MARKET PULSE: Golden Agri, SingPost, Civmec, ST Eng (4 Jul 2012)

Stock Name: SingPost
Company Name: SINGAPORE POST LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.14

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.50

MARKET PULSE: Golden Agri, SingPost, Civmec, ST Eng

4 Jul 2012

KEY IDEA Golden Agri-Resources Ltd: Raising FV to S$0.81 As the second largest palm oil plantation owner in the world, Golden Agri-Resouces (GAR) stands to gain greatly from any rebound in CPO prices. Indeed, we note that prices have tracked back above MYR3000/ton in Jul, off the Jun low of MYR2850, although still somewhat softer than the average of MYR3220 seen in 2Q12. We had earlier adjusted our 2012 CPO price assumption down to US$925/ton, which is already quite conservative and should have captured most of the downside risk. Maintaining our market neutral 12.5x PER peg, we push out our valuations to blended FY12/FY13, resulting in a boost to our fair value from S$0.74 to S$0.81. Maintain BUY. (Carey Wong) MORE REPORTS Singapore Post: Impact from revised QoS framework likely limited The Infocomm Development Authority of Singapore (IDA) has revised the Quality of Service (QoS) framework for postal services, including an increase in financial penalty for breach of the standards. According to statistics collected by SingPost in recent years, the group has been delivering over and above IDA's requirements. Should this trend continue, we do not foresee an impact from the increase in penalty. We appreciate SingPost's dominant domestic market position, operating efficiency, and stable operating cash flows. We are also mindful of margin pressures as well as the relatively limited growth opportunities in the core mail business. However, the group is also seeking geographical and business expansion in logistics and retail. Maintain BUY with S$1.14 fair value estimate. (Low Pei Han) Civmec Ltd: Riding on Australia's energy boom We visited the facilities of Civmec Ltd (Civmec) in Henderson, Perth, Western Australia last week. Listed on the SGX since Apr 2012, Civmec is an integrated construction and heavy engineering services provider to the oil and gas, mining and other industries. Civmec possesses strong capabilities that position it well to ride on Australia's energy boom. It is also further expanding its production facilities. We compared Civmec against a broad segment of construction and infrastructure companies based in Australia. With an estimated 3-year EPS growth of 210%, valuation seems reasonable with a forward P/E of 13.7x, based on an annualised FY12 EPS. We DO NOT have a rating on Civmec. (Low Pei Han & Chia Jiun Yang) ST Engineering: Capital injection into China subsidiary ST Engineering (STE) announced it has injected US$6.66m (~S$8.59m) into 75.3%-owned subsidiary Jiangsu Huatong Kinetics Co., Ltd. (JHK). STE said this capital injection is the first progressive proportionate capital contribution of an additional US$28.76m (~S$37.06m) investment into JHK, and the remaining capital of US$22.10m (~S$28.47m) will be injected as needed for relocation and a new plant to be completed by 2014. JHK, a JV with Jiangsu Huatong Machinery Co., Ltd., manufactures asphalt pavers, milling machines, motor graders and asphalt batching plants. This capital injection is not expected to have any material impact on the consolidated financials of ST Engineering for the current financial year. We maintain our fair value estimate of S$3.50/share and BUY rating on STE. (Eric Teo)

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NEWS HEADLINES - US stocks climbed as rising oil prices boosted energy shares and factory orders rebounded better than expected. The S&P 500 Index and the Dow both added 0.6%. - Baker Technology will recognise a gain of S$58.2m from the sale of PPL Holdings. This means that the disposal of PPLH, along with PPLH's 15% stake in PPL Shipyard, is now considered complete. The sale of the shipyard stake was opposed by SembCorp Marine in court in 2010. - C&G Environmental Protection Holdings has been selected as the first preferred bidder of the Guiyang Waste-to-Energy project, estimated at RMB980m, and will proceed with negotiations with the Guiyang authorities to finalise the terms and conditions of the project. - United Engineers has been awarded three environmental engineering contracts worth over S$70.0m. Two of the contracts are from the PUB and are worth a total ~S$56.3m. - Hu An Cable has won a RMB101.3m (~S$20.1m) contract to supply low-voltage aerial bundled cables to Hubei Province Electric Company. The contract is its largest to date from the provincial power grid firm.