singxpress land -...

MICA (P) 012/01/2012 Ref. No.: SG2012_0226 1 of 13

SINGXPRESS LAND

Not a “me too” builder. Bloomberg │ Reuters │ POEMS SINX:SP │ SIXL.SI │ SXP.SG Industry: Industrials (Property )

Phillip Securities Research Pte Ltd

21 September 2012

Report type: Initiation Company Overview A builder – with experience stretching >50 years, mainly in Hong Kong, of public & private housing, industrial & commercial buildings – initiates in Singapore, with 4 projects that include a DBSS & an EC. Also, collects rent on 30 apartments and 5 home-office units. The SGX market voted investment banking approach in

property development over traditional approach. This approach favours faster growth of market cap. 4 existing projects, expected delivery end of FY16, to

drive fair value. Investment banking approach Its annual report describes its IB (investment banking) approach - syndication, risk management & securitization – in property development; via its senior management, partners, and parent Xpress Group (a Hong Kong listco). In the Tampines EC project, we see it owning a 30% stake. In the Pasir Ris DBSS and One Charlton Road projects, there are 20% stakes to KayLim and A.C.T respectively. In terms of commitments achieved to date of S$774m in its property development and investment properties, only 52% belong to SingXpress Land. See Fig.1 on pg 2. On August 7 it announced cumulative convertible non-voting perpetual preference shares (“NRCCPS”), subject to the relevant approvals, to be subscribed by Haiyi Holdings Pte. Ltd., for S$94.4m cash. More on pg 3. How do we view this? SingXpress Land has demonstrated, in a short while, that its IB approach attracts investment capital that wants a share of the Singapore property development market. If the NRCCPS went ahead, gearing on total assets would be reduced from 0.61 to 0.43. We believe that this IB approach would mitigate risk in today’s world of flinching liquidity. As decision-making resides in SingXpress Land, it operates like a discretionary fund manager, which aids bid-winning. In the last 10 years, our SGX market vote the IB approach in property development over the traditional model, for big players. This result could have been more significant if there were not this neutralising “size” effect. The IB approach also grows market capitalisation quickly. More on pages 3 & 4. Smaller players display this approach sporadically. Investment action We start off with a simple NAV, discounted for uncertainties, to account for its existing projects. We arrived at target price of $0.020. Therefore, BUY. Fig.5 (pg 5) & Fig.6 (pg 6).

SINGXPRESS LANDRating 1 Buy- Previous Rating na Not RatedTarget Price (SGD) 0.020- Previous Target Price (SGD) naClosing Price (SGD) 0.015Expected Capital Gains (%) 33.3%Expected Dividend Yield (%) naExpected Total Return (%) 33.3%Raw Beta (Stock Analytics ) n.a.Market Cap. (SGD mn) 73.0Enterprise Value (SGD mn) 221.83M Average Daily T/O (mn) 9.34552 week range (SGD) 0.051-0.009

Major Shareholders (%)52.405.87

41.73Key Financial SummaryFYE 3/11 3/12 3/13F 3/14FPrice (*Actual/Current) 0.015 0.015 0.015 0.015P/B (X) na 1.73 1.24 1.12EV/EBV (X) na 1.16 0.92 0.87P/Net Debt (X) na 0.49 0.90 1.22P/E (X) na 43.2 19.7 11.8EPS (SGD) na 0.000 0.001 0.001DPS (SGD) na na na naDividend Yield na na na naSource: Company, PSR*Actual mean price at publication of FY result

Valuation MethodBook + Excess of projects after accounting for uncertainties, return on HR until end of projects FY16, discounted by investors' interest cost.AnalystChan Wai [email protected]+65 6531 1231

