taiwan Mobile – TM (+7.13%)
TM recorded double digit growth in fixed line revenue growth for 1H08. In its 3Q08 guidance, TM expects its fixed line segment to continue to be strong. The mobile division revenue is expected to be under industry-wide competitive pressures. We remain positive on TM given its robust momentum for its fixed line and cable TV businesses which continue to support both top line and bottom line growth.
Lion Comments on Major Under-performers
Sime Darby – Sime (-13.92%)
Sime reported stellar full year results on a 21% rise in revenues. Plantation was the star performer, buoyed by higher CPO prices. Motor turned around sharply, thanks to a recovery in Malaysia and strong sales in other regions. Sime is expected to report lower profits in 2009 due to lower profits from the plantation division due to lower CPO prices and higher production costs. Property and motor divisions are also facing headwinds from slowing economic conditions. Due to the sharp correction in share price in recent weeks, Sime is trading at fairly cheap valuations with an expected dividend yield of 6 % in 2009.
Hongkong Land – HKL (-7.90%)
HKL reported 1H08 results with net profits up 56% YoY and underlying rental revenue up 27%. In 1H08, MCL Land (HKL’s majority owned subsidiary) recognized profits from its JV development, the Grange, in Singapore and 12 shop units at the Kuala Lumpur Shopping Centre in Malaysia. 68% of HKL’s portfolio is exposed to HK’s Central office space. Hong Kong’s GDP is expected to slow to 2-3 % in 2H08 and Central office rents are closely linked to GDP growth. GDP/Central rent growth relationship suggests a 10-15 % decline in rents in 2H08, while HKL is currently trading at a 45 % discount to its current NAV, implying a 24 % drop in Central office rents.
Swire Pacific – SWIRE (-6.49%)
Swire’s share price performance has been affected by its subsidiary, Cathay Pacific, which has been dragged down by poor earnings from high jet fuel prices. Apart from Cathay’s earnings volatility, all of Swire’s business units (properties, marine, beverages and trading & industrial) enjoy solid growth and prospects remain good. With the recent fall in oil prices, this bodes well for Swire.
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