OSPL - Good Morning S'pore - Central Dealing Desk

Stock Name: SATS
Company Name: SATS LTD.

Research House: UOB KayHian

Price Call: HOLD

Target Price: 3.32

Stock Name: SingTel
Company Name: SINGTEL

Research House: Credit Suisse

Price Call: BUY

Target Price: 4.10

Stock Name: GoldenAgr
Company Name: GOLDEN AGRI-RESOURCES LTD

Research House: OCBC

Price Call: SELL

Target Price: 0.465

Market Compass

10 October 2013~ Good Morning Singapore!

Singapore Idea Snippets:

10 Oct 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 : Sometimes if you want to see a change for the better, you have to take things into your own hands. - CLINT EASTWOOD Singapore: The Day Ahead SINGAPORE DAYBOOK : Board gender diversity here appalling: Bocker. But SGX chief is against use of quotas as they go against meritocracy [SINGAPORE] Magnus Bocker, chief executive of the Singapore Exchange (SGX), says he finds the lack of gender diversity on boards here "appalling", but that he is not in favour of quotas to increase the level of diversity, either. Mr Bocker, who was part of a panel discussion at the CPA Congress 2013 yesterday, expressed his dismay at the proportion of women directors on boards in Singapore, saying: "I'm shocked at the numbers - the numbers are appalling. "I think there's actually a reputational risk to Singapore in having the board structure we have; I think (only) 7 to 8 per cent of the boards right now have female (representation)," he said. Mr Bocker did add, however, that he believed the low proportion of women directors on boards has to do with the fact that a lot of the companies here are young, and are first and second-generation companies. "Compare this to companies who have 200 to 300 years of history, or at least three generations of history, of course that (the low proportion) will change." He added that the change will not happen overnight, "so we as an exchange, rest assured, will be there pushing (for this) . . . encouraging companies to explain why they are not having a certain (type of) diversity . . . We will push it". Mr Bocker, however, does not believe that Singapore ought to prescribe quotas for female representation on boards the way some countries have. "Quotas - I don't believe in, because it takes all the meritocracy that we've been so good (in) building (up in our companies) . . . (Board composition) needs to be built on meritocracy, on skillset," he stressed. Fellow panellist Tan Su Shan, managing director and group head of Consumer Banking & Wealth Management at DBS Bank, agreed with Mr Bocker. "It's long overdue for Singapore to push for more diversity for boards," she said, adding that the challenge would be "to encourage board members to accept that diversity ain't a bad thing". "To get a team to work together - now, that's the trick, because you would so much rather work with a team (whose) interests are aligned and you're all cosy and comfortable and know each other really well. "But to bring in an outsider, who comes in with a fresh perspective, totally out of the box, and maybe a little bit uncomfortable . . . That makes you strong . . . It's constructive, as long as the team still trusts one another and can work together, despite this diversity and very different talents," Ms Tan said. The panel was part of a full-day conference organised by CPA Australia to look at issues of leadership, the economic and business landscape, and accounting issues. Senior Minister of State for Finance and Transport Josephine Teo, in her keynote address to over 280 attendees, spoke about how Singapore will have to adopt a "stewardship mindset" that would compel the country "to do not only what is expedient but to focus squarely on addressing fundamental issues". For the accounting profession, in particular, Mrs Teo said that it needs to invest in capability development and specialisation, as well as for the industry to come together to share their resources. To that end, CPA Australia has started a pilot programme - with an experimental group of nine small and medium-sized accounting practices (SMPs) - to increase the capability, acquire and expand on the range of services offered by SMPs. Called the Singapore Accountancy Alliance (SAA), it "is focused on sharing resources, expanding their (the SMPs) range of services, and leveraging synergies", CPA Australia's Singapore divisional president, associate professor Themin Suwardy, said. Some of the initiatives developed under the SAA include the development of audit manual training for SMP staff and the development of a closed online forum platform. CPA Australia intends for this initiative, announced for the first time yesterday, to grow in size and scope in the future - among other things, it is looking to develop more customised technical training and to build capability in talent attraction for SMPs. (Source: The Business Times) MARKET SCOOP Fire at SingTel's Bukit Panjang facility disrupts services Singapore's GIC invests in IFC's US$1.2b infrastructure fund Singapore has low workforce engagement: Gallup Koh Brothers opens its first precast plant in Senai, Iskandar SingTel's Optus, Virgin Australia sign A$60m telecom deal (Source: The Business Times) CREDIT SUISSE Securities says ... SINGAPORE TELECOM | OUTPERFORM | TP: S$4.10 We maintain OUTPERFORM on STEL with a S$4.10 SOTP DCF-based target price, supported by 5% FY3/14E dividend yield During Jul-Sep13, the IDR and INR depreciated further by 14% and 5% QoQ, respectively, while the SGD appreciated by 1% QoQ against USD These, together with sharp depreciation of Asian currencies relative to the SGD during Apr-Jun13, mean average