1 Xpress Credit2 Tng Kay Lim3. Public float

0.008

0.018

0.028

0.038

0.048

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

-102030405060708090100

Volume, mn SINX SP EQUITY STI rebased log

SINGXPRESS LAND Singapore Equities Research 21 September 2012

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A short history Hong Kong listed parent company, Xpress Group, became a substantial shareholder of SGX-listed Futuristic in 2003. In November 2006, it divested the original (Futuristic) interior fit out service business, and accompanying store fixtures; to focus then on its travel business. The name change to SingXpress was effected in May 2007. This business ended in early 2009 by an asset sale and termination of operations. SingXpress announced at the turn of 2010 of its properties trading & properties investment business. In July 2010, it expanded to property development, using the tender win at the Foh Pin Mansion en bloc (subsequently called One Charlton Road) as the starting point. This is a 80%-20% JV with ACT Seaview Homes Pte Ltd. It listed ACT as having successfully developed Ventana, comprising 39 apartments on Pasir Panjang Hill, and 3 sea-view bungalows on Sentosa Cove; and, other ACT subsidiaries of engaging in properties in the USA and Singapore. In its parent Xpress Group’s and its own respective annual reports, it highlights experience in various public and private housing projects, stretching over 50 years. One Charlton’s land was tendered at S$21.2m, after taking into consideration recent transacted prices of nearby cluster terrace homes of Cerelia Vista of between $2.1m and $2.4m each. The project was sold out by March 2012, 4 months after the sales launch at an average price of $2.84m. The second tender win at $21m of 235 Balestier Road (to be called the Waldorf project) came in November 2010, through a 80%-20% JV with parent Xpress Group. More recently, it was successful in winning the land bids (totalling $357.4m, with SingXpress’ share at 47.3%) for a DBSS project at Pasir Ris Central in a 80%-20% JV with Kay Lim on 2June 2011; and, the EC project at Tampines Avenues 7/9 in a 30%-40%-30% JV with fellow-listed Amara and Kay Lim respectively. Tng Kay Lim is listed as a 5.87% shareholder in a 7August 2012 announcement. We are starting to appreciate the increase in size of projects; as well as, the ability to have willing partners (kind of second opinion on viability of projects) sharing the risks and rewards. Fig.1 shows capital commitments on investment properties and property developments to date. In October 2010, the company-to-partner share was $49m:$41m (54%:46%). This is now at $405m:$774m (34%:66%). SingXpress’ share of commitments fell from 53% to 34%. Xpress Group’s shareholding in the company fell from 63% to 52%, mainly due to married deals to Ting Kay Lim; and, would fall further to 20% if the NRCCPS and subsequent conversion went ahead. Until the conversion, the NRCCPS subscriber does not have a general meeting vote.

Fig.1 Property commitments by SingXpress & its partners

Source: Company’s 2012 annual report

Shareholdings, for info The following are the history of the company’s total shares, and the history of Xpress Group’s shareholding. Fig.2 SingXpress’ Total Outstanding Shares

Fig.3 Xpress Group’s Shareholding Source: Company’s announcements, PSR

%age Shares CBs ($) WarrantsAs at 1.1.2006 45.67% 62,118,00018.7.2006 1-1 Rights 62,118,000 31,059,000

with warrants 45.67% 124,236,000Warrants expired -31,059,000

013.8.2010 CB, include excess 16,239,677

Married deal -14.70% -40,000,000Market purchases 6,788,000

33.46% 91,024,00018.10.2010 Conversion 100,000,000 -3,000,000

51.35% 191,024,000 13,239,677Married deal 14.70% 40,000,000Market purchases 2,664,000

62.82% 233,688,00018.11.2011 8-1 Rights 1,869,504,000

Market purchases 17,000,00063.33% 2,120,192,000

Married deal -240,000,000Up to Market sales -480,027,00024.4.2012 Conversion 1,150,276,019 -13,239,677

%age down due to 2Xplacements 52.40% 2,550,441,019 0

Xpress Group's shareholding

Shares CBs ($) WarrantsAs at 1.1.2006 136,001,50018.7.2006 1-1 Rights 136,001,500 68,000,750

with warrants 272,003,000Conversion 1,000 -1,000

272,004,000 67,999,750Warrants expired -68,000,750

013.8.2010 CB, strike $0.03 16,320,24018.10.2010 Conversion 100,000,000 -3,000,000

372,004,000 13,320,24018.11.2011 8-1 Rights 2,976,104,000

3,348,108,000Conversion 1,152,979,926 -13,270,799

4,501,087,926 49,441 = Not taken2012 2 x Placements 366,000,000 up for rights.

4,867,087,9267.8.2012 NRCCPS, if converted 8,000,000,000

12,867,087,926

Total shares/warrants/CBs


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Dilution If you had started from the day the company announced the rights issue for its convertible bonds (“CB”) in mid-August 2010, say holding 1m shares with a value of $20,000; you would have the right to subscribe for, on a 3-for-20 ratio, $60,000 worth of CBs but you needed to pay only $58,200. Say, you took up this offer. Then there was that 8-for-1 rights issue at $0.01 each. Say you took up that, too. Your holding would have gone up to 9m shares and cost totalling $158,200. At the CB conversion ratio of $0.01151, this would mean you could convert your outstanding CBs to another 5,212,858 shares. Added together, you would be holding 14,212,858 shares now. At the last price of $0.015, your holding value is $213,193. Versus your original cost of $158,200, there is a profit of almost 35%. Another combination is you had forgone the CBs but took up the 8-for-1 rights at $0.01. Your final holding would be 9m shares at a total cost of $100,000. Valued at $0.015, there would still be a profit of $135,000, or again, 35%. Try the CBs but forgoing the latter 8-for-1 rights, you would have to wait until 2014 at the CBs’ maturity to get back the $60,000 principal amount. Ignoring time cost, 1m shares valued at $0.015 add $60,000 = $75,000 versus total cost of $78,200 means a loss of $3,200 or -4.1%. Had you just sulked and kept the original 1m shares at $20,000, at value today your holding is worth only $15,000. Despite seemingly obvious dilution up to now, it has been beneficial to go along with all the issues. Going forward, a possible dilution is a share option scheme that had passed EGM on 31July 2012. Up to 10% of total issued shares could be issued under the scheme. There were no shares issued in the share option scheme of 2011. An additional share option was granted to non-executive chairman Yeo Wee Kiong of 52,087,824 shares (half can strike at $0.01343; the other half at $0.01535). The upcoming subscription of NRCCPS, if fully converted would see outstanding shares at 12.87b. The NRCCPS is priced at above NAV (after accounting for CB conversion & private placements) but lower than market. We think that there is some amount of equity (i.e. fairness) in the pricing of rights and CB conversion, according to the market’s reaction. Xpress Group’s holding, counting a conversion of NRCCPS, would be reduced to just below 20%. It seems unlikely there will be further dilution. But, we will assume similar equity (i.e. fairness) if there is further dilution. We expect SingXpress’ strong team of investment banking-experienced people to look after shareholders’ interests. NRCCPS The NRCCPS (non-redeemable, cumulative convertible non-voting perpetual preference shares) will be subject to EGM approval, date being 27 September.

