MARKET PULSE: Sakari, Economy, Residential Property, OKP, SIA & SIAEC (16 Feb 2012)

Stock Name: Sakari
Company Name: SAKARI RESOURCES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.76

Stock Name: OKP
Company Name: OKP HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.75

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

MARKET PULSE: Sakari, Economy, Residential Property, OKP, SIA & SIAEC

16 Feb 2012

KEY IDEA Sakari Resources: Upgrade to BUY, S$2.76 FV Sakari Resources Limited (SRL) posted a strong set of 4Q11 results, with revenue jumping 42.4% YoY and 40.4% QoQ to US$312.6m, aided by higher ASPs of coals sold in the quarter. Net profit was up 139.0% YoY and 97.3% QoQ at US$73.0m. For the full-year, revenue climbed 30% to US$1,013.6m, or 7.4% above our forecast, while net profit surged 116% to S$190.3m, or 17.9% above our estimate. Continued production growth at Sebuku will be central to management's plan in 2012; and SRL remains upbeat about thermal coal demand. Following the strong 4Q11 results and latest output guidance for 2012, we have fine-tuned our estimates. This in turn bumps up our DCF-based fair value to S$2.76 (S$2.06 previously). Coupled with an expected dividend yield of 5%, we upgrade our call to BUY. (Carey Wong) MORE REPORTS Singapore Economy: 2012 growth forecast kept at 1.0- 3.0% The Ministry of Trade and Industry (MTI) is maintaining its 2012 growth forecast at 1.0-3.0% after the Singapore economy grew by 4.9% in 2011; this as the global economic outlook remains subdued and Singapore's external-oriented sectors are likely to face a challenging environment ahead. This also does not factor downside risks such as a disorderly sovereign default in the Eurozone. Singapore's economy grew by 3.6% YoY in 4Q11, similar to the earlier advanced estimate. On a seasonally adjusted basis, the economy contracted by 2.5% QoQ, just slightly below the street's consensus of a 2.3% negative growth; this following a 2.0% expansion in 3Q11. Though manufacturing grew 9.2% YoY, it contracted by 11.1% QoQ due to a decline across most clusters, especially in electronics (weaker demand for semiconductor chips) and chemicals (plant shutdowns). Construction output fell 2.2% QoQ with a decline in private residential and commercial building activities. As for services, the sector grew 2.1% YoY and 1.7% QoQ. (Low Pei Han) Singapore Residential Monthly: Policy risk dominates URA data yesterday showed that 2,077 private residential units were sold in Jan 12. This was up 210% MoM, 35% YoY and a 14-month high. Excluding EC and landed units, 1,868 units were sold - up 205% MoM and 62% YoY - the most units sold in a whooping 21-month period. The vast majority of sales (94%) occurred in the mass-market segment. In stark contrast, the high-end/mid-tier was subdued, with sluggish take-up rates and negative MoM/YoY sales. In our view, the key driver of Jan 12 sales is undoubtedly still healthy mass-market demand, underpinned by strong HDB resale prices and monetary liquidity. However, given the strong show of political will to cool prices in Dec 11, we are wary of more curbs if headline sales escalate from here. We also remain cautious of the likely lagged impact on mass segment demand should global macro issues weigh on domestic economic growth ahead. Maintain NEUTRAL on residential developers. Our top property picks are CMA (FV: S$1.79, BUY) and CAPL (FV: S$2.11, BUY). (Eli Lee) OKP: Record earnings and healthy near-term prospects OKP reported a solid set of 4Q numbers and produced record earnings (S$26.6m) in FY11. 4Q's revenue (S$23.2m) declined 21.6% due to completion of some big projects. But as it wrapped up on CTE, the higher margins of the design and build contract were evident on its earnings. On a full year basis, FY11's gross and net margins improved to reach 39% and 24% respectively. Given its improved track record as a design and build player, and the government committed to several infrastructure projects, we believe OKP's near-term prospects are healthy. The group has also built up a strong balance sheet capable of seizing suitable growth opportunities. Possible growth avenues include diversifying into property development and seeking out acquisitions to add to existing construction capabilities. Applying 7.5x P/E peg on FY12 earnings, we derive a fair value estimate of S$0.75, maintain BUY. (Benjamin Lim) Singapore Airlines: Operating statistics fall across the board Singapore Airlines (SIA) reported its Jan 2012 operating statistics. The parent airline's passenger capacity (ASK) grew 3.8% YoY while its passenger traffic (RPK) gained a smaller 2.4% YoY, resulting in passenger load factor (PLF) falling to 77.0%, compared to 78.1% in Jan 2011. SilkAir's RPK again gained a strong 13.2% YoY but it recorded an even faster ASK growth of 13.7% YoY. Thus, SilkAir's PLF also fell to 76.2%, lower than the 76.5% in Jan 2011. SIA Cargo's freight capacity (AFTK) fell 8.5% YoY but its freight traffic (FTK) contracted by 12.8% YoY. SIA Cargo's freight load factor (FLF) fell to 58.5%, which is also the first time that it dropped below 60% since Apr 2009, from 61.4% in Jan 2011. We maintain our fair value estimate of S$10.85/share and HOLDrating on SIA. (Eric Teo) SIA Engineering: Scoot contract and new US facility SIA Engineering Co Ltd (SIAEC) announced the signing of an aircraft MRO services agreement with new low-cost carrier Scoot. The agreement will last two years with an option of a one-year extension. Also, SIAEC announced the opening of its line maintenance facility in San Francisco on 1 Feb 2012. This extends SIAEC's global network of line maintenance stations to 27 airports. SIAEC added both announcements are not expected to have a material impact on its financial performance in FY12. With an estimated dividend yield of 4.5%, we currently have a fair value estimate of S$3.88 per share and BUY rating on SIAEC. (Eric Teo)

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NEWS HEADLINES - Europe's creditor countries continue to discuss stricter surveillance of budget controls in Greece, as indicated by Luxembourg PM Jean-Claude Junker, who chaired a conference call of Europe finance chiefs late yesterday. Junker emphasised that decisions will be made on 20th Feb. - Indonesia has cut its growth forecast for 2012 from 6.7% to the range of 6.5-6.6%, amid concerns that global economic uncertainties will drag down exports. - Koh Brothers' FY11 net profit increased 80% to S$19.9m, despite revenue declining 6% to S$341.1m. - China Fibretech issued a profit warning last night for the 4Q11/FY11. It expects to report materially lower revenue and a loss before taxation due mainly to the decrease in demand for its fabric processing services.