Friday, December 21, 2012

STX OSV stake sale removes overhang: OSK-DMG

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED
Research House: OSK-DMGPrice Call: BUYTarget Price: 2.05



Fincantieri’s price for a 50.75% stake of STX OSV (MS7.SG) is “somewhat low” considering the Singapore-listed company’s relatively strong balance sheet, valuing the stock at 7X FY13 P/E, OSK-DMG says.

“This depressed sale price could be primarily driven by the desperation of the STX Group to sell its assets to pare down debts.”

While Fincantieri has lined up finances to acquire the rest of STX OSV, OSK-DMG doesn’t expect the general offer to succeed, noting the $1.22/share price is below the current share price, with the offer likely merely aimed at satisfying Singapore takeover rules; “we view the offer as unattractive to minority holders.”

It adds, Fincantieri might not get the 90% acceptance level needed to take the company private, noting Och-Ziff holds 12%. But it adds, “the change in major shareholder could remove the overhang on the stock and lead to rerating.”

It keeps a Buy call with $2.05 target. It notes STX Group is also looking to sell its STX Pan Ocean (GZ9.SG) holding. The stock is down 6.1% at $1.315. STX Pan Ocean is down 6.2% at $4.37.

DBSV reinstates Jaya Holdings at Buy, $0.85 target

Stock Name: Jaya Hldg
Company Name: JAYA HOLDINGS LTD
Research House: DBS VickersPrice Call: BUYTarget Price: 0.85



DBS Vickers reinstates Jaya Holdings (J10.SG) at Buy with a $0.85 target.

“With a clearer focus and less volatile earnings, we believe Jaya now offers a more attractive investment opportunity. We see a potential re-rating of the stock towards its book value on a strong 86% recovery in FY13 earnings.”

It notes Jaya repositioned as a service-provider for the offshore energy sector, with a focus on chartering ensuring higher recurring income and a move away from speculative shipbuilding reducing earnings volatility.

It views Jaya’s strategic alliance with IHC Merwede as a potential game-changer as the two could collaborate to build IHC’s high-specification offshore vessels at Jaya’s yards, which would propel Jaya up the value chain, leapfrogging regional competitors.

The house expects FY12-14 EPS CAGR of 54%, primarily on the offshore-support division on a larger fleet, improved day rates and better margins. “We see positive catalysts from potential high-value newbuild orders and possible resumption of dividend payments.” It views current valuations as undemanding at 0.7x FY12 P/BV vs its 1.1x five-year historical average. The stock is up 3.4% at $0.605.

Fincantieri makes low-ball bid for STX OSV: CIMB

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED
Research House: CIMBPrice Call: BUYTarget Price: 1.47



Fincantieri’s $1.22/share price for a 50.75% STX OSV (MS7.SG) stake is a low-ball offer, says CIMB.

“We were surprised at the low sale price, which values STX OSV at 6.5x 2013 P/E and 2.2x 2012 P/BV. Though we understand Korean parent company STX Corp.’s urgency to restructure its balance sheet, the sale price undervalues STX OSV.”

While Fincantieri doesn’t intend to maintain STX OSV’s listing status, CIMB expects the stock to remain listed, given the low price; it notes Och-Ziff’s average cost for its 12% stake was around $1.33/share.

“Though STX OSV could succumb to some near-term selling pressure, we believe its fundamentals could eventually provide support at $1.30-$1.40.”

It keeps a Neutral call with $1.47 target, implying 7.8x 2013 P/E and 2.7x 2013 P/BV. The stock is down 6.4% at $1.31.

UOB set to continue delivering strong results: Phillip

Stock Name: UOB
Company Name: UNITED OVERSEAS BANK LTD
Research House: Phillip SecuritiesPrice Call: BUYTarget Price: 21.00



UOB (U11.SG) is likely to continue to deliver strong results for the next few quarters even as the macro economy remains uncertain, Phillip Securities says.

“Loans growth is expected to be moderate, but positive, mitigating the continued pressure on NIMs. Fees and Commission are expected to grow rapidly, driven by strong transaction banking and wealth management performances. Geographically, contributions from UOB’s overseas subsidiaries are expected to increase. UOB may also benefit from an improvement in the China economy, which may drive higher trade volumes and banking services between China and Asean, in which UOB has strong capabilities.”

It raises its target to $21.00 from $18.00 after increasing its forward P/B multiple to 1.35x and rolling forward to FY13 forecasts. It keeps an Accumulate call, continuing to prefer UOB over DBS (D05.SG) and OCBC (O39.SG). UOB is down 0.8% at $19.69.

MARKET PULSE: Technology Sector, STX OSV (21 Dec 2012)

Stock Name: Venture
Company Name: VENTURE CORPORATION LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 9.22

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 1.69



Dear TRs,

Please note that this is our last Market Pulse report of 2012.

Have a merry Christmas and a great 2013 ahead!

Regards,
The team at OIR



MARKET PULSE: Technology Sector, STX OSV
21 Dec 2012
KEY IDEA

Technology Sector: Silver lining but dark clouds remain
2012 was a challenging year for the cyclical tech sector due to weaknesses in the macroeconomic environment. The situation was exacerbated by rising cost pressures, resulting in operating deleverage and margin compression. We believe that the visibility and outlook for the tech sector will remain cloudy in the near future, although pockets of strength have emerged recently. Moving into 2013, we maintain our NEUTRALrating on the tech sector. We expect industry conditions to pick up more firmly only in 2H13, while ongoing vagaries in the macroeconomic landscape could continue to weigh on business sentiment and sector valuations in the near-term, in our view. We recommend Venture Corporation [BUY; FV: S$9.22] as our top tech sector pick for 2013, as we think it is a compelling investment, especially for investors seeking cyclical exposure and yield plays. (Wong Teck Ching Andy)

MORE REPORTS

STX OSV: Fincantieri acquires a 50.75% stake, announces mandatory cash offer
Italian shipbuilder Fincantieri announced that it has signed an agreement to acquire a 50.75% stake in STX OSV, from its parent STX Europe, at S$1.22 per share - representing a 12.9% discount to closing price of S$1.40 on 20 Dec 2012. The closing of the acquisition will take place within the first four months of 2013, after certain conditions are satisfied. Once the conditions are satisfied, Fincantieri said that it will launch a mandatory cash offer for the remaining STX OSV shares. We are currently reviewing the terms of the offer and thus put our BUY rating and S$1.69 fair value estimate UNDER REVIEW. (Chia Jiunyang)

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


NEWS HEADLINES

- US stocks rose on Thu as Republican House Speaker John Boehner expressed optimism about reaching a budget deal with President Obama. The Dow and the the S&P 500 Index both rose 0.5%, to 13,311.72 and 1,443.69, respectively, while the Nasdaq finished 0.2% higher at 3,050.39.

- Sembawang Engineers and Constructors has suspended its listing plans in Singapore due to market conditions and a change in the group's corporate positioning.

- Sysma Holdings has agreed to pay S$35m for a private company that owns two plots of land in Serangoon, marking its first foray into property development.

- AEM Holdings expects a loss for FY2012 due to a US$2.1m non-cash provision arising from a settlement reached with a customer over a legal dispute.

- Healthway Medical Corp has agreed to sell part of its holdings in Healthway Medical Development (HMD) for S$3.5m, reducing its stake from 15% to 14%. The group plans to fully divest its HMD stake eventually, it said.





Thursday, December 20, 2012

Capital-raising may be on cards for IEV: UOB Kay Hian

Stock Name: IEV
Company Name: IEV HOLDINGS LIMITED
Research House: UOB KayHianPrice Call: HOLDTarget Price: 0.54



Capital-raising may be on the cards for IEV Holdings (5TN.SG) after it terminated an agreement for Altfield Global Resources to invest in wholly-owned unit IEV Energy Investments, UOB KayHian says; “we believe the group will need to raise US$10 million-US$15 million ($12.2 million - $18.3 million) to develop its upstream business.

