MARKET PULSE: Consumer Sector, Rotary Engineering (4 Mar 2013)

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.34

MARKET PULSE: Consumer Sector, Rotary Engineering

4 Mar 2013

KEY IDEA Consumer sector: Outperform STI in 2013? Summary: Companies included in the FTSE Straits Times Consumer Services Index showed continued improvement in the 4QCY12 earnings season with both top and bottom-line figures exceeding consensus estimates. Revenue was stronger than expected (+10.3% over forecasts) while a combination of cost-control initiatives and favourable input prices during the period saw average earnings per share beat consensus projections by 16.6%. In our view, this mirrors the growth in contribution from overseas markets - particularly EM-Asia - as domestic retail sales figures were tepid during the same period. In the coming months, we continue to favour counters with greater EM-Asia exposure but urge investor caution as the recent upward re-rating of the sector has led to some counters being priced ahead of fundamentals. As such, we also maintain our preference for counters with defensive qualities like Sheng Siong [BUY; FV: S$0.69]. Maintain NEUTRAL on the overall consumer sector. (Lim Siyi) MORE REPORTS Rotary Engineering Ltd: JV deficit remains unresolved Summary: Rotary Engineering Limited (Rotary) reported a second consecutive quarter of losses with 4Q12 net losses to shareholders of S$18.4m (3Q12: S$66m). Last quarter was marked by additional provisions made for its SATORP project and lower volume of work due to the late start of Fujairah Oil Terminal (FOT) project. FY12 revenue was down 16% to S$444m, while loss attributable to shareholders was S$80m, compared to profit of S$31m in the previous year. While the SATORP execution issues may be largely behind, the deficit at its JV remains unresolved. In a worst case scenario, Rotary - being the controlling shareholder - may need to take an impairment loss. Another concern is the tight labour market in Singapore, which represents about 50% of Rotary's order-book. Maintain SELL with an unchanged S$0.34 fair value estimate. (Chia Jiunyang)

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NEWS HEADLINES - US markets rose on Friday as investors looked past the risks to the economy of impending federal spending cuts and bid up equities. The Dow was up 0.25%. - The total market capitalisation of SGX-listed companies fell 1.2% in Feb as the stock market took a breather after hitting a multi-year high in Jan. - Hotel room rates in Singapore climbed to a record high, coming in at an estimated S$261 for 2012 as a whole and making the city-state's average rate among the priciest in the region. - Shoebox units could benefit from the new tax policy which imposes a more progressive tax structure on residential homes, according to a report by Knight Frank. - Hong Leong Asia posted a net loss of S$34.9m for FY12, as compared to a net profit of S$83.3m a year ago. - Fu Yu Corporation has turned a profit for 4Q12 but it could be placed on the watch-list as this is the third consecutive year the group has recorded pre-tax loss. - Q&M Dental Group posted a S$5.0m profit for FY12, up 9.2%, on the back of stronger performance at its existing dental clinics, and contributions from new outlets.

MARKET PULSE: Downstream O&G, Marco Polo Marine, Olam (28 Nov 2012)

Stock Name: PEC
Company Name: PEC LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.76

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.34

Stock Name: Marco Polo
Company Name: MARCO POLO MARINE LTD.

Research House: OCBC

Price Call: BUY

Target Price: 0.56

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 1.80

MARKET PULSE: Downstream O&G, Marco Polo Marine, Olam

28 Nov 2012

KEY IDEA Downstream Oil & Gas: Structural shifts towards developing nations The shift in oil demand growth from OECD countries to non-OECD countries, coupled with an increasing refining overcapacity has put pressure on global refinery utilization rates and refining margins. Against this backdrop, Singapore said that it has no plans to attract any more green-field refinery investments, and will focus on getting existing refineries to upgrade or expand their facilities to produce higher-value petrochemicals, fuels and lubricants. We believe the net effect will be fewer jobs and even stiffer competition for the EPC contractors. As such, we maintain our UNDERWEIGHT on the sector. We like PEC (BUY; FV: S$0.76) for its attractive valuations, but would avoid Rotary (SELL; FV: S$0.34) as we believe the risk of further cost over-run is still relatively high. (Chia Jiunyang) MORE REPORTS Marco Polo Marine: Increasing its exposure to the offshore sector Marco Polo Marine (MPM) reported a 3% YoY fall in revenue to S$19.8m and a 10% increase in net profit to S$3.9m in 4Q12, bringing full year revenue and net profit to S$89.8m and S$21.3m, respectively. Results were in line with our expectations; full year net profit was exactly what we had forecasted earlier. As for the long-awaited BBR listing, we think there is a possibility of it coming through in the coming months. We expect its offshore vessel fleet to grow while BBR downsizes its tugs and barges fleet. Meanwhile the ship repair business remains healthy while charter rates are expected to be stable. Rolling forward to FY13 earnings with an unchanged peg of 8x, our fair value estimate rises from S$0.53 to S$0.56. Maintain BUY. (Low Pei Han) Olam International: Refutes MW's report in brief statement Olam International has refuted the Muddy Waters (MW) report, saying that "there is no substance in their broad allegations" after an initial read. Olam adds that it will continue to study the report in greater detail and "will provide a fuller response in due course". In addition, Olam says it will clear its name and hold MW accountable for their damaging actions. While Olam has reiterated that its accounting practices are fully compliant with international accounting stands, we do not expect the market to be pacified by this brief statement, especially since the allegations made by MW were quite specific and relate to Olam's acquisitions, capex, and changes in accounting entries between the unaudited financial statements and its annual reports. We are still in the process of reviewing our Hold call and S$1.80 fair value; but we expect volatility in the share price to persist until Olam can provide a more substantial response that addresses the specific issues raised by MW. (Carey Wong)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks fell on Tue after top lawmakers said that little progress had been made in talks to avoid the fiscal cliff. The Dow slid 0.7% to 12,878.13, led by Hewlett-Packard Co, while the S&P 500 Index declined 0.5% to 1,398.94 and the Nasdaq ended 0.3% lower at 1,398.94. - Goodland Group's FY12 PATMI rose to S$25m from S$9.2m a year ago, supported by an 84% surge in revenue to S$56m as sales from development projects of higher value were recognised. - Albedo Ltd plans to raise up to S$3.5m in net proceeds through the issue of 735.4m rights shares at 0.5 S cent each, with detachable warrants. It intends to use the money raised to fund its expansion and as general working capital. - Harry's Holdings warned that its FY12 performance is likely to be affected due to lower than expected sales and various one-time costs incurred since 30 Jun, as well as increased competition and inflationary pressure in food prices.

