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Tuesday, July 2, 2013

Local Brokerages Stock Call 1 July 2013

From OCBC:

SG Residential Property: A total debt profile framework
Summary: MAS announced a set of Total Debt Servicing Ratio (TDSR) requirements whereby FIs will now account for borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. We see an immediate impact that borrowers now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles. Over the mid-to-longer term, we see these measures further constricting financing for buyers with existing property loans. That said, the current 60% TDSR limit appears to be fairly reasonable and is not intended to cool down the property market as much as to encourage financial prudence. Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Maintain BUY on CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59] and CapitaMalls Asia [BUY, FV: S$2.55].

SATS Ltd – Middle-East exit for now
Summary: SATS announced that it will sell its 40% equity interest in its Adel Abuljadayel Flight Catering Company joint venture for a cash consideration of US$18.4m (~S$23.4m), which is slightly below the book value of the asset as of 31 Mar (S$24.1m). Despite the short two-year tenure of the JV, the exit does not signal a change in management intent regarding the region. Management still intends to re-enter the Middle East, and will continue to pursue other attractive investment opportunities. In the interim, the outlook for SATS remains positive and we believe the counter’s earnings stability and healthy dividends will allow it to stay resilient amidst recent market volatility. Maintain HOLD with an unchanged fair value of S$3.15.

Vard Holdings: Profit Guidance
Summary: Vard Holdings warned that