Subscriber Haiyi Holdings Pte. Ltd. is willing to pay $94.4m for 80 x NRCCPS, which ranks pari passu with ordinary shares save for any dividends, rights, allotments or other distributions. NRCCPS, with no maturity date, is freely transferrable and will not be listed. It carries dividends at 3% pa, cumulative but payable at discretion of board. If all NRCCPS are converted, it will result in 8 billion additional shares; although, conversion can be done in part. A moratorium of 6 months, to sell NRCCPS or conversion shares, is imposed on holders, from issue date of NRCCPS. Conversion can take place by both the subscriber or subsequent holder or SingXpress at any time 6 months after issue date. If SingXpress exercises, it has the sole discretion as to which holder and how many shares it wants to be converted. There will be mandatory conversion in a winding up. A GO (general offer) is trigger-able. Haiyi’s shareholder is, according to the NRCCPS document, “Tang Yigang, a Singapore permanent resident. He is currently involved in various business activities, including retail, food processing, investment property, property development and construction and hotel operations in the US, China and Singapore. Its major subsidiary, New Port Duty Free Pte Ltd, is a leading ship chandler and trading company in Singapore. His US interests are represented by American Pacific International Capital, Inc. In China, Shantou Haiyi Investment (Group) Company Limited is into industrial investments, industrial and residential real estate developments and sales of construction and decoration materials; R&D and production of new bio-medicines, air purifiers and health supplements. His other China interest is Chaoan Haibao Development and Construction Co., Ltd., which is developing the 1,000-acre Guangdong Chaoan Industrial Park, valued at approximately RMB 4 billion.” The document also states Tang Yigang is a long time former business associate of MD Chan Heng Fai, and that Haiyi is keen to establish a foothold in the Singapore real estate market. It also states that “no plans for any material changes to be made to (a) the business of SingXpress (including the injection of any assets), (b) the deployment of the fixed assets, and/or (c) the employment of the employees other than in the ordinary course of business.” For valuation purpose, we are assuming no change to shareholdings. Upon the issue of the NRCCPS, we will assume the 3% dividend as a cost of borrowing for the $94.4m or $2.832m annually. We do not think Haiyi would convert an amount that triggers a GO as it needs to rely on the expertise and skills of the management of SingXpress to do the property development business in Singapore. IB approach matters We took 3 major SGX-listed property developers, with different business approaches; and, compared their share price performance over the last 10 years - we found returns for these 3 varied (the IB approach showed the best return) but not substantially. Perhaps, 10 years is too short a time to make a conclusion. After all, institutional investing in


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Singapore (liberalisation, tax incentives and the lot only started about the starting point in our study). Also, as Fama & French (1992) showed in their study that any apparent beta-return correlation was actually due to the size effect, the ¾% per year better return would have been a more significant number as this “size” effect could have a neutralising impact on the returns numbers. We use Capitaland (“CAL”), CityDev (“CDL”), and KepLand (“KPL”). We followed though all capital exercises like rights issues. We did not re-invest dividends but added all the dividends received to the end value of our holdings to compute the gain. We ignored time cost of money and the resultant effect of the different timing of receipt of dividends and capital exercises. We started with the first trade of 2002. Fig.4 IB approach matters.

Source: Companies’ annual reports, PSR

The one, with something of an investment banking approach, is CAL. It recycles capital by having no land bank, and works