As IEV is currently in a net cash position, the capital requirements could be funded by a combination of debt and equity.” It notes IEV’s 49%-owned associate IEV (Malaysia) received a Letter of Award for a major transportation and installation project by an established O&G operator for a Southeast Asian deepwater facility.

UOB-KH estimates the contract value at MYR400 million-MYR500 million ($159.5 million - $199 million), adding that its earnings forecasts already factor in the project’s profit contribution. UOB-KH trims its target to $0.54 from $0.55 on a lower market value for associate CNG Vietnam (CNG.VH); it keeps a Hold call. On a technical basis, it notes the stock has twice rebounded from its $0.435 support level and tips it could test its next resistance at $0.62 if it breaks over $0.54. The stock is up 7.3% at $0.515.

OCBC downgrades ST Engineering to 'hold' vs 'buy'

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD
Research House: OCBCPrice Call: HOLDTarget Price: 3.90



OCBC downgrades ST Engineering (S63.SG) to Hold from Buy, noting its stock has climbed more than 40% year-to-date, outpacing the STI’s around 19%.

“In the uncertain economic environment, investors have been seeking defensive businesses with good dividend yields and STE’s share price has benefited. The growth in air passenger traffic has supported the earnings of MRO providers.”

It notes STE’s orderbook has been growing over the long-term, rising 16% p.a. from end-2005 and end-2010, while FY06-FY11 annual revenues grew 6% p.a.

“The fact that the order book has been growing faster than revenue implies increasing earnings visibility into the future.” It keeps a $3.90 fair value. OCBC says it would be buyers of the stock at $3.66. The stock is flat at $3.87.

Capital-raising may be on cards for IEV: UOB Kay Hian

Stock Name: IEV
Company Name: IEV HOLDINGS LIMITED
Research House: UOB KayHianPrice Call: HOLDTarget Price: 0.54



Capital-raising may be on the cards for IEV Holdings (5TN.SG) after it terminated an agreement for Altfield Global Resources to invest in wholly-owned unit IEV Energy Investments, UOB KayHian says; “we believe the group will need to raise US$10 million-US$15 million ($12.2 million - $18.3 million) to develop its upstream business.

As IEV is currently in a net cash position, the capital requirements could be funded by a combination of debt and equity.” It notes IEV’s 49%-owned associate IEV (Malaysia) received a Letter of Award for a major transportation and installation project by an established O&G operator for a Southeast Asian deepwater facility.

UOB-KH estimates the contract value at MYR400 million-MYR500 million ($159.5 million - $199 million), adding that its earnings forecasts already factor in the project’s profit contribution. UOB-KH trims its target to $0.54 from $0.55 on a lower market value for associate CNG Vietnam (CNG.VH); it keeps a Hold call. On a technical basis, it notes the stock has twice rebounded from its $0.435 support level and tips it could test its next resistance at $0.62 if it breaks over $0.54. The stock is up 7.3% at $0.515.

STI lost 0.01% at 3,158.36 points by midday

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED
Research House: DBS VickersPrice Call: BUYTarget Price: 1.45



Singapore’s key index slipped slightly, in line with other Asian bourses on worries that stalled talks to avert a U.S. fiscal crisis could lead to a recession in the world's largest economy.

The benchmark Straits Times Index lost 0.01% at 3,158.36 points, while the MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3%. Warehouse operator Global Logistic Properties  was the biggest loser on the index, falling 2.1% to $2.74.

DBS Vickers upgraded container shipping firm Neptune Orient Lines to ‘buy’ and raised its target price to $1.45 from $1.26, citing better freight rates and earnings in 2013 compared with this year.

“Cyclical plays like container shipping will be early movers in a global recovery. We prefer liners with more exposure to the U.S. and Intra-Asian routes,” said DBS.

The brokerage noted that as NOL underperformed its peers this year and is still trading below book value, it is set for a re-rating next year.

Shares of NOL were up 1.4% by 11:32 a.m., but have only gained 0.4% since the start of the year, compared with the FTSE ST Industrials Index's 26.2% gain.

MARKET PULSE: Transportation Sector (20 Dec 2012)

Stock Name: TigerAir
Company Name: TIGER AIRWAYS HOLDINGS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 0.81

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 1.38

Stock Name: ComfortDelGro
Company Name: COMFORTDELGRO CORPORATION LTD
Research House: OCBCPrice Call: BUYTarget Price: 1.90




MARKET PULSE: Transportation Sector
20 Dec 2012
KEY IDEA

Transportation sector: Trudging ahead in 2013
Although weakness in the macro-environment continued to weigh on the aviation and shipping-related industries, more than half of the counters in our coverage managed to outperform the FTSE Straits Times Index in CY2012. We are turning slightly optimistic of the overall transportation sector in CY2013 due to a favorable set of preliminary indicators and fuel outlook, though much will still hinge on an improving economic situation. In line with our view, we upgrade the entire sector to NEUTRAL. Within the various sub-sectors, we favour Tiger Airways [BUY: FV: S$0.81] as it embarks on a turnaround in 2013. As for shipping and land transportation, we like Neptune Orient Lines [BUY: FV: S$1.38] and ComfortDelgro [BUY: FV: S$1.90], the former for its positioning in a potential up-cycle, and the latter for its better management and improving operating conditions in the domestic market. (Lim Siyi)

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


NEWS HEADLINES

- US stocks fell back sharply on Wed, snapping a two-day rally as talks to avoid deep spending cuts and tax hikes appeared to run into difficulties. The Dow ended 0.7% lower, while the S&P 500 Index and Nasdaq slid 0.8% and 0.3%, respectively.

- Singapore's 4Q12 economic performance is likely to mirror that of 3Q12, which would mean 2012 full-year growth of ~1.5%, Trade and Industry Minister Lim Hng Kiang said yesterday.

- Singapore's refineries are hurting from a drop in 4Q12 refining margins due to the global economic slowdown and may be forced to trim their production soon, BT reported.

- BBR Holdings has won two contracts worth S$182.9m to build 1,282 units of HDB flats.

- Scorpio East Holdings has obtained a S$5m term loan facility from Maybank, repayable over 14 years, and a hire purchase facility with a s$2m limit and a tenure of up to 4 years, to fund its business expansion.





Wednesday, December 19, 2012

Market Pulse: SG Residential Property (19 Dec 2012) (RESENT)

Stock Name: CITYDEV
Company Name: CITY DEVELOPMENTS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 13.96




MARKET PULSE: SG Residential Property
19 Dec 2012
KEY IDEA

SG Residential Property: Spate of privatizations could come
Given the current environment of low borrowing costs and steep trading discounts to RNAV for high-end developers, it is likely that we could see a spate of privatization activity ahead. We believe potential candidates for privatization include those are trading significantly below RNAV, have a low public float, and have major holders with stakes above 50%. These criteria yield two additional candidates for privatization: Ho Bee and Wheelock. For physical home sales, we saw ~20.9K new homes (excluding landed and EC) sold by developers year to date, of which the bulk (74%) are mass-market units. As interest rates remain low, we believe that continued monetary liquidity in the market would underpin demand for mass-market units. We forecast for mass market property prices to appreciate 0%-5% in 2013. For high-end property, we expect prices to dip 0% - 10% in 2013, due to the impact of recent cooling measures. We maintain our OVERWEIGHTrating on the residential property sector and expect continued strength in the mass-market segment in FY13. Our top stock pick is City Developments [FV: S$13.96, BUY] for its sharp execution, effective land-banking strategy and strong balance sheet. (Eli Lee)

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


NEWS HEADLINES

- US stocks rose for a second day on Tue, on signs of progress towards a deal to avoid the fiscal cliff of spending cuts and tax increases next year. The Dow ended 0.9% higher at 13,350.96, while the S&P 500 Index rose 1.1% to 1,446.79 and the Nasdaq finished 1.5% higher at 3,054.53.

