MARKET PULSE: Transportation Sector & Rotary Engineering (5 Jun 2012)

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.71

Stock Name: ComfortDelGro
Company Name: COMFORTDELGRO CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.53

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.50

MARKET PULSE: Transportation Sector & Rotary Engineering

5 Jun 2012

KEY IDEA Land Transportation sector: Difficulties to remain For the month of May, the defensive nature of the two public transport operators (PTOs), Comfort Delgro (CD) and SMRT, has limited their losses against a backdrop of worsening equity market performance. Although this market pull-back has resulted in lower fuel prices and provided a temporary relief for the PTOs, any upside potential remains limited at this juncture. We expect greater fuel consumption and increasing staff costs to negate any potential fuel cost savings resulting from the dip in fuel costs. Furthermore, no fare adjustments are expected for the year, which will cause the trend of declining average fares to persist further. While a fare review committee has been announced by the government, any beneficial effects from revisions will only be felt in 2H2013. Therefore, we downgrade the sector to NEUTRAL and maintain our HOLD ratings on both SMRT [HOLD; FV:S$1.71] and CD [HOLD; FV:S$1.53]. (Lim Siyi) MORE REPORTS Rotary Engineering: Not time to buy yet Rotary Engineering Limited (Rotary) share price has fallen by 22% in June and is now at a three-year historical low of S$0.50, representing almost 1x P/B (one standard deviation below its 5-year average). We believe that this was mainly due to its disappointing 1Q12 results, continued uncertainty in the global economy and investors' preference for defensive non-cyclical counters. That said, we do not see any clear near-term catalysts. Moreover, we believe that there could be more downside than upside risks at this juncture. Therefore, we lowered our valuation peg to 1x (previously 1.2x) and fair value to S$0.50 (previously S$0.61). Maintain HOLD. (Chia Jiunyang)

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