Stock Name: Biosensors
Company Name: BIOSENSORS INT'L GROUP, LTD.
Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD
Market Pulse: Biosensors & ST Engineering (14 Jun 2011)
FOCUS
Biosensors International Group: Acquiring remaining 50% stake in JWMS
Summary: Biosensors International Group (BIG) has proposed to acquire the remaining 50% stake in JW Medical Systems (JWMS) from Shandong Weigao Group Medical Polymer (Shandong Weigao). The purchase consideration amounts to ~S$625.4m, comprising of (i) a cash payment of S$160m; (ii) issuance of 260m new ordinary shares to Shandong Weigao at S$1.2215 per share and (iii) issuance to Shandong Weigao of US$120m principal amount of 4% convertible notes due 2014. Shandong Weigao would own 21.6% of BIG, assuming full conversion of the notes. We view this move positively from a strategic standpoint as BIG would now be able to strengthen its position in the fast growing China DES market. Management estimates that this acquisition would be completed by the later part of the year (assuming shareholder approval is obtained), implying that JWMS is likely to be consolidated from 2H12 onwards. We take into account the dilutive impact caused by the enlarged share base and also update our required return on equity assumption to 9.1%. However, our FCFE model also captures the accretive earnings growth potential of the combined entity. As such, our fair value estimate increases from S$1.55 to S$1.60. Maintain BUY. (Wong Teck Ching Andy)
ST Engineering: 10% cap on Ropax contract claims
Summary: ST Engineering (STE) has just updated that its marine arm - ST Marine (STM) - has received a letter of claim (dated 10 Jun 2011) from the lawyers of Louis Dreyfus Armateurs (LDA) in respect of the shipbuilding contract for the Roll-on/Roll-of Passenger (Ropax) ferry that was contracted in Jul 2007 for around S$179m. STM intends to dispute the claim. Furthermore, STM's position is that if it is liable, its total liability under the Ropax contract is capped at 10% of the contract price. STE believes that the ongoing Ropax dispute will not have any material impact on its NTA or EPS for FY11. As before, we think that it is still early days to assess if STE/STM has to pay damages and hence we hold off adjusting our FY11 estimates. Our worst case scenario could see a <5% impact on FY11F pre-tax profit. We are still positive on the group's overall prospects, defensive nature and do not believe that this incident will affect its strong payout (around 90% of core earnings) ability; hence we maintain our BUY rating and S$3.57 fair value (21x FY11F EPS). (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor detailed report.
NEWS HEADLINES
- Property stocks with significant exposure to the Chinese market fell yesterday as data from China raised concerns that a slowdown in the world's second largest economy could lead to an easing of demand for loans.
- Singapore's GDP growth may slow to 6.7%, according to the latest BT-UniSIM Business Climate Survey.
- Pace of hiring expected to remain healthy in Q3 according to the latest Manpower Employment Outlook Survey,
- Q&M strikes RMB 25m deal for 49% of China dental lab.
- SingPost ups its stake to 50% in Malaysia company, Efficient, which provides primarily outsourcing solutions in data and document processing.
- Keppel Fels clinches US$260m rig contract to build a semi-submersible rig from Floatel International.
Company Name: BIOSENSORS INT'L GROUP, LTD.
| Research House: OCBC | Price Call: BUY | Target Price: 1.60 |
Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD
| Research House: OCBC | Price Call: BUY | Target Price: 3.57 |
Market Pulse: Biosensors & ST Engineering (14 Jun 2011)
FOCUS
Biosensors International Group: Acquiring remaining 50% stake in JWMS
Summary: Biosensors International Group (BIG) has proposed to acquire the remaining 50% stake in JW Medical Systems (JWMS) from Shandong Weigao Group Medical Polymer (Shandong Weigao). The purchase consideration amounts to ~S$625.4m, comprising of (i) a cash payment of S$160m; (ii) issuance of 260m new ordinary shares to Shandong Weigao at S$1.2215 per share and (iii) issuance to Shandong Weigao of US$120m principal amount of 4% convertible notes due 2014. Shandong Weigao would own 21.6% of BIG, assuming full conversion of the notes. We view this move positively from a strategic standpoint as BIG would now be able to strengthen its position in the fast growing China DES market. Management estimates that this acquisition would be completed by the later part of the year (assuming shareholder approval is obtained), implying that JWMS is likely to be consolidated from 2H12 onwards. We take into account the dilutive impact caused by the enlarged share base and also update our required return on equity assumption to 9.1%. However, our FCFE model also captures the accretive earnings growth potential of the combined entity. As such, our fair value estimate increases from S$1.55 to S$1.60. Maintain BUY. (Wong Teck Ching Andy)
ST Engineering: 10% cap on Ropax contract claims
Summary: ST Engineering (STE) has just updated that its marine arm - ST Marine (STM) - has received a letter of claim (dated 10 Jun 2011) from the lawyers of Louis Dreyfus Armateurs (LDA) in respect of the shipbuilding contract for the Roll-on/Roll-of Passenger (Ropax) ferry that was contracted in Jul 2007 for around S$179m. STM intends to dispute the claim. Furthermore, STM's position is that if it is liable, its total liability under the Ropax contract is capped at 10% of the contract price. STE believes that the ongoing Ropax dispute will not have any material impact on its NTA or EPS for FY11. As before, we think that it is still early days to assess if STE/STM has to pay damages and hence we hold off adjusting our FY11 estimates. Our worst case scenario could see a <5% impact on FY11F pre-tax profit. We are still positive on the group's overall prospects, defensive nature and do not believe that this incident will affect its strong payout (around 90% of core earnings) ability; hence we maintain our BUY rating and S$3.57 fair value (21x FY11F EPS). (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor detailed report.
NEWS HEADLINES
- Property stocks with significant exposure to the Chinese market fell yesterday as data from China raised concerns that a slowdown in the world's second largest economy could lead to an easing of demand for loans.
- Singapore's GDP growth may slow to 6.7%, according to the latest BT-UniSIM Business Climate Survey.
- Pace of hiring expected to remain healthy in Q3 according to the latest Manpower Employment Outlook Survey,
- Q&M strikes RMB 25m deal for 49% of China dental lab.
- SingPost ups its stake to 50% in Malaysia company, Efficient, which provides primarily outsourcing solutions in data and document processing.
- Keppel Fels clinches US$260m rig contract to build a semi-submersible rig from Floatel International.
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