- Cambridge Industrial Trust (CIT) has agreed to buy an indirect 60% stake in a 316k sq ft industrial facility in the JTC Tuas Biomedical Park for S$15.0m that will be leased to a unit of pharmaceutical company Strides Arcolab for 25 years. The property was introduced to CIT by sponsor Oxley Global, which will own the remaining 40% stake.

- Hiap Seng Engineering has won a THB652m (S$26m) structural steel fabrication contract for a liquefied natural gas terminal project in Australia. Work on the project is expected to begin early next year and is scheduled for completion by May 2014.

- Chip Eng Seng Corp has received the Australian government's approval for its A$170m Tower Melbourne residential development in Melbourne's central business district.

- Harry's Holdings, the target of a buyout offer by private-equity fund Everstone Capital, said that its public float has fallen below the 10% threshold required to keep the company listed.





Tuesday, December 18, 2012

CIMB ups Ho Bee target price

Stock Name: Ho Bee
Company Name: HO BEE INVESTMENT LIMITED
Research House: CIMBPrice Call: BUYTarget Price: 2.21



CIMB Research raised its target price on property developer Ho Bee Investment to $2.21 from $1.93 and kept its ‘outperform’ rating, citing a possible upward revaluation of its assets.

Ho Bee shares were up 1.1% at $1.885, and have jumped 83.9% since the start of the year, compared with a 36.6% rise in the FTSE ST Financial index.

Ho Bee is trading at a 30% discount to its book value, but CIMB noted that “the discount gap is attractive as its book value is set to rise next year,” when its commercial property, the Metropolis is revalued.

“Demand for investment assets and quality office properties with large floor plates places Metropolis in good stead for a potential divestment in 2013,” said CIMB.

The launch of China projects will also boost profits from developments sales, CIMB said, expecting a sell-through rate of 50% to 60% for initial launches.

Market Pulse: SG Hospitality Sector (18 Dec 2012)

Stock Name: AscottREIT
Company Name: ASCOTT RESIDENCE TRUST
Research House: OCBCPrice Call: BUYTarget Price: 1.37

Stock Name: GP Hotels
Company Name: GLOBAL PREMIUM HOTELS LIMITED
Research House: OCBCPrice Call: HOLDTarget Price: 0.29

Stock Name: CDL HTrust
Company Name: CDL HOSPITALITY TRUSTS
Research House: OCBCPrice Call: HOLDTarget Price: 1.91

Stock Name: Far East HTrust
Company Name: FAR EAST HOSPITALITY TRUST
Research House: OCBCPrice Call: HOLDTarget Price: 1.02

Stock Name: Genting SP
Company Name: GENTING SINGAPORE PLC
Research House: OCBCPrice Call: HOLDTarget Price: 1.33




MARKET PULSE: SG Hospitality Sector
18 Dec 2012
KEY IDEA

SG Hospitality Sector: Muted outlook for 1H13
While the hospitality industry had a good start to the year with 1Q12 RevPAR growth of 14%, the performance weakened dramatically in 2Q12 and 3Q12, and for the first 10 months of the year, RevPAR declined 3.3% YoY (preliminary statistics). While we remain optimistic about longer-term supply and demand dynamics of the hospitality industry through 2014, we think that a muted outlook for tourism in 1H13 will weigh on the price performance of hospitality counters in the coming months. Our channel checks indicate that hotel bookings up to Chinese New Year are still weak, and we believe that 2013 will see fewer MICE events. We are downgrading the hospitality sector from Overweight to NEUTRAL. Our top pick is Ascott Residence Trust [BUY, FV: S$1.37]. We also have a BUY rating on Global Premium Hotels [FV: S$0.29], and HOLD ratings on CDL Hospitality Trusts [FV: S$1.91], Far East Hospitality Trust [FV: S$1.02] and Genting Singapore[FV: S$1.33]. (Sarah Ong)

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


NEWS HEADLINES

- US stocks rose on Mon, with financials leading the gains, buoyed by hopes of progress towards a deal to avoid the fiscal cliff as senior Republican John Boehner and President Obama met again for further discussions. The Dow ended 0.8% higher at 13,235.39, while the S&P 500 Index rose 1.2% to 1,430.36 and the Nasdaq finished 1.3% higher at 3,010.60.

- Singapore home sales fell 44% MoM and 36% YoY in Nov to 1,087 units, the lowest level in 11 months, as developers slowed project sales ahead of the holiday season, data from the Urban Redevelopment Authority show.

- Jackspeed Corp has sold a factory in Tampines with a floor area of 1,342 sq m for S$5.55m in cash as part of its plans to rationalise its resources.

- Global Logistic Properties has signed two leases totalling 361k sq ft to Chinese e-commerce firm Vipshop - one in Jiangsu Province for 290k sq ft and another in Beijing for 70k sq ft.





Monday, December 17, 2012

DMG downgrades Hi-P to 'sell' from 'neutral'

Stock Name: Hi-P
Company Name: HI-P INTERNATIONAL LIMITED
Research House: DMGPrice Call: SELLTarget Price: 0.59



DMG & Partners downgraded electronics contract manufacturer Hi-P International to ‘sell’ from ‘neutral’ and cut its target price to $0.59 from $0.74, citing a negative impact from weaker-than-expected demand for Apple's iPhone 5.

By 9:55 a.m., Hi-P shares were down 3% at $0.80, but have gained 32% since the start of the year, compared with a 26.7% rise in the FTSE ST Industrials Index.

DMG slashed its 2012 and 2013 earnings estimates for Hi-P by 51% and 48.6% respectively, as it expects demand for Apple's iPhone 5 may fall "drastically" next year due to rising competition from Android and Windows phones.

“Thought to be a proxy to Apple’s iPhone 5, we believed that Hi-P now has been overwhelmed by how fast things have changed in the technology industry," said DMG in a note.

Hi-P also invested $300 million in a Chinese plant, of which a large part of the production capacity was dedicated to Apple. However, Hi-P may be hurt as Apple shifts more production back to the U.S., DMG noted.

Market Pulse: Fraser Commercial Trust (17 Dec 2012)

Stock Name: Frasers Comm
Company Name: FRASERS COMMERCIAL TRUST
Research House: OCBCPrice Call: BUYTarget Price: 1.31




MARKET PULSE: Fraser Commercial Trust
17 Dec 2012
KEY IDEA

Frasers Commercial Trust: Well-positioned for growth
We are very positive on Frasers Commercial Trust's (FCOT) transformation over the past one year. At the close of 4QFY12, FCOT announced the exit of the Japan market with the divestment of its Japan properties. We like the transaction because the divestment would enhance the portfolio occupancy and weighted average lease to expiry, and reduce its gearing ratio from 36.8% to 28.6%. This will significantly strengthen its financial position and flexibility, and aid FCOT in seeking the release of 55 Market Street and Caroline Chisholm Centre (CCC) from its securitized pool. More recently, FCOT had also successfully redeemed 162.6m CPPUs, or ~47.6% of total outstanding CPPUs, in cash. With this positive development, we expect FCOT to post an improvement in the distributable income going forward. In addition, the increased stake in CCC and expected improved performance at China Square Central are likely to continue to contribute positively to its rental income. Hence, we are staying optimistic on its growth potential in FY13. Maintain BUY with an unchanged fair value of S$1.31 on FCOT. (Kevin Tan)

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


NEWS HEADLINES

- US stocks fell on Fri, as investors fretted about the lack of progress in talks to avoid the fiscal cliff. The Dow ended 0.3% lower at 13,135.01, while the S&P 500 Index fell 0.4% to 1,413.58 and the Nasdaq ended 0.7% down at 2,971.33.

