MARKET PULSE: SATS, Midas, Swiber, ECS, Hoe Leong, PEC, STX OSV (15 May 2012)

Stock Name: SATS
Company Name: SATS LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 2.55

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.33

Stock Name: Swiber
Company Name: SWIBER HOLDINGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Stock Name: Hoe Leong
Company Name: HOE LEONG CORPORATION LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 0.29

Stock Name: PEC
Company Name: PEC LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.93

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.25

MARKET PULSE: SATS, Midas, Swiber, ECS, Hoe Leong, PEC, STX OSV

15 May 2012

KEY IDEA SATS Ltd: Earnings within expectations Summary: SATS Ltd's (SATS) reported its FY12 financial results that were mostly in line with market expectations. SATS' FY12 PATMI of S$171m was 2% higher than consensus estimate, even though revenue came in 2% below the street's estimate at S$1.69b. Management proposed a final dividend of S$0.06/share and a special dividend of S$0.15/share, which translates to a full-year dividend payout ratio of 169%. By our estimation, SATS recorded organic revenue growth of 4% in FY12, driven by strong growth of 9% and 13% YoY in its Gateway services and In-flight catering segments respectively. Its Japanese subsidiary TFK also continued its post-earthquake recovery. However, share of net profit of associates slipped 12% to S$41m in FY12. We maintain its HOLD rating but increase our fair value estimate of SATS from S$2.43/share to S$2.55/share. (Eric Teo) MORE REPORTS Midas Holdings: Delayed orders hit financials Summary: Midas Holdings (Midas) reported a disappointing set of 1Q12 results which were significantly below ours and the streets' estimates. Revenue declined 22.3% YoY, forming 20.6% of our full-year projections. Net profit plunged 74.7% YoY, and met just 7.5% of our FY12 estimates. The weak performance was attributed to higher operating expenses and finance costs, as well as a RMB4.6m share of loss from its associated company NPRT. We slash our FY12 earnings estimates by 34.3%, and FY13 by 12.0%, because we expect FY12 to be a challenging year for Midas. Nevertheless, with Midas currently trading at a trough P/B of 0.6x, we believe that the market has already factored in most of the negatives. We expect Midas to post a stronger recovery in FY13, given that the mid-to-long term prospects for China's railway sector remain sound. Hence, we roll forward our valuation to 11x blended FY12/FY13F EPS to better reflect this. Maintain HOLD with a lower fair value estimate of S$0.33 (previously S$0.375). (Wong Teck Ching Andy) Swiber Holdings: 1Q12 results within expectations Summary: Swiber Holdings (Swiber) reported a 29.1% YoY rise in revenue to US$194.4m but saw a 10.6% fall in net profit to US$8.6m in 1Q12, which were within our expectations. Gross profit margin increased from 16.2% in 1Q11 to 19.8% in 1Q12, but was lower on a sequential basis (4Q11: 21.0%). Current borrowings stood at US$372.8m as at 31 Mar 2012 as there is the possibility of a convertible bond redemption later this year. Though the group is likely to secure more contracts going forward, this means more funds would be needed for working capital. Along with the refinancing needs that may come up, we think that the high net debt situation is a risk in the current volatile market. As such we lower our peg to 10x core FY12/13F earnings, resulting in a lower fair value estimate of S$0.61 (prev. S$0.75). Maintain HOLD. (Low Pei Han) ECS Holdings: 1Q12 core earnings below expectations Summary: ECS Holdings (ECS) reported a mixed set of 1Q12 results, with revenue meeting our expectations but net profit came in below due largely to weaker-than-expected gross margin. Revenue increased 7.1% YoY to S$901.6m, forming 23.2% of our FY12 estimates. PATMI slumped 41.0% YoY to S$6.2m. Excluding forex and other exceptional items, we estimate that core earnings would have declined 36.1% YoY to S$6.6m, or 15.2% of our full-year projections. Sequentially, revenue fell 2.5% and net profit declined 31.6%. ECS's YoY revenue growth was driven by a 16.3% increase in its Distribution segment. But as this segment saw a 1.1ppt YoY decline in gross margin to 2.8%, coupled with the fact that it typically commands a relatively lower margin as compared to its Enterprise Systems segment, overall gross margin slipped from 5.1% in 1Q11 to 4.0% in 1Q12. Looking ahead, management believes that the macroeconomic uncertainties and competitive industry pressures could continue to impact its performance. Pending a teleconference call with management, we place our Buy rating and S$0.69 fair estimate under review. (Wong Teck Ching Andy) Hoe Leong Corp: Steep losses from associates and JVs Summary: Hoe Leong Corp (HOE) reported 1Q12 revenue and gross profit of S$20.6m (+32% YoY) and S$5.3m (+23% YoY) respectively. The numbers were generally in line with our estimates. However, a steep and unexpected loss of S$3.3m from share of results from associates and JVs during the quarter led to an overall 1Q12 net loss of S$0.9m. HOE explained that the losses were largely due to the loss on disposal of a vessel. We will speak to management to seek clarity on this issue. In the meantime, we put our hold rating and S$0.29 fair value estimate UNDER REVIEW. (Chia Jiunyang) PEC Ltd: Sharp deterioration in 3Q12 Summary: PEC Ltd (PEC) reported a very weak set of 3Q12 results that caught us and the street by surprise. 3Q12 revenue increased by 22% YoY to S$107m, but net profit attributable to shareholders plunged 86% YoY to S$1.3m. Net margin shrank to just 1.2%, compared to the 11.0% in 3Q11. While the group still has a very strong net cash position of S$112m, or S$0.44/share, there is a possibility of PEC incurring further losses over the near-term horizon. Pending a teleconference with management later, we put our Buy rating and S$0.93 fair value estimate UNDER REVIEW. (Chia Jiunyang) STX OSV: Results in line. Summary: STX OSV reported 1Q11 results that were broadly in line with our and the street's estimates. 1Q revenue decreased by 12% YoY to NOK2.8b (1Q11: NOK3.2b), while net profit attributable to shareholders fell by 13% YoY to NOK269m (1Q11: NOK310m). Operating margin was unchanged at 12.9%. Its order-book was also flat at NOK16.0b (end-FY11: NOK16.7b). We will speak to the management through a teleconference in the afternoon. In the meantime, we keep our BUY rating but put our fair value estimate of S$2.25 under review. (Chia Jiunyang)

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NEWS HEADLINES - US stocks dropped with concerns about political upheaval in Europe and the possibility of a softer-than-expected Chinese economy. The S&P 500 Index and the DJIA slipped 1.1% and 1.0% respectively. - Thai Beverage reported a 46% YoY increase in 1Q12 net profit to THB4.33b (~S$174m). Revenue had climbed 31% to THB40b. - Global Premium Hotels registered a 47% YoY increase in 1Q12 net profit to S$6.4m on the back of a 29% increase in revenue to S$14.9m. - Bonvests Holdings' 1Q12 net profit was down 6.5% YoY to S$4.0m. Revenue had grown by 6.5% to S$38.7m. - Cordlife Group's net profit for 3Q12 fell 57% YoY to S$832k even though revenue rose 13% to S$6.9m. - Asiatravel.com reduced it 2Q12 loss to S$489k versus S$807k a year ago. Revenue had declined 6% to S$21.6m.