26 Sept 2013 ~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : These critics with the illusions they've created about artists - it's like idol worship. They only like people when they're on their way up... I cannot be on the way up again. - JOHN LENNON
Singapore: The Day AheadSINGAPORE DAYBOOK :Tharman warns of China reform's global effect. He says it would be naive to think that the major act is going to be smooth [SINGAPORE] Growth below 6.5 per cent in China will significantly impact everyone else even if the world's second-largest economy can quickly address a slowdown, Finance Minister Tharman Shanmugaratnam said yesterday. "Anything below 6.5 per cent has major implications for the rest of the world, and especially for Asia and emerging markets generally . . . It can happen, for some period of time, not by intent, but it can happen."
Although China remains fundamentally robust, the country is now undertaking far-reaching structural reform that carries real execution risks, Mr Tharman said as he described major global themes in a speech at the SkyBridge Alternatives (Salt) Asia Conference.
"Each reform carries risk, and the risks in individual reforms are not uncorrelated with the risk in the other reforms. So mistakes can happen. And it would be naive to think that this major act of structural reform in the Chinese economy is going to be a smooth one."
In essence, Chinese policymakers need to juggle a number of interrelated, dynamic parts.
"You can't just do financial reform without changing your tax and fiscal structures, particularly those related to local government. You can't do financial reforms and fiscal reforms without SOE reforms - state-owned enterprise reforms . . . (and) you can't do economic and financial reforms without social reforms."
Mr Tharman does not believe that China is headed for a hard landing because policymakers there "understand the issues well and deeply", and politically the country is able to move quickly and decisively.
China is "set on the right path, but it's extremely complicated". "Mistakes can happen, and although they can be corrected, the ripple effects on the rest of the world are significant," he said.
Mr Tharman also highlighted the still-unanswered problem of demographics in mature economies, which he expects to be a persistent problem for the next decade and beyond. "If you have a continuing stagnation of the middle in mature economies, it's going to change the global economy."
The problem of middle-class stagnation manifests itself not just in falling competitiveness relative to the growing middle class of emerging economies, but also domestically in the form of inter-generational tension as the younger populace struggle to match the wealth and growth enjoyed by older segments, Mr Tharman said.
Mature economies need to figure out "a new social compact", because commitments made when societies were more rapidly growing "are now found to be unaffordable, either because they were unfunded or because they were funded through debts which are now unsustainable", he pointed out.
"Major social and political challenges (are) not being addressed, honestly. And there is as of now no philosophical, political solution on offer."
After the speech, a Monetary Authority of Singapore spokesman told BT that Mr Tharman was not referring to Singapore in his mention of mature economies.
(Source: The Business Times)
MARKET SCOOP
AsiaPhos seeks about $24m in IPO
Asia Fashion Holdings says it is "likely to remain a going concern"
M1, StarHub oppose SingTel ownership of fibre network
Singapore's Falcon Energy jumps on broker report
No need for retail banks here to be ring-fenced:MAS
UOB launches FDI advisory unit in Vietnam
MOM raps 10 firms for unfair hiring
(Source: The Business Times) KIM ENG Securities says... TAT HONG HOLDINGS | HOLD | TP: S$1.00
We met with management to assess the outlook on the company's respective markets
Tat Hong's core market, Australia, is expected to remain weak on the back of a change in the country's political leadership, while earnings from China are supported by reasonable growth from nuclear plant construction works
Historically, share price is dependent on Australia activities; therefore, until we see concrete beginnings on Australia's infrastructure projects, we deem it too early to turn positive on Tat Hong just yet
We raise our TP to SGD1, pegged to 12.3x FY6/14F PER, in line with its 5-year mean and adjust our earnings forecasts by 2%
Upgrade to HOLD
While we expect earnings from Australia to remain weak, we find the overall commitment on infrastructure from the Coalition Party to be positive for Tat Hong
The party has committed approximately AUD20.4b to infrastructure projects; the question now is execution
We forecast a 8% drop in Tat Hong's revenue from general equipment rental in FY6/14 as a halt in public works has been affecting the local construction sector, especially in
Queensland and New South Wales
Catalysts to watch out for would be the start of infrastructure projects and possible signs of a revival in utilisation rates
The weakness in Tat Hong's FY6/14 earnings will be offset by crane rental revenues from ASEAN and China
With economic activity in China showing signs of bottoming out, this could support construction activities in China
This was validated from China's September PMI rising to the highest since March
Tat Hong is focused on cost-cutting measures to soften the impact of depreciation costs from recent crane purchases
We expect Tat Hong to consolidate some operations in Singapore and move into Iskandar
It has secured a 22-year lease from JTC for a 16,100sqm plot in Tuas, which would allow its 11 Gul Crescent site to be divested through a public tender by Mar 2014
We estimate it could book in around SGD20-25m from this
Since our downgrade to SELL from 1QF6/14 disappointing results, Tat Hong has fallen 16%, which we think reflects the abrupt slowdown in infrastructure works in Australia
Upgrade to HOLD, for we think the share price will find support at this level, given it trades in-line with its 5-year historical P/B of 0.8x
CIMB Securities says ...