- United Engineers has agreed to buy a 23-storey property at 79 Anson Road for S$410m in cash, funded by borrowings and internal resources. If the deal is successful, the property will be renamed UE BizHub Tower.

- Scorpio East Holdings' 1H13 net loss narrowed to S$0.3m from S$0.8m a year ago, despite a 1.2% decline in revenue to S$3.5m. The group's bottomline was helped by a S$0.4m fair value gain on investment property.

- Silverlake Axis has secured three new software and services contracts and the expansion of an existing contract worth a total of MYR135m from customers in South-east Asia and Africa. It expects these contracts to contribute positively to its results in the current financial year and the next.

- Novo Group's 2Q13 net loss widened to US$1.2m from US$34k a year ago, as revenue slid 60% to US$38.3m. The group blamed stagnating global market conditions, the debt crisis in Europe and volatility in raw material prices for the poor performance.





Friday, December 14, 2012

OCBC ups CityDev target price

Stock Name: CITYDEV
Company Name: CITY DEVELOPMENTS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 13.96



OCBC Investment Research raised its target price for property developer City Developments to $13.96 from $13.18, and kept its ‘buy’ rating on the stock, citing healthy demand for some major residential project launches in the next year.

CityDev shares were up 0.2% at $12.50 by 10:15 a.m.. They have gained 40.4% since the start of the year, compared with the Straits Times Index’s 19% rise.

CityDev is expected to launch the Echelon, a 508-unit condominium near a centrally located train station in Singapore, which OCBC anticipates will sell well due to its good location. CityDev could also launch a 912-unit development in the east of the island.

OCBC also noted CityDev management’s expectations that mass market residential projects will continue selling well due to abundant liquidity in the market, with prices expected to show moderate increases.

CityDev is likely to be active in government land sales tenders in future, especially for mass markets sites located near train stations, it said.

MARKET PULSE: Singapore Strategy, Healthcare REITs, Biosensors (14 Dec 2012)

Stock Name: First REIT
Company Name: FIRST REAL ESTATE INV TRUST
Research House: OCBCPrice Call: HOLDTarget Price: 0.98

Stock Name: Biosensors
Company Name: BIOSENSORS INT'L GROUP, LTD.
Research House: OCBCPrice Call: BUYTarget Price: 1.69




MARKET PULSE: Singapore Strategy, Healthcare REITs, Biosensors
14 Dec 2012
KEY IDEA

Singapore Strategy: A Good Year for Equities
The Singapore market clocked in good gains in 2012, and our core favourite sectors also outperformed. Moving into 2013, we see better economic and market conditions, and while earnings growth is still in the single-digit region, it is a recovery from the slowdown in 2012. Valuations for the Singapore market are not excessive and we expect a healthy pipeline of IPOs, takeover and privatisation exercises in 2013 to help buoy interest in the market. We are sticking with our strategy of overweighing the Oil & Gas, Banking, Healthcare and selective property sub-sectors. Our stock picks for 2013 include Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp. (Carmen Lee)


MORE REPORTS

Healthcare REITs: Stable outlook for 2013
The S-REITs sector has been a standout performer in 2012 (+34.5% YTD), buoyed by the 'yield compression' theory in light of the low interest rate environment. Unsurprisingly, healthcare REITs have also delivered strong YTD price appreciation, with First REIT (FREIT) rising 36.2% and Parkway Life REIT (PLREIT) a more modest 19.0%. Both healthcare REITs also continued to showcase steady financial performance for 9M12. We believe that healthcare REITs offer the most defensive attributes amongst the S-REITs, which would provide stability for investors amid the still-uncertain macroeconomic environment. However, in terms of valuation, we believe that the subsector positives have already been priced in, with healthcare REITs trading at a rich premium to the S-REITs universe, while offering lower yields. Hence we maintain our NEUTRAL rating on the healthcare REIT subsector. Within this space, we have a HOLD rating and S$0.98 fair value estimate on FREIT. (Wong Teck Ching Andy)

Biosensors International Group: First patient enrolment in new clinical trial
Biosensors International Group (BIG) announced that it has enrolled its first patient in LEADERS FREE, a clinical trial involving its next generation BioFreedom™ polymer-free drug-coated stent (DCS), which is still awaiting CE Mark approval. This trial would be carried out on patients at high risk of bleeding and is aimed at comparing the safety and efficacy of BioFreedom™ to a bare-metal stent. Patients would only be required to take a month-long course of dual anti-platelet therapy, versus 12 months for its current flagship BioMatrix™ drug-eluting stent. The clinical trial will enrol c.2,500 patients across Europe, Asia and South America, with the enrolment process expected to be completed by early 2014; while primary endpoint data is likely to be presented during 2015. We believe that this trial is significant to the continued growth of BIG, as clinical trial results are one of the most important factors impacting an interventional cardiologist's decision to adopt a stent for use. Hence any positive outcomes reported would enable BIG to further drive its penetration rates, in our view. Meanwhile, BIG's share price has jumped 8.8% since we recommended it as our top healthcare pick for 2013 on 4 Dec 2012. Maintain BUY and S$1.69 fair value estimate, which still translates into an attractive potential upside of 36.3%. (Wong Teck Ching Andy)

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


NEWS HEADLINES

- US stocks fell on Thursday despite positive economic data, as politicians blamed each other in public for the lack of progress in a deal to avoid the fiscal cliff. Both the Dow and the S&P 500 Index ended 0.6% lower, the Nasdaq fell 0.7%.

- Gallant Venture has agreed to buy a 52% stake in Indonesia's Indomobil Sukses Internasional for US$809.3m, which it will fund via a rights issue of 2.4b new shares at S$0.28 each.

- Wheelock Properties (Singapore) has bought 1.1m more shares in SC Global Developments at ~S$1.81 each in the open market (versus S$1.80 buy-out offer price), taking its stake to 16.09%.

- IPCO International's 2QFY13 net profit nearly doubled YoY to S$4.9m, supported by a 31% rise in revenue to S$16.8m.

- Ace Achieve Infocom's 1HFY13 PATMI rose 9.7% to CNY15m, supported by an 8% increase in revenue to CNY99m.



Thursday, December 13, 2012

Olam likely muted until bond yields retrace: UOB Kay Hian

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED
Research House: UOB KayHianPrice Call: BUYTarget Price: 1.98



Olam’s stock price will likely remain muted until its bonds recover, UOB KayHian says.

“If bond yields continue to rise, the group is likely to adopt lower net gearing levels and as a result, ROE could be capped. Hurdle rates for new investment initiatives may also be harder to cross with a higher weighted average cost of capital.”

It cuts its target to $1.98 from $2.32 after switching methodology to a dividend-discount model from the previous 13.5x P/E valuation.

“While we believe growth prospects remain reasonable over the next three years, growth could slow post-FY16 as earnings from its current initiatives come on stream.”

It lowers its FY13 net profit forecast by 5% to $396 million, mainly on higher finance costs due to the rights issue of bonds with attached warrants and higher refinancing rates. It also prices in the expected dilution from the warrants’ exercise in three years. But it keeps a Buy call.

“Olam is currently trading at an all-time low of 1.1x 2013F P/B.” The stock is up 0.4% at $1.445.

Brokers upgrade Petra Foods after cocoa unit sale

Stock Name: Petra
Company Name: PETRA FOODS LIMITED
Research House: CIMBPrice Call: BUYTarget Price: 3.77



CIMB Research and DBS Vickers upgraded their ratings and target prices for cocoa firm Petra Foods after it announced plans to divest its cocoa ingredients business.