MARKET PULSE: COSCO Corp, StarHub, SIA, ROXY, Rotary (5 Nov 2012)

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

Research House: OCBC

Price Call: HOLD

Target Price: 0.84

Stock Name: StarHub
Company Name: STARHUB LTD

Research House: OCBC

Price Call: HOLD

Target Price: 3.75

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.34

MARKET PULSE: COSCO Corp, StarHub, SIA, ROXY, Rotary

5 Nov 2012

KEY IDEA COSCO Corp: Upgrade to HOLD Summary: COSCO Corp (Singapore) reported a fairly muted set of 3Q results that were roughly in-line with ours and the street's expectation. 3Q12 revenue was down 3% YoY to S$937m, while PATMI decreased 17% YoY to S$26.6m. It also wrote back S$8.9m of provisions for its construction contracts. This comes after S$15.9m of write-backs in 2Q12, reversing its eight-quarter trend of making provisions for expected losses. This could imply improved execution for its shipbuilding and offshore contracts. Meanwhile, COSCO's share price has fallen by 10% since we downgraded it about four months ago. As the current price has a less than 10% upside to our unchanged S$0.84 fair value estimate, we are now upgrading the counter to HOLD. (Chia Jiunyang) MORE REPORTS StarHub Ltd: HOLD with higher S$3.75 FV Summary: Again, slightly better-than-expected results from StarHub Ltd, with 3Q12 earnings coming in some 16.5% ahead of our forecast, aided by a strong recovery in service EBITDA margin to 33.9% (versus 32.2% in 2Q12). It has maintained its quarterly dividend of S$0.05/share (payable on 23 Nov). For 9M12, revenue grew 4.0% to S$1767.5m, meeting 73.6% of our full-year forecast, while net profit jumped 21.8% to S$271.4m, or 83.2% of our FY12 estimate. As the margin improvements came in ahead of our expectations, we are bumping up our FY12 earnings forecast by 7.5% (FY13 by 4.6%). Our DCF-based fair value also inches up from S$3.47 to S$3.75. While we continue to like StarHub for its defensive earnings, we think that its valuations are not compelling (trading close to 2 standard deviations above its 3-year average EV/EBITDA) after its strong YTD outperformance. Hence we maintain our HOLD rating. (Carey Wong) Singapore Airlines: Optimism for clear skies Summary: Singapore Airlines's (SIA) 2Q13 financial results saw a marginal top-line improvement despite the challenging operating environment. The Group's revenue grew 2.5 % YoY to S$3.8b on the back of higher number of passengers carried although its operating expenses (higher jet fuel costs and variable costs associated with capacity growth) grew at a faster pace and resulted in a decline in operating profit to S$70.4m (-42.7% YoY). The Group also announced an interim dividend of 6 S cents per share versus 10 S cents declared over the same period last year. Looking ahead, while weaknesses still persist in its cargo business, a series of prior announcements regarding fleet expansion for the Group seem to signal management's optimism for clear skies. Comparing SIA's operating statistics with that of the industry (i.e. IATA), we concur with this assessment as the data does show a relatively better performance in light of weak demand. Maintain HOLD at an unchanged fair value estimate of S$10.85. (Lim Siyi) Rotary Engineering: Hefty losses from SATORP Summary: Rotary Engineering (Rotary) reported a hefty 3Q12 net loss of S$66m, mainly due to "additional costs, including provisions for foreseeable losses of $40m" for the SATORP project. Although the group had earlier warned of net losses for 3Q12 and FY12, the quantum of the loss was far worse than what we expected (we had estimated net loss of S$8m). To put things in perspective, the magnitude of the 3Q12 loss was so steep that it wiped out Rotary's previous seven quarters of profits. The group has re-assessed the project budget and made the necessary provisions. Despite so, we think it may still be too early to turn positive. One further risk is the need to recapitalize its 51%-owned JV that is currently working on the SATORP project. Maintain SELL with lower fair value estimate of S$0.34, still based on 0.8x FY13F BPS. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks fell on Friday despite a better-than-expected Oct jobs report, as investors stayed cautious ahead of Tuesday's presidential election. The Dow and S&P 500 each slid 0.9% to end at 13,118.34 and 1,414.20, respectively, while the Nasdaq finished 1.3% lower at 2,982.13. - Chuan Hup Holdings' 1Q13 PATMI fell 68% YoY to US$7.2m, largely due to the absence of one-time gains recorded a year ago. - Beng Kuang Marine expects a loss for 3Q12 and 9M12, due mainly to impairment of its investment and goodwill in its solid waste recycling business. - Abterra Ltd expects a wider loss for 3Q12 due to currency translation losses on its investment in a Chinese mining firm, and a fall in revenue caused by inadequate credit facilities. - HL Global Enterprises reported a 3Q12 net loss of S$0.3m, reversing a profit of S$0.3m a year ago, despite an 11% rise in revenue from continuing operations to S$9m.

MARKET PULSE: Biosensors, Hyflux, Rotary (02 Nov 2012)

Stock Name: Biosensors
Company Name: BIOSENSORS INT'L GROUP, LTD.

Research House: OCBC

Price Call: BUY

Target Price: 1.70

Stock Name: Hyflux
Company Name: HYFLUX LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.44

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.43

MARKET PULSE: Biosensors, Hyflux, Rotary

2 Nov 2012

KEY IDEA Biosensors International Group: Opportune time to accumulate We lower our FY13/14F revenue forecasts on Biosensors International Group (BIG) by 2.7/4.0%, and our core PATMI projections by 3.7/4.3% as we expect weaker licensing revenues and softer sales growth from Europe. Nevertheless, we believe that BIG remains well-positioned to capture market share from its competitors given continued positive clinical trial data for its flagship BioMatrix™ family of drug-eluting stents. BIG's recent share price pullback appears to be overdone, in our view. Despite our earnings cut and a lower adopted USD-SGD assumption, we opine that valuations for BIG are still compelling. The stock trades at 11.3x blended FY13/14F core EPS, which is approximately 1.5 SD below its 3-year average forward core PER. Maintain BUY, with a revised fair value estimate of S$1.70, from S$1.81 previously. (Wong Teck Ching Andy) MORE REPORTS Hyflux: 3Q12 margins improve Hyflux Ltd saw 3Q12 revenue rising 77% YoY to S$155.0m, while net profit also increased 15.1% YoY to S$14.5m. Gross margin also recovered to 41.2% in 3Q12 from 34.5% in 2Q12 and also close to the 43.4% seen in 3Q11. For 9M12, revenue jumped 70% to S$484.4m, meeting 82% of our full-year forecast, while net profit rose 17% to S$39.7m, or 62% of FY12 forecast. Hyflux notes that the current environment remains challenging, but management believes that the fundamental demand for water remains strong, especially in countries like China, India and MENA. We are also keeping our FY12 and FY13 estimates unchanged and are raising our fair value from S$1.35 to S$1.44 as we roll forward our 18x peg to blended FY12/Fy13F EPS. Maintain HOLD; but fresh catalyst could come in the form of a substantial contract win. (Carey Wong) Rotary Engineering: Sharp losses in 3Q Rotary Engineering (Rotary) reported a 3Q12 net loss of S$66m, mainly due to the cost over-run situation for its SATORP project. Recall that the group recorded S$22m of provisions for the SATORP cost over-run in 2Q12 and warned of net losses for 3Q12 and FY12. During the last quarter, the group said it booked in "further additional costs, including S$40m of provisions for foreseeable losses" on the project. We will be speaking with management later to understand the situation better. In the meantime, we keep our SELL rating but put our S$0.43 fair value estimate under review. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks rose on positive data showing stronger-than-expected consumer confidence and manufacturing activity in Oct. The Dow +1.0% to 13,232.62, while the S&P 500 +1.1% to finish at 1,427.59 and the Nasdaq ended 1.4% higher at 3,020.06. - Cambridge Industrial Trust's 3Q12 net income available for distribution rose 6.6% YoY to S$13.7m, supported by an 8.5% rise in revenue to S$22.5m. DPU rose 11% to 1.204 S cents. - CitySpring Infrastructure Trust's 2Q13 cash earnings more than doubled to S$34.5m, from S$14.5m a year ago. It kept its DPU unchanged at 0.82 S cents. - SC Global Development's 3Q12 PATMI rose 9% YoY to S$34.6m, supported by a 20% increase in revenue to S$238m, due to new sales of completed properties and higher revenue recognition for projects as construction progressed. - Magnus Energy Group expects to report a higher profit for 3Q12 compared to a year ago, mainly due to gains on the sale of financial assets.

