MARKET PULSE: SPH, SMRT, KepCorp, Midas (13 Mar 2013)

Stock Name: SPH
Company Name: SINGAPORE PRESS HLDGS LTD

Research House: OCBC

Price Call: BUY

Target Price: 4.94

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.56

Stock Name: Kep Corp
Company Name: KEPPEL CORPORATION LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 12.68

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.595

MARKET PULSE: SPH, SMRT, KepCorp, Midas

13 Mar 2013

KEY IDEA Singapore Press Holdings: Mall strategy to drive meaningful re-rating On Sunday evening, SPH announced that it is exploring a REIT listing on the SGX Mainboard. We believe the REIT would likely be a Singapore focused retail mall trust, with Paragon and Clementi Mall being injected and Seletar Mall positioned as a pipeline asset. A key implication: we could see significant divestment gains, and consequently a special dividend and/or a distribution in specie of REIT units to shareholders. Assuming SPH retains a 51% stake in the REIT, we estimate potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share. We upgrade the stock to a BUY rating with a fair value estimate of S$4.94. We see a particularly attractive risk-reward proposition currently. Downside is likely capped given a dividend yield of 5.4% here, while a significant re-rating is likely given potential near term catalysts such as a special dividend, and over the longer term, management's further execution on its retail mall strategy. (Eli Lee) MORE REPORTS SMRT Corporation: Restructuring pains We estimate the impact of SMRT's wage increments for non-executive staff (~60% of its workforce) and its ~2,000 bus drivers to cost an approximate S$34.8m/year (assuming full qualification of incentive payments) from FY14 onwards. While SMRT's wage burden increases considerably, the bulk of the wage increments will theoretically qualify for some relief under the Government-proposed Wage Credit Scheme. Nonetheless, we lower our forecasts to incorporate the increase in staff costs, and our valuation falls to S$1.56 from S$1.71 previously. Despite a likely fare increase by end-May, ongoing restructuring by SMRT continues to yield pressure on operating expenses (i.e. wages and repairs/maintenance). Therefore, we are unlikely to see an inflection point emerging for the counter in the near-term, and shareholders will have to accept lower dividends as this restructuring proceeds. Maintain HOLD. (Lim Siyi) Keppel Corporation: US$1.2b Naftogaz contract fails to turn effective Keppel Corporation (KEP) announced that the conditional contract between Keppel FELS Ltd and Ukraine's Naftogaz to construct two semisubmersible drilling rigs will not be taking effect. Though the US$1.2b worth of contract was inked in Dec last year, it was also mentioned earlier that the contract will only be effective if certain conditions were met. As they were not fulfilled within the timeline that was specified, the contract will not turn effective. We do not view this as a cancellation of order, and we note that the contract amount was also not part of Keppel's announced net order book of S$12.8b as at 31 Dec 2012. Though there may be a negative knee jerk reaction with this news, we maintain our BUY rating with S$12.68 fair value estimate and a forecasted dividend yield of 3.7% over a one-year time frame. (Low Pei Han) Midas Holdings: Secures CNY109.6m worth of metro contracts Midas Holdings (Midas) announced last evening that it has secured a total of CNY109.6m worth of contracts to supply aluminium alloy extrusion and fabricated parts to five metro projects in China. The value of each contract ranges from CNY10.6-31.7m, with four of these awarded by Midas' 32.5% owned JV company Nanjing SR Puzhen Rail Transport (NPRT). Management had previously highlighted that NPRT had seven projects which it has yet to award contracts to aluminium alloy extrusion suppliers. Hence we see potential for more contract wins by Midas from NPRT in the near future. We had also stated in our previous note that Midas has been actively negotiating for metro/subway and international railway contracts to buffer the current standstill from the high-speed railway side. We retain our forecasts as we have already assumed such contract wins in our assumptions. Maintain BUY and S$0.595 fair value estimate on Midas, based on 1.2x FY13F P/B. (Wong Teck Ching Andy)

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NEWS HEADLINES - ARA Asset Management wants to double assets under management over five years as its private funds buy more properties. - Stronger revenue and a gain on fair value of marketable securities more than doubled Freight Links Express' third-quarter net profit to S$8.72m. - Shares in WE Holdings, which plunged by almost half to 6.8 cents on Monday, took another beating yesterday as placement shares issued at about 3.7 cents started trading. - The Minister for Environment and Water Resources said that neither water supply nor landfill will be limiting factors to Singapore's population growth. - Health Minister told Parliament yesterday that four more hospitals and up to 12 more polyclinics will be built by 2030 to ensure that Singapore has adequate healthcare coverage.