CIMB Research upgraded Petra to ‘outperform’ from ‘underperform’ and raised its target price to $3.77 from $1.92, saying it views the company's move to focus on its branded consumer arm as a positive one.

By 10:34 a.m., Petra shares were up 1.5% at $3.36, having jumped 20.4% on Wednesday after it said Swiss chocolate maker Barry Callebaut was buying its cocoa business for US$950 million ($1.16 billion). Petra shares have surged 82% since the start of the year.

Although cocoa ingredients account for 35% of Petra Food's 2011 profits, the significance of the business is declining as grinding margins fall, CIMB said. Shareholders can look forward to a special dividend of up to $0.60, it added.

“Petra’s evolution into a pure consumer play could spark a rerating,” CIMB said, adding that its balance sheet will be strengthened from 1.7 times net debt to a net cash position.

DBS Vickers said Petra's branded consumer division has better margins and more stable growth, noting that the company is also an attractive acquisition target for global chocolate confectionary firms.

The brokerage upgraded Petra to 'buy' and raised its target price to $3.97 from $1.95.

MARKET PULSE: Petra Foods, Far East Hospitality (13 Dec 2012)

Stock Name: Petra
Company Name: PETRA FOODS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 3.57




MARKET PULSE: Petra Foods, Far East Hospitality
13 Dec 2012
KEY IDEA

Petra Foods: Pure EM Asia consumer player
Petra Foods is now a leaner company focused on emerging Asia consumer demand after surprising the market by divesting its Cocoa Ingredients division to Barry Callebaut for US$950m. With an essentially debt-free balance sheet and US$300m war-chest, Petra will look to continue its dominance in its key markets of Indonesia and the Philippines. We like this development and raise our projections according to factor in a higher growth rate in improved margins from a pure Branded Consumer operation. As a result, our valuation increases to S$3.57 (maintaining our 25x 12-month forward PE). Maintain BUY. (Lim Siyi)

MORE REPORTS

Far East Hospitality Trust: Proposed acquisition of Rendezvous Grand Hotel
In Nov, Far East Hospitality Trust (Far East H-Trust) and Astor Properties Pte. Ltd., a member of the Far East Organization group (the sponsor) entered into a non-binding memorandum of understanding with The Straits Trading Company Limited to acquire Rendezvous Grand Hotel Singapore and its retail component Rendezvous Gallery Singapore. Far East H-Trust also entered into a separate non-binding MOU with the sponsor to grant a master lease of the hotel component to the Sponsor as master lessee under a master lease agreement. We have not incorporated the proposed transactions into our model since no definitive agreements have been executed. Rolling forward our model to FY13F, and using more conservative capitalization rates given a more cautious outlook for tourism in 1H13, we reduce our RNAV-based fair value from S$1.08 to S$1.02, and downgrade FEHT from Buy to a HOLD. (Sarah Ong)

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

NEWS HEADLINES

- US stocks were little changed on Wed after Fed chairman Ben Bernanke warned that it could not shield the economy from the impact of the fiscal cliff, despite taking further measures to stimulate spending and investment. Both the Dow and the S&P 500 Index ended flat, at 13,245.45 and 1,428.48, respectively, while the Nasdaq finished 0.3% higher at 3,013.81.

- Medi-Flex Ltd reported 1Q13 PATMI of MYR5.2m, or 3.8 times the MYR1.4m it earned a year ago, supported by a 7% increase in revenue to MYR43.6m. Its gross profit margin doubled to 12%, due to higher sales volume, improved product mix, favourable raw material prices and improved production efficiency.

- Datapulse Technology's 1Q13 PATMI rose 31% YoY to S$4.1m, despite an 8% drop in revenue to S$21.5m, as operating expenses fell by even more. Sales were hurt by weaker demand for media storage products and services.

- Hong Fok Corp has established a S$300m medium term note programme that will allow it to sell debt of various maturities in various currencies to raise funds for general corporate purposes such as refinancing existing debt and financing capital spending.





DMG raises target on Osim, keeps 'buy'

Stock Name: OSIM
Company Name: OSIM INTERNATIONAL LTD
Research House: DMGPrice Call: BUYTarget Price: 2.04



DMG & Partners Securities raised its target price for Osim International to $2.04 from $1.75 and maintained its ‘buy’ rating, saying investors have turned more confident about the company’s earnings.

Osim shares were down 0.3% at $1.80 on Thursday.

Two new massage chairs will drive Osim’s earnings for 2013-2014 fiscal years, DMG said. It added that China, where the massage chairs penetration rates are still at 1% despite having a growing pool of newly rich, is a key market for Osim.

DMG sees more sales in Osim’s nutritional supplements business, which is represented under GNC and the company’s own proprietary brand RichLife. It also sees growth in Osim’s luxury tea retailing business TWG.

Wednesday, December 12, 2012

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

Stock Name: Wilmar
Company Name: WILMAR INTERNATIONAL LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 3.56

Stock Name: ComfortDelGro
Company Name: COMFORTDELGRO CORPORATION LTD
Research House: OCBCPrice Call: BUYTarget Price: 1.90

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD
Research House: OCBCPrice Call: HOLDTarget Price: 0.95

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD
Research House: OCBCPrice Call: HOLDTarget 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.

Tuesday, December 11, 2012

DBS acquisition may limit Suntec REIT pipeline- Credit Suisse

Stock Name: SuntecReit
Company Name: SUNTEC REAL ESTATE INV TRUST
Research House: Credit SuissePrice Call: SELLTarget Price: 1.37



Lender DBS Group Holdings’ acquisition of a 30% stake in a Singapore office tower for $1 billion shows that capital values and fundamentals of prime grade A office space will continue to hold up, said Credit Suisse.

However, the acquisition also means that Suntec Real Estate Investment Trust is unlikely to acquire a stake in the office tower, Marina Bay Financial Centre Tower 3, which was initially expected by the market. This means a limited acquisition pipeline for Suntec REIT.

The commercial REIT, which is managed by ARA Asset Management, an affiliate of Cheung Kong (Holdings), previously acquired stakes in other offices, One Raffles Quay, from the Hong Kong-listed property developer.

“This means that Suntec’s future injection pipeline may be limited as Cheung Kong has no further assets in Singapore,” Credit Suisse said.

It maintains its ‘underperform’ rating and target price of $1.37, highlighting potential downside risk in net property income due to disruption from upgrading works at its assets.

By 10:54 a.m., Suntec REIT units were up 1.3% at $1.605, and have surged 49% since the start of the year, outperforming the FTSE ST Real Estate Investment Trust’s 33.8% rise.

MARKET PULSE: Tiger Airways, OKP Holdings, Sembcorp Marine (11 Dec 2012)

Stock Name: TigerAir
Company Name: TIGER AIRWAYS HOLDINGS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 0.81

Stock Name: OKP
Company Name: OKP HOLDINGS LIMITED
Research House: OCBCPrice Call: HOLDTarget Price: 0.53

Stock Name: SembMar
Company Name: SEMBCORP MARINE LTD
Research House: OCBCPrice Call: BUYTarget Price: 5.84




MARKET PULSE: Tiger Airways, OKP Holdings, Sembcorp Marine
11 Dec 2012
KEY IDEA

Tiger Airways: Time for an upgrade
Tiger Airways (TGR) saw increased passenger traffic for the second consecutive month, mainly on the back of TGR SG. Passengers carried grew 30.1% YoY (+6.0% MoM) and passenger load factor (PLF) rose by 10 ppt correspondingly from a year ago to 85% (+2ppt from Oct), which was aided by a slower pace of capacity expansion. With this development, the group's performance has been encouraging thus far. The tepid economic situation, which has resulted in a slowdown in premium travel demand growth and softened jet fuel prices, will continue to benefit low-cost carriers like TGR especially in the ongoing peak season travel months. TGR's share price has now consolidated close to one standard deviation below its average P/B multiple, and we believe that an inflection point has emerged. With our FY13 estimates pointing to a modest return we to profitability, we upgrade TGR to BUY with an unchanged fair value estimate of S$0.81. (Lim Siyi)

