SG: Market Pulse: CapitaLand, NOL (25 Jun 2013)

Stock Name: Capitaland
Company Name: CAPITALAND LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 3.77

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.17

MARKET PULSE: CapitaLand, NOL

25 Jun 2013

KEY IDEA CapitaLand Limited: Uncertainties creeping into macro picture Summary: We believe recent PMI and interbank liquidity datapoints from China point to increasing macro uncertainties as authorities attempt to engineer a more sustainable albeit slower tempo of growth. This being so, we see heightened downside risks for CAPL's Chinese residential sales and rental outlooks. In Singapore, increasing visibility of a QE exit scenario have moved bond yields to recent highs and a trend of rising mortgage rates would likely ensue from here, in our view. Our judgment is that while rising rates alone are unlikely to trigger dramatic residential price downside, it would likely weigh on primary sales volumes ahead. We lower our fair value estimate to S$3.77 but maintain a BUY rating as we consider CAPL shares to be likely oversold at this juncture at a 45% discount to RNAV. Note that 36% of CAPL's value is constituted by its stake in listed CapitaMalls Asia (CMA) which has dipped only 8.2% YTD versus CAPL's whopping 19.5% correction. Moreover, we highlight that CAPL continues to hold a strong balance sheet (S$5.4b cash, 44% net gearing) which would buttress its businesses through potential headwinds. (Eli Lee) MORE REPORTS Neptune Orient Lines - Lowering the sails Summary: We downgrade Neptune Orient Lines's (NOL) to HOLD in light of weaker than expected freight rates and poorer industry-wide action on capacity management. According to the SCFI, average freight rates have declined by more than 13% QoQ as compared to an increase over the same period last year. This downward trend could reduce the impact of the upcoming general rate hike on 1 Jul - enacted by the Transpacific Stabilisation Agreement - unless greater effort on reducing capacity is undertaken by carriers ahead of the peak-season. While the low-fuel cost environment and ongoing cost-saving initiatives will benefit NOL, we lower our forecasts in anticipation of a slightly disappointing peak season. Lowering our P/B peg to 1.1x (1.3x previously), our fair value estimate falls to S$1.17 (S$1.38 previously). (Lim Siyi)

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NEWS HEADLINES - US stocks fell, sending the S&P 500 Index to a nine-week low after Chinese equities entered a bear market amidst concerns of a cash crunch in addition to concerns of QE tapering. - Keong Hong has been awarded a S$161.9m contract for the building of two blocks of condominium at Boon Lay Way/Gateway Drive (Jurong East Planning Area). - PUB has awarded OKP Holdings Limited with a S$15.0m contract to improve drainage in Lucky Heights Estate. - Oxley Holdings acquired a 99-year lease over a 17,280 sqm commercial and hotel development land zone in Johor, Malaysia. - Lian Beng secured two projects worth approximately S$200m, bringing the order book to a record S$1.4 billion.