MARKET PULSE: Telecom Sector, Ezion, Olam (21 Nov 2012)

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.70

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.80

MARKET PULSE: Telecom Sector, Ezion, Olam

21 Nov 2012

KEY IDEA Telecom Sector: 3QCY12 Review - Still OVERWEIGHT Out of the three telcos, StarHub again posted 3Q12 results that were above our forecast, aided by a stronger-than-expected margin recovery (mainly coming from lower traffic expenses). Both M1 and StarHub are still guiding for relatively stable outlook for 2012, albeit with potential erosion in service EBITDA margins. However, SingTel surprised by guiding for consolidated group revenue to see a low single-digit (versus single-digit growth previously), mainly dragged down by continued weakness in Australia. However, we think that all the three telcos should continue to generate very positive operating cashflows and this should keep their healthy dividend payouts intact. Further yield compression could also be another price catalyst over the next 12 months. Hence we maintain our OVERWEIGHTrating and keep M1 as our top pick. (Carey Wong) MORE REPORTS Ezion Holdings: What a year, but the best is yet to come Ezion Holdings (Ezion) has performed very well so far this year, with its stock price up about 99% YTD. The good showing is mainly due to the clinching of contracts at attractive rates of return, smooth execution of projects, and commendable quarterly earnings. As we expected last year, 2012 was no less eventful than 2011 for Ezion, which continued to secure liftboat and service rig contracts for work in various parts of the world, and embarked on new initiatives such as its proposed acquisition of YHM Group. Looking ahead to 2013, we expect more news flow as additional assets are deployed, solidifying its earnings base. Though 2012 has been a fantastic year, we believe that the best is yet to come, assuming no drastic change to its current operational status quo. Maintain BUY with S$1.70 fair value estimate. (Low Pei Han) Olam: Still vulnerable to rumors Olam International hosted a teleconference with analysts and media last evening lasting some 1.5 hours to clarify some of the allegations made by Carson Block of Muddy Waters. While management was forth-coming in answering some queries, it did not have a lot to say without first seeing the full Muddy Waters report and the specific issues raised by Block. And until then, we suspect that the company may remain vulnerable to rumors and more near-term selling pressure. Recall that Olam suffered a 7.5% tumble yesterday after the halt was lifted at around 3.45pm yesterday. Management also noted a spike in short-selling interest in recent weeks, making Olam one of the most shorted stocks in Singapore. In light of the recent developments, we are putting our Hold rating and S$1.80 fair value under review. (Carey Wong)

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

NEWS HEADLINES - US stocks ended mixed on Tuesday, after Ben Bernanke said that the Fed lacks the tools to cushion the economy if it slides off the fiscal cliff. The Dow declined 0.1% to 12,788.51, while the S&P 500 Index gained 0.1% to 1,387.81 and the Nasdaq ended flat at 2,916.68. Hewlett-Packard shares slumped 12% after it announced an US$8.8b asset-impairment charge due to improper accounting linked to its 2011 acquisition of Autonomy Corp. - Thai Beverage's 3Q12 PATMI rose 16% YoY to THB3.0b, supported by a 28% increase in revenue to THB37.6b, due to higher revenues at its spirits, non-alcoholic beverages and food businesses. - Altitude Aircraft Leasing Trust, backed by General Electric, has delayed plans for a US$750m Singapore IPO later this month, due to volatile market conditions. The business trust may list early next year instead, the WSJ reported.