MARKET PULSE: Oil & Gas, Ascott Residence Trust (24 May 2012)

Stock Name: Kep Corp
Company Name: KEPPEL CORPORATION LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 13.38

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.13

Stock Name: AscottREIT
Company Name: ASCOTT RESIDENCE TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.14

MARKET PULSE: Oil & Gas, Ascott Residence Trust

24 May 2012

KEY IDEA Oil & Gas sector: 1Q12 recap and outlook During the recent results season, companies under our sector coverage reported earnings that were mostly in line with our expectations, with the exception of Keppel Corporation and ASL Marine (above) and Sembcorp Marine, PEC and Rotary Engineering (below). Companies in focus included STX OSV and Keppel Corp; the former for a possible stake sale by its parent company and the latter for clinching a contract for five semi-sub units from Sete Brasil. Though oil prices have corrected with renewed Eurozone concerns, we opine that at current levels (WTI: US$91/bbl, Brent: US$108/bbl), oil prices are still high. In general, the industry has a positive outlook as elevated oil prices mean that capital expenditure in the sector will continue. Maintain Overweight with Keppel Corp [BUY, FV: S$13.38] and Ezion Holdings [BUY, FV: S$1.13] as our preferred picks. (Low Pei Han, Chia Jiunyang) MORE REPORTS Ascott Residence Trust: European master leases to underpin stability Despite ongoing uncertainty in Europe, we believe that income from ART's European assets would be underpinned by master leases arrangements in the 17 properties in France and two in Germany, which contributed a total of 26% of gross profit for 1Q12. In addition, management contracts with min. guaranteed income contributed an additional 12% of 1Q12 gross profit. In terms of asset values, 40% is in Europe of which the bulk is spilt between France (21%) and the UK (15%). We note about half of total French exposure fall in prime regions of core Paris. Similarly, in the UK, all four properties are in prime London locations. This being so, we believe their book values would be relatively resilient and unlikely to suffer long term capital value deterioration. With a strong yield of 7.9%, we continue to see value in the share price. Also, an undemanding P/B ratio of 0.8x would translate to a reasonable margin of safety for bear case write-downs. We maintain our BUY rating with an S$1.14 fair value estimate. (Eli Lee)

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NEWS HEADLINES - US stocks closed flat on Wednesday while European stocks and the euro dropped to 2012 lows amid growing concern that Greece may exit the euro-zone. - UOB, acting through its HK branch, has established a HK$30b (S$4.9b) certificate of deposit programme. Net proceeds will be used for general funding requirements. - Bukit Sembawang Estates reported a 4% increase in FY12 net profit to S$183m. Revenue was down 24% to S$391m. - Singapore Shipping Corp. posted a 44% YoY jump in 4Q12 net profit to US$2.1m. Revenue had climbed 20% to US$5.0m. - Homegrown civil engineering firm Swee Hong closed at 27.5 S-cents, 22% above its IPO price yesterday, its first day of trading. - Combine Will International Holdings intends to expand its ODM and OEM operations by setting up new facilities in Wuzhou, Guangxi, China.