MARKET PULSE: UOB, Biosensors, ST Eng, BreadTalk, Yangzijiang, Erza, Midas, UE E&C (8 Nov 2012)

Stock Name: UOB
Company Name: UNITED OVERSEAS BANK LTD

Research House: OCBC

Price Call: BUY

Target Price: 21.30

Stock Name: Biosensors
Company Name: BIOSENSORS INT'L GROUP, LTD.

Research House: OCBC

Price Call: BUY

Target Price: 1.69

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.90

Stock Name: BreadTalk
Company Name: BREADTALK GROUP LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.49

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.95

Stock Name: Ezra
Company Name: EZRA HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.30

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.51

Stock Name: UE E&C
Company Name: UE E&C LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.71

MARKET PULSE: UOB, Biosensors, ST Eng, BreadTalk, Yangzijiang, Erza, Midas, UE E&C

8 Nov 2012

KEY IDEA UOB: Cautiously optimistic UOB posted above market expectations 3Q12 net earnings of S$707m. The main variance was a one-off increase in dividend income for the quarter. As expected, the lending business was tough as net interest margin slipped, from 1.92% in 2Q12 to 1.84% in 3Q12. Fortunately, the non-interest side bucked the trend and grew YoY and QoQ to S$693m. Disciplined cost management led to almost flat cost-to-income ratio of 41.3% in 3Q12. UOB intends to tap on more cross-sell opportunities in the wholesale and wealth space, especially in its regional business, and has also indicated that the retail portion of its fee and commission income should still remain healthy. We tweaked our estimates slightly, raising our earnings to S$2743m. Maintain BUY and fair value estimate of S$21.30. (Carmen Lee) MORE REPORTS Biosensors International Group: Continues to outpace industry growth Biosensors International Group (BIG) reported a 28.3% YoY increase in its revenue to US$79.8m and a 35.6% surge in its core PATMI to US$29.2m for its 2QFY13 results. Revenue missed our forecast by 10.7% but core PATMI matched our S$29.3m estimate, largely due to better-than-expected operating margin and lower effective tax rate. Although licensing revenue was disappointing (-29.4% YoY), we believe that a recovery in 2HFY13 is likely. BIG continued to experience robust growth in the EMEA and Asia-Pacific regions, underpinned by market share gains. Management maintained its 20-30% sales growth guidance for FY13. We have fine-tuned our assumptions and our DCF-derived fair value estimate inches down slightly from S$1.70 to S$1.69. Maintain BUY. (Wong Teck Ching Andy) ST Engineering: In line 3Q12 results 9M12 results were in line with our expectations, with earnings per share of 13.79 S cents (on a fully diluted basis) forming 76% of our FY12F estimate of 18.2 S cents. 3Q12 revenue rose 11% YoY to S$1.542b, EBIT climbed 9% YoY to S$167.6m, PBT increased by 11% and net profit rose 9% YoY to S$146.4m. Commercials sales formed 65% of total sales in 3Q12, up from the 62% for 3Q11. PBT margins for the four main sectors remained flat, at +/-1% versus 3Q11's figures. The group maintained the PBT margin of 12% which it had in 3Q11 and 2Q12. STE expects to achieve higher revenue and PBT for FY12 over FY11. Land Systems (ST Kinetics) has secured a contract to supply a TERREX vehicle for the demonstration phase of the U.S. Marine Corps Marine Personnel Carrier programme. Rolling forward our model, we raise our fair value from S$3.81 to S$3.90 and maintain a BUY rating. (Sarah Ong) BreadTalk Group: No catalyst - give it a miss BreadTalk Group's (BTG) 3Q12 revenue growth was stronger than expected but operating expenditure outpaced revenue growth. Cost pressures associated with food and raw materials saw gross margin fall to its lowest point since listing while higher staff and rental expenses depressed operating margins further. With BTG still focused on expanding its regional footprint, we expect margin pressures and low dividend payouts to persist, and revised our FY13 estimates downwards, which lowers our valuation from S$0.51 previously to S$0.49. Given BTG's recent 7.1% appreciation since mid-Aug, the counter has emerged as expensive especially in the absence of a compelling near-term catalyst. We urge investors to take the