MARKET PULSE: SIAEC, Cosco, OKP, CSE Global, SembMarine, Midas (9 May 2012)

Stock Name: OKP
Company Name: OKP HOLDINGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.53

Stock Name: CSE Global
Company Name: CSE GLOBAL LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.80

Stock Name: SembMar
Company Name: SEMBCORP MARINE LTD

Research House: OCBC

Price Call: HOLD

Target Price: 5.70

MARKET PULSE: SIAEC, Cosco, OKP, CSE Global, SembMarine, Midas

9 May 2012

KEY IDEA SIA Engineering: Downgrade to HOLD SIA Engineering Co Ltd (SIAEC) released its 4QFY12 report card which was largely in line with our expectations. In FY12, revenue from SIAEC's Fleet Management segment jumped 33% to S$218m while its share of profits of JV and associated companies grew 9% to S$157m. Management also proposed a final dividend of S$0.15/share. With most of its revenue denominated in USD, SIAEC's profit margins will likely face further downward pressure if the USD weakens. We increase our fair value estimate of SIAEC to S$4.04/share but downgrade it to HOLD, after a 17% gain in its share price over the last three months. (Eric Teo) MORE REPORTS Cosco Corp: Results within expectations Cosco Corp Singapore (COSCO)'s 1Q12 results were largely within our expectations but below the street's. Revenue decreased by 3% YoY to S$979m, while net profit attributable to shareholders fell 21% YoY to S$27.8m. Gross margin declined by one percentage point to 10.1% (1Q11: 11.1%) on stiffer competition but operating costs remains largely stable. Finance cost increased by 168% YoY to S$21.8m (1Q11: S$8.1m) due to higher gearing and increased borrowing costs. Order-book remained stable at US$5.8b (end-Dec-11: US$6.0b). Maintain HOLD with unchanged fair value estimate of S$0.98. (Chia Jiunyang) OKP Holdings: Disappointing earnings; downgrade to HOLD OKP Holdings (OKP) reported that its 1Q12 revenue declined 24% YoY to S$25.0m and PATMI plunged 42% YoY to S$3.1m. In addition, OKP's 1Q12 gross margin contracted by 5.7ppt to 21%. OKP's 1Q12 revenue and PATMI have respectively only met 17% and 12% of consensus full-year estimates. But management believes outlook for the construction sector will remain healthy over the next twelve months but warned that OKP's profit margins are likely to remain under pressure. With a lack of clarity in OKP's ramping up of revenue recognition of projects and management's warning on possible margin pressure, we reduce our FY12F revenue and PATMI estimates of OKP by 39% and 35% respectively. Consequently, we lower our fair value estimate of OKP from S$0.75/share to S$0.53/share and downgrade its rating to HOLD. (Eric Teo) CSE Global: S$10.3m gain on sale of stake in eBworx Hitachi Limited's takeover offer for eBworx has turned wholly unconditional effective yesterday after the former had received more than 85% acceptance. CSE Global (CSE) will sell its entire 30.94% stake in eBworx for M$0.90 per share and book a one-off divestment gain of S$10.3m in 2Q12. The net consideration received of S$21.4m will be used to repay its bank loan. While we like the latest development, we think that investors will be more keen to see operational improvements in its core business. We adjusted our model for the transaction, but we remain cautious and keep our HOLD rating (and fair value estimate of S$0.80) ahead of its 1Q12 results later this week. (Chia Jiunyang) Sembcorp Marine: Clinches US$208m jack-up rig order with option Sembcorp Marine (SMM) has secured a US$208m contract to construct a Pacific Class 400 jack-up drilling rig for a subsidiary of Perisai Petroleum Teknologi Bhd. There is also an option to build an additional unit worth US$210m, subject to price adjustments in case of certain cost escalations. The first unit is scheduled for delivery in end Jul 2014, and the second unit is up for delivery in 2Q15, if the option is exercised. We note that the price of the first unit at US$208m is about 5% lower than the last jack-up rig order of similar design for Gulf Drilling (5 Apr 2012 announcement), but this is understandable given the latter unit's early delivery date in 1Q13. SMM has clinched contracts worth about S$3b YTD, accounting for about 34% of our full year estimate. Meanwhile, as the group is announcing its 1Q12 results this evening, we put our HOLD rating and fair value estimate of S$5.70 UNDER REVIEW. (Low Pei Han) Midas Holdings: Issues profit guidance again Midas Holdings (Midas) issued a profit guidance last evening. The group expects to record a significant YoY drop in its revenue and net profit for its upcoming 1Q12 results. This is however within our expectations as we are forecasting 1Q12 topline and bottomline to decline by 31% and 47% YoY, respectively. During our last report on Midas (dated 11 Apr 2012), we had cautioned that Midas could report a lackadaisical set of results for 1Q12, given the challenging conditions still present in China's railway sector. Recall that Midas also issued a negative profit guidance before its 3Q11 results. Reasons attributed to the expected fall in net profit are largely similar as before, which includes lower revenue, higher operating expenses and finance costs and a share of loss from its associated company, Nanjing SR Puzhen Rail Transport. Nevertheless, Midas guided that it would remain profitable for 1Q12. We hold off adjusting our estimates for now as this guidance was within our expectations. Midas is slated to release its 1Q12 results next Monday, 14 May, after market close. Maintain HOLD and S$0.375 fair value estimate. (Wong Teck Ching, Andy)

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NEWS HEADLINES - US stocks slid as political uncertainty in Greece outweighed a rise in US small business confidence. The S&P 500 Index fell 0.4% to 1,363.72, its lowest close in nearly a month. - Wing Tai Holdings saw 3Q12 net profit fall 74% YoY to S$42.3m on the back of a 69% YoY drop in revenue to S$128m. - ARA Asset Management posted a 35% YoY rise in 1Q12 net profit to S$20m. Revenue had climbed 26% higher YoY to S$34.3m. - Chip Eng Seng's 1Q12 net profit dropped 92% YoY to S$4.4m, mainly due to a 66% YoY drop in revenue to S$49m. - Automotive manufacturer YHI International's 1Q12 net profit fell 13% YoY to S$5.5m despite revenue having climbed 7% YoY to S$138m. - Food Junction saw 1Q12 net profit plunge 93% YoY to S$64k despite a 6% rise in revenue to S$14m from new restaurant concepts.