SG: MARKET PULSE: Breadtalk, Chinese Shipyards (8 Apr 2013)

Stock Name: BreadTalk
Company Name: BREADTALK GROUP LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.77

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.95

Stock Name: CoscoCorp
Company Name: COSCO CORPORATION (S) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.95

MARKET PULSE: Breadtalk, Chinese Shipyards

8 Apr 2013

KEY IDEA BreadTalk Group: Not fully baked yet Summary: The 12% correction in BreadTalk's share price over the past two days has helped to temper the sudden spike from late-Mar, and we take this opportunity to caution investors against getting too carried away. In our view, a takeover by Minor International is remote at this juncture. Despite impressive yearly double-digit revenue growth, BreadTalk has yet to translate the success to its operating margins. Although its ongoing expansion plans are partly to blame, the pace of the margin declines does create some concerns over its operational efficiencies in the long-run. In addition, with FY13 PATMI and dividend growth unlikely to differ much from recent performances, we deem BreadTalk expensive at current price levels. Keeping our fair value estimate of S$0.77, we downgrade BreadTalk to SELL and urge investors to take profit. (Lim Siyi) MORE REPORTS Chinese shipyards: Industry profitability remains under pressure Summary: The share price performances of COSCO Corp (Singapore) and Yangzijiang Shipbuilding (YZJ) have been uninspiring in recent history. COSCO's share price has fallen by about 21% in the past one year, while YZJ's has decreased by about 25%. We believe this is mainly due to a lack of positive catalysts amidst the difficult operating environment in China. In terms of offshore projects, Chinese yards still lack the established track records of their Asian competitors, but their organization, efficiency and sophistication are on the rise. To compete, the Chinese yards are going after orders at lower margins and back-end loaded payment terms. This inevitably leads to lower profitability and higher working capital requirements. Over the near- to medium- term horizon, we believe that the industry dynamics is unlikely to change significantly. Maintain HOLD ratings for both COSCO (FV: S$0.90) and YZJ (FV: S$0.95). (Chia Jiunyang)

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NEWS HEADLINES - Interra Resources has completed its second producing well in a Myanmar oil field and has begun drilling on the third. - Olam International has decided not to pursue its libel lawsuit against US short-selling firm Muddy Waters and its founder Carson Block. - Park Hotel Group, which announced the S$300m sale of its Park Hotel Clarke Quay over the weekend, is understood to have put some of its other hotels on the market as well. Industry players say these include its two remaining Singapore hotels - Grand Park City Hall in Coleman Street and Grand Park Orchard. - Temasek Holdings has set up a company, Pavilion Energy Pte Ltd, with an initial authorised capital of S$1b, to invest in the liquefied natural gas (LNG) industry. - Despite poor export and output numbers in the first quarter, easing monetary policy is unlikely to be an option for the central bank this Friday. Economists and currency analysts expect the MAS to keep the SGD on its current path of a slightly steeper appreciation relative to a basket of trading partners' currencies to ward off inflationary pressures.