MORE REPORTS

OKP Holdings: Steady Revenue Stream Ahead, But Margins Likely To Shrink
OKP's order book of S$385.9m (as at 1 Nov) gives it excellent revenue visibility over the next two years. But the group has found it difficult to compete for work on the new MRT lines and is now exploring possible tie-ups with other firms to improve its chances of winning such projects. Though OKP's revenues will likely be sustained by strong demand for public construction work in Singapore, we expect its gross margins to shrink from 20-25% now to <20% in future, due to increased competition and rising manpower costs. We have lowered our fair value estimate for OKP from S$0.53/share to S$0.46/share, or 11x its projected FY13 earnings. Though its 9M12 results suggest that its FY12 financial performance is likely to be lacklustre, we expect to see more support for OKP's share price in the coming months as it recognises more revenue from its current project pipeline. We maintain our HOLD rating on OKP. (Conrad Tan)

Sembcorp Marine: Leader in the niche market of cruise ship repair
Sembcorp Marine (SMM) announced that its subsidiary, Sembawang Shipyard, has won a "favoured customer contract" from Royal Caribbean Cruises Ltd to provide ship repair, revitalization, upgrading and related marine services for its fleet of 41 cruise ships. Royal Caribbean is the world's second largest cruise ship company by number of ships, behind Carnival Cruise Lines (81 cruise liners). This reinforces Sembawang's reputation as one of the world's leading yards in the specialized segment of cruise ships repair, refurbishment and conversion. The contract will include two cruise ships that will undergo major revitalization and a third for drydocking and repairs from Jan 2013 till 2014 with total revenue ranging from S$50m-70m, depending on the scope of repairs and upgrade. SMM has turned in an average of S$704m/year in terms of ship repair revenue in the past five years. Maintain BUY with S$5.84 fair value estimate on SMM. (Low Pei Han)

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


NEWS HEADLINES

- US stocks rose slightly on Mon, though investors remained cautious amid the ongoing political debate over the fiscal cliff. The Dow rose 0.1% to 13,169.88 while the S&P 500 Index was barely changed at 1,418.55 and the Nasdaq added 0.3% to finish at 2,986.96.

- Gaylin Holdings' 2QFY13 PATMI rose 80% YoY to S$3.2m, supported by an 8.4% rise in revenue to S$20.9m. The increase in revenue was mainly due to a project for a customer in Europe.

- Popular Holdings' 2QFY13 PATMI fell 57% YoY to S$1.7m despite a 2% rise in turnover to S$121m. Its profit was dragged down by higher cost of sales, as well as increased distribution and administrative expenses. Unlike last year, the group did not declare an interim dividend.

- Swee Hong Ltd has won a S$4.9m contract from the Gardens by the Bay related to a proposed tadpole play garden and other works. The contract, which starts tomorrow, is to be completed by May 2013.





Monday, December 10, 2012

Suntec REIT keeps 'buy' call from Maybank-Kim Eng

Stock Name: SuntecReit
Company Name: SUNTEC REAL ESTATE INV TRUST
Research House: Maybank Kim EngPrice Call: BUYTarget Price: 1.70



Analyst Ong Kian Lin of Maybank Kim Eng views the acquisition by DBS of a 30% equity stake in Marina Bay Financial Centre Tower 3 for $1.035 billion ($2,555 psf) as a positive for Suntec REIT as it removes the worrying possibility of equity fund raising if MBFC Twr 3 were to be injected into the REIT.

Ong says Suntec REIT can henceforth focus more on its organic Asset Enhancement Initiative on Suntec City. In addition, Suntec REIT has, over the weekend, also appointed the CEO of APM Property Management as its Deputy CEO with effect from Jan 1 2013.
 

DBS is the anchor tenant at MBFC Twr 3, occupying over 600,000 sq ft or 18 floors. Both parties also entered into a conditional put option agreement for DBS to take up Choicewide’s remaining 3.33% equity stake and its associated loan for an estimated aggregate price of $115 million. The remaining stake on MBFC Twr 3 (66.66%) is held by Hong Kong Land and Keppel Land.

“We think this shows Suntec REIT's commitment to making the Suntec City revamp a success,” says Ong.

Maybank-Kim Eng is maintaining a “buy” rating for Suntec REIT. Its target price of $1.70 is unchanged for now, although “we believe there is upside potential after FY12 results as pre-commitments for phase 1 Suntec City Mall (complete by 2Q12) are likely to be secured above Suntec’s post-AEI target of $12.59 psf/mth.”

AustraLand asset bid positive for CapitaLand: Barclays

Stock Name: Capitaland
Company Name: CAPITALAND LIMITED
Research House: BarclaysPrice Call: BUYTarget Price: 3.91



GPT’s offer for Australand’s non-residential assets is positive for CapitaLand, Barclays says. “It could unlock value and signal a strategic change for CapitaLand.”

It notes Australia has been one of CapitaLand’s three core markets after Singapore and China, with the Singapore company owning 59.3% of ALZ, which makes up 15% of CapitaLand’s assets.
 

With the offer details, including price, still uncertain, the house keeps unchanged its RNAV of $4.59, based on ALZ’s September market valuation at 0.83x P/B. “We expect any offer to be at least book value. Realisation of ALZ’s value at 1X P/B would raise CapitaLand’s RNAV by 1.3% to $4.65 on our estimates.”

Barclays adds, it expects CapitaLand’s Singapore residential portfolio could re-rate as inventory finally starts to move, with its D’Leedon project selling 120 units in November, bringing takeup to 40%.

“With all cylinders firing, CapitaLand remains our top pick in the sector into 2013.” It rates the stock Overweight with $3.91 target. The stock is up 1.1% at $3.73.

MARKET PULSE: Consumer Sector, Petra Foods, United Envirotech, ECS Holdings (10 Dec 2012)

Stock Name: Petra
Company Name: PETRA FOODS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 3.12

Stock Name: VizBranz
Company Name: VIZ BRANZ LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 0.74

Stock Name: Sheng Siong
Company Name: SHENG SIONG GROUP LTD
Research House: OCBCPrice Call: BUYTarget Price: 0.55

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD
Research House: OCBCPrice Call: BUYTarget Price: 0.67

Stock Name: ECS
Company Name: ECS HOLDINGS LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 0.56



Please use this version - includes Petra Foods

MARKET PULSE: Consumer Sector, United Envirotech, ECS Holdings
10 Dec 2012
KEY IDEA

Consumer sector: Riding the EM wave

Summary: Despite starting 2012 on a bright note, the FTSE ST Consumer Services Index (FSTCS Index) failed to recover from a mid-year slump and could potentially finish in negative territory for the second consecutive year. While the broad sector index produced sputtering results, an investment strategy focused on riding the wave of emerging Asia consumer demand fared extremely well in 2012. Entering 2013, we advocate a similar strategy and continue to favour the growing domestic consumption of our regional EM peers. As the FSTCS Index has mostly lagged the FTSE Straits Times Index on a historical basis, we deem that this trend will continue and as such maintain our NEUTRALoutlook. For EM Asia consumer exposure, our top picks are Petra Foods [BUY; FV: S$3.12] and Viz Branz [BUY; FV: S$0.74]. We also advocate a defensive allocation into Sheng Siong Group [BUY; FV: S$0.55] for its resilience against economic downturns and attractive dividend yield. (Lim Siyi)

