SG: MARKET PULSE: Oil & Gas, Local Retail REITs (29 Aug 2013)

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.90

Stock Name: Kep Corp
Company Name: KEPPEL CORPORATION LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 12.53

Stock Name: SembMar
Company Name: SEMBCORP MARINE LTD

Research House: OCBC

Price Call: BUY

Target Price: 5.64

Stock Name: Semb Corp
Company Name: SEMBCORP INDUSTRIES LTD

Research House: OCBC

Price Call: BUY

Target Price: 6.48

MARKET PULSE: Oil & Gas, Local Retail REITs

29 Aug 2013

KEY IDEA Oil and Gas: Looking beyond the volatility YTD, the FTSE Oil and Gas index has generally tracked the broader market, though there have been instances of a divergence in performance. Besides the exploration and production segment garnering more investor interest, we are increasingly positive on the OSV segment, while prospects of the rig market remain bright, underpinned by the sustained high oil price environment. Still, the relatively high-beta O&G sector is very much sensitive to macroeconomic events. The possibility of increasing capital flows from Asia to the US remains, and investors may want to look beyond the short term volatility and focus on the positive longer-term growth prospects of the sector. Maintain Overweight with a one-year horizon, with Ezion Holdings [BUY, FV: S$2.90], Keppel Corp [BUY,FV: S$12.53] and Sembcorp Marine [BUY, FV: S$5.64] as our preferred picks. For investors seeking less volatility in terms of earnings but with O&G exposure, Sembcorp Industries [BUY, FV: S$6.48] is a worthy candidate. (Low Pei Han) MORE REPORTS Local Retail REITs: Outlook remains sanguine Local retail landlords ended 2Q13 on a positive note, with results mostly in line with our expectations. Aggregate leverage for the quarter has also improved sequentially across the board. Notably, a significant portion of the REITs' existing borrowings are either based on fixed rates or hedged. This will likely limit the impact of rising interest rates on the REITs' DPUs and yields. Looking ahead, we are maintaining our positive view on the local retail REITs due to AEI activities and better rental rates for the leases due for renewal. In addition, the local retail landscape has remained largely stable. According to Jones Lang LaSalle (JLL) 2Q13 Singapore property market review report, the growth in rents island-wide is likely to range between 0% and 0.2%, while capital values grow by 2.7%-3.8% in 2013. We are keeping our OVERWEIGHT rating on the local retail REIT subsector. Starhill Global REIT remains as our preferred pick, due to its apparent growth drivers, higher-than-average yield of 6.8% and compelling valuation (0.88x P/B). (Kevin Tan)

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NEWS HEADLINES - US stocks advanced for the first session this week, with oil producers leading the gains as the price of crude settled at a more-than-two-year high above US$110 a barrel. - Sembcorp Industries announced the extension of its wastewater treatment business in China's Liaoning province to two new sites. - ASL Marine Holdings reported an 83.3% YoY jump in net profit to S$15.2m for 4QFY13 (versus S$8.3m in 4QFY12), on the back of a 27.8% YoY rise in revenue to S$149.5m. - Intraco has joined forces with Tat Hong Holdings and a Myanmar businessman to set up a JV company to enter the crane rental and excavator distribution business in Myanmar. - Metech International, a company that deals with electronic waste recycling, has reported a net profit of S$844k for 4QFY13 against a net loss of S$14.7m in 4QFY12. - Sin Heng Heavy Machinery's FY 2013 net profit rose 47.4% YoY to S$13.76m on the back of a "broad-based improvement across geographical markets and business segments".