MARKET PULSE: Ezra, Triyards, Rotary (25 Sep 2012)

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.43

MARKET PULSE: Ezra, Triyards, Rotary

25 Sep 2012

KEY IDEA Ezra Holdings: Progress on all fronts As tendering activity in the subsea market continues to be buoyant and the industry outlook is set to remain positive, we increase our FY13 subsea new order wins estimate for Ezra Holdings to US$900m, increasing our fair value estimate from S$1.35 to S$1.48. At the same time, we are positive on the impending listing of Ezra's engineering and fabrication arm, Triyards, as this will allow the latter to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. The move may also allow Ezra and Triyards to leverage on each other for business opportunities. Finally, an equity carve-out increases information transparency, improving investors' understanding of the parent's firm value. Assuming Triyards trades at 9x FY13F earnings with a share price of S$0.78, we estimate that this would lower our fair value estimate for Ezra from S$1.48 to S$1.40. Shareholders' approval still has to be sought at an EGM this week. Maintain BUY. (Low Pei Han) MORE REPORTS Triyards Holdings Ltd: Specialist yard branching out With two yards in Vietnam and a fabrication facility in the US, Triyards Holdings Ltd (Triyards) is an engineering and fabrication solutions provider focused on the offshore oil and gas industry. Unlike many shipyards, the group has a strategic focus on the construction of self-elevating units (liftboats), having established a significant track record. Originating from Ezra Holdings which will hold a 67% stake post listing, Triyards may be able to be involved in some of the projects that Ezra undertakes and tap into Ezra's clientele base. Based on 9x FY13F earnings, we derive a fair value estimate of S$0.78. We do not have a rating on Triyards. (Low Pei Han) Rotary Engineering Ltd: Profit warning Rotary Engineering Ltd (Rotary) issued a profit warning of net losses for the coming quarter and FY12F. According to management, losses were mainly due to the SATORP project. This should not come as a total surprise as Rotary had previously reported that it faced "major challenges" in its execution and warned that "additional costs … will be incurred to rectify" certain issues. The group's ability to manage the cost over-run issue may be limited given the shortage of subcontractors in Saudi Arabia market and the tight deadline for completion. We now project a net loss of S$2.5m in FY12F and a subsequent recovery in FY13F. We also lowered our P/B peg to 0.8x (previously 1.0x) and fair value estimate to S$0.43 (previously S$0.50). Downgrade to SELL. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - The Dow and the S&P 500 Index both slipped 0.2%. Stocks fell globally after German Chancellor Merkel and French President Hollande reportedly failed to agree on a time frame to start joint oversight of Europe's banking system. - Apple dropped 1.3% as opening-weekend iPhone 5 sales missed some analysts' targets. - The Securities & Industry Council has rejected Fraser & Neave's bid to make the Thai consortium raise its general offer to adjust for a proposed capital reduction. - Chasen Holdings has signed a deal for a transfer-operate-transfer project involving a purified water treatment plant and a waste water treatment plant in Jilin City, China. This marks the group's first such project in China. - SunRight's FY12 net profit fell 87% to S$615k. Revenue slid 9% to S$105.55m. - Courage Marine Group is selling a vessel for US$3.86m. It expects net proceeds of US$3.76m from the disposal.

MARKET PULSE: Transportation Sector & Rotary Engineering (5 Jun 2012)

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.71

Stock Name: ComfortDelGro
Company Name: COMFORTDELGRO CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.53

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.50

MARKET PULSE: Transportation Sector & Rotary Engineering

5 Jun 2012

KEY IDEA Land Transportation sector: Difficulties to remain For the month of May, the defensive nature of the two public transport operators (PTOs), Comfort Delgro (CD) and SMRT, has limited their losses against a backdrop of worsening equity market performance. Although this market pull-back has resulted in lower fuel prices and provided a temporary relief for the PTOs, any upside potential remains limited at this juncture. We expect greater fuel consumption and increasing staff costs to negate any potential fuel cost savings resulting from the dip in fuel costs. Furthermore, no fare adjustments are expected for the year, which will cause the trend of declining average fares to persist further. While a fare review committee has been announced by the government, any beneficial effects from revisions will only be felt in 2H2013. Therefore, we downgrade the sector to NEUTRAL and maintain our HOLD ratings on both SMRT [HOLD; FV:S$1.71] and CD [HOLD; FV:S$1.53]. (Lim Siyi) MORE REPORTS Rotary Engineering: Not time to buy yet Rotary Engineering Limited (Rotary) share price has fallen by 22% in June and is now at a three-year historical low of S$0.50, representing almost 1x P/B (one standard deviation below its 5-year average). We believe that this was mainly due to its disappointing 1Q12 results, continued uncertainty in the global economy and investors' preference for defensive non-cyclical counters. That said, we do not see any clear near-term catalysts. Moreover, we believe that there could be more downside than upside risks at this juncture. Therefore, we lowered our valuation peg to 1x (previously 1.2x) and fair value to S$0.50 (previously S$0.61). Maintain HOLD. (Chia Jiunyang)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - A surprise drop in US factory orders weighed on shares of manufacturers and sent the Dow lower for the fourth consecutive session, while a late rally moved up the S&P 500 Index and the Nasdaq. - The euro rose against the dollar Monday on conjecture that European leaders will strengthen fiscal union across the shared-currency zone. - OKP Holdings has clinched a second contract from the PUB in two months. The latest contract, valued at S$7.5m, involves drain works in the areas of Queen Astrid Park, Benoi Rd and Wan Lee Rd. - F&N's wholly-owned serviced residence operator, Fraser Hospitality Pte Ltd, opened its third Middle East property in Qatar yesterday. Fraser Hospitality is on target to add three more properties in Oman and Saudi Arabia by next year. - Catalist-listed ES Group (Holdings) Ltd launched the first of its two bunker vessels constructed at the group's 50%-owned subsidiary's shipyard in Thailand. Both vessels are expected to contribute positively to financial performance starting from 2H12.

