MARKET PULSE: Oil & Gas Sector, Sembcorp Marine, Global Palm (22 Aug 2012)

Stock Name: SembMar
Company Name: SEMBCORP MARINE LTD

Research House: OCBC

Price Call: BUY

Target Price: 6.09

Stock Name: Global Palm
Company Name: GLOBAL PALM RESOURCES HLGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.19

MARKET PULSE: Oil & Gas Sector, Sembcorp Marine, Global Palm

22 Aug 2012

KEY IDEA Oil & Gas: Outperformance to continue With the end of the 2Q12 earnings season, we note that companies reported earnings that were mostly in line with our expectations, with the exception of Keppel Corporation and Marco Polo Marine (above), and Rotary Engineering (below). Key events included the materialisation of major contracts for the rigbuilders with more order flows in the pipeline, as well as continued recovery in the OSV segment. Ezion Holdings also clinched a series of contracts which supported its share price performance. Despite fears of a slowdown in the global economy, the rig market has picked up and the OSV market is on a gradual road of recovery, though the downstream segment is still in a difficult environment. Looking ahead, we expect continued good performance by SMM [BUY, FV: S$6.09], KEP [BUY, FV: S$13.34], EZI [BUY, FV: S$1.20] and SOH [BUY, FV: S$2.00], but among the rigbuilders we currently favour SMM. Maintain Overweight. (Low Pei Han, Chia Jiun-yang) MORE REPORTS Sembcorp Marine: Upside potential still there Sembcorp Marine (SMM) has been one of the top performers in the O&M space so far this year due to several reasons: 1) demand for the group's products remain high, supported by oil prices and buoyant activities in the industry, 2) its good track record and efforts to stay ahead of the curve have positioned it well to secure new orders, 3) its strong orderbook provides defensiveness when uncertainty in the global economy has resulted in a general lack of clarity in corporate earnings outlook, and 4) contracts have been forthcoming so far this year. Looking ahead, the above-mentioned factors are likely to remain for the medium term, and we still see upside potential for the stock based on forward valuations. We are also increasing our new order win estimate to S$9.5b (from S$8.7b) as we expect more contract wins. As such, our fair value estimate increases from S$5.69 to S$6.09. Maintain BUY. (Low Pei Han) Global Palm: HOLD - eyes on rising cost Global Palm Resources (GPR) has kept its 1k ha new planting target for 2012, although new plantings to date has been slow - only planted 259 ha in 1H12 versus 444 ha in 1H11. GPR eyes inorganic growth to help meet its target and has IDR240.6b (as of end Jun 2012) for M&A opportunities. On another note, cash cost has risen further in 2Q12 to IDR3697/kg, up further from IDR3277/kg in 1Q11; this mainly due to higher indirect material used (fertilizers), higher cost of upkeep and harvesting and increased cost of fuel. We will continue to monitor the situation and while we are bumping up our FY12 revenue forecast by 3.8%, our earnings estimate only rises by 3.6%. Our fair value also remains at S$0.19, mainly due to the depreciating IDR against SGD, even though we push out our 10x valuation to blended FY12/FY13F EPS. Maintain HOLD. (Carey Wong)

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NEWS HEADLINES - US stocks declined, with the S&P 500 Index retreating 0.3% to 1,413.26 points, as a fall in technology shares eclipsed optimism that progress would be made over resolving the eurozone's issues. - Wing Tai Holdings reported a 16% YoY decline in its 4QFY12 PATMI to S$140.5m despite an 88% surge in revenue to S$202.2m. - Civmec's 4QFY12 PATMI jumped 133% YoY to S$8.4m on the back of a 347% spike in revenue to S$113.6m - Longcheer Holdings issued a profit guidance, highlighting that it expects to report a loss for 4QFY12 and FY12 due to an impairment charge recorded on its receivables.