with JV partners and private equity funds. Its total return is a compounded 9.63%; vs CDL’s 8.79% and KPL’s 8.89%. However, on growing market capitalisation, we note that CAL scored a 205.7% increase, with 50% (based on original number of shares) of its shares due to rights issues. KPL scored a higher 282.3% but there had been 90% of original share number due to rights issues. CDL scored a low 96.7% growth but it only got 10% of original number due to rights issue. It is difficult to go deeper as shares in other companies were given out (CCT in CDL’s case; and, KREIT in KPL’s case). It is also complicated as the rights issues were done at different times and prices. But if one just removed the rights/free shares, then CAL (+104%) would have done better than KPL (+101%); or CDL (+79%). The above however assumes everything else being constant. For a small company like SingXpress, if it could grow its market cap in a quicker mode than normal, it would be beneficial as institution interest tends to be attracted by a certain market cap and above; or, a growing one. Valuation of the Projects – cash basis Valuation is done on a cash basis, and we keep in mind that it will be different from the accounting standards that determine numbers going into the P&L account. The timing difference between cash and accounting is more significant in the DBSS and EC projects. One Charlton Road (80% owned) Announced numbers for One Charlton include total project cost of $40.9m. It has been 100% sold and $59.6m revenue is scheduled for accounting recognition in FY13 (50%), and FY14 & FY15 (50%). Cost to FY12 is $24.5m. Other details for this project: 21 x cluster terrace houses, on en bloc site of area 34,154’ costing $21.2m (gfa 46,199’), launch-to-sold (Mar12) of 4 months. For accounting purpose, we recognise 50% revenue in 4Q13, 30% in 3Q14, and 20% in 3Q15. Waldorf Mansions (90% owned) Announced numbers for Waldorf include total project cost of $39.69m. It is expected to be launched in second half of 2012. Cost to FY12 is $22.1m. Other details for this project: 50 x apartments, on en bloc site of area 11,384’ costing $21m (gfa 31,875’), acquired in Nov10. For accounting purpose, we estimate $53m revenue (about $1660psf) to recognise 50% in 3Q14, 30% in 2Q15, and 20% in 2Q16. Pasir Ris One DBSS (80% owned) Announced numbers for Pasir Ris include total project cost of $244m. It was launched in Apr12, with applications-to-flats ratio of 1.94 achieved. Estimated revenue is between $265m and $285m. Estimated TOP is end May15. Cost to FY12 is $131.5m. Other details for this project: 447xunits, on

What happens to the original 100 shares?Action/Holdings Price $ Cost $ Value $ M/cap$m

Capitaland1.1.2002 Buy 100 x CAL 1.6600 166.00 4,179

Get 20 xCCT foc 0.0000 0.00Rights 2 x CCT 1.6650 3.33Rights 22 x CCT 0.5900 12.98Rights 50 x CAL 1.3000 65.00

247.31Dividends CAL x 100 0.6800 68.00

CAL x 150 0.3150 47.25CCT x 20 0.1080 2.16CCT x 22 0.3018 6.64CCT x 44 0.2637 11.60

135.65Value as CAL x 150 3.0100 451.50 12,775at 31.8.12 CCT x 44 1.4200 62.48

513.98

Net gain percent/annualised 162.7% 9.63% 205.7%

CityDev1.1.2002 Buy 100 x CDL 6.6500 665.00 5,327

Rights 10 x CDL 2.5000 25.00Bonus 10 x CDL 0.0000 0.00

690.00Dividends CDL x 100 1.4750 147.50

CDL x 120 1.1850 142.20Value as 289.70at 31.8.12 CDL x 120 11.5200 1382.40 10,475


KepLand1.1.2002 Buy 100 x KPL 1.7200 172.00 1,219

Rights 90 x KPL 1.0900 98.10Get 20 xKReit foc 0.0000 0.00Rights 32 x Kreit 1.3900 44.48Rights 52 x Kreit 0.9300 48.36Rights 88.4 x Kreit 0.8500 75.14

438.08Dividends KPL x 100 0.8760 87.60

KPL x 190 0.4600 87.40KReit x 20 0.1353 2.71KReit x 52 0.1803 9.38KReit x 104 0.1284 13.35KReit x 192.4 0.0629 12.10

212.54Value as KPL x 190 3.3900 644.10 4,659at 31.8.12 KReit x 192.4 1.1200 215.49

859.59



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HDB site of area 176,400’ costing $123.88m (gfa 441,000’), acquired in Jun11. To date, >100 units had been sold. We choose $275m, mid of the given range. Compared to announced cost of $244m, that leaves a margin of $31m or 11% of revenue. This would put it below the net margin of 8 listed companies’ P&L covering the recent 6-9 months. We recognise 100% revenue in 1Q16. Due to recent weakness in the DBSS’ market, we apply a 4% discount to revenue. Tampines EC (30% owned) Announced numbers for Tampines include total project cost of $440m. There is no launch date yet. The site is 223,300’ costing $233.5m (gfa 625,398’), acquired in May12. We take a cue from Sim Lian’s Trillant, which was launched in Jan12. It recently announced that 70% had been sold. Using the project’s gsa, and sale brochure’s indicative prices, we estimate an average $763 psf. Put $763 psf on Tampines EC at gfa+8%, we arrive at a revenue of $515m. This would give it a margin of 14.5% on total cost of $440m, still a conservative number as compared to its peers’ P&L accounts. On a 4 year time limit, TOP would be Apr16. We recognise 100% revenue in 4Q16. RNAV As Eugene Fama & Kenneth French showed in 1992, and others did so subsequently, that “the basic model of risk and return was empirically useless – viz. beta’s positive relation to stock returns was untrue” (Eric Falkenstein: “Finding Alpha” & “The Missing Risk Premium”), we have to dispense with the calculation of RNAV. RNAV entails the use of beta and the risk premium. Falkenstein points out that, “data has been very unkind, not just to their original financial model of risk & return (the CAPM), but any model purporting to capture risk premium. A theory should usually work, at least approximately. If it almost always does not work, a good scientist should reject it – data is the ultimate judge of theory.” What to do now? I am resorting to going through the projects by assessing the projects’ respective uncertainties. Projects are more uncertain if customers perceive in the current environment, unless the projects are the die-die-must-buy type under all conditions, to be of reasonable price. Generally, the more expensive the more uncertain profits will be. Location, design, views and builders’ reputation aside, one may look at margins (after distribution & marketing but before admin expenses) of the developers; even, ratio of revenue/land cost or win-margin over nearest bid. Margins at Charlton One and Pasir Ris are 31% and 11% respectively; and, Tampines is likely to be 14½%. Public housing projects like a DBSS with margin at 20%, or an EC at 25%, would (other factors being equal) mean revenues, like the Pasir Ris or Tampines project, are 11¼% to 14% higher. This could differentiate between a buy or wait. In discount lingo, a 13.4% (average of 11% to 14½%) margin project is equivalent to a 38% discount from a 20% margin.