MARKET PULSE: StarHub, Rotary and MP Marine (07 May 2012)

Stock Name: StarHub
Company Name: STARHUB LTD

Research House: OCBC

Price Call: HOLD

Target Price: 3.10

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Stock Name: Marco Polo
Company Name: MARCO POLO MARINE LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 0.43

MARKET PULSE: StarHub, Rotary and MP Marine

7 May 2012

KEY IDEA StarHub Ltd: 1Q12 results slightly ahead Summary: StarHub Ltd saw 1Q12 revenue climbed 5.8% YoY (but eased 3.5% QoQ) to S$590.9m, or just 2% shy of our forecast. Net profit jumped 27.0% YoY (down 4.6% QoQ) to S$88.3m; while the figure was nearly 13.2% ahead of our forecast, we note that the increase came mainly from the NBN roll-out - higher adoption grants and also higher amortised income. And as expected, StarHub has declared a quarterly dividend of S$0.05/share. For FY12, management has kept its previous guidance and this could disappoint the street as some expectations of a possible capital management, or a higher dividend payout, have been built in by the recent share price outperformance. As the numbers were mostly in line with our expectation, we are leaving our forecasts unchanged. We also note that the higher adoption grants and amortised income for the NBN roll-out are unlikely to be repeated in the subsequent quarters, or at least not in the same magnitude. Hence, we are also keeping our DCF-based fair value of S$3.10. Maintain HOLD. (Carey Wong) MORE REPORTS Rotary Engineering: 1Q results hit by lower gross margin and FX loss Summary: Rotary Engineering (Rotary) reported a dismal set of 1Q12 results and this came in below our and the street's expectations. Although net revenue increased by 2% YoY, profit attributable to shareholder fell by 41% to S$3.2m on lower gross margins (1Q12: 14%; 4Q11: 18%) and a steep foreign exchange loss of S$4.6m. On a positive note, Rotary's net cash position has improved to S$46m as of end-Mar 12 (end-Dec 11: S$5m). We lowered our FY12-13F gross margin assumptions to 15-16% (previously 20%) and our P/B valuation peg to 1.2x (previously 1.3x). This in turn lowered our fair value estimate to S$0.61 (previously S$0.72). Maintain HOLD. (Chia Jiunyang) Marco Polo Marine: In-line 2QFY12 results Summary: Marco Polo Marine (MPM) reported a 40% YoY rise in revenue to S$31.0m but saw a 22% fall in net profit to S$4.2m in 2QFY12, such that 1HFY12 figures accounted for 53% and 49% of our full year estimates, respectively. Revenue was boosted by the group's shipbuilding and repair operations, but a drop in other operating income and an increase in administrative expenses led to a lower bottom-line. There was also a S$0.8m share of loss of associated companies which was mainly due to unrealized foreign exchange losses by BBR. Pending an analyst briefing later, we maintain our HOLD rating but put our fair value estimate of S$0.43 under review. (Low Pei Han)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks slumped on Friday, sending the S&P 500 Index to its biggest weekly retreat this year, due to disappointing data on the labour markets in America and Europe. - SC Global recorded a net loss of S$10.0m for 1Q12 versus a net profit of S$72.8m a year ago. Revenue had declined 78% YoY to S$49.8m. - GEMS TV saw PATMI for 3Q12 jump 896% YoY to S$1.45m, mainly due the sale of its remaining inventory to Multimedia Commerce Group. - Ultro Technologies posted a net loss of S$360k for 1Q12 versus a net profit of S$2.15m a year ago. - Eratat Lifestyle registered a 19% YoY drop in 1Q12 revenue to RMB187.7m. PATMI dropped 64% to RMB13.5m.

Rotary Engineering: Slim pickings

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: CIMB

Price Call: SELL

Target Price: 0.75

Rotary Engineering [ PDF] Slim pickingsRTRY SP / ROTE.SI |  UNDERPERFORM - Maintained  |  Share Price S$0.75- Tgt. S$0.63 Oil & Gas - Equipment &Svs  |  - by Zhi Bin YEO

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The outlook for downstream EPCservice providers remains dour. Fierce competition on Jurong Island hasresulted in margin slippage. The government's aid to help infrastructurecompanies internationalise cannot come quickly enough. At 21% of FY11 (full-yearat 77%), 4Q was 53% below our forecast due to lower-than-expected revenuebut broadly in line with consensus. We cut our FY12-13 EPS forecasts andintroduce FY14 numbers. However, we raise our target price, now at 1.2x(1x before) CY12 P/BV, at 1 SD below mean. Underperform maintained.



Source: CIMB 24 February 2012

MARKET PULSE: Genting, Hyflux, NOL, SIA, Rotary, SingPost and Ezion (23 Feb 2012)

Stock Name: Genting SP
Company Name: GENTING SINGAPORE PLC

Research House: OCBC

Price Call: BUY

Target Price: 2.02

Stock Name: Hyflux
Company Name: HYFLUX LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.55

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 1.15

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Stock Name: SingPost
Company Name: SINGAPORE POST LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.14

Stock Name: EzionHldg
Company Name: EZION HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.18

