Wilmar Q2 earnings may disappoint-Maybank

Stock Name: Wilmar
Company Name: WILMAR INTERNATIONAL LIMITED

Research House: Maybank Kim Eng

Price Call: SELL

Target Price: 3.25

Palm oil firm Wilmar International’s second quarter earnings may disappoint investors, as an expected recovery in the oilseeds and grains segment may not materialise, said Maybank Kim Eng.

By 10:32 a.m., shares of Wilmar were 1.4% lower at $3.64, and have plunged 27% so far this year, versus the Straits Times Index’s 11% gain. Wilmar is the worst performer on the Straits Times Index year-to-date.

The oilseeds and grains segment, which made up 21% of Wilmar’s profit before taxes last year, could continue weighing on its earnings if the industry sees over-capacity, Maybank said. It has a ’sell’ rating on Wilmar with a target price of $3.25.

Maybank cited industry sources as saying China’s soybean crushing utilization rate is at about 50%, and with state-owned companies continuing expansion, over-capacity could hurt even efficient producers.

CIMB upgrades Ho Bee to neutral, TP cut to $1.20

CIMB upgrades Ho Bee to neutral CIMB Research upgraded property developer Ho Bee Investment  to neutral from underperform, citing attractive valuations as it trades at 0.5 times its book value, below its historical average of 0.9 times.

By 9:42 a.m., Ho Bee shares were 0.8% higher at $1.245, and have surged 21.5% so far this year, compared with the FT ST Mid Cap Index's 17% gain.

However, the brokerage cut its target price for Ho Bee to $1.20 from $1.28, citing slow sales of new units at its high-end property in Sentosa Cove, Singapore.

“We expect the sale of new units to remain slow as foreigners stay out of the market post-implementation of the additional buyers' stamp duty,” said CIMB in a report.

MARKET PULSE: Fortune REIT, NOL, SMRT, Yangzijiang (5 Jul 2012)

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

Stock Name: Fortune Reit HK$
Company Name: FORTUNE REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 5.22

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.71

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.08

MARKET PULSE: Fortune REIT, NOL, SMRT, Yangzijiang

5 Jul 2012

KEY IDEA Fortune Real Estate Investment Trust: Suburban shopping malls are more defensive For May, retail sales in HK climbed 8.8% YoY to HK$36.0b. While this is the lowest pace of growth since Sep 2009 (excluding seasonal distortions during Jan and Feb each year due to Chinese New Year), we believe that Fortune will continue to have good positive rental reversions this year, especially as suburban malls are more defensive than luxury retail spaces. In volume terms, luxury goods saw sales contracted 2.9% while supermarket sales rose 9.1%. Since we initiated coverage on 14 Mar, Fortune's share price has climbed 17.5% to a one-year high and we think further upside is possible. 2Q12 will be the first quarter to see full contributions from two properties acquired in mid-Feb. Fortune is trading at a P/B of 0.6x and an estimated FY12 dividend yield of 6.8%. We maintain our BUY rating and our fair value of HK$5.22. (Sarah Ong) MORE REPORTS Neptune Orient Lines: Lower fuel prices, higher freight rates Bunker fuel prices in 2Q12 averaged 11% lower QoQ while the Shanghai (Export) Containerised Freight Index in 2Q12 averaged 31% higher QoQ. Shipping consultants Drewry this week said shipping liners' successful rate hikes in major global trade lanes meant most liners are now profitable. While eastbound transpacific shipping demand remains strong, the outlook for Asia-Europe routes is still bleak and is unlikely to see a strong peak shipping season this year. Thus, capacity management remains the key to shipping liners' profitability for the rest of 2012. In addition, Neptune Orient Lines' (NOL) restructuring to better allocate its capital and reduce its cost base should signal a turnaround in its core business. We maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (Eric Teo) SMRT Corp: No surprises in COI Summary: The list of recommendations included in the full report of the Committee of Inquiry (COI) findings did not yield any surprises and we deem this development as a positive for SMRT. Most of the COI's 14 recommendations on engineering and maintenance issues have been proactively addressed by SMRT in its S$900m upgrading and renewal plan announced two months ago. While the cost burden issue between the company and the Land Transport Authority (LTA) has yet to be finalized, we have already made conservative provisions in our estimates. With the conclusion of the COI, what remains is the Government's response to the report on 9 Jul's Parliament sitting, and the implementation of a fine on SMRT for the service disruptions. In our view, the latter will come into play after the Ministerial Statement, and we could expect to see a maximum fine of S$1m per incident levied onto SMRT for a resulting S$2m impact on its books in the following quarter (2QFY12). As we have accounted for this potential fine amount, we maintain our HOLD rating on SMRT at an unchanged fair value of S$1.71 ahead of its 1Q12 results. (Lim Siyi) Yangzijiang Shipbuilding: Relocation agreement signed A subsidiary of Yangzijiang Shipbuilding (YZJ) has entered into an agreement with the municipal government of Jiangyin city, China, for the relocation of its old yard. This is within expectations as YZJ had previously mentioned in early Mar this year that the agreement would be signed in 1H12. Land-based production should discontinue by 30 Sep 2012 and all relocation works are to be completed by 31 Mar 2013. A compensation of RMB720m will also be paid by the municipal government. According to management, YZJ has made the necessary arrangements to ensure the yard relocation will not affect the existing vessel delivery schedule. As mentioned in our earlier report (3 Mar 2012), the group may also participate in property development of the freed-up site after the relocation; discussions with the municipal government are ongoing. Pending further details, we maintain our HOLD rating with S$1.08 fair value estimate on the stock. (Low Pei Han)

