MARKET PULSE: Marco Polo Marine, COSCO, Oil & Gas, UE E&C, Valuetronics, United Envirotech (7 Aug 2012)

Stock Name: Marco Polo
Company Name: MARCO POLO MARINE LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.53

Stock Name: UE E&C
Company Name: UE E&C LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.71

Stock Name: Valuetronics
Company Name: VALUETRONICS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.315

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD

Research House: OCBC

Price Call: BUY

Target Price: 0.40

MARKET PULSE: Marco Polo Marine, COSCO, Oil & Gas, UE E&C, Valuetronics, United Envirotech

7 Aug 2012

KEY IDEA Marco Polo Marine: Proving its mettle in ship repair Marco Polo Marine (MPM) reported a 32% YoY fall in revenue to S$14.4m but saw a 104% rise in net profit to S$8.9m in 3QFY12, such that its results were above our expectations. Higher gross profit margins and a reversal of share of losses in BBR helped to boost net profit by 110% QoQ. The group has seen an increase in enquiries for ship repair, outfitting and conversion services. As for the chartering side, MPM expects charter rates for offshore vessels as well as tugs and barges to remain stable. We have tweaked our estimates to incorporate higher margin assumptions as well as BBR's new functional currency. Rolling over our valuation to 8x blended FY12/13F earnings, our fair value estimate rises to S$0.53 (prev. S$0.43). Meanwhile, the stock has fallen by about 18% since its last high in mid Mar. Upgrade to BUY. (Low Pei Han) MORE REPORTS COSCO Corp: Operating environment remains unfavourable COSCO Corp (COSCO)'s net profit attributable to shareholders decreased by 13% YoY to S$27.6m (2Q11: S$31.9m) such that 1H12 net profit formed 50% and 43% of ours and the street's full year estimates. 2Q gross profit jumped 56% YoY to S$117.4m (2Q11: S$75.1m) due to higher contribution from ship repair, conversions and marine engineering, but the gains were offset by lower other income and higher net interest expense. In our view, a quick turnaround is unlikely. Without an established track record, COSCO may need to bid for jobs at low margins or with back-loaded payment schedules, resulting in higher balance-sheet risks. Furthermore, the group remains vulnerable to cost over-runs for its offshore contracts. Maintain SELL rating with unchanged S$0.84 fair value estimate. (Chia Jiunyang) Oil & Gas sector: Sete Brasil's orders firming up Keppel Corporation (KEP) announced that it has firmed up contracts with Sete Brasil for the design and construction of five additional semi-submersible drilling rigs worth about US$4.1b, following the letter of intent announced in Apr this year. With these latest contracts, KEP will be building a total of six DSS 38E semis for Sete (recall that the group won a contract to build one semi in Dec 2011, scheduled for delivery in 4Q15). In a similar vein, we expect Sembcorp Marine to firm up its drillship contracts with Sete soon; Upstream reported on 12 Jul that Jurong Shipyard has so far signed a contract to build a single drillship (US$792.5m contract announced Feb this year) for Sete with a letter of intent signed for six more. Maintain BUY on KEP and SMM with fair value estimates of S$13.34 and S$5.69, respectively. (Low Pei Han) UE E&C: 2Q11 net profit flat at S$6.4m UE E&C reported its 2Q12 results last evening. During the quarter, revenue grew 29% YoY to S$85.5m and was within our expectations. However, 2Q net profit was flat at S$6.4m (or +1% YoY) and slightly below our estimates. Nonetheless, we note that quarterly revenue recognition for construction projects is typically very lumpy. The group's balance sheet remains strong, with net cash of S$100m. We will be speaking with management later for an update. In the meantime, we put our buy rating at 0.71 fair value estimate UNDER REVIEW. (Chia Jiunyang) Valuetronics Holdings: 1QFY13 PATMI below expectations Valuetronics Holdings Limited (VHL) reported its 1QFY13 results this morning. Revenue of HK$634.5m (+20.4% YoY) was within our expectations but PATMI of HK$25.7m (-18.7% YoY) missed our estimates due to lower-than-expected gross margin. Topline and bottomline for 1QFY13 formed 23.8% and 18.8% of our full-year estimates, respectively. VHL reclassified its three reportable segments into Consumer Electronics (CE), Industrial and Commercial Electronics (ICE) and Licensing this quarter, given the blurring differences between its previous OEM and ODM segments. Strong YoY revenue growth of 36.9% in the CE segment was partially offset by weakness from its ICE (-9.0%) and Licensing (-50.4%) segments. What surprised us was management's decision to cease its Licensing business given significant challenges from a tepid US economy as well as strong competition. We had previously estimated this segment to achieve breakeven in FY14. VHL expects to incur total termination expenditure of HK$28m, which would be booked in 2QFY13. We place our Buy rating and S$0.315 fair value estimate under review pending an analyst briefing with management tomorrow. (Wong Teck Ching Andy) United Envirotech: Good start to FY13 United Envirotech Limited (UEL) reported 1QFY13 revenue surging 54.2% to S$20.8m, meeting about 20% of our FY13 estimate, with the start of several new projects secured over the past few months. Net profit jumped 66.3% to S$5.9m, or 25% of our full-year forecast, also aided by the increasing treatment revenue, which comes with much higher margins. Going forward, management expects its growth momentum to outperform FY12, buttressed by its recent contract wins. We will be speaking with management to get more insights into its M&A strategy. For now, we maintain our BUY rating but place our S$0.40 fair value (based on 12.8x FY13F EPS) under review. (Carey Wong)

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NEWS HEADLINES - US stocks rose Monday, ending at their highest in three months, as better-than-expected corporate earnings and reduced concern about Eurozone's debt problems improved sentiment. The Dow rose 0.2% to 13,117.51 and the S&P 500 Index climbed 0.2% to 1,394.23. - Toll-road operator China Merchants Holdings is acquiring Ningbo Beilun Port Expressway, a four-lane carriageway, 51.4km expressway located in Zhejiang province, China, for a maximum purchase price of ~S$251m. - Yeo Hiap Seng's 2Q12 net profit fell 16% YoY to S$12.35m despite revenue rising 10.7% to S$126.3m. Net profit from the F&B segment had fallen from S$4.51m to S$0.94m. - Singapore Exchange has acquired a 49% stake in Energy Market Company Pte Ltd, the operator of Singapore's wholesale electricity market, for up to S$19.6m. - Loyz Energy has proposed a share placement of 12m new shares at 31 S cents apiece to raise net proceeds of S$3.6m.