MARKET PULSE: Genting, Hyflux, NOL, SIA, Rotary, SingPost and Ezion

23 Feb 2012

KEY IDEA Genting Singapore: Expect near-term sell-down Summary: Genting Singapore (GS) could see a near-term sell-down as its FY11 earnings of S$1,011.1m (+55%) were 12% below Bloomberg consensus; but were still 9% above our forecast. Market may also be disappointed to learn that GS has again lost market share to Marina Bay Sands, including the VIP market share due to its exceptionally high hold rate in 4Q11; although it has managed to maintain its profitability. Nevertheless, GS believes that quality of the VIP customers are more important than quantity; and expects to attract more high rollers with its newly-opened luxurious Beach Villas. We maintain our BUY call with S$2.02 fair value, given its strong cash-flow generating ability, which increases the odds of a higher dividend this year. As a recap, GS declared an unexpected final dividend of S$0.01 for FY11. (Carey Wong) MORE REPORTS Hyflux: Upping fair value to S$1.55; HOLD Summary: Hyflux Ltd posted a much better-than-expected FY11 showing, with revenue of S$482.0m coming 10% and 3% above our and consensus forecast respectively; net profit of S$53.0m was also 7% and 11% above. Hyflux also declared a final dividend of S$0.021, bringing the full-year payout to S$0.0277, down from the S$0.0417 in FY10. Going forward, we expect Hyflux to focus more on Asia, especially Singapore, as the short-term outlook for MENA remains uncertain. In view of the better-than-expected results, we are modestly bumping up our FY12 estimates by 1.4-6.0%. We also raise our fair value from S$1.28 to S$1.55, based on 18x FY12F EPS (versus 15x previously). But given the limited upside, we maintain our HOLD rating. (Carey Wong) Neptune Orient Lines: Nightmare of a quarter Summary: Neptune Orient Lines (NOL) surprised the street by turning in a net loss of US$320m in 4Q11, which was even higher than consensus' full year net loss estimate of US$275m. 4Q11 revenue fell 13% YoY to US$2.4b, while FY11 revenue eased 2% YoY to US$9.2b. Thus far in 1Q12, freight rates have averaged 7% higher but bunker prices have more than kept pace by climbing 8%. Much will now depend on how successful liners are in rate hikes for both Asia-Europe and transpacific trade lanes. Given the possibility of shipping liners successfully raising freight rates, we increase our fair value estimate of NOL to S$1.15/share, based on a 0.9x P/B multiple or half a standard deviation below historical average. However, we reiterate our SELL rating on NOL after a dreadful 4Q11 and an equally challenging outlook. (Eric Teo) Singapore Airlines: Reduced freighter capacity by 20% Summary: Singapore Airlines (SIA) yesterday said SIA Cargo has moved to reduce its freighter capacity by 20% after seeing continued weakness in demand and high fuel prices. The move comes after SIA Cargo's freight load factor fell to 58.5%, which is also the first time that it dropped below 60% since Apr 2009. The recently reduced capacity will continue into the northern summer operating season, which starts late next month. We feel the reduction of freighter capacity is a much needed move for SIA, especially when its belly-hold cargo capacity is increasing in tandem with passenger capacity increase. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.(Eric Teo) Singapore Post: Proposed issue of senior perpetual cumulative securities Summary: Singapore Post (SingPost) has announced a proposed issue of SGD-denominated senior perpetual cumulative securities, which is expected to be launched in the near future, subject to market conditions. The group has appointed DBS Bank as the lead manager and bookrunner, and investor meetings in Singapore will start tomorrow. SingPost has a strong cash balance of S$273m (excluding held-to-maturity assets) as at Dec 2011 but it has a S$300m 10-year bond maturing in Apr next year. The group is also on the lookout for acquisition opportunities for growth. Pending more details from management, we maintain our BUYrating with S$1.14 fair value estimate on the stock. (Low Pei Han) Rotary Engineering Ltd: Results within expectations. Summary: Rotary Engineering Ltd ("Rotary") reported a 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. FY11 revenue of S$531m (down 25%) and net profit of S$31m (51% decline) were within our expectations but were below the street's expectations. Rotary's current order-book also decreased to S$690m from S$758m as end-Nov 11. Meanwhile, the group has proposed a 2 S cts final dividend. Pending an analyst briefing later, we put our Hold rating and S$0.61 fair value estimate UNDER REVIEW. (Chia Jiunyang) Ezion Holdings: To raise S$94.6m via placement Summary: Ezion Holdings (Ezion) has proposed a placement of 110m shares at S$0.88 per share, representing a discount of about 6.6% to the weighted average price of S$0.9422 for trades done on 21 Feb 2012 before the trading halt yesterday. This will increase Ezion's existing issued and paid-up share capital by ~15.4%, and though this is EPS dilutive, proper allocation of funds to projects with decent ROE could mean that this is an earnings accretive move in the longer term. The placement will allow Ezion to raise net proceeds of about S$94.6m, of which 70-90% will be used for the acquisition of offshore & marine assets (likely the expansion of the service rig business), and the rest for general working capital. Meanwhile, Ezion will seek the approval of SGX for the listing of the shares. The stock price may open lower this morning in response to the proposed placement, but is unlikely to be substantial given that the discount to the last traded price is about 6.9%. Maintain BUY with S$1.18 fair value estimate. (Low Pei Han)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - Stocks fell worldwide and US Treasuries rose on after weaker manufacturing reports out of Europe and China. European services and manufacturing output unexpectedly shrank in Feb after expanding in Jan (Markit Economics), and China's manufacturing may shrink for a fourth month (HSBC and Markit). - Chip Eng Seng recorded that net profit for 4Q11 fell 28% YoY to S$28.8m as total revenue fell 58% to S$57.5m. - China Aviation Oil Singapore (CAO) saw 4Q11 fall 43% YoY in earnings to US$5.7m despite a 31% YoY increase in revenue to US$2.14b. This was mainly due to the provision of doubtful debts for amounts due from MF Global following the bankruptcy of its holding company.

MARKET PULSE: CapitaLand, STX OSV, Olam, Goodpack, Tat Hong, Karin, Marco Polo Marine, Rotary, Sakari, SIAEC & ST Engineering (15 Feb 2012)

Stock Name: Capitaland
Company Name: CAPITALAND LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 3.11

Stock Name: STXOSV
Company Name: STX OSV HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 2.25

Stock Name: Goodpack
Company Name: GOODPACK LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.70

Stock Name: Olam
Company Name: OLAM INTERNATIONAL LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 2.63

Stock Name: Tat Hong
Company Name: TAT HONG HOLDINGS LTD

Research House: OCBC

Price Call: BUY

Target Price: 1.09

Stock Name: Karin
Company Name: KARIN TECHNOLOGY HLDGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.27

Stock Name: Marco Polo
Company Name: MARCO POLO MARINE LTD.

Research House: OCBC

Price Call: HOLD

Target Price: 0.43

Stock Name: Sakari
Company Name: SAKARI RESOURCES LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 2.06

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Stock Name: SIA Engg
Company Name: SIA ENGINEERING CO LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.88

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.01

MARKET PULSE: CapitaLand, STX OSV, Olam, Goodpack, Tat Hong, Karin, Marco Polo Marine, Rotary, Sakari, SIAEC & ST Engineering

