MARKET PULSE: Kep Corp, Ezra, Sheng Siong & Singapore GDP (13 April 2012)

Stock Name: Kep Corp
Company Name: KEPPEL CORPORATION LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 13.38

Stock Name: Sheng Siong
Company Name: SHENG SIONG GROUP LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.49

MARKET PULSE: Kep Corp, Ezra, Sheng Siong & Singapore GDP

13 April 2012

KEY IDEA Keppel Corporation: US$4.12b LOI from Sete Brasil Keppel Corporation (KEP) announced that its offshore and marine arm has signed a letter of intent with Sete Brasil for the design and construction of five additional semisubmersible rigs worth approximately US$4.12b. If exercised, which we think is highly likely, KEP would have secured S$6.2b worth of new orders this year vs last year's S$9.8b wins. Though the market has been expecting Petrobras to award rigs from its 28-rig tender with KEP as a frontrunner, this announcement adds more certainty to the final award, which may be within two months. Meanwhile, we increase our FY12 new order win estimate to S$10.2b (including Petrobras orders) and update the market values of KEP's listed entities. As such, our SOTP-based fair value estimate increases to S$13.38 (prev. S$12.27). Maintain BUY. (Low Pei Han) MORE REPORTS Ezra Holdings: In-line results; 2HFY12 to be even better Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Looking ahead, the group's subsea vessels should be fully utilised given the strong order book which is in excess of US$1b. Meanwhile, Ezra's stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI's 0.5% gain. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). With an upside potential of about 20.6%, we upgrade our rating to BUY. (Low Pei Han) Sheng Siong Group: Defensive play in uncertain times Ahead of Sheng Siong Group's (SSG) 1Q12 results, we are anticipating a YoY increase in its 1Q12 revenue following additional contributions from more stores and higher sales volumes following the Chinese New Year festivities. In terms of its margins, we expect increased sales turnover over the CNY period and higher rebates from suppliers to overcome sustained price competition amongst the big three local supermarket chains. With SSG's share price relatively unchanged since the release of its FY11 results, it is our view that the above expectations have been priced in, and the counter should continue to remain stable going forward. As such, with recent market weakness and uncertainty, we reiterate our belief that SSG offers investors downside protection with the addition of an attractive dividend yield (FY12F: 5.8%). Maintain our HOLDrating at an unchanged fair value estimate of S$0.49. (Lim Siyi) Singapore Economy: Growth momentum improves QoQ in 1Q12 According to advance estimates from the Ministry of Trade and Industry (MTI), Singapore's economy expanded by 1.6% YoY in 1Q12, lower than the 3.6% growth in 4Q11, but better than the street's expectations of a 1.0% expansion. On a seasonally adjusted QoQ annualized basis, the economy grew by 9.9% vs. 4Q11's 2.5% contraction. Manufacturing growth headed south to -2% YoY after 4Q11's 9.2% expansion, due to a high base in 1Q11. However, the sector grew 14.7% QoQ, supported by electronics and precision engineering. Construction grew by 6.2% YoY, up from 2.9% in 4Q11. As for services, growth was 2.9% compared to 2.1% in the previous quarter. Meanwhile, the MAS will continue with the policy of a modest and gradual appreciation of the S$NEER band, but the slope will be increased slightly, as there will be no change to the centre of the band. A narrower policy band will also be restored to help anchor inflation expectations. (Low Pei Han)

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NEWS HEADLINES - US stocks climbed for a second day, with the S&P 500 Index and the DJIA both gaining 1.4%. - After the US market closed, Google reported its 1Q results which beat estimates by a wide margin. Revenue increased 24% YoY and profit was up 61% YoY. The company also announced a two-for-one stock split. - COSCO Corp's 51%-owned subsidiary Cosco Shipyard Group Co. Ltd. won a US$75m contract to build a rig. - Indonesian pallm oil producer Bumitama Agri ended its SGX trading debut up 32% from the subscription price of S$0.745 to close at S$0.98 yesterday. - MFS Technology said that it has revised the sale price of its Tuas Ave property to S$10m from S$9.5m. The company will net a gain of ~S$4m.