Another way of looking at discounting is the following: The discount is applied to the margin. If one puts a 10% discount to the $22¼ profit in the $111¼-revenue project, we get a PV of $20¼. However, if we discount the revenue but not the cost, then the profit is only $12¼ or 40% lower. In any project, the cost portion is more certain viz. the revenue – that is why one gets completed but partly sold projects. As we are estimating the project cashflows from without, we factor in a 1% discount to the revenues of Pasir Ris and Tampines for uncertainty in timing of recognition of revenue. We add another 1% discount to the Tampines revenue as it has not been launched yet. We add another 4% discount for DBSS as a more-difficult-to-sell uncertainty factor. As for the 100%-sold project in One Charlton, we factor a 1% discount to the revenue for time to replace a possible contracted buyer defaulting. We do not discounting for other defaults. As for the yet-to-launch Waldorf, we find a next-door hotel neighbour valued at $2466psf on a gfa of 12,700’, ¼ size of Waldorf. Of course, when market values its shares, it involves several factors but if we assume it is just about asset-play, then that $2466 is only discounted by 10%. As we forecast a $1660psf for Waldorf, we have a 33% cushion to fail. Therefore we discount Waldorf top-line by 5% only. Fig.5 Excess return from projects

Source: PSR

Rental & investment properties Revenue is earned on 35 “basic need” apartments in Hong Kong, strategically located nearby MTR stations. $882,000 was earned in FY11. It has total 17,000 ft2 to let. Although there is a higher trade payable outstanding (likely to be provisional property tax), reported statistics do not justify revenue higher than FY12. On a gross yield basis, this appears a tad high but not unreasonable. We use roundish $1m revenue as estimate. With property tax at 15%, and an allowable 20% deduction for repairs, the net income before income tax is estimated to be $680,000. We have not provided any revenue from its recently acquired property at Ubi, or any from its Eu Tong Sen Street office; or, from the 5xSoho units that we believe are on sale. As the Soho units are carried at recent fair value, we doubt if there be any profit on sale. Human resource Looking at its annual report (pages 14 to 17), besides non-executive chairman Yeo Wee Kiong, and MD Chan Heng Fai; other reputable persons with vast investment banking or

Contribution from projects

Project Profit $mUncertainties

Discount $m

Gross

Value $mOwnership %

Net Value

$mOne Charlton 18.9 -0.6 18.3 80 14.6Waldorf 12.9 -2.7 10.3 90 9.2Pasir Ris DBSS 31.1 -11.0 20.1 80 16.1Tampines EC 75.4 -10.3 65.1 30 19.5

138.3 -24.5 113.8 59.5


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construction/property experience include ED Chan Tong Wan, ED Damayanth S Goonetillake, and ID Tan Tai Soon. Its annual report lists chairman Yeo’s “21 years, specialising in IPOs, M&As, capital markets and VC” as a corporate lawyer; corporate successes of MD Chan include that in HK-listed China Gas Holdings and Nasdaq-listed American Pacific Bank; ED Goonetillake brings along corporate finance, fund management & equity derivative sales expertise. ED Chan has spent more than 15 years in investment banking, specialising in originating/dealing equity financial products. ID Tan has >30 years in the construction & property industry, with 14 years spent at Straits Development Pte Ltd. Together with 2 other directors, they are supported by a strong 7-member senior management team; as well as, a 3-member advisory committee. As project costs include marketing & sales expenses, we are left with one major cost item – admin expenses – to account for. Admin expense for FY12 is $1.9m. Compared to the previous year-end board, the new ones are the chair, ED Goonetillake and ID Tan. The senior management team consisted only of 2, has now grown to 7. We add a roundish $1m to arrive at FY13’s $2.9m. We are expecting a contribution to shareholders’ equity from this strong management team. If we are to pay these guys about $3m between now and FY16, there would be $12m paid in total. What is the likely increase in accumulated earnings? Or, market cap? If one looks at CAL, over the last 10½ years, they managed to increase market cap by 104% i.e. compounded 7.05%pa. Check this against one without an IB approach of 5.7%pa., gives us a ‘premium’ of 1.35%. If we apply this to current market cap of $73m, we would get an excess return by end FY16 of $4m. Borrowings and borrowing cost We are using information in its parent’s annual report as guide to establish cost of borrowing, and to calculate interest expense. We use a mix of average fixed rate of 3.175% and floating rate of 1.85% on an arbitrary but conservative basis. Using monthly compounding (between 0.154% and 0.265%), we found that interest cost to capitalise in a project averages 6% of total project cost. In our calculations, we assume each project operates out of a single bank account; i.e. payments by customers will offset borrowing cost incurred on payments to builders until the point of invoicing (ignoring time effect between invoicing and cashflow). As there is more certainty in the timing of Pasir Ris vs. Tampines, we found a substantial difference in interest cost/project cost, which difference will reduce when the timing of the Tampines project is announced. This also means the 6% of interest cost/project cost will also reduce. On a total basis, we merely push between interest and other costs – total will not reduce. But we will be comforted when this happens because we think higher costs (other than interest expense)

