MARKET PULSE: Commodities Sector, ComfortDelgro, Yangzijiang, SIA (12 Dec 2012)

Stock Name: Wilmar
Company Name: WILMAR INTERNATIONAL LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 3.56

Stock Name: ComfortDelGro
Company Name: COMFORTDELGRO CORPORATION LTD

Research House: OCBC

Price Call: BUY

Target Price: 1.90

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.95

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

MARKET PULSE: Commodities Sector, ComfortDelgro, Yangzijiang, SIA

12 Dec 2012

KEY IDEA Commodities Sector - Still UNDERWEIGHT for now Summary: Ever since we downgraded the commodities sector to Underweight last year on the back of an increasingly gloomy global economic outlook, commodities stocks were among the worst performers in 2012. Against the STI's 18% jump until 11 Dec, the commodities stocks under our coverage fell by an average of 16%. But we do not see any catalyst that will bring about a significant re-rating just yet. Besides the still gloomy economic outlook, investors' appetite towards commodities-related players - especially those with complex business models - is also likely to remain lukewarm in wake of the recent saga involving Olam and Muddy Waters. As such, we are maintaining our UNDERWEIGHT rating on the sector. Although we have a BUY call on Wilmar, we think that any run-up towards our S$3.56 fair value would happen later rather than sooner. (Carey Wong) MORE REPORTS ComfortDelgro: A better year in 2013 Summary: Recent comments by the Transport Minister have compelled us to re-visit our conservative growth assumptions for ComfortDelgro (CD). With early indications pointing to a likely fare increase - and with the onset of the BSEP and its associated government subsidies - we deem that a gradual turnaround for the bus segment will commence in FY13. Coupled with a favourable fuel outlook and intact growth catalysts from aboard and other key segments such as rail and taxi, we adjust our revenue projections upwards and roll our valuations forward to include FY14. Despite maintaining our 50% of PATMI dividend payout assumption, our DDM-based valuation increase to S$1.90 from S$1.60 previously. Upgrade to BUY. (Lim Siyi) Yangzijiang Shipbuilding: Offshore order is a start Summary: Yangzijiang Shipbuilding (YZJ) recently announced that it has clinched its first offshore order worth US$170m for a jack-up drilling rig for a subsidiary of Mena Offshore Investments, a Malaysian-domiciled fund. This contract does not come as a surprise - YZJ's management had mentioned as early as Mar this year that there were plans to build two jack-up rigs in the Taicang yard, and newswires had also reported earlier that Yangzijiang Offshore Engineering was set to build a jack-up rig for Qatar Investment Corporation. The greatly reduced new order flow for bulk carriers and containerships that Chinese yards such as YZJ have been reliant on have forced them to seek new grounds. Time will be needed for significant earnings contribution from the offshore division, and we still expect 2H13 and 1H14 to be the most difficult period for the group. Maintain HOLD with fair value estimate of S$0.95. (Low Pei Han) Singapore Airlines: Virgin stake sold to Delta Summary: Singapore Airlines (SIA) announced that it will sell its 49% stake in Virgin Atlantic (VAL) to Delta Airlines for US$360m (~S$439m) in cash. The sale is subject to regulatory approvals in Europe and the US, and is expected to conclude in 4QCY2013. Meanwhile, Delta and VAL have stated that they would apply for anti-trust immunity from authorities on both isles to facilitate fare and flight schedule coordination. Once the sale is completed, SIA will record a gain on their books less S$117m, which is the carrying value of the VAL investment that had been fully written off. Assuming the sale had been completed on 1 Apr 2012, SIA's 1HFY13 EPS would have increased from 14.3 S cents to 41.4 S cents. We view this move as a positive one as it reiterates SIA's desire to refocus its resources on its key Asia-Pacific markets. Maintain our HOLD rating on SIA with an unchanged fair value estimate of S$10.85. (Lim Siyi)

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

NEWS HEADLINES - US stocks rose further on Tue, buoyed by optimism that Republicans and Democrats are getting nearer to a deal to avoid the fiscal cliff. The Dow rose 0.6% to 13,248.44, the S&P 500 Index gained 0.7% to 1,418.55 and the Nasdaq finished 1.2% higher at 3,022.30. - Low Keng Huat (Singapore)'s 3Q13 PATMI rose 89% YoY to S$27.5m, supported by a 32% increase in revenue to S$32.7m. - LionGold Corp has acquired the owner of several Bolivian gold mines, Vista Gold (Antigua) Corp, for US$7m from Australia's Republic Gold. Vista owns the Amayapampa Gold project in Southeast Bolivia, which holds 1.28m ounces of gold resources. - Hotel Properties Ltd has agreed to pay US$13.1m for a 50% stake in Westcliff Holdings Ltd, a company that is in the process of acquiring the Westcliff Hotel in Westcliff, Johannesburg. - XMH Holdings' 2Q13 PATMI surged to S$3.6m from S$1.5m a year ago, as revenue nearly tripled to S$26.7m. This was due to good progress in clearing back-log orders from customers, mainly for offshore applications.