MARKET PULSE: Downstream O&G, Marco Polo Marine, Olam (28 Nov 2012)

Stock Name: PEC
Company Name: PEC LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.76

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.34

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

Research House: OCBC

Price Call: BUY

Target Price: 0.56

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.80

MARKET PULSE: Downstream O&G, Marco Polo Marine, Olam

28 Nov 2012

KEY IDEA Downstream Oil & Gas: Structural shifts towards developing nations The shift in oil demand growth from OECD countries to non-OECD countries, coupled with an increasing refining overcapacity has put pressure on global refinery utilization rates and refining margins. Against this backdrop, Singapore said that it has no plans to attract any more green-field refinery investments, and will focus on getting existing refineries to upgrade or expand their facilities to produce higher-value petrochemicals, fuels and lubricants. We believe the net effect will be fewer jobs and even stiffer competition for the EPC contractors. As such, we maintain our UNDERWEIGHT on the sector. We like PEC (BUY; FV: S$0.76) for its attractive valuations, but would avoid Rotary (SELL; FV: S$0.34) as we believe the risk of further cost over-run is still relatively high. (Chia Jiunyang) MORE REPORTS Marco Polo Marine: Increasing its exposure to the offshore sector Marco Polo Marine (MPM) reported a 3% YoY fall in revenue to S$19.8m and a 10% increase in net profit to S$3.9m in 4Q12, bringing full year revenue and net profit to S$89.8m and S$21.3m, respectively. Results were in line with our expectations; full year net profit was exactly what we had forecasted earlier. As for the long-awaited BBR listing, we think there is a possibility of it coming through in the coming months. We expect its offshore vessel fleet to grow while BBR downsizes its tugs and barges fleet. Meanwhile the ship repair business remains healthy while charter rates are expected to be stable. Rolling forward to FY13 earnings with an unchanged peg of 8x, our fair value estimate rises from S$0.53 to S$0.56. Maintain BUY. (Low Pei Han) Olam International: Refutes MW's report in brief statement Olam International has refuted the Muddy Waters (MW) report, saying that "there is no substance in their broad allegations" after an initial read. Olam adds that it will continue to study the report in greater detail and "will provide a fuller response in due course". In addition, Olam says it will clear its name and hold MW accountable for their damaging actions. While Olam has reiterated that its accounting practices are fully compliant with international accounting stands, we do not expect the market to be pacified by this brief statement, especially since the allegations made by MW were quite specific and relate to Olam's acquisitions, capex, and changes in accounting entries between the unaudited financial statements and its annual reports. We are still in the process of reviewing our Hold call and S$1.80 fair value; but we expect volatility in the share price to persist until Olam can provide a more substantial response that addresses the specific issues raised by MW. (Carey Wong)

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

NEWS HEADLINES - US stocks fell on Tue after top lawmakers said that little progress had been made in talks to avoid the fiscal cliff. The Dow slid 0.7% to 12,878.13, led by Hewlett-Packard Co, while the S&P 500 Index declined 0.5% to 1,398.94 and the Nasdaq ended 0.3% lower at 1,398.94. - Goodland Group's FY12 PATMI rose to S$25m from S$9.2m a year ago, supported by an 84% surge in revenue to S$56m as sales from development projects of higher value were recognised. - Albedo Ltd plans to raise up to S$3.5m in net proceeds through the issue of 735.4m rights shares at 0.5 S cent each, with detachable warrants. It intends to use the money raised to fund its expansion and as general working capital. - Harry's Holdings warned that its FY12 performance is likely to be affected due to lower than expected sales and various one-time costs incurred since 30 Jun, as well as increased competition and inflationary pressure in food prices.