would contribute to better quality of the units built (e.g. extra design features) and therefore make it easier to sell. We assume 80% of projects are financed by bank loans. We assume $20m bank loans in FY13 to FY15 due to working capital requirements. We assume bank loans are repaid in the quarter of the recognition of COC revenue, although most developers are allowed about 3 months to do so. We will add the 3% on the $94.4m NRCCPS, if passed. Trade receivable and payable We assume zero credit period as to payments by customers and as to suppliers upon invoicing. The main outstanding balances are the 5% retention for 12 months in all projects after certificate of completion, reflected as Trade Receivable. Deposits from customers received are classified as Trade Payable and reversed upon recognition of revenue in percentage of completion method; and, only upon TOP in DBSS and EC projects on completion method. Provisional property tax is a small item in trade payable. Subsidiary and Associated Companies We assume capital contributions by partners in any project, on-going payments of costs and receipts of deposits, and recognition of revenue & costs; and, bank loans usage & repayments are fully accounted for in the respective subsidiary and associated companies’ books. These are absorbed into SingXpress group’s books on normal accounting consolidation procedures. We assume these are closed upon getting back the retention deposits; and profits/losses and capital are then fully distributed. Charlton One is assumed to have distributed profits back to partner by FY16 end. Associated Company is represented by SingXpress’ share of capital contribution and subsequent profit/loss in its Tampines’ EC project. With bank loans & customer deposits cancelling out project costs, we assume $100,000 as capital contribution. Share of profit is accounted for in FY16, and distributed subsequently in FY17. Summary, recommendation, target price Fig.6 shows the projected fair value of SingXpress at $96.5m, discounted at 3%pa, a rate which one could get from banks now on an unsecured basis. On outstanding shares of 4,867m, share price should be $0.020 (rounded up from $0.0198. Fig.6 Fair value

Source: PSR

Fair value at end of FY16

ProjectProfit before tax

$mTax at 17%

Profit after tax $m

Fair value $m

Share equity (end FY12) 37.2Excess profit (projects) 59.5 10.1 49.4 49.4Excess return (HR) 4.0 0.7 3.3 3.3Excess profit (rental) 2.7 0.5 2.3 2.3Finance expense -2.3 -0.4 -1.9 -1.9Capital contribution (after end FY12) 18.4Discount at 3%pa -12.1

66.2 11.3 96.5


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Share price movements We notice that previous share price upward movements were preceded by very low volumes. The low at SG0.009¢- SG0.010¢ end Nov 2011 to beginning Jan 2012, there were a few days with zero volume. In Mar 2012, where it went down to SG0.011¢, there were also a few days with zero volume. Thereafter it spiked to SG0.025¢. When it came back down to SG0.012¢ in mid-June, the market got smarter, with no zero-volume days. But, 14June 2012 saw a low volume of 201,000 at SG0.012¢. You may want to use this as a guide had you missed the recent low volumes and do not want to chase. Just hope the market does not learn as quickly as a virus adjusting to a vaccine.

Fig.7 Price chart

Source: POEMS

FYE Mar (Forecasts based on last price)↓ (Based on closing price on day after reporting) FY11 FY12 FY13F FY14F FY15F FY16FValuationP/B na 1.73 1.24 1.12 1.07 0.66EV/EBV (X) [EBV=Enterprise Book Value] na 1.16 0.92 0.87 0.85 0.18P/ND (X) [ND=Net Debt] na 0.49 0.90 1.22 2.59 CashP/E (X) na 43.20 19.71 11.83 25.24 1.72DY (%) na na na na na naPer share data (SG$)NBV na 0.0087 0.0121 0.0134 0.0140 0.0227EBV na 0.0394 0.0345 0.0313 0.0244 0.0126ND na 0.0306 0.0166 0.0123 0.0058 CashEV na 0.0456 0.0316 0.0273 0.0208 0.0023EPS na 0.0003 0.0008 0.0013 0.0006 0.0087DPS na na na na na naGrowth (%)NBV per share na na 39.3% 10.5% 4.4% 62.4%EBV per share na na -12.3% -9.5% -22.0% -48.1%ND per share na na -45.6% -26.3% -52.7% CashRevenue na na na 47.3% -36.5% 894.4%Net Income na na na 66.6% -53.1% 1366.2%Return & Margin (%)EBI/EBV na 1.5% 3.5% 5.4% 3.7% 78.0%EBI/EBV (standard deviation, 5 years) na na na na na 33.4%ROE na 4.0% 6.3% 9.5% 4.3% 38.4%Net Income/Revenue na na 12.0% 13.6% 10.0% 14.8%