opportunity to lock in profits at current levels, and re-enter when the price moderates lower. Downgrade to SELL. (Lim Siyi) Yangzijiang Shipbuilding: Steady earnings in a tough market Yangzijiang Shipbuilding (YZJ) reported a 1% YoY drop in revenue to RMB3.6b and a 14% fall in net profit to RMB877m in 3Q12, such that 9M12 revenue and net profit accounted for 72.5% and 73.3% of our full year estimates. Commercial shipbuilding remains challenging and according to the group, consolidation in the industry is now affecting mid-sized and large-sized yards. In our view, YZJ has performed well in a very challenging environment, and we appreciate management's desire to diversify its income sources and build an integrated marine group. However, the dearth of new orders is likely to persist longer than we expected. We tweak our earnings estimates lower and roll forward our valuations, and based on 7x FY13F core earnings, our fair value estimate slips from S$1.03 to S$0.95. Maintain HOLD. (Low Pei Han) Ezra Holdings: Subsea secures contracts worth US$200m Ezra Holdings (Ezra) announced that it has secured two contracts worth about US$200m from major South Korean clients. Its subsea division won a contract by STX Offshore & Shipbuilding for the engineering, procurement, construction, installation and commissioning (EPCIC) of a turret mooring and subsea system for use in offshore Africa. The engineering and procurement work will commence immediately with offshore execution in 2015. Separately, the subsea division also entered into an agreement with DSME for one of its accommodation and hook-up support vessels, also for Africa. With these contracts, we estimate Ezra's subsea net order book to be around US$900m-US$1b. The industry outlook remains bright and the group has a total bid book of US$4.4b, in which a significant portion is expected to be awarded in FY13. Maintain BUY with S$1.30 fair value estimate. (Low Pei Han) Midas Holdings: Expects net loss in 3Q12 Midas Holdings (Midas) has issued a negative profit guidance prior to its upcoming 3Q12 results release, saying that it expects to report an unaudited net loss. This is below our expectations. Reasons cited were lower revenue, higher operating expenses and finance cost and a share of loss from its associated company, Nanjing SR Puzhen Rail Transport (NPRT). However, Midas still expects to remain profitable for its 9M12 results (1H12 PATMI: CNY16.9m). We had previously highlighted our expectations of weakness in Midas' financial results over the next 2-3 quarters, and our 'buy' rating was positioned on a recovery in its business in FY13. We maintain our BUY rating but our S$0.51 fair value estimate, which is based on 1x FY13F P/B, is under review. Midas will report its 3Q12 results on 14 Nov after trading hours, while an analyst conference call with management has been scheduled on 15 Nov. (Wong Teck Ching Andy) UE E&C: 3Q12 net profit of S$7m UE E&C's revenue and net profit to shareholders increased by 12.2% and 9.5% QoQ respectively to S$96m and S$7m for 3Q12. Although the revenue figure was roughly within our expectations, net profit was below due to lower-than-expected operating margins for its construction and engineering operations. On its balance sheet, net cash position improved to S$119m (end June 12: S$104m). Meanwhile, we also note that the EC/condo market is facing increasing headwinds as the government rolls out a record number of residential sites. We will be speaking with management soon for an update. In the meantime, we put our buy rating and S$0.71 fair value estimate UNDER REVIEW. (Chia Jiunyang)

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NEWS HEADLINES - US stocks slumped after Barack Obama was re-elected president, as investors' worries turned to the looming fiscal cliff and Europe's ongoing troubles. The Dow fell 2.4% to 12,932.73, its worst day this year, while the S&P 500 Index also slid 2.4% to 1,394.53 and the Nasdaq ended 2.5% lower at 2,937.29. - Petra Foods' 3Q12 PATMI fell 24% YoY to US$10.4m as revenue slid 17% to US$360m, mainly due to lower sales at its cocoa ingredients division, hurt by weak demand. The group's FY12 net profit is likely to be lower than last year's due to the difficulties faced by the cocoa industry.