OSPL - Good Morning S'pore - Central Dealing Desk

Stock Name: SATS
Company Name: SATS LTD.

Research House: UOB KayHian

Price Call: HOLD

Target Price: 3.13

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

Research House: OCBC

Price Call: SELL

Target Price: 0.60

Market Compass

08 July 2013~ Good Morning Singapore!

Singapore Idea Snippets:

08 July 2013~ Good Morning Singapore! Central Execution Team - The Excellence of Execution This product is made available by your Central Execution Team, for you as TRs of OCBC Securities to help you with your business and therefore it is confidential and only for internal circulation. It is not intended for onward circulation to non-OSPL TRs, clients or any other third party in this or any other version. Neither is this intended to be relied upon as a sole basis for any recommendation. TRs must also consider their clients' investment objectives, financial position and needs when intending to make or making any recommendation. For the front desk, by the front desk. All feedback to make this a better product is welcome. Global Flash: While You Were Sleeping Source: Marketwatch Quote for the day :Wine and cheese are ageless companions, like aspirin and aches, or June and moon, or good people and noble ventures. - M.F.K.FISHER Singapore: The Day Ahead SINGAPORE DAYBOOK:Chance to create brand loyalty in central China: IE S'pore. This is because the region's consumer market is still evolving, it says. SINGAPORE businesses should move into central China while consumers' attitudes towards brands are still evolving. With China's move to rebalance its export-oriented economy towards more domestic consumption, IE Singapore believes that central China offers abundant opportunities for businesses here, said Foong Kah Keong, IE Singapore's regional director (South China) of the China Group. Central China comprises the six provinces of Anhui, Henan, Hubei, Hunan, Jiangxi and Shanxi. According to Mr Foong, while a growing number of middle-class consumers in central China are increasingly brand conscious, they are less loyal to a particular brand compared to consumers in the coastal cities. Rather, they tend to switch among a few recognised brands. (Source: The Business Times) MARKET SCOOP CITsells Hillview property for 28% gain FSL Trust tanker redelivered SRX: Resale prices of non-landed homes up 1.8% in June Tung Lok plans 2-for-5 rights issue to raise S$8.96m (Source: The Business Times) UOB KAY HIAN says... SATS LTD | HOLD | TP: S$3.13 We provide an update following a company visit and revise down our FY14 assumptions factoring in recent data points We also raise our risk-free rate (RFR) assumptions from 2.2% to 3.0% to reflect the recent increase in 10-year Singapore Government Securities (10YSGS) Changi Airport's traffic data for 2MFY14 (April, May) indicates a slowdown with pax traffic growing at modest 2.7% and cargo traffic declining by 2.7% We lower our FY14 pax traffic assumptions to 2.7% (previously 5.5%) and cargo to -1.5% (previously 0%) SATS has an 85% share of the gateways services at Changi with Dnata accounting for the rest (newcomer ASIG has yet to garner any customers) SATS lost Qatar Airways as a gateway services customer in 4QFY13 and the full impact of that would be felt in coming quarters There is possibility that SATS could lose Qantas following the latter's tie-up with Emirates on long-haul routes When we posed this question, management simply mentioned that competitive pressures still remain Staff costs make up the biggest proportion of costs (46-47% of total costs) and SATS is heavily reliant on foreign labour Recent increases in foreign labour levy will add to overall labour costs Cost increases are negotiated with airlines annually and whenever they request a change in menu About 50% of SATS' in-flight catering revenue comes from SIA and a decline in premium loads will impact the quantum of unit meals as well as pricing Capex is expected to remain low at S$60m-70m Maintain HOLD with a lower target price of S$3.13 (previously S$3.40) At our target price, the stock offers a dividend yield of 5.1% DBS VICKERS Securities says ... GOLDEN AGRI RESOURCES | NOT RATED | TP: S$0.53 We recently hosted Golden Agri Resources (GGR) in the DBSV Pulse of Asia conference in Singapore, where the management met with 16 investors The group indicated that, as it has reached a sizeable operation, it will rely less on traders and concentrate on building its own destination markets The group is also expanding refining and oleochemical We understand the proposed acquisition of 16k ha of planted oil palm estates (announced Dec12) may take longer than expected mainly due to administrative reasons The group expects to finalise the proposed acquisition by end 3Q13 We have already imputed this in our forecast The group believes that its oil palm maturity rate will decline from here; as aggressive expansion of oil palm hectarage had occurred between 2006 and 2009 At the same time, the group indicated that smallholders might have applied less fertilizer when CPO prices plunged in 4Q12 This could adversely impact supply going forward While relative supply of soybeans is recovering considerably, some of the additional volume will be employed to restock record low inventories rather than processed into oil We currently have a fair value of S$0.53 for GGR (based on DCF) This does not include any potential dilution from issuance of new shares of subsidiary SMART Corp. (as reported by Reuters on 11 Jun13), which currently only has 2.8% free float On 19 Jun, SMART Corp announced the purchase of a bottled ionised mineral water operation OCBC Securities says... COSCO CORP | SELL | TP: S$0.60 COSCO Corp (Singapore)'s share price has fallen by about 14% since our last update ("Downgrade to Sell - Missed Expectations", 6/5/2013) such that it is close to our previous S$0.76 FV However, we do not think it is time to upgrade our call The macro environment is looking increasingly gloomy China's official PMI and the HSBC flash number have been hovering for several quarters around the 50-mark separating expansion from contraction for the manufacturing sector This implies that the growth trajectory is uncertain The IMF and OECD recently lowered their 2013 China growth forecasts to 7.75% and 7.8%, down from 8% and 8.5% respectively Meanwhile, an unexpected credit squeeze in the Chinese interbank market raised concerns over the fragility of the Chinese banking system On 20th June 2013, the seven-day repo rate shot up to a record 12% The surprise was that the PBOC took an unusually tough line in refusing to inject liquidity, at least for a few days Should the credit conditions deteriorate, we think that COSCO, with its large debt burden, will be vulnerable The group's net gearing climbed to 131% as of end 1Q13, from just 10% as of end FY10 We estimate about half of its existing debt (S$3.4b) would need to be refinanced within the next 12 months COSCO's free cashflow is also likely to remain negative for the next few years, due to its low net profit margin and increasingly backend loaded contracts in its order-book Considering the above mentioned risks, we cut our PBR peg to 1.0x (or 2 std dev below) and FV to S$0.60 (previously S$0.76) Maintain SELL