MARKET PULSE: COSCO Corp, StarHub, SIA, ROXY, Rotary (5 Nov 2012)

Stock Name: CoscoCorp
Company Name: COSCO CORPORATION (S) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.84

Stock Name: StarHub
Company Name: STARHUB LTD

Research House: OCBC

Price Call: HOLD

Target Price: 3.75

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.34

MARKET PULSE: COSCO Corp, StarHub, SIA, ROXY, Rotary

5 Nov 2012

KEY IDEA COSCO Corp: Upgrade to HOLD Summary: COSCO Corp (Singapore) reported a fairly muted set of 3Q results that were roughly in-line with ours and the street's expectation. 3Q12 revenue was down 3% YoY to S$937m, while PATMI decreased 17% YoY to S$26.6m. It also wrote back S$8.9m of provisions for its construction contracts. This comes after S$15.9m of write-backs in 2Q12, reversing its eight-quarter trend of making provisions for expected losses. This could imply improved execution for its shipbuilding and offshore contracts. Meanwhile, COSCO's share price has fallen by 10% since we downgraded it about four months ago. As the current price has a less than 10% upside to our unchanged S$0.84 fair value estimate, we are now upgrading the counter to HOLD. (Chia Jiunyang) MORE REPORTS StarHub Ltd: HOLD with higher S$3.75 FV Summary: Again, slightly better-than-expected results from StarHub Ltd, with 3Q12 earnings coming in some 16.5% ahead of our forecast, aided by a strong recovery in service EBITDA margin to 33.9% (versus 32.2% in 2Q12). It has maintained its quarterly dividend of S$0.05/share (payable on 23 Nov). For 9M12, revenue grew 4.0% to S$1767.5m, meeting 73.6% of our full-year forecast, while net profit jumped 21.8% to S$271.4m, or 83.2% of our FY12 estimate. As the margin improvements came in ahead of our expectations, we are bumping up our FY12 earnings forecast by 7.5% (FY13 by 4.6%). Our DCF-based fair value also inches up from S$3.47 to S$3.75. While we continue to like StarHub for its defensive earnings, we think that its valuations are not compelling (trading close to 2 standard deviations above its 3-year average EV/EBITDA) after its strong YTD outperformance. Hence we maintain our HOLD rating. (Carey Wong) Singapore Airlines: Optimism for clear skies Summary: Singapore Airlines's (SIA) 2Q13 financial results saw a marginal top-line improvement despite the challenging operating environment. The Group's revenue grew 2.5 % YoY to S$3.8b on the back of higher number of passengers carried although its operating expenses (higher jet fuel costs and variable costs associated with capacity growth) grew at a faster pace and resulted in a decline in operating profit to S$70.4m (-42.7% YoY). The Group also announced an interim dividend of 6 S cents per share versus 10 S cents declared over the same period last year. Looking ahead, while weaknesses still persist in its cargo business, a series of prior announcements regarding fleet expansion for the Group seem to signal management's optimism for clear skies. Comparing SIA's operating statistics with that of the industry (i.e. IATA), we concur with this assessment as the data does show a relatively better performance in light of weak demand. Maintain HOLD at an unchanged fair value estimate of S$10.85. (Lim Siyi) Rotary Engineering: Hefty losses from SATORP Summary: Rotary Engineering (Rotary) reported a hefty 3Q12 net loss of S$66m, mainly due to "additional costs, including provisions for foreseeable losses of $40m" for the SATORP project. Although the group had earlier warned of net losses for 3Q12 and FY12, the quantum of the loss was far worse than what we expected (we had estimated net loss of S$8m). To put things in perspective, the magnitude of the 3Q12 loss was so steep that it wiped out Rotary's previous seven quarters of profits. The group has re-assessed the project budget and made the necessary provisions. Despite so, we think it may still be too early to turn positive. One further risk is the need to recapitalize its 51%-owned JV that is currently working on the SATORP project. Maintain SELL with lower fair value estimate of S$0.34, still based on 0.8x FY13F BPS. (Chia Jiunyang)

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NEWS HEADLINES - US stocks fell on Friday despite a better-than-expected Oct jobs report, as investors stayed cautious ahead of Tuesday's presidential election. The Dow and S&P 500 each slid 0.9% to end at 13,118.34 and 1,414.20, respectively, while the Nasdaq finished 1.3% lower at 2,982.13. - Chuan Hup Holdings' 1Q13 PATMI fell 68% YoY to US$7.2m, largely due to the absence of one-time gains recorded a year ago. - Beng Kuang Marine expects a loss for 3Q12 and 9M12, due mainly to impairment of its investment and goodwill in its solid waste recycling business. - Abterra Ltd expects a wider loss for 3Q12 due to currency translation losses on its investment in a Chinese mining firm, and a fall in revenue caused by inadequate credit facilities. - HL Global Enterprises reported a 3Q12 net loss of S$0.3m, reversing a profit of S$0.3m a year ago, despite an 11% rise in revenue from continuing operations to S$9m.