15 Feb 2012

KEY IDEA CapitaLand: Outlook mostly intact Summary: CAPL reported 4Q11 PATMI of S$476.6m, down 20% YoY. Adjusting for one-time items, we estimate 4Q11 PATMI at S$221.9m - in line with our expectations. About 1,500 residential units were sold in China over FY11 and we see anemic Chinese sales in FY12 as buyer restrictions are likely to stay. In Singapore, 844 units were sold in FY11. A key launch ahead is Sky Habitat at Bishan which we believe would perform well. Major Shanghai malls, Minhang and Hongkou, opened for operations in FY11 and we forecast CMA's core earnings to increase 84% from S$120m in FY11 to S$221m in FY12, partially offsetting slowing residential sales. We maintain our BUY rating and adjust our fair value to S$3.11 from S$2.76 previously, mostly due to higher valuations for listed entities. (Eli Lee) MORE REPORTS STX OSV: Stellar 4Q results STX OSV reported a stellar set of 4Q results, which were above our and the street's expectations. Revenue declined by 12.9% YoY to NOK3.1bn, while net profit jumped 116.6% to NOK638m during the quarter. The exceptional high profitability in 4Q was mainly due to successful project deliveries and the release of risk contingencies at the end of complex projects. On a full year basis, revenue increased slightly by 4.4% YoY to NOK12.4bn, while net profit increased by 54.6% YoY to NOK1.6bn, supported by stable operations and productivity improvements. The group has recommended a 10 S cents dividend. We maintain BUY and raised our fair value estimate to S$2.25 (from S$1.60 previously) on higher order intake assumptions. (Chia Jiunyang) Olam Int'l: 1HFY12 results mostly in line Olam International Limited posted 1HFY12 revenue of S$7,716.4m, up 18.8%, meeting 40.8% of our FY12 estimate; core net profit fell 13.2% to around S$ S$132.8m, which still met 42.8% of our full-year forecast; this is also in line with the group's historical seasonality where it typically achieves around 35-40% of its earnings in the first half. Going forward, management remains positive of its prospects in 2HFY12; and is also on track to achieve US$1b net profit by FY16. As its results were mostly in line with our forecast, we will leave our estimates intact for now. Our fair value also remains unchanged at S$2.63 (18x FY12F EPS). Maintain HOLD. (Carey Wong) Goodpack Limited: Outlook and growth stable Goodpack reported 1HFY12 results that were in line with our expectations: revenue grew 22.2% YoY to US$87.2m while PATMI climbed 8.1% YoY to US$22.5m. Both figures constituted 53.4% and 55.3% of our FY12 projections respectively. Going forward, we expect demand for Goodpack's IBCs in 2HFY12 to remain stable at close to current levels as its main revenue segments, the natural and synthetic rubber businesses, continue to be supported by the automotive industry. In addition, price increases of between 9-12% on new IBC three-year contracts will take effect in 2HFY12 and provide some downside protection for Goodpack should demand taper off in the face of deteriorating macro-economic conditions. Reiterate BUY at an unchanged fair value estimate of S$1.70. (Lim Siyi) Tat Hong Holdings: Recovery underway Tat Hong Holdings (Tat Hong) reported a set healthy set of 3Q12 results with revenue and net profit increasing by 43% and 178% YoY to S$196m and S$13m respectively, attributable mainly to higher levels of activity across all divisions. Over a nine months period, net profit was S$31m (a 40% YoY increase), and represented 71% of our FY12F estimates. As the 3Q12 results marked a fourth consecutive quarter of improvement and with net margins reverting back to 6-7% (4Q11: 2.5%; 1Q12: 3.5%; 2Q12: 6.9%; 3Q12: 6.6%), we are optimistic of a steady recovery. Maintain BUY with unchanged fair value estimate of S$1.09 (on 10x FY13F EPS). (Chia Jiunyang) Karin Technology: Sequential improvement likely Karin Technology (Karin) reported 1HFY12 revenue of HK$1,519.4m (+68.6%) which topped our forecasts; but estimated core earnings of HK$25.5m (-2.6%) missed our expectations. This was due largely to lower-than-expected gross margin and higher effective tax rate. Top-line and core PATMI met 61.2% and 44.4% of our full-year projections, respectively. Karin's strong revenue growth was driven by a 131.8% surge in its IT Infrastructure segment, which more than buffered declines in its Components Distribution and ICAD segments. A dividend of 7 HK cents (inclusive of a 3.5 HK cent special dividend) was declared, versus 5 HK cents in 1HFY11. Looking ahead, we opine that Karin's new IT retail store operations could be its next leg of growth. We pare our core PATMI forecasts and obtain a new fair value estimate of S$0.27 (S$0.28 previously) after rolling forward our valuation to 6x blended FY12/13F core EPS. Downgrade to HOLD. (Wong Teck Ching Andy) Marco Polo Marine: 1QFY12 results within expectations Marco Polo Marine (MPM) reported a 26.8% rise in revenue to S$24.6m and a 8.5% increase in net profit to S$4.4m in 1QFY12, within ours and the street's expectations. The group's shipyard operations now accounts for 76.4% of total revenue with correspondingly lower contributions from ship chartering as associate BBR has been assuming more of the chartering business. However, BBR's profits were impacted by one-off forex losses in 1QFY12. The group's businesses are growing steadily, and the stock currently has an upside potential of about 17% based on our fair value estimate of S$0.43, but this is within our 30% range for small cap stocks. Hence we maintain our HOLD rating. (Low Pei Han) Rotary Engineering: Secures US$34m contract for storage tanks in Saudi Arabia Rotary Engineering announced that it has secured a US$34m EPC contract to build 17 field storage tanks in Saudi Arabia. Work is scheduled to start in Jun and is expected to be completed around middle of 2013. In the same announcement, Rotary also said that it has chalked up more than S$100m worth of contracts over the last several months. We will speak to management to get more clarity. In the meantime, we put our Hold recommendation and S$0.61 fair value estimate UNDER REVIEW. (Chia Jiunyang) Sakari Resources: Strong 4Q11 showing Sakari Resources Limited (SRL) posted a strong set of 4Q11 results, with revenue jumping 42.4% YoY and 40.4% QoQ to US$312.6m, aided by higher ASPs of coals sold in the quarter. Net profit was up 139.0% YoY and 97.3% QoQ at US$73.0m, the highest in any quarter, as sales of higher-value coal from Sebuku's Northern Leases helped to lift ASP to US$100/ton. For the full-year, revenue climbed 30% to US$1,013.6m, or 7.4% above our forecast, while net profit surged 116% to S$190.3m, or 17.9% above our estimate. Meanwhile, SRL is continuing with its policy of paying 60% of its net profit as dividend - this by declaring a final dividend of 5.83 US cents, bringing the total to 10.07 US cents for FY11. We will be attending an analyst conference call later in the evening, and until then, we place our Hold rating and S$2.06 fair value under review. (Carey Wong) SIA Engineering: JVs progressing well SIA Engineering Co Ltd (SIAEC) last night announced new developments to its recent joint ventures with SAFRAN and Panasonic Avionics Corp. SIAEC signed an agreement with Messier-Bugatti-Dowty, a division of the SAFRAN Group, to appoint SIAEC as its authorised repair centre (ARC) to provide MRO services for Messier-Bugatti-Dowty wheels and brakes. Separately, SIAEC and Panasonic Avionics Corporation announced the official opening of Panasonic Avionics Services Singapore (PACSS), a joint venture owned by SIAEC (42.5%) and Panasonic Avionics Corporation (57.5%). Singapore-based PACSS will provide MRO of IFEC systems and components for aircraft transiting at Changi Airport. SIAEC said both announcements are not expected to have a material impact on its financial performance in FY12. With an estimated dividend yield of 4.5%, we currently have a fair value estimate of S$3.88 per share and BUY rating on SIAEC. (Eric Teo) ST Engineering: New 10-year MRO contract ST Engineering (STE) last night announced its aerospace arm has been awarded an engine maintenance, repair and overhaul (MRO) contract to support Korean LCC Eastar Jet. The contract value is estimated to be ~US$15m (S$18.8m) per year. And the engines will be maintained by ST Aerospace's engine facilities located in Singapore and Xiamen, China. Pending the FY11 results announcement, our Buy rating and fair value estimate of S$3.01/share on STE is currently UNDER REVIEW. (Eric Teo)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - European finance ministers have postponed a meeting (originally scheduled for today) on the Greek debt crisis to 20 Feb. The euro traded close to a one-week low. - Moody's mass downgrade of the creditworthiness of European countries yesterday had little market impact. The downgrade echoes those from Standard & Poor's and Fitch last month. - The Hour Glass Ltd reported an 18% YoY increase in revenue for 3QFY12 ended Dec 2011 to S$170m, and net profit increased 66% to S$18.4m. The group is cautiously optimistic about luxury retail sentiment. - Global Logistic Properties' 3QFY12 ended Dec 2011 saw revenue increase 19% YoY to US$145m and NPAT increased by 3% to US$86m.

