MARKET PULSE: Oil and Gas, CapitaCommercial Trust, Sembcorp Marine, ST Engineering (5 Oct 2012)

Stock Name: SembMar
Company Name: SEMBCORP MARINE LTD

Research House: OCBC

Price Call: BUY

Target Price: 6.09

Stock Name: Kep Corp
Company Name: KEPPEL CORPORATION LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 13.34

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.53

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.00

MARKET PULSE: Oil and Gas, CapitaCommercial Trust, Sembcorp Marine, ST Engineering

05 Oct 2012

KEY IDEA Oil and Gas sector: Limited impact from shale gas on offshore oil capex With the shale gas boom in the US resulting in low Henry Hub prices, some investors are wondering if this would affect global oil demand, given the huge price differential between both energy sources. If so, this may impact oil prices and hence capital expenditure in the offshore oil industry, affecting companies in the sector. In this report, we contend that the US shale gas "revolution" has not, and is unlikely to bring down oil prices in a significant way any time soon. Assuming the global economy does not fall into a deep recession, the worry should still be on oil prices being on the high side. We maintain our Overweightrating on the oil and gas sector, and we expect continued good performance from Sembcorp Marine [BUY, FV: S$6.09], Keppel Corp [BUY, FV: S$13.34], Ezion [BUY, FV: S$1.53] and STX OSV [BUY, FV: S$2.00]. (Low Pei Han, Chia Jiunyang) MORE REPORTS CapitaCommercial Trust: Refinanced convertible bonds due 2013 CCT recently announced that it had refinanced the outstanding balance of its convertible bonds due 2013 with a new S$175m CB issue due 2017. The new 2017 CB has a yield to maturity of 2.5% (versus 3.95% for the 2013 CB), and would yield net proceeds of S$171.9m, of which S$141.1m would be paid for the 2013 bonds (total of S$126m face value) priced at 111.30 and S$20.75m for the settlement of a clean-up call at 109.37 expected on 15 Oct 2012. We like that CCT continues to comfortably manage its debt expiry schedule and maintains steady access to capital markets at relatively attractive rates. Maintain BUY with a higher fair value estimate of S$1.62 (versus S$1.53 previously), as we incorporate firmer cap rates assumptions to reflect more benign expectations for the office sector. (Eli Lee) Sembcorp Marine: Secures LOI for Norwegian sector newbuild rig Sembcorp Marine (SMM) announced this morning that it has signed a letter of intent (LOI) with repeat customer Prosafe AS for the construction of a semi-submersible accommodation rig with two options for further new builds (subject to board approval). The rig is of similar design as Safe Boreas, which Prosafe ordered from SMM in Dec last year at a price tag of US$291.6m. Two options were also granted to Prosafe then. Should this LOI turn effective (i.e. option exercised), Prosafe would, in total, have options for three new builds at Jurong Shipyard. Assuming the price of this latest rig is the same, it would also boost SMM's new order wins YTD to about S$9.47b, close to our full-year estimate. Maintain BUY with S$6.09 fair value estimate.(Low Pei Han) ST Engineering: ST Electronics won S$166m of contracts in 3Q12 ST Engineering's electronics arm ST Electronics has won about S$166m worth of contracts for its Rail Electronics and Satellite Communications & Sensor solutions in 3Q2012. A consortium led by ST Electronics was awarded a RMB198m (about S$39m) contract in the city of Wuxi, China. ST Electronics will supply, deliver, install, test and commission as well as provide warranty for an Integrated Supervisory Control System for Wuxi Metro Lines 1 and 2. ST Electronics was also awarded a contract to supply and maintain half height platform screen doors for the BTS SkyTrain in Bangkok, Thailand. These contracts attest the capabilities of ST Electronics. We maintain BUY on ST Engineering with a S$3.81 fair value.(Sarah Ong)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks rose on better-than-expected data on weekly applications for jobless benefits and factory orders in Aug. The Dow climbed 0.6% to end at 13,575.36. The S&P 500 Index rose 0.7% to 1,461.40. - Global Logistics Properties has signed a new lease agreement of ~39k sqm to Arata Corporation, a Japanese wholesale company, for a consumer goods distribution centre in Greater Osaka, Japan. - Europtronic Group has issued a profit warning for 3Q12. The company attributes the loss to the provision or write-off of cost of investments in two subsidiaries which will be undergoing a voluntary liquidation and weak demand in the electronic components market. - UPP Holdings has announced that there has been an extension of the long-stop date to 31 Dec 2012 for the proposed JV in Myanmar. - Eastern Holdings has invested S$10m in the Fullerton SGD Income Fund, using dormant funds in its corporate accounts.