MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL (3 Jul 2012)

Stock Name: Micro-Mech
Company Name: MICRO-MECHANICS (HOLDINGS) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.325

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.33

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL

3 Jul 2012

KEY IDEA CapitaMalls Asia: Divestments validate asset valuations CMA announced it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III), in which it would hold a 50% stake. Three CMA shopping malls, Tianfu and Meilicheng (Chengdu) and Luwan (Shanghai), would be divested as seed assets to CMCDF III. We understand that these would be injected for S$749m, versus their current book value of S$640m. This would result in a net gain of ~S$72m, on a 100% basis for these properties, and a net cash inflow of ~S$335m to CMA for the sale of its stakes. We expect the market to react positively to this development, and believe divestment valuations would serve as key data-points validating CMA's asset values in the market. Maintain BUY with a higher fair value estimate of S$1.79 (10% RNAV discount) versus S$1.76 previously, mostly due to stronger valuations for Chinese assets and listed entities. (Eli Lee) MORE REPORTS Micro-Mechanics: 4QFY12 results preview We continue to forecast a double-digit YoY fall in Micro-Mechanics Holdings' (MMH) revenue and net profit for its upcoming 4QFY12 results. This is premised on the still lacklustre conditions in the semiconductor industry. However, we are cognizant of a possible upside surprise to our revenue projection, given the relative strength of the USD against the SGD seen in 2QCY12. Meanwhile, MMH recently secured its maiden order for its new 24/7 Machining Line. This could aid its CMA division's turnaround, in our opinion, given the system's ability to improve its product cycle time, quality and operational efficiency. We also expect gradual sequential improvement in MMH's financial performance moving forward, in line with the recovery in the semiconductor industry. Maintain HOLD and S$0.325 fair value estimate. (Wong Teck Ching Andy) Midas Holdings: JV company wins RMB860m metro contract Midas Holdings (Midas) announced last evening that its 32.5% owned JV company, Nanjing SR Puzhen Rail Transport (NPRT) has clinched a RMB860m metro contract. This entails the supply of 20 train sets (or 120 train cars) to the Dongguan Rapid Railway R2 Line Project, with delivery scheduled from 2013 to 2015. This is the second announced contract win by NPRT in 2012 (the first being a RMB526.9m metro contract announced on 1 Mar). We estimate that this would boost NPRT's order book to ~RMB7.4b. Despite NPRT's strong order book, its contribution to Midas' earnings has been volatile and lumpy. As a recap, Midas reported a share of loss from NPRT amounting to RMB4.6m in 1Q12 (1Q11: net profit of RMB4.1m). Nevertheless, we expect conditions from NPRT to improve for the remainder of FY12. For now, we have a HOLD rating and S$0.33 fair value estimate on Midas. (Wong Teck Ching Andy) Neptune Orient Lines: Looking to sell Singapore HQ Neptune Orient Lines (NOL) yesterday said it intends to sell its Singapore headquarters building along Alexandra Road so as to release capital for strategic investment. NOL said it has not decided on a reserved price, but the media has thrown in an indicative pricing of ~S$400m for the 29 year old office building. In addition, Jones Lang LaSalle - the exclusive marketing agent for NOL Building, revealed in a release that NOL is expected to lease back the premises after the sale. The proposed sale and leaseback, if successful, will allow NOL to better allocate its capital in its core business of container shipping and logistics. We maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (Eric Teo)

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NEWS HEADLINES - The Dow industrials dipped slightly (-0.07%) after data showed that US manufacturing activity contracted in June for the first time in three years, but the S&P 500 index finished higher (+0.25%). - Sin Heng Heavy Machinery, a rental and trading of cranes and aerial lifts company in Singapore, has entered into a distributorship agreement for Indonesia with Kato Works Co., Ltd, one of the world's leading hydraulic crane manufacturers. - Perennial China Retail Trust has exercised its option to increase its stake in Chengdu Longemont Shopping Mall Development from 50.0% to 80.0%, at a total purchase consideration of RMB2.24b. - KSH Holdings' and Heeton Holdings' wholly-owned subsidiaries, along with Zap Piling Pte. Ltd. shall own 40%, 30% and 30% of the share capital of Unique Resi Estate Pte. Ltd., which has been awarded the tender for the purchase the freehold land parcel located at 121C Whitley Road at a purchase price of S$31m.