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

NEWS HEADLINES - The FTSE 100 index fell 0.1% as bank and energy stocks traded lower. Barclays PLC's ex-CEO, Bob Diamond, testified before a UK parliamentary panel. US markets were closed for the Fourth of July holiday. - Cambridge Industrial Trust has entered a sales and purchase agreement with Eurosports Auto Pte Ltd for the proposed acquisition of 30 Teban Gardens Crescent for a consideration of S$41m. - Spindex Industries' subsidiary, Synturn (M) Sdn Bhd, has agreed to buy a piece of land and a factory in Malaysia for MYR9.5m (~S$3.8m). - Serial System's 91%-owned subsidiary, Serial Microelectronics (Shenzhen) Co., has entered into sale and purchase agreements to acquire office units located at Shenzhen Futian Free Trade Zone, Shenzhen Fortune Plaza B for a consideration of RMB 71.8m (~S$14.3m).

DMG upgrades Sheng Siong to buy

Stock Name: Sheng Siong
Company Name: SHENG SIONG GROUP LTD

Research House: DMG

Price Call: BUY

Target Price: 0.51

DMG & Partners upgraded supermarket chain operator Sheng Siong Group to buy from neutral and raised its target price to $0.51 from $0.45, citing an expected strong dividend payout.

At 9:33 a.m., shares of Sheng Siong were up 2.3% at $0.44, and have remained unchanged so far this year, compared to the FT Small Cap Index's 14.4% gain.

The brokerage said it expects Sheng Siong to keep dividend payout at 90% versus its previous estimate of 50%, given it has no large capital expenditure plans in the near term and a positive working capital cycle.

DMG also raised its 2012-2013 earnings estimates for Sheng Siong by about 0.8% to 1.5%, as two new stores are slated to open this month, increasing its gross floor area by 10% this year.

MARKET PULSE: Golden Agri, SingPost, Civmec, ST Eng (4 Jul 2012)

Stock Name: SingPost
Company Name: SINGAPORE POST LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.14