Income Statement (SGD mn)Revenue 2.9 0.9 30.8 45.4 28.8 286.6Share of associated company's revenue 0.0 0.0 0.0 0.0 0.0 154.5

(not a dicloseable item)EBIT (including share of associated company's) 4.6 3.5 7.2 9.9 5.4 53.3Taxation (net of attributable to finance) -0.9 -0.6 -1.4 -1.8 -1.0 -5.3EBI 3.8 2.9 5.9 8.2 4.4 48.0Net Finance (Expense)/Income -0.5 -1.4 -0.7 -0.6 -0.6 -0.3Taxation (attributable to finance) 0.1 0.2 0.1 0.1 0.1 0.1Profit After Tax 3.4 1.7 5.3 7.7 3.9 47.8Less: Non-controlling Interest 0.0 0.0 1.6 1.5 1.0 5.4Net Income 3.4 1.7 3.7 6.2 2.9 42.4Source: PSR Effective tax rate % 18.6% 18.4% 17.0% 17.0% 17.0% 17.0%


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FYE MarBalance Sheet (SGD mn) FY11 FY12 FY13F FY14F FY15F FY16FAssociated company 0.0 0.0 0.1 0.1 0.1 22.6Investment properties 23.6 26.2 26.2 26.2 26.2 26.2PPE 0.1 0.3 5.3 5.6 5.9 6.2Total non-current enterprise assets (1) 23.7 26.4 31.5 31.8 32.1 55.0Properties under development 23.1 178.1 207.1 230.4 246.6 0.0Trade receivables 2.3 0.4 0.5 0.5 3.5 16.9Other receivables 0.2 0.0 0.0 0.0 0.0 0.0Total current enterprise assets (2) 25.5 178.5 207.6 230.9 250.1 16.9Total Enterprise Assets (3)=(1)+(2) 49.2 204.9 239.2 262.8 282.2 71.9Trade payables 0.6 12.1 68.7 106.6 158.6 0.2Income tax payable 0.0 0.0 -0.4 -0.8 2.0 9.0Total current enterprise liabilities (4) 0.6 12.1 68.4 105.9 160.7 9.2Deferred tax 0.7 1.1 2.7 4.8 2.9 1.1Total non-current enterprise liabilities (5) 0.7 1.1 2.7 4.8 2.9 1.1Total Enterprise Liabilities (6)=(4)+(5) 1.4 13.3 71.1 110.7 163.6 10.3Enterprise Book Value (7)=(3)-(6) 47.8 191.6 168.1 152.1 118.7 61.5

Bank borrowings 0.7 0.8 20.0 20.0 20.0 1.0Due to related company 2.5 17.9 0.0 0.0 0.0 0.0Due to non-controlling equity 0.0 11.0 0.0 0.0 0.0 0.0Total current financial liabilities (8) 3.3 29.7 20.0 20.0 20.0 1.0Bank borrowings 35.2 133.1 182.5 169.7 176.0 0.0Total non-current financial liabilities (9) 35.2 133.1 182.5 169.7 176.0 0.0Total Financial Liabilities (10)=(8)+(9) 38.5 162.8 202.5 189.7 196.0 1.0Cash and cash equivalents 4.4 14.0 107.1 111.2 144.3 62.7Pledged deposits 0.0 0.0 14.5 18.9 23.5 0.0Total current financial assets (11) 4.4 14.0 121.5 130.1 167.8 62.7Others 0.0 0.0 0.0 0.0 0.0 0.0Total non-current financial assets (12) 0.0 0.0 0.0 0.0 0.0 0.0Total Financial Assets (13)=(11)+(12) 4.4 14.0 121.5 130.1 167.8 62.7Net Debt (14)=(10)-(13) 34.1 148.8 81.0 59.7 28.2 -61.7Share capital & retained earnings 8.3 37.2 58.9 65.1 68.0 110.4Other reserves 5.1 5.1 0.0 0.0 0.0 0.0Non-controlling equity 0.3 0.5 28.2 27.4 22.5 12.9Shareholders' or Total Equity (15) 13.7 42.8 87.1 92.5 90.5 123.3Financing Activities (16)=(14)+(15) 47.8 191.6 168.1 152.1 118.7 61.5Cashflow Statements (SGD mn)CFOPBT 2.4 0.0 6.5 9.3 4.8 53.0Adjustments -4.2 -0.9 2.1 2.4 -1.6 -1.8Cash from ops before WC ex-financials' changes -1.8 -0.8 8.6 11.7 3.2 51.2WC ex-financials', ex-dev properties' changes 0.7 13.4 56.1 37.5 51.8 -164.9Development properties -23.1 -155.0 -29.1 -23.3 -16.2 246.6Cash generated from operations -24.2 -142.4 35.7 25.9 38.9 132.9Taxes paid, net of attributable finance -0.1 -0.2 -1.4 -1.8 -1.0 -5.3Cashflow from Operations (17) -24.3 -142.7 34.3 24.1 37.9 127.6CFIPPE, investment properties net -19.2 -0.5 -4.8 0.0 0.0 0.0Cashflow from Investments (18) -19.2 -0.5 -4.8 0.0 0.0 0.0Cshflow from Enterprise (19)=(17)+(18) -43.5 -143.2 29.5 24.1 37.9 127.6CFFShare issuance, buy-back 29.2 18.0 0.0 0.0 0.0Related party 15.6 -28.9 0.0 0.0 0.0Loans, net of repayments 28.1 96.8 68.6 -12.8 6.3 -195.0Convertible bonds 15.9 -5.1 0.0 0.0 0.0Non-controlling equity 0.3 11.2 26.2 -2.3 -5.9 -15.0Associated company contribution, net distribution -0.1 0.0 0.0 -22.5Pledged deposits -14.5 -4.4 -4.6 23.5Finance expense, net of income -0.1 -0.2 -0.7 -0.6 -0.6 -0.3Taxes paid, attributable finance 0.1 0.2 0.1 0.1 0.1 0.1Cashflow from Financing (20) 44.3 152.8 63.6 -20.0 -4.7 -209.3Net change in Cash (21)=(19)+(20) 0.8 9.6 93.1 4.1 33.1 -81.6Effects of exchange rates 0.1 0.0 0.0 0.0 0.0 0.0CCE, begin 3.5 4.4 14.0 107.1 111.2 144.3CCE, end 4.4 14.0 107.1 111.2 144.3 62.7Source: PSR