exchange rates (Figure 1) would put pressure on STEL's upcoming 2Q3/14 headline result We note though that these depreciations are not new news and already partly built into our current forecasts Importantly, we also expect operational improvements to continue in Singapore (mobile data monetisation, lower subsidies), Australia (cost efficiencies) and across its major associates (e.g. RPM increases in India) We maintain our forecast for 6% YoY growth in underlying profit for FY3/14E We note that there could be downside risk to our IDR and INR assumptions, but 5% change in our IDR and INR assumptions relative to SGD for FY3/15E would only affect STEL's net profit forecasts by 1.0% and 0.7%, respectively OCBC Securities says ... GOLDEN AGRI-RESOURCES | SELL | TP: S$0.465 Crude palm oil (CPO) stockpiles in Malaysia are piling up faster than expected according to a recent Reuters poll, where industry watchers see inventory in the world's second largest CPO producer climbing to 1.91m tonnes, up 15% from Aug and also the highest since Apr And as palm trees usually produce more fruits in the second half of the year, market watchers expect Sep output to surge 15% from Aug to 2.0m tonnes when the Malaysian Palm Oil Board publishes its report on 10 Oct (Thu)1 As such, industry research Oil World believes that CPO prices could drop to a low of MYR2150/MT by early next year, citing rising global stocks and an excess supply of oilseeds (soy, corn etc) Meanwhile, geo-political events are also weighing on sentiment Key among which is the impasse over the raising of US' debt ceiling Some experts warn of world-wide implication should the US government run out of money to pay its bills, as this could severely hurt the world's largest economy and even send it back into recession2 They also expect it to weight on the USD and raise interest rates across the board Also expected to be affected is the demand for crude oil, and should crude prices fall below US$100/barrel, it would curtail the biodiesel demand for CPO (even though both Malaysia and Indonesia have started new initiatives to increase the domestic mandate of biodiesel) Against this bearish background, Golden Agri-Resources (GAR), being one of the largest oil palm plantation owners in the world, could continue to underperform (CPO prices on average down 22% YoY and 2% QoQ in 3Q13) Hence we maintain our SELL rating on the stock with an unchanged S$0.465 fair value UOB KAY HIAN says... SATS LTD | HOLD | TP: S$3.32 We met with SATS to discuss its medium- and long-term prospects We are enthused by a potential cargo handling JV in Oman, likely revenue accretion from a catering business at the Sports Hub as well as strong pax throughput at Changi Consequently, we raise our DDM-based target price to S$3.32 from S$3.13 after raising our terminal growth rate assumption from 1.2% to 1.5% Changi's August pax movements rose 9.4% yoy from July's 4.1% yoy Anecdotal evidence points to the trend continuing as our channel checks have indicated a higher proportion of overseas visitors attending the F1 race on Sep 13 Consequently, we raise our FY14 pax growth assumption from 2.7% to 4.5% yoy SATS has signed a tripartite MOU with Oman Air and Oman Airport Management to develop and operate cargo facilities in Oman The new terminal at the Muscat International airport will have the capacity to handle 260,000 tonnes of cargo, which is about a fifth of the tonnage that SATS handles at Changi While the MOU is still subject to due diligence, we reckon there is a high likelihood of it going ahead as it will be beneficial for both parties SATS will bring with it extensive cargo handling expertise and strong relationships with various cargo carriers SATS will, in turn, be able to diversify its cargo exposure to an important Middle Eastern gateway We reckon the JV will boost ROE as SATS is likely to use its cash reserves Margins could be higher than that of domestic gateway operations, given that labour costs in the region are likely to be lower than that in SingaporeKey Financials When operational in Apr 14, the Singapore Sports Hub (SSH) will feature a 55,000-capacity National Stadium, a 13,000-capacity indoor stadium centre, a 3,000-capacity sports hall, along with two other venues SATS together with its JV partner Delaware North (a 70:30 JV) will operate 52 retail concessions at five venues and cater exclusively for corporate suites at the National Stadium and the Singapore Indoor Stadium SATS will also operate a restaurant at the stadium On top of that, SATS will provide local food such as hot dogs and chicken wings at five venues at the SSH On a steady-state basis, SATS guided for S$50m in revenue We believe margins could approximate that of the food solutions division's 13.6% SATS indicates it is open to gearing up further to improve ROE We take this to mean that dividend payout will not be affected by the latest acquisition of Singapore Cruise Centre (SCC) We expect SATS to generate recurring free cash flow (net of payout from JVs and associates) of S$117m for FY14 assuming it acquires 96.8% of SCC We raise our FY14 net profit forecast by 2% to S$206m after factoring in higher pax throughput at Changi airport We also raise our dividend payout for FY14 to 16.4 S cents from 16.0 S cents The increase is due to changes to our terminal growth assumptions to 1.5% (from 1.2%) with an improvement in ROE from recent acquisitions and changes to our pax growth assumptions Our valuation assumes risk free rate of 3%, discount rate of 7.0% and terminal growth rate of 1.5% Suggested entry price is S$3.15, or a 10% discount to projected total return