MARKET PULSE: Noble Group, ECS, CSE, City Dev, Ezra, Midas, KS Energy & Hoe Leong (29 Feb 2012)

Stock Name: Noble Grp
Company Name: NOBLE GROUP LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.46

Stock Name: ECS
Company Name: ECS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.69

MARKET PULSE: Noble Group, ECS, CSE, City Dev, Ezra, Midas, KS Energy & Hoe Leong

29 Feb 2012

KEY IDEA Noble Group Ltd: HOLD - still lacks catalyst Noble Group (Noble) reported better performance in 4Q11, suggesting that the worst is likely over. For FY11, revenue jumped 42% to US$80,732m, or 0.4% above our forecast, while reported net profit slipped 29% to US$431m, it was around 13% above our forecast. However, we note that there could still be a dearth of near-term catalyst. While Noble revealed that it expects some development on the Gloucester-Yancoal merger front next week, management does not expect any deal to take place in 1Q12. Management also did not elaborate much on its planned listing of its Agri-business on SGX other than saying it has a new CEO for that division. While we are increasing our valuation peg from 10.5x (one standard deviation below 5-year mean) to 11.1x (0.5 SD), a lower USD/SGD assumption negates the increase, thus maintaining our fair value at S$1.46. Given the limited upside for now, we maintain our HOLD rating. We would be buyers closer to S$1.30. (Carey Wong) MORE REPORTS ECS Holdings: Strong execution deserves a re-rating ECS Holdings (ECS) reported FY11 results which were in line with expectations. Revenue grew 16.9% to S$3,607.2m, forming 100.6% of our forecast. Estimated core PATMI declined 17.1% to S$36.0m, or 0.5% shy of our projection. This was due to lower gross margin, a sharp spike in finance costs, and disruption caused by the Thailand floods. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast. Nevertheless, a key positive came from ECS's strengthened balance sheet, which can be attributed to its effective working capital management. Its net gearing ratio was lowered significantly from 73.9% in 3Q11 to 33.8% in 4Q11. Given ECS's improved financial position and growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS. This raises our fair value estimate from S$0.61 to S$0.69. Maintain BUY. (Wong Teck Ching Andy) CSE Global: Too early to turn positive CSE Global's FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays in its Middle East projects. It also suffered an operating cash deficit of S$6.9m due to increased working capital requirements. Considering the past issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Maintain HOLD with unchanged fair value estimate of S$0.80. (Chia Jiunyang) City Developments Limited:4Q11 results within expectations City Developments (CDL) reported 4Q11 PATMI of S$163m, down 32% YoY mostly due to the absence of gains recognized from strata unit sales at Chinatown Point in 4Q10. As a result, FY11 PATMI cumulated to S$799m which was mostly within our expectations. FY11 topline came in at S$3,280m - again in line with our FY11 forecast (S$3,301m). In the financial year, CDL (incl. associates/JVs) sold a total of 1,818 units for S$1,755m. The hotel segment also put up healthy numbers with M&C's global RevPar up 5.8% (constant currency terms), driven mainly by an increase in average room rates. In terms of its balance sheet, net gearing improved to 21% (versus 29% FY10) with a healthy cash balance of S$2.6b as of FYE11. Management proposed total final dividends of 13 S-cents (5 cents special, 8 cents ordinary). We would speak with management later today and, in the meantime, put our Hold rating and fair value estimate of S$8.38 (35% discount RNAV) UNDER REVIEW. (Eli Lee) Ezra Holdings: Achieves US$1b short-term subsea order book target Ezra Holdings (Ezra) announced that it has won a contract by Apache Energy to perform subsea transport and installation work for the Coniston Field Development in Northwest Australia. The base scope for the contract works is estimated to be up to US$70m with potential add-on work worth up to another US$30m. Engineering and planning activities will start immediately with offshore installation operations scheduled to commence around 1Q13. The group also recently secured a 2014 contract extension for its umbilical installation vessel for operations in Europe, and with these awards, Ezra has achieved its US$1b short-term order book target for the subsea division. Looking ahead, we believe that the focus will likely be on the execution of projects. Maintain BUY with S$1.51 fair value estimate. (Low Pei Han) Midas Holdings: FY11 earnings within expectations Midas Holdings (Midas) reported FY11 revenue this morning which was below our expectations but earnings met our forecasts. Revenue increased 4.9% to RMB1,080.7m, forming 94.9% of our projections, while PATMI of RMB187.4m (-22.2%) was 1.4% above our estimates. The decline in earnings was attributed to higher operating expenses and finance costs, and further exacerbated by a 81.9% plunge in contribution from its 32.5%-owned associate Nanjing SR Puzhen Rail Transport (NPRT). A final dividend of 0.5 S cents was declared (total FY11 DPS of 1 S cent), in line with our expectations and similar to FY10's 1 S cent dividend. Looking ahead, we opine that conditions in China's railway sector are likely to pick up, although near-term weakness should persist for Midas as 1Q is a seasonally slow quarter and contract wins would take some time to flow down from its customers. We will provide more details after speaking with management later. Until then, we are placing both our Hold rating and S$0.31 fair value estimate under review. (Wong Teck Ching Andy) KS Energy: Net loss in FY11 KS Energy (KSE) reported a 3.3% fall in revenue to S$492.7m and a net loss of S$78.8m in FY11 vs. a net loss of S$98.4m in FY10. Revenue was within our expectations but the net loss was greater than expected, mainly due to 1) stock provisions of S$15.3m with a new inventory policy in the Distribution division, 2) an S$18.6m expense for a non-core capital equipment asset to bring it in line with expected realizable value, and 3) higher finance costs. The group's performance has improved in terms of narrowing its net loss but we are still unsure when we can see a return to profitability. Pending further details from management, we maintain our HOLD rating but put our fair value estimate of S$0.91 under review. (Low Pei Han) Hoe Leong Corp: FY11 net profit up 156% to S$26m Hoe Leong Corp released its FY11 results last night. FY11 revenue was up 31% to S$81m, while net profit jumped 160% to S$26m. Both its revenue and net profit were in-line with our expectations. The improvements were mainly driven by a sale-and-leaseback transaction (which contributed S$14m) and share of results from associates and JVs (which increased by S$5.5m). Excluding the above mentioned, core pre-tax earnings would have decreased by 40%. We will speak to management to get further details. In the meantime, we put our Hold rating and S$0.20 fair value estimate UNDER REVIEW. (Research Team)

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NEWS HEADLINES - US stocks rose, with the Dow climbing 0.2% to close at 13,005.12, its first close above 13,000 since 2008. The euro gained 0.5% to $1.3471, the highest level of the year, before the ECB provides funds to support the banks later today. Oil dropped 1.9% to $106.55 a barrel. - Hong Leong Finance registered a net profit of S$99.8m for FY11, down 18.2%, due to the low interest rate environment. Interest on loans and hiring charges fell by 9.7% and 18.6% respectively. Final dividend was unchanged at eight cents a share. - Thai Beverage saw net income for FY11 of THB12.9b, a 30% rise above the FY10 restated figure, on the back of a 10% rise in revenue to THB132b.