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

Research House: OCBC

Price Call: BUY

Target Price: 3.50

MARKET PULSE: Golden Agri, SingPost, Civmec, ST Eng

4 Jul 2012

KEY IDEA Golden Agri-Resources Ltd: Raising FV to S$0.81 As the second largest palm oil plantation owner in the world, Golden Agri-Resouces (GAR) stands to gain greatly from any rebound in CPO prices. Indeed, we note that prices have tracked back above MYR3000/ton in Jul, off the Jun low of MYR2850, although still somewhat softer than the average of MYR3220 seen in 2Q12. We had earlier adjusted our 2012 CPO price assumption down to US$925/ton, which is already quite conservative and should have captured most of the downside risk. Maintaining our market neutral 12.5x PER peg, we push out our valuations to blended FY12/FY13, resulting in a boost to our fair value from S$0.74 to S$0.81. Maintain BUY. (Carey Wong) MORE REPORTS Singapore Post: Impact from revised QoS framework likely limited The Infocomm Development Authority of Singapore (IDA) has revised the Quality of Service (QoS) framework for postal services, including an increase in financial penalty for breach of the standards. According to statistics collected by SingPost in recent years, the group has been delivering over and above IDA's requirements. Should this trend continue, we do not foresee an impact from the increase in penalty. We appreciate SingPost's dominant domestic market position, operating efficiency, and stable operating cash flows. We are also mindful of margin pressures as well as the relatively limited growth opportunities in the core mail business. However, the group is also seeking geographical and business expansion in logistics and retail. Maintain BUY with S$1.14 fair value estimate. (Low Pei Han) Civmec Ltd: Riding on Australia's energy boom We visited the facilities of Civmec Ltd (Civmec) in Henderson, Perth, Western Australia last week. Listed on the SGX since Apr 2012, Civmec is an integrated construction and heavy engineering services provider to the oil and gas, mining and other industries. Civmec possesses strong capabilities that position it well to ride on Australia's energy boom. It is also further expanding its production facilities. We compared Civmec against a broad segment of construction and infrastructure companies based in Australia. With an estimated 3-year EPS growth of 210%, valuation seems reasonable with a forward P/E of 13.7x, based on an annualised FY12 EPS. We DO NOT have a rating on Civmec. (Low Pei Han & Chia Jiun Yang) ST Engineering: Capital injection into China subsidiary ST Engineering (STE) announced it has injected US$6.66m (~S$8.59m) into 75.3%-owned subsidiary Jiangsu Huatong Kinetics Co., Ltd. (JHK). STE said this capital injection is the first progressive proportionate capital contribution of an additional US$28.76m (~S$37.06m) investment into JHK, and the remaining capital of US$22.10m (~S$28.47m) will be injected as needed for relocation and a new plant to be completed by 2014. JHK, a JV with Jiangsu Huatong Machinery Co., Ltd., manufactures asphalt pavers, milling machines, motor graders and asphalt batching plants. This capital injection is not expected to have any material impact on the consolidated financials of ST Engineering for the current financial year. We maintain our fair value estimate of S$3.50/share and BUY rating on STE. (Eric Teo)

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

NEWS HEADLINES - US stocks climbed as rising oil prices boosted energy shares and factory orders rebounded better than expected. The S&P 500 Index and the Dow both added 0.6%. - Baker Technology will recognise a gain of S$58.2m from the sale of PPL Holdings. This means that the disposal of PPLH, along with PPLH's 15% stake in PPL Shipyard, is now considered complete. The sale of the shipyard stake was opposed by SembCorp Marine in court in 2010. - C&G Environmental Protection Holdings has been selected as the first preferred bidder of the Guiyang Waste-to-Energy project, estimated at RMB980m, and will proceed with negotiations with the Guiyang authorities to finalise the terms and conditions of the project. - United Engineers has been awarded three environmental engineering contracts worth over S$70.0m. Two of the contracts are from the PUB and are worth a total ~S$56.3m. - Hu An Cable has won a RMB101.3m (~S$20.1m) contract to supply low-voltage aerial bundled cables to Hubei Province Electric Company. The contract is its largest to date from the provincial power grid firm.

OCBC raises Golden Agri target price

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

Research House: OCBC

Price Call: BUY

Target Price: 0.81

OCBC Investment Research raised its target price for palm oil firm Golden Agri-Resources to $0.81 from $0.74 and kept its ’buy’ rating, citing a possible recovery in crude palm oil (CPO) prices.

By 9:14 a.m., Golden Agri shares were flat at $0.72, and have gained 0.7% since the start of the year, underperforming the benchmark Straits Times Index’s 12% rise.

Golden Agri, the second largest palm oil plantation owner in the world, stands to benefit from a rebound in CPO prices, OCBC said.

“We believe that a recovery of CPO prices is likely, given the concerns over the impact of a prolonged drought in the U.S. mid-west, affecting the potential supply of soybean crop,” OCBC said in a report.

Soybean and CPO prices have a strong correlation of 0.85, indicating that CPO prices will likely mirror a rise in soybean prices, it added.

MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL (3 Jul 2012)

Stock Name: Micro-Mech
Company Name: MICRO-MECHANICS (HOLDINGS) LTD

Research House: OCBC

Price Call: HOLD

Target Price: 0.325

Stock Name: MIDAS
Company Name: MIDAS HLDGS LIMITED

Research House: OCBC

Price Call: HOLD

Target Price: 0.33

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

MARKET PULSE: CMA, Micro-Mechanics, Midas, NOL

3 Jul 2012

KEY IDEA CapitaMalls Asia: Divestments validate asset valuations CMA announced it has established a USD1.0b CapitaMalls China Development Fund III (CMCDF III), in which it would hold a 50% stake. Three CMA shopping malls, Tianfu and Meilicheng (Chengdu) and Luwan (Shanghai), would be divested as seed assets to CMCDF III. We understand that these would be injected for S$749m, versus their current book value of S$640m. This would result in a net gain of ~S$72m, on a 100% basis for these properties, and a net cash inflow of ~S$335m to CMA for the sale of its stakes. We expect the market to react positively to this development, and believe divestment valuations would serve as key data-points validating CMA's asset values in the market. Maintain BUY with a higher fair value estimate of S$1.79 (10% RNAV discount) versus S$1.76 previously, mostly due to stronger valuations for Chinese assets and listed entities. (Eli Lee) MORE REPORTS Micro-Mechanics: 4QFY12 results preview We continue to forecast a double-digit YoY fall in Micro-Mechanics Holdings' (MMH) revenue and net profit for its upcoming 4QFY12 results. This is premised on the still lacklustre conditions in the semiconductor industry. However, we are cognizant of a possible upside surprise to our revenue projection, given the relative strength of the USD against the SGD seen in 2QCY12. Meanwhile, MMH recently secured its maiden order for its new 24/7 Machining Line. This could aid its CMA division's turnaround, in our opinion, given the system's ability to improve its product cycle time, quality and operational efficiency. We also expect gradual sequential improvement in MMH's financial performance moving forward, in line with the recovery in the semiconductor industry. Maintain HOLD and S$0.325 fair value estimate. (Wong Teck Ching Andy) Midas Holdings: JV company wins RMB860m metro contract Midas Holdings (Midas) announced last evening that its 32.5% owned JV company, Nanjing SR Puzhen Rail Transport (NPRT) has clinched a RMB860m metro contract. This entails the supply of 20 train sets (or 120 train cars) to the Dongguan Rapid Railway R2 Line Project, with delivery scheduled from 2013 to 2015. This is the second announced contract win by NPRT in 2012 (the first being a RMB526.9m metro contract announced on 1 Mar). We estimate that this would boost NPRT's order book to ~RMB7.4b. Despite NPRT's strong order book, its contribution to Midas' earnings has been volatile and lumpy. As a recap, Midas reported a share of loss from NPRT amounting to RMB4.6m in 1Q12 (1Q11: net profit of RMB4.1m). Nevertheless, we expect conditions from NPRT to improve for the remainder of FY12. For now, we have a HOLD rating and S$0.33 fair value estimate on Midas. (Wong Teck Ching Andy) Neptune Orient Lines: Looking to sell Singapore HQ Neptune Orient Lines (NOL) yesterday said it intends to sell its Singapore headquarters building along Alexandra Road so as to release capital for strategic investment. NOL said it has not decided on a reserved price, but the media has thrown in an indicative pricing of ~S$400m for the 29 year old office building. In addition, Jones Lang LaSalle - the exclusive marketing agent for NOL Building, revealed in a release that NOL is expected to lease back the premises after the sale. The proposed sale and leaseback, if successful, will allow NOL to better allocate its capital in its core business of container shipping and logistics. We maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (Eric Teo)

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

NEWS HEADLINES - The Dow industrials dipped slightly (-0.07%) after data showed that US manufacturing activity contracted in June for the first time in three years, but the S&P 500 index finished higher (+0.25%). - Sin Heng Heavy Machinery, a rental and trading of cranes and aerial lifts company in Singapore, has entered into a distributorship agreement for Indonesia with Kato Works Co., Ltd, one of the world's leading hydraulic crane manufacturers. - Perennial China Retail Trust has exercised its option to increase its stake in Chengdu Longemont Shopping Mall Development from 50.0% to 80.0%, at a total purchase consideration of RMB2.24b. - KSH Holdings' and Heeton Holdings' wholly-owned subsidiaries, along with Zap Piling Pte. Ltd. shall own 40%, 30% and 30% of the share capital of Unique Resi Estate Pte. Ltd., which has been awarded the tender for the purchase the freehold land parcel located at 121C Whitley Road at a purchase price of S$31m.