MORE REPORTS

Petra Foods: Pickup in 2013

Summary: Since our initiation report on Petra Foods, the counter has appreciated by 7.5% to continue on its amazing ascension in 2012 (YTD: +55%). Our valuation of Petra - pegged at 24x 12-month forward PE - is at a premium to its global peers but the desire of investors to gain exposure to emerging Asia consumer demand clearly vindicates it. For 2013, we project a modest top-line growth of 3.8%, mainly on the back of the Branded Consumer division, while we also anticipate margin improvements from the 7.6% in FY11 to ~9% by FY13F. We remain sanguine over Petra's growth prospects in the coming year, and in light of Petra's recent appreciation, we raise our multiple to 25x 12-month forward PE (approaching one standard deviation above its six-year average forward PE. This increases our fair value to S$3.12 from S$2.98 previously. Maintain BUY. (Lim Siyi)

United Envirotech: Focus on growing treatment income

Summary: United Envirotech Limited (UEL) is likely to see its growth trend continuing in 2HFY13 after a strong showing in 1HFY13, buoyed by the still-growing demand for membrane-based water and waste-water treatment services in China. In particular, management intends to focus on looking for good existing TOT projects where it can inject its membrane technology and management know-how to increase existing cashflows. As before, management remains on the lookout for more such water projects, likely in Shandong, Jiangsu and Liaoning. As we have previously raised our FY13 estimates after a much better-than-expected 1HFY13 showing, we opt to leave it unchanged. Our fair value also remains at S$0.67 (based on 12.5x blended FY13/FY14F EPS). Maintain BUY. (Carey Wong)

ECS Holdings: Change in CEO and appointment of Executive Chairman

Summary: ECS Holdings (ECS) announced a couple of key management changes over the weekend, with the most notable being the appointment of Mr. Ong Wei Hiam as new CEO from 1 Jan 2013. This comes after current CEO Mr. Narong Intanate announced his intention to retire and step down from the role on 31 Dec 2012 when his employment contract expires. We expect the leadership transition at ECS to be smooth with minimal disruption given the following reasons: 1) Mr. Ong is already an Executive Director at ECS, 2) currently holds the CFO role at VST Holdings (which he will retain) which is the HKSE-listed parent company of ECS (89.5% equity stake) and is also in the same distribution industry, 3) Mr. Intanate will continue to serve on the ECS board as Non-Executive Director and hence ECS will still be able to tap on his experience and expertise. Meanwhile, Mr. Tay Eng Hoe, a founding director, former CEO and current Non-Executive Chairman of ECS, will become Executive Chairman for a year (subject to renewal on a yearly basis), effective 1 Jan 2013. We maintain our BUY rating and S$0.56 fair value estimate on ECS. (Wong Teck Ching Andy)

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


NEWS HEADLINES

- US stocks ended mostly higher on Fri, after a better-than-expected Nov jobs report offset a report showing a drop in consumer sentiment in Dec. The Dow gained 0.6%, the S&P 500 Index added 0.3% to 1,418.07; but Nasdaq fell 0.4%, weighed down by Apple Inc.

- Wee Hur Holdings' construction arm has been awarded a S$150m construction contract for the Parc Centros condominium in Punggol, a joint venture under the group's property development arm. The contract raises the group's order book to S$540m.

- Moya Asia plans to raise as much as S$10.5m through a rights issue of up to 262m shares at S$0.04 each, mostly as capex for current projects in Indonesia.

Friday, December 7, 2012

Weekend Comment Dec 7: Mind the glut

Stock Name: Ascendasreit
Company Name: ASCENDAS REAL ESTATE INV TRUST
Research House: DBS VickersPrice Call: HOLDTarget Price: 2.24

Stock Name: MapletreeInd
Company Name: MAPLETREE INDUSTRIAL TRUST
Research House: DBS VickersPrice Call: HOLDTarget Price: 1.43

Stock Name: CACHE
Company Name: CACHE LOGISTICS TRUST
Research House: DBS VickersPrice Call: HOLDTarget Price: 1.26



THE THREAT OF oversupply is looming over the industrial property sector. Come 2013, a gush of new industrial space is expected to flood the market and investors need to keep a closer eye on this asset class. From now till 2015, spot rental rate might drop between 7 and 10% while vacancy rates increase by between 4 and 5% across the sector, cautions DBS Vickers in a report on the industrial REIT sector.

Despite the tepid economic growth, industrial properties have done well this year. Firstly, there has been a lack of “meaningful” supply over the past two years. Total industrial space at 7.5 million sqft is not only at a 10-year low but also 20% lower than the 9.1 million sqft annual average over the past decade. This has caused industrial space vacancy levels to hit a record low of 6%, thus driving up average rental for both factory and warehouse space by a third although the pace of increase has moderated recently. Capital values, meanwhile, rose between 6 and 26% since the start of 2012.

To be sure, the residential property asset bubble has been stoked by strong liquidity and historically low interest rates. But the numerous rounds of cooling measures introduced by the government diverted investor attention towards the industrial sector. In particular, the smaller-sized strata-titled units drew a lot of buying interest from non-traditional sources.

However, challenges loom. “Looking ahead, we see market dynamics turning given that close to 49.7 million sqft of industrial space currently under construction will be completed over 2013-2015. This, on an annualised basis, represents more than twice the annual supply over the past decade,” write DBS Vickers’ analysts Derek Tan and Lock Mun Yee the Dec 6 report.

The new supply is not going to be soaked up by new demand all too readily as the heavily exposed Singapore economy shares the pain of its major trading partners. According to the Economic Development Board’s 4Q2012 business expectations survey, 11% of manufacturers expect further worsening in business conditions over the next half year.


“Sentiment is noted to have been markedly different from brighter expectations in the prior two quarters and reflects the dip in business confidence among manufacturers going forward,” states DBS Vickers. “We believe that manufacturers are likely to continue to adopt a ‘wait and see’ attitude towards future plant expansion plans and potentially, even in some cases, cease to continue operating in Singapore. The leasing environment could turn quiet as take-ups for factory space could weaken.”

As a whole, Singapore’s small and medium enterprises (SMEs) can be considered a major tenant but they are increasingly vulnerable to business stresses as the government maintains a strong grip on foreign labour which many SMEs have grown over-reliant on. As a result, there is a risk some of these SMEs relocating or shutting down altogether if they can no longer cope here. “While we do not anticipate a mass relocation or closure of SMEs and other industrial players in the immediate term, we believe that affected companies will likely consolidate their space requirements as they rationalise their future needs as production levels fall below optimal capacity,” writes DBS Vickers.

Furthermore, there is a chance that the government will impose more measures to coold the industrial sector before it gets too hot. For one, there are restrictions on how small the strata units can be and reduction in certain land tenure from 60 years to 30 years. The government, according to DBS Vickers, is likely to keep a “watchful eye” on balancing genuine demand from industrialists while smoking out speculative activities.

Nevertheless, for now, DBS Vickers expect “minimal” impact on earnings at this point and is keeping the vacancy assumptions, as the landlords are likely to be proactive in getting tenants to renew their leases. “However, we remain mindful of the potential of downside risks to our forecasts if operating environment continues to weaken.”

Tan and Lock’s model shows that for every 1 percentage point drop in occupancy rate, there will be a 0.8% to 1.2% hit on distribution per unit for REITs, which, is seen as still “marginal and manageable”.

Of the five industrial REITs under DBS Vickers’ coverage, there are two “buy” calls: Mapletree Logistics Trust and Cambridge Industrial REIT, with target prices of $1.22 and $0.72 respectively. The remaining three are “holds”: Ascendas REIT, Mapleetree Industrial Trust and Cache Logistics Trust with target prices of $2.24, $1.43 and $1.26 respectively.