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Ratings History

PSR Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumulate 2 -5% to +5% Neutral 3 -5% to -20% Reduce 4 >-20% Sell 5

Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutral 3-5% to -20% Reduce 4>-20% Sell 5

We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

Ratings History

PSR Rating System

Remarks

12345

Source: Bloomberg, PSR

0.001

0.006

0.011

0.016

0.021

0.026

0.031

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Market PriceTarget Price


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Contact Information (Singapore Research Team)

Chan Wai Chee Lee Kok Joo, CFA Joshua Tan CEO, Research Head of Research Macro Strategist

Special Opportunities S-Chips, Strategy Global Macro, Asset Strategy +65 6531 1231 +65 6531 1685 +65 6531 1249

[email protected] [email protected] [email protected]

Magdalene Choong, CFA Bryan Go Choon Koay Derrick Heng Investment Analyst Investment Analyst Investment Analyst

Gaming, US Property Transportation, Telecom +65 6531 1791 +65 6531 1792 +65 6531 1221


Travis Seah Ken Ang Ng Weiwen Investment Analyst Investment Analyst Macro Analyst

REITS Financials Global Macro, Asset Strategy +65 6531 1229 +65 6531 1793 +65 6531 1735


Roy Chen Chengzhi Nicholas Ong Macro Analyst Investment Analyst Research Assistant

Global Macro, Asset Strategy Commodities General Enquiries +65 6531 1535 +65 6531 5440 +65 6531 1240



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Contact Information (Regional Member Companies)

SINGAPORE

Phillip Securities Pte Ltd Raffles City Tower

250, North Bridge Road #06-00 Singapore 179101

Tel: +65 6533 6001 Fax: +65 6535 6631

Website: www.poems.com.sg

MALAYSIA

Phillip Capital Management Sdn Bhd B-3-6 Block B Level 3 Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450

Kuala Lumpur Tel: +60(3) 2162 8841 Fax: +60(3) 2166 5099

Website: www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway

Hong Kong Tel: +852 2277 6600 Fax: +852 2868 5307

Websites: www.phillip.com.hk

JAPAN

Phillip Securities Japan, Ltd 4-2 Nihonbashi Kabuto-cho Chuo-ku

Tokyo 103-0026 Japan

Tel: +81(3) 3666 2101 Fax: +81(3) 3666 6090

Website: www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 – Indonesia Tel: +62(21) 5790 0800 Fax: +62(21) 5790 0809

Website: www.phillip.co.id

CHINA

Phillip Financial Advisory (Shanghai) Co. Ltd No 550 Yan An East Road,

Ocean Tower Unit 2318, Postal code 200001

Tel: +86(21) 5169 9200 Fax: +86(21) 6351 2940

Website: www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,

Bangkok 10500 Thailand Tel: +66(2) 635 1700 / 2268 0999

Fax: +66(2) 2268 0921 Website: www.phillip.co.th

FRANCE

King & Shaxson Capital Limited 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel: +33(1) 4563 3100 Fax: +33(1) 4563 6017

Website: www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Capital Limited

6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS

Tel: +44(20) 7426 5950 Fax: +44(20) 7626 1757

Website: www.kingandshaxson.com

UNITED STATES

Phillip Futures Inc 141 W Jackson Blvd Ste 3050

The Chicago Board of Trade Building Chicago, IL 60604 USA Tel: +1(312) 356 9000 Fax: +1(312) 356 9005

AUSTRALIA

Octa Phillip Securities Ltd Level 12, 15 William Street,

Melbourne, Victoria 3000, Australia Tel: +61(3) 9629 8288 Fax: +61(3) 9629 8882

Website: www.octaphillip.com

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