Market Pulse: Ascendas REIT, Raffles Medical & Rotary Engineering (9 Dec 2011)

Stock Name: Ascendasreit
Company Name: ASCENDAS REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 2.24

Stock Name: RafflesMG
Company Name: RAFFLES MEDICAL GROUP LTD

Research House: OCBC

Price Call: BUY

Target Price: 2.61

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

Market Pulse: Ascendas REIT, Raffles Medical & Rotary Engineering (9 Dec 2011)

FOCUS

Ascendas REIT: Acquisition of two Singapore assets

Summary: Ascendas REIT (A-REIT) yesterday announced that it had completed the acquisition of two Singapore assets, namely Corporation Place and 3 Changi Business Park Vista, for a purchase consideration of S$99m (S$159.6 psf NLA) and S$80m (S$487.0 psf NLA), respectively. The acquisitions are expected to be yield accretive, adding an annualized 0.10 S cents per unit to its DPU. We estimate that the blended NPI yield for the acquisitions to come in at around 7% (above the overall FY11 NPI yield of 6.5%), and the group's aggregate leverage to rise to around 36%, up from 31.5% as at 30 Sep. Factoring in the contributions from the two acquisitions, our DDM-based fair value is now raised marginally to S$2.24 (S$2.23 previously). We maintain our BUY rating on A-REIT. (Kevin Tan)

Raffles Medical Group: Strong track record; still a BUY

Summary: Raffles Medical Group's (RMG) consistent core earnings growth places it in a good position to weather the macroeconomic uncertainties in 2012. RMG's earnings are fairly defensive, although not entirely immune to an economic slowdown. This is underpinned by demographic changes and rising affluence in the region. Growth will come from higher patient load and revenue intensity as well as expansion of its specialist services. The creation of ~15,000 sf of new medical space in 1H12 would also assuage some of the space constraints faced by the group before its new Specialist Medical Centre and Raffles Hospital expansion comes on stream. While competitive pressures are intensifying with two new hospitals in Singapore, we reckon that this could raise Singapore's reputation as a medical hub. Given undemanding valuations, we maintain BUY and S$2.61 fair value estimate on RMG. (Wong Teck Ching Andy)

Rotary Engineering: To jointly develop oil terminal in Johor

Summary: Rotary Engineering (Rotary) has signed a memorandum of understanding (MOU) with Benalec Holdings Bhd to develop an independent deepwater storage terminal for oil products in Tanjung Piai, which is located at the south-western tip of Johor. The proposed terminal will have an initial capacity of 1m cubic metres, along with subsequent phases to increase capacity to 3m cubic metres. Rotary will form a JV with Benalec Holdings to own the terminal as well as other projects. Details such as the contract value and the time in which work will commence for Rotary have not been disclosed and it is likely that more time would be needed for the terms to be firmed up. Pending further details from the management, we maintain our HOLD rating and fair value estimate of S$0.61 on the stock. (Chia Jiun Yang)

For more information on the above, visit www.ocbcresearch.comfor detailed report.


NEWS HEADLINES

- According to latest US Commerce Department figures, inventories at US wholesalers rose by 1.6% (the biggest increase in five months) during October.

- The European Central Bank announced yesterday that the benchmark rate will be cut to 1% and it will offer banks long term funding with loosened collateral rules.

- China Environmental Resources Group announced that it has signed a sale and purchase agreement to acquire a forest plantation business in Guangdong, China for HK$180m.

- Construction services firm, Keong Hong Holdings has launched its IPO for a listing on SGX's Catalist board. The firm is offering 27m placement shares at S$0.24 to raise S$6.48m and the issue has a historical P/E of about 3.8x based on FY10 earnings.

Rotary Engineering rated 'underperform' by CIMB

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: CIMB

Price Call: SELL

Target Price: 0.57

CIMB in a Nov 4 research report says: "At 14% of FY2011, 3Q11 earnings were below our expectation and consensus, due mainly to lower turnover. Turnover fell 25% y-o-y due to slower construction of the SATORP project (seasonality) and delays in the start-up of its UAE project.

"EBITDA of $14.7 million dropped even more by 33% y-o-y, due mainly to net unrealised forex losses of $4.3 million. The positive was steady execution. The group achieved gross margins of 26% vs. 25% for 3Q10 and 21% for 2Q11. YTD,

"Rotary has secured around $170 million of orders vs. our FY2011 order target of $400 million. We now expect $250 million while keeping our FY2012 target of $400 million. Target price of 57 cents now based on 1x CY12 P/BV (previously 7x CY12 P/E) as we look for floor valuations. MAINTAIN UNDERPERFORM."

OCBC downgrades Rotary Engineering to hold

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.61

OCBC Investment Research lowered Singapore’s Rotary Engineering (ROTE.SI), a construction firm that specialises in energy projects, to hold from buy and cut its target price to $0.61 from $0.66.

Rotary Engineering reported on Thursday a 30% fall in profit to $7.2 million, below OCBC’s expectations, due to lower contribution from its Middle East business which accounts for more than half of the group’s revenue.

“Rotary’s operating environment continues to be clouded by the uncertainty in the global financial markets and the slowdown in the U.S. and European economies. We see increased likelihood of oil companies pushing back their larger infrastructure investments,” OCBC said in a report.

The brokerage also said it expects Rotary to face margin pressure from its competitors in the near term, but noted that the company has a strong balance sheet and a healthy order book of $758 million.

At 11:11 a.m., shares of Rotary were up 2.4% at $0.63. The shares have fallen about 38% since the start of the year.

Market Pulse: Rotary Engineering and United Envirotech (03 Oct 2011)

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.66

Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD

Research House: OCBC

Price Call: BUY

Target Price: 0.53

Market Pulse: Rotary Engineering and United Envirotech (03 Oct 2011)

FOCUS

Rotary Engineering: Upgrade to BUY - Attractive entry point

Summary: Rotary Engineering announced that it has secured S$110m worth of contracts between Jul and Sep 2011, including a multi-million dollar contract from Taiwan-based Chang Chun Group to undertake the construction of a petrochemical plant on Jurong Island. Compared with its average quarterly revenue of S$155m (over the past eight quarters), we feel that Rotary would need to win more contracts to replenish its order-book. However, we believe that the decline in its share price year-to-date has been excessive. It is currently trading at 6x PER and 1x P/B, also about one standard deviation below its averages over the past 5 years. With an estimated dividend yield is about 6%, we believe current valuation is attractive for long-term investors. Upgrade to BUY with an unchanged fair value estimate of S$0.66. The key risks include worsening geopolitical risk across the Middle East region, a sharp cut in capex by oil companies and project execution risks. (Chia Jiunyang)

United Envirotech: Growing its recurring income stream

Summary: United Envirotech Limited (UEL) has acquired another waste-water treatment project in China; this after exercising a call option to acquire the entire equity interest of Tongji Environmental (China) Pte Ltd (Tongji) for RMB34.03m. Tongji is the holding company of Aton Environmental (Shenyang) Co, where the latter has a 30-year BOT (Build-Operate-Transfer) concession agreement with the municipal government to treat 50k m3 of wastewater daily. According to UEL, the move is part of its business strategy to increase recurring income streams through the investment in water treatment projects. Management continues to remain upbeat about the growth prospects in China's wastewater industry and intends to invest in similar projects in economically developed provinces; and the proceeds from the issue of US$113.8m worth of convertible bonds to KKR due in early Oct would come in handy. But until we see a more sizable EPC project, we maintain our FY12 and FY13 estimates for now. Hence our DCF-based fair value remains at S$0.53. Maintain BUY. (Carey Wong)


For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES

- European governments are exploring speeding up the start of a permanent rescue fund. Finance officials will weigh the cost advantages of setting up the European Stability Mechanism a year earlier than its planned Jul 2013 start.