 

Macquarie downgrades Olam to 'neutral'

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED
Research House: MacQuariePrice Call: HOLDTarget Price: 1.60



Macquarie downgraded Olam International to ‘neutral’ from ‘outperform’ and cut its target price to $1.60 from $2.40, saying some of the Singapore commodities firm’s projects are taking longer-than-expected to come through.

Olam shares were up 1.4% at $1.47 on Friday. But the stock has fallen more than 15% since short-seller Muddy Waters launched a scathing attack on the company’s accounting, debt and investment projects on Nov. 19.

"While we disagree with Muddy Waters’ assertion that Olam stands on the brink of insolvency, we do take their point that some of Olam’s new upstream and midstream projects have lagged expectations. In fact, as a group, the new projects had already missed our expectations in 2012 fiscal year," Macquarie said.

Muddy Waters discovered that Olam’s greenfield Nigerian sugar mill has been postponed indefinitely, Macquarie said, adding that this has been confirmed by Olam. A key urea project in Gabon also remains uncertain, Macquarie said.

Macquarie said its earnings estimates are 20-25% below consensus for 2013-2014 fiscal years.

MARKET PULSE: Banking, Healthcare, Viz Branz, SembMarine, TEE (7 Dec 2012)

Stock Name: DBS
Company Name: DBS GROUP HOLDINGS LTD
Research House: OCBCPrice Call: BUYTarget Price: 15.94

Stock Name: UOB
Company Name: UNITED OVERSEAS BANK LTD
Research House: OCBCPrice Call: BUYTarget Price: 21.30

Stock Name: Biosensors
Company Name: BIOSENSORS INT'L GROUP, LTD.
Research House: OCBCPrice Call: BUYTarget Price: 1.69

Stock Name: RafflesMG
Company Name: RAFFLES MEDICAL GROUP LTD
Research House: OCBCPrice Call: BUYTarget Price: 2.82




MARKET PULSE: Banking, Healthcare, Viz Branz, SembMarine, TEE
7 Dec 2012
KEY IDEA

Banking Sector: Warrants an overweight
Banking stocks have done well in 2012, outperforming the STI. Going into 2013, and despite the prevailing cautious mood, we believe that most of the negatives have been priced into the stock prices and low earnings growth for the local banks, and as such, there is a good likelihood that earnings could surprise on the upside. We are going for average earnings growth of 5.5% in 2013 for DBS and UOB versus consensus of only 3.3%, effectively pricing in almost flat growth in 2013. Asia remains the core base for the three banks, and there are still opportunities to cross-sell and leverage on their existing products and services, translating into better fee and other income. We expect corporate activities to also pick up in line with the more optimistic outlook. We have an OVERWEIGHT for the sector and medium term BUY ratings for both DBS [BUY, Fair Value of S$15.94] and UOB [BUY, Fair Value of S$21.30].(Carmen Lee)

MORE REPORTS

Healthcare Sector: Resilience the key to success
As we move into 2013, we remain sanguine on the growth prospects of the healthcare sector, as robust industry fundamentals are structural and entrenched in nature. This implies that the underlying drivers such as a growing and fast-aging population, rising affluence, growing incidence and morbidity of diseases and burgeoning medical tourism activities would likely persist in the long run. The healthcare sector offers investors a unique investment proposition, given its resilient and defensive earnings, while growth opportunities are also favourable in light of the aforementioned factors. The sector also saw the high profile IPOs of IHH Healthcare Berhad and Religare Health Trust in 2012, thus giving investors more options to gain exposure to the thriving regional healthcare scene. We reiterate our OVERWEIGHT rating on the healthcare sector, and recommend Biosensors International Group [BUY; FV: S$1.69] as our top pick, given its superior stent technology, healthy financial position and compelling valuations. We also like Raffles Medical Group [BUY; FV: S$2.82] for its capable management team and strong track record. (Wong Teck Ching Andy)

Viz Branz Limited:

Thursday, December 6, 2012

SC Global +49.4%; $1.80/share privatisation bid

Stock Name: SCGlobal
Company Name: SC GLOBAL DEVELOPMENTS LTD
Research House: Phillip SecuritiesPrice Call: HOLDTarget Price: 1.80



SC Global is up 49.4% at $1.80 after its majority shareholder and CEO, Simon Cheong, Wednesday launched a $344.6 million, or $1.80/share, cash offer to take the company private, valuing the luxury residential developer at about $745 million.
 

While the offer is an estimated 37% discount to RNAV, it is a nearly 40% premium to the stock’s highest close of $1.29 over the past 12 months, Phillip Securities says in a note. SC Global’s completed projects The Marq on Paterson Hill and Hilltops, command high margins, but slow sales progress has dragged the company’s earnings, it says.

“We see a daunting task for the share price to close the gap to its RNAV of $2.87 at the current pace of sale. The current offer price of $1.80 presents a reasonable opportunity for its shareholders to (make) an early exit.” It raises its target to $1.80 from $1.15, but it keeps a Neutral call pending further details from the offering document.

MARKET PULSE: Telecom Sector, TEE (6 Dec 2012)

Stock Name: M1
Company Name: M1 LIMITED
Research House: OCBCPrice Call: BUYTarget Price: 2.89

Stock Name: Tee Intl
Company Name: TEE INTERNATIONAL LIMITED
Research House: OCBCPrice Call: HOLDTarget Price: 0.34




MARKET PULSE: Telecom Sector, TEE
12 Dec 2012
KEY IDEA

Telecoms Sector: Defensive earnings in still-uncertain times
Going into 2013, with the global economic outlook still looking somewhat shaky, we believe that investors may continue to favour stable yield plays for recurring income in their portfolios. We think that the telecommunication stocks will continue to be good candidates as their defensive earnings and strong ability to generate free cashflow should continue to sustain their relatively attractive dividend yields. As such, we maintain our OVERWEIGHT rating for the sector. Among the three telcos, we have a slightly preference for M1 (BUY, FV: S$2.89). (Carey Wong)

MORE REPORTS

TEE International: Unlocking value
TEE International plans to unlock the value of its real estate business by spinning it off and listing it separately on SGX. It intends to keep a 70-75% stake in the property business, which TEE sees as a valuable source of future earnings. TEE plans to pay out part of the proceeds raised from the listing as a special dividend and use the rest to fund its expansion into new ventures. We have changed our valuation model to better capture the value of TEE's real estate business using the RNAV surplus method. This gives us a fair value estimate of S$0.34 per share for TEE (previously S$0.28), implying a potential upside of 7% from its last traded price of S$0.315. We have not factored in any potential gains from the real estate spin-off. TEE could see further upside in the current financial year as more revenue from its property projects is recognised. We maintain our HOLD rating. (Conrad Tan)

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

NEWS HEADLINES

- US stocks mostly rose on Wed, amid signs that political leaders were willing to compromise in talks to avoid the fiscal cliff. The Dow rose 0.6%, the S&P 500 +0.2%; but Nasdaq fell 0.8%, weighed by Apple Inc's court battle with Samsung.

- Majority shareholder Simon Cheong is offering to take SC Global Developments private at S$1.80 a share, valuing the firm at S$745m. Trading is set to resume today.

- Oakwell Engineering plans to raise up to S$10m in working capital through the sale of five-year convertible bonds paying interest of 8% a year, to an individual investor. The bonds are convertible into Oakwell shares at S$0.0875 each.

- Keppel REIT's subsidiary, Ocean Properties, has obtained a S$505m five-year term loan to refinance its outstanding loans. The loan facility will be secured by a mortgage against Ocean Financial Centre.

- Sysma Holdings is offering S$35m to buy De Paradiso Development Pte Ltd, a Singapore investment holding company which owns two plots of land at Serangoon. The proposed acquisition is non-binding and subject to due diligence checks and the approval of Sysma's shareholders.