MARKET PULSE: Genting, Hyflux, NOL, SIA, Rotary, SingPost and Ezion (23 Feb 2012)

Stock Name: Genting SP
Company Name: GENTING SINGAPORE PLC

Research House: OCBC

Price Call: BUY

Target Price: 2.02

Stock Name: Hyflux
Company Name: HYFLUX LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.55

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 1.15

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Stock Name: SingPost
Company Name: SINGAPORE POST LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.14

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.18

MARKET PULSE: Genting, Hyflux, NOL, SIA, Rotary, SingPost and Ezion

23 Feb 2012

KEY IDEA Genting Singapore: Expect near-term sell-down Summary: Genting Singapore (GS) could see a near-term sell-down as its FY11 earnings of S$1,011.1m (+55%) were 12% below Bloomberg consensus; but were still 9% above our forecast. Market may also be disappointed to learn that GS has again lost market share to Marina Bay Sands, including the VIP market share due to its exceptionally high hold rate in 4Q11; although it has managed to maintain its profitability. Nevertheless, GS believes that quality of the VIP customers are more important than quantity; and expects to attract more high rollers with its newly-opened luxurious Beach Villas. We maintain our BUY call with S$2.02 fair value, given its strong cash-flow generating ability, which increases the odds of a higher dividend this year. As a recap, GS declared an unexpected final dividend of S$0.01 for FY11. (Carey Wong) MORE REPORTS Hyflux: Upping fair value to S$1.55; HOLD Summary: Hyflux Ltd posted a much better-than-expected FY11 showing, with revenue of S$482.0m coming 10% and 3% above our and consensus forecast respectively; net profit of S$53.0m was also 7% and 11% above. Hyflux also declared a final dividend of S$0.021, bringing the full-year payout to S$0.0277, down from the S$0.0417 in FY10. Going forward, we expect Hyflux to focus more on Asia, especially Singapore, as the short-term outlook for MENA remains uncertain. In view of the better-than-expected results, we are modestly bumping up our FY12 estimates by 1.4-6.0%. We also raise our fair value from S$1.28 to S$1.55, based on 18x FY12F EPS (versus 15x previously). But given the limited upside, we maintain our HOLD rating. (Carey Wong) Neptune Orient Lines: Nightmare of a quarter Summary: Neptune Orient Lines (NOL) surprised the street by turning in a net loss of US$320m in 4Q11, which was even higher than consensus' full year net loss estimate of US$275m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. Thus far in 1Q12, freight rates have averaged 7% higher but bunker prices have more than kept pace by climbing 8%. Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook. (Eric Teo) Singapore Airlines: Reduced freighter capacity by 20% Summary: Singapore Airlines (SIA) yesterday said SIA Cargo has moved to reduce its freighter capacity by 20% after seeing continued weakness in demand and high fuel prices. The move comes after SIA Cargo's freight load factor fell to 58.5%, which is also the first time that it dropped below 60% since Apr 2009. The recently reduced capacity will continue into the northern summer operating season, which starts late next month. We feel the reduction of freighter capacity is a much needed move for SIA, especially when its belly-hold cargo capacity is increasing in tandem with passenger capacity increase. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.(Eric Teo) Singapore Post: Proposed issue of senior perpetual cumulative securities Summary: Singapore Post (SingPost) has announced a proposed issue of SGD-denominated senior perpetual cumulative securities, which is expected to be launched in the near future, subject to market conditions. The group has appointed DBS Bank as the lead manager and bookrunner, and investor meetings in Singapore will start tomorrow. SingPost has a strong cash balance of S$273m (excluding held-to-maturity assets) as at Dec 2011 but it has a S$300m 10-year bond maturing in Apr next year. The group is also on the lookout for acquisition opportunities for growth. Pending more details from management, we maintain our BUYrating with S$1.14 fair value estimate on the stock. (Low Pei Han) Rotary Engineering Ltd: Results within expectations. Summary: Rotary Engineering Ltd ("Rotary") reported a 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. FY11 revenue of S$531m (down 25%) and net profit of S$31m (51% decline) were within our expectations but were below the street's expectations. Rotary's current order-book also decreased to S$690m from S$758m as end-Nov 11. Meanwhile, the group has proposed a 2 S cts final dividend. Pending an analyst briefing later, we put our Hold rating and S$0.61 fair value estimate UNDER REVIEW. (Chia Jiunyang) Ezion Holdings: To raise S$94.6m via placement Summary: Ezion Holdings (Ezion) has proposed a placement of 110m shares at S$0.88 per share, representing a discount of about 6.6% to the weighted average price of S$0.9422 for trades done on 21 Feb 2012 before the trading halt yesterday. This will increase Ezion's existing issued and paid-up share capital by ~15.4%, and though this is EPS dilutive, proper allocation of funds to projects with decent ROE could mean that this is an earnings accretive move in the longer term. The placement will allow Ezion to raise net proceeds of about S$94.6m, of which 70-90% will be used for the acquisition of offshore & marine assets (likely the expansion of the service rig business), and the rest for general working capital. Meanwhile, Ezion will seek the approval of SGX for the listing of the shares. The stock price may open lower this morning in response to the proposed placement, but is unlikely to be substantial given that the discount to the last traded price is about 6.9%. Maintain BUY with S$1.18 fair value estimate. (Low Pei Han)

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NEWS HEADLINES - Stocks fell worldwide and US Treasuries rose on after weaker manufacturing reports out of Europe and China. European services and manufacturing output unexpectedly shrank in Feb after expanding in Jan (Markit Economics), and China's manufacturing may shrink for a fourth month (HSBC and Markit). - Chip Eng Seng recorded that net profit for 4Q11 fell 28% YoY to S$28.8m as total revenue fell 58% to S$57.5m. - China Aviation Oil Singapore (CAO) saw 4Q11 fall 43% YoY in earnings to US$5.7m despite a 31% YoY increase in revenue to US$2.14b. This was mainly due to the provision of doubtful debts for amounts due from MF Global following the bankruptcy of its holding company.