- According to MAS data, total Singapore-dollar bank loans increased 3% in Aug from Jul, to reach S$393.2b. This was mainly driven by increase of business loans - which make up more than half of Sing-dollar bank loans.

- According to US treasury data, Singapore-based investors re-entered the US market in the Q2 of 2011, piling up their portfolios with both US equities and Treasury bonds.

- GIC and the bankrupt owners of Doral Resorts and four other luxurious resorts, reached settlement to recover US$360m in loans. This settlement was obtained after GIC previously tried to acquire the five resorts for US$1.465b in cash and debt.

- Lippo Malls Indonesia Retail Trust is buying two retail malls in Indonesia for approx. S$388m, to be fund partly by a rights issue.

- First deliveries of additional Indonesian piped gas supplies (86m standard cubic feed daily) will begin this month. The supplies will be brought in by Sembcorp Gas under a deal struck three years ago.

Market Pulse: Rotary Engineering and Viz Branz (05 Sep 2011)

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.66

Stock Name: VizBranz
Company Name: VIZ BRANZ LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.27

Market Pulse: Rotary Engineering and Viz Branz (05 Sep 2011)

FOCUS

Rotary Engineering: Increased downside risks

Summary: The recent worries over European sovereign debt issues and the slow-down in the US economy have led to a sharp sell-down in stock markets around the world. Some oil and gas infrastructure projects have also been delayed due to the global uncertainty. Against this backdrop, we see higher downside risks for Rotary Engineering arising from fewer contract wins over the few several quarters. This would in turn result in lower revenue in FY12. Thus, we cut our FY12 earnings estimate by 20%. We also apply a lower PER peg of 7x (from 8.5x previously) to reflect the cautious market sentiment. Maintain HOLD with a fair value estimate of S$0.66. (Chia Jiunyang)

Viz Branz: Profitability affected by margin squeeze

Summary: Viz Branz reported a 15.1% YoY decline in its FY11 net profit from S$14.4m to S$12.2m as the result of higher raw material costs experienced during the year. Although its FY11 revenue showed an 8.5% YoY improvement to S$165.7m, a 5% price increase in FY11 was insufficient to offset increases in its cost. Management also declared a final dividend of 0.5 Singapore cents to bring the total dividends declared in FY11 to 1.75 Singapore cents a share (dividend yield: 9.6%) Going forward, management expects sustained margin pressures if raw material costs continue trending upwards and any planned price increases for FY12 will likely trail cost increases. As such, we revise our revenue growth forecast for FY12 downwards to 2% (3.5% previously) to account for an anticipated softer demand but maintain our HOLD rating for Viz Branz at a revised fair value of S$0.27 (S$0.30 previously), which includes a 15% discount to account for its low trading volume. (Lim Siyi)


For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES

- The US economy added no new jobs in August, stoking fears of a double-dip recession and heightening expectations of more quantitative easing by the US central bank.

- Italy's economy minister pledged to meet the country's debt goals after the ECB called for swift action by the struggling centre-right government. Italy is under pressure to present a credible plan to balance its budget by 2013 and cut its EUR1.9t euro debt.

- EU is expected to toughen up the regulation of financial trading. According to a draft copy of the proposed changes, vertically integrated stock exchanges would be opened to competition.

- Hiap Seng Engineering announced that "certain key management" helped CPIB in investigations in early July and mid-August this year.

- Stamford Tyres Corporation Ltd reported a 208% YoY increase in net profit to S$3.5m for 1Q11, helped by stronger demand for its products.

Rotary Engineering downgraded to 'neutral' by CIMB

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: CIMB

Price Call: HOLD

Target Price: 0.90

CIMB in an Aug 5 research report says: "Forming 14% of our FY2011 forecast and 15% of consensus, 2Q11 net profit of $10.2 million (-26% y-o-y) is 50% below our expectation because of lower-than-expected turnover.

"1H11 net profit of $15.5 million (-44% y-o-y) forms 22% of our FY2011 number. An interim dividend of 1 cent (37% payout) has been declared, as expected. We cut our earnings estimates for FY2011-2013 by 11-30% on lower revenue and margin assumptions.

"Our target price accordingly drops to 90 cents, still based on 9x CY12 P/E (5-year peer average), from $1.26. A projected 5% dividend yield and the stock's YTD decline of 21% should limit downside risks. DOWNGRADE TO NEUTRAL."

Rotary Engineering rated 'outperform' by CIMB

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Research House: CIMB

CIMB in a Feb 24 research report says: "4Q10 net profit of $25.9 million (flat y-o-y) was 59% above our expectation and 46% above consensus, due to stronger-than-expected gross margins. FY2010 net profit of $63.7 million forms 118% of our forecast.

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Rotary - Rotary Engineering started at Buy by Phillip Securities

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Research House: Phillip Securities

Phillip Securities starts Rotary Engineering (R07.SG) at Buy with $1.35 target price, based on 12.5x P/E, 2.5x P/B, says Dow Jones.



Phillip Securities says plant builder’s $1.1 billion contract in Saudi Arabia secured last year will offer strong foothold for subsequent ventures in Middle East, provide diversification from core Southeast Asian market.

Broker notes Rotary has 6 ongoing projects which could contribute $255 million to revenue for rest of FY10, another $375 million for FY11; “there is good visibility of the future revenue of the company till 2012.”



Says current debt level low while cash position strong at $150 million. Shares +2.7% at $0.965.

Rotary - Rotary Engineering started at Buy by Phillip Securities

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Research House: Phillip Securities

Phillip Securities starts Rotary Engineering (R07.SG) at Buy with $1.35 target price, based on 12.5x P/E, 2.5x P/B, says Dow Jones.



Phillip Securities says plant builder’s $1.1 billion contract in Saudi Arabia secured last year will offer strong foothold for subsequent ventures in Middle East, provide diversification from core Southeast Asian market.

Broker notes Rotary has 6 ongoing projects which could contribute $255 million to revenue for rest of FY10, another $375 million for FY11; “there is good visibility of the future revenue of the company till 2012.”



Says current debt level low while cash position strong at $150 million. Shares +2.7% at $0.965.

Rotary - Rotary Engineering downgraded to Neutral by CIMB

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Research House: CIMB

CIMB downgrades Rotary Engineering (R07.SG) to Neutral from Outperform, cuts target price to $0.95 from $1.17 after lowering FY11-FY12 earnings estimates by 14%-23%, says Dow Jones.

CIMB says plant builder hasn't secured any major order in FY10.

Cuts annual order-win forecast for FY11-FY12 to between $300 million, $500 million.

Says current valuations rich at 9x FY11 P/E, but notes industry fundamentals still positive with opportunities in Singapore, Middle East plentiful.

Shares last off 0.5% at $0.935.