KEPPEL T & T | OUTPERFORM | TP: S$1.65
We factor in contributions from the new logistics parks in China and Singapore, which raises FY13-15 EPS by 2-6%
Our SOP-based target price inches up to S$1.65
We maintain our Outperform call, with new logistics facilities and data centre additions as catalysts
Historically, Keppel T&T has relied on its associates' contributions to drive earnings growth; 71-82% of its earnings come from its 20% stake in M1
With the addition of four new logistics facilities and a third data centre in FY14-15, we believe the company's core logistics and data centre operations can contribute to 31-40% of PBT in FY13-16, a significant increase from its historical 17-29% since FY07
In the long term, we believe Keppel T&T's holding company discount can narrow from its historical 20-25% to 10-15% when it builds up its core
We estimate that the four new logistics facilities will add 144,000sm of warehouse space to the current 229,000sm of space owned by Keppel T&T and its subsidiaries
Given the sheer size of these new facilities, we forecast yoy logistics revenue growth of 16-30% in FY14-15 and we expect the logistics segment to contribute to 39-45% of our earnings growth forecasts for FY14-15
The third data centre, Keppel Datahub 2, will add 6,000sm to the current 12,300sm of data centre space that Keppel T&T runs in Singapore
We expect data centres to contribute to 31% of our earnings growth forecasts in FY14-15
Keppel T&T is currently trading at 10.1x rolling forward P/E, 1 s.d. below its historical mean of 11.8x
We believe these valuations are undemanding given the 12-18% earnings growth we forecast for FY13-15 with the addition of new logistics and data centre facilities
Our SOP-based target price of S$1.65 implies 13.2x forward P/E (1 s.d. above mean), which we believe is warranted given the strong earnings growth DMG OSK Securities says... MARCO POLO MARINE BUY | TP: S$0.61
Last week, we brought a group of investors to MPM's Batam yard
We saw all three drydocks busy with repair operations, and the construction of a third-party 8,000bhp AHTS vessel and two similar vessels for its own fleet. In preparation for better shipbuilding times, a new slipway is almost complete
Investors were most interested in the company's 20% net margins
We maintain our BUY call, SGD0.61 TP
In short, this is a yard still busy enough to employ 1,000 workers today
The optimal shipyard strategy is to utilise available space for shipbuilding during times of boom, and make facilities improvements during downturns
We see this strategy being executed with a new slipway almost complete
The recent upturn in commercial shipbuilding is relieving the pressure on offshore asset prices, which should induce a recovery in offshore building prospects
MPM and associate PT BBR are on the cusp of renewing their AHTS charters, with current contracts expiring in September to November
With AHTS supply still trailing far demand in Indonesia, we are highly confident that each vessel will be re-chartered immediately at prevailing market rates, which are 33% higher
The most common questions for management centered on MPM's very high margins and their sustainability
Management said its AHTS charter margins are "easily 40%", supporting the findings in our 21 June report, Taking Another Bite Out of The Indonesian Pie
With future growth coming from more AHTS vessels joining the fleet and being re-chartered at higher rates, MPM is likely to maintain its high margins
No reason for high-return asset-driven company to trade well below book value
MPM is trading at 0.8x P/BV, clearly undervaluing its 15% ROE. FY14F P/E is a mere 5x
We believe that MPM's quality assets are worth much more, and maintain our BUY call and SGD0.61 TP |
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