Local Brokerages Stock Call 3 and 4 April 2013

From UOB KH:
World Precision Machinery
Recovery Has Started
World Precision has benefitted from the pick-up in the automobile sector
and has made announcements on sizeable orders from Chongqing Baosteel
Meiwei Wheel and a supplier to Dongfeng Yueda Kia Motor. Its orderbook
has increased from Rmb118m at end-Feb 13 to about Rmb180m at end-
Mar 13. Expect full quarter impact of recovery in 2Q13. Maintain BUY with
target price at S$0.54.

Banking – Regional
Assessing Room For Growth
A comparison of LDRs shows that banks in Indonesia, such as Bank Negara
Indonesia, Bank Jabar Banten and Bank Mandiri, have significant room for
growth. Investors should adopt a selective stock picking approach after the
huge rallies in Thailand and Indonesia. We see value in Bank Negara Indonesia,
Bangkok Bank, Public Bank and OCBC due to their lower-than-peers’ LDRs and
attractive fundamentals. Maintain OVERWEIGHT on ASEAN banks.

Neo Group - Food for thought - Singapore’s largest
caterer (NGL SP/NOT RATED/S$0.345)
Valuation
• Neo Group (NGL) is trading at 15x FY13 PE and 2.6x P/B.
Financial Highlights:
• Although NGL reported an 8.7% yoy rise in revenue for
FY13, net profit dropped 43.9% yoy due to a one-off IPO
expense of S$0.9m and a 32.7% increase in employee
benefits. Excluding the non-recurrent items, net profit
would have declined 27.2% yoy.
• The increase in employee benefits is in line with the
company’s plans to increase its sales force to grow the
corporate and government catering businesses.

ST Engineering (STE SP, S63) –
Technical SELL with +4.4% potential return
Last price: S$4.27
Resistance: S$4.35
Support: S$4.08
SELL with a target price of S$4.08 with stops placed above
S$4.35. Potentially, prices may swing lower should it fail to
close above S$4.35. Its Stochastics has formed a bearish
crossover in the overbought region while its RSI has turned
lower. Watch to see if a bearish crossover could be formed at
its MACD indicator.
Our institutional research has a fundamental HOLD with a
target price of S$4.12.

Breadtalk Group Ltd (BREAD SP, 5DA) –
Technical SELL with +14.2% potential return
Last price: S$1.165
Resistance: S$1.20
Support: S$1.00
SELL with a target price of S$1.00 with stops placed above
S$1.20. Previously on 11 Mar 13, prices fell as the RSI
indicator had briefly crossed above a reading of 80 before
retreating. Prices have also formed a long upper shadow. Its
Stochastics indicator looks poised to form a bearish
crossover. Watch to see if its MACD indicator could form a
bearish crossover as well.

Uni-Asia Finance Corp (UNIAF SP, C3T) –
Technical BUY with +23.8% potential return
Last price: S$0.21
Resistance: S$0.26
Support: S$0.19
BUY with a target price of S$0.26 with stops placed below
S$0.19. Prices have now formed a higher low and a break
above S$0.215 is likely to see the stock trending higher. Its
20-day moving average looks poised to form a golden cross
with its 50-day moving average. Its RSI indicator has turned
up. Watch to see if its MACD indicator, which has hooked up,
could trend higher to cross above its centreline.

From OCBC:

Sembcorp Marine: More prudent on margins
Sembcorp Marine (SMM) is currently building a 82.5ha yard in Brazil to undertake drillship construction, amongst others. Should inflation in Brazil continue to be unrelenting, SMM may face further margin pressures from labour costs, especially since there is already a shortage of skilled labour in the country. Over the longer term, however, we believe that SMM’s foray into the drillship business puts it in good stead to secure more drillship orders, diversifying its product range. In the shorter term, however, we prefer to be more prudent on the group’s operating margin assumptions, and lower these to 12.1% and 12.3% for FY13F and FY14, respectively (2012: 12.5%). As such, our SOTP-based fair value estimate slips from S$5.84 to S$5.64. Maintain BUY.

Frasers Centrepoint Trust: Downgrade to HOLD - fair value hit
Frasers Centrepoint Trust (FCT) has enjoyed a good run-up in its unit price, clocking a 7.0% return YTD and 40.8% return YoY. This compares significantly to the 5.7% YTD and 31.4% YoY increase seen by the FTSE ST REIT Index. Now trading near its historical high and our fair value, FCT is the most expensive (P/B of 1.40x) when compared to its local retail peers (1.18x) and the S-REITs sector average (1.17x). As such, we believe that most of the good news has been priced in. While the asset injection of Changi City Point into FCT’s portfolio may possibly be a catalyst to its unit price and DPU growth, the timeline is uncertain as the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. In view of the limited upside potential in the near term, we now downgrade FCT from Buy to HOLDon valuation grounds. We recommend switching FCT to CapitaMall Trust [BUY, S$2.32 FV] as a cheaper alternative to blue-chip local retail play with exposure to equally resilient suburban portfolio assets.  

KSH Holdings: Awarded S$60m JTC construction contract
KSH announced yesterday that it was awarded a S$60m construction contract by Jurong Town Corporation (“JTC”) for a district cooling system plant at Ayer Rajah Ave. We understand management wanted to diversify their condominium-heavy construction book with a public project, and gross margins continue to exceed a 10% hurdle rate. In 2013 to date, order book replenishment now cumulates to S$202m – tracking somewhat above forecast and exceeding the S$161m total last year. The order book now stands at S$489m. Given its momentum, we are reviewing our valuation of KSH’s construction segment – currently pegged at 4 times FY13E earnings versus 5-7 times seen at peers. We also see upcoming launches at key property projects (Hong Leong Gardens, Seletar Gardens and King Albert Park) to be potential catalysts ahead. We will speak further with management later today and, in the meantime, reiterate BUY while our fair value of S$0.62 is under review.

TEE International: Joint bid for Myanmar airport project
TEE International, Yongnam Holdings and Samwoh Corp have joined forces to participate in a consortium with JGC Corp and a unit of Changi Airport International to tender for the construction and operation of Myanmar’s new international airport. TEE and Samwoh will each take a 25% stake in a special purpose vehicle (SPV) that will in turn supply up to 60% of the project consortium’s equity. Yongnam will own 50% of the SPV and represent it in all negotiations involving the project. We are neutral on the announcement, pending further updates, and we maintain our fair value estimate of S$0.30 and HOLD rating for TEE.   

First REIT: Enhancing its portfolio value
First REIT (FREIT) recently announced its proposal to acquire two Indonesian hospitals from its sponsor Lippo Karawaci (Lippo) for a total purchase consideration of S$190.4m. This would be funded largely by debt and the issuance of new units to a smaller extent to Lippo. We are positive on the acquisitions as it offers DPU accretion of 6-13% for FY13-14F, according to our estimates, while also providing stability and visibility to unitholders. We now adopt a DDM model (cost of equity: 7.7%; terminal growth rate: 1.0%) as our new valuation matrix (previously RNAV). Coupled with our higher DPU forecasts, we bump up our fair value estimate from S$1.00 to S$1.31. But we maintain our HOLD rating as we believe that the market has largely priced in the positives from these acquisitions and FREIT’s continued transition to a sizeable healthcare REIT in the region.

Golden Agri-Resources Ltd: Near-term outlook remains weak
Golden Agri-Resources (GAR), after reporting a disappointing set of FY12 results at end Feb, has languished below S$0.60 in recent weeks; and may continue to do so in lieu of the still-weak near-term outlook. The main reason for the expected near-term underperformance comes from the uninspiring CPO (crude price oil) prices, which has again fallen below MYR2,400/ton. The other reason is probably the still-high stockpiles seen at several planters in both Malaysia and Indonesia. Despite the near-term headwinds, management remains relatively upbeat about its prospects, as it still sees robust demand growth for CPO as an edible oil from emerging and development countries. For now, we intend to maintain our HOLDrating and S$0.63 fair value (based on 12.5x FY13F EPS); and we see value emerging at S$0.55 or better. 

Lian Beng Group – Awarded two contracts worth $201m
Lian Beng announced that it has secured two construction projects which would boost its order book to a record S$1.085b. The first contract is worth S$112m and is awarded by Oxley Holdings to design and construct a multiple-user light industrial development at Sunview Road, Jalan Buroh and Pioneer Rd. It will commence in Apr-13 and take 24 months to complete. The second contract, also awarded by Oxley Holdings, is worth S$89m and involves the design and construction of a three-storey and seven-storey building forming a multiple-user industrial development at Tampines Industrial Crescent, Tampines Ave 10 and Tampines Expressway. It will also commence in Apr-13 and take 24 months for completion. We are keeping our rating on Lian Beng UNDER REVIEW pending a change in analyst. 

oma Strategic Holdings: JV with Dragages Singapore
Yoma announced that its wholly-owned subsidiary SPA Project Management Pte. Ltd. has formed a JV with Dragages Singapore Pte Ltd to construct 1,043 apartment units at Thanlyin Star City in Myanmar. The development would cost ~US$94m and construction would commence in Apr-13 and last for 33 months. The JV would be 60% owned by Dragages Singapore and the remaining by SPA Project Management Pte Ltd. While we are positive on the company entering into a JV with an established name in the sector and giving added visibility on the construction timeline for Star City, there is limited impact on our RNAV estimate at this juncture. Maintain a SELL based on a 12-month fair value estimate of S$0.71 (20% premium to RNAV).   

From DBS:
Kreuz – Secured second new contract for the year worth
US$25m. Maintain BUY, TP: S$0.58
Kreuz has secured a subsea installation contract worth
approximately US$25m. The project will be executed in
Southeast Asia and is scheduled for immediate
commencement with estimated completion by 4Q13. This is a
second new contract for the year, bringing YTD win to
US$40.5m. This represents 23% of our full year assumption of
US$174m. Maintain BUY, TP: S$0.58.

From Maybank KE:
Ascendas REIT: Nearing End of Sweet Run; Cut to Hold, TP SGD2.70
AREIT SP | Mkt Cap USD5.2b | ADTV USD14.2m
The  industrial REIT run looks over and we downgrade A-REIT to HOLD
on  valuations.  It was our last BUY among Industrial-REITS. A-REIT has
been  our  conviction BUY since we initiated in June 2012 and the stock
is up 30%.
We  expect  the current QE-inflated growth to run out of steam once
the  artificially  compressed  interest  rates  in  the  US,  and hence
Singapore,  start  normalising  sometime  next  year  or in early 2015.
Industrial  property  prices in the physical market have almost doubled
since  2009 whereas rentals are up only 44%. Further government cooling
measures  will  put  a lid on asset prices, while we are sceptical that
rentals can scale up in the near term.
We  remain  cautious on the mismatch between industrial rentals and
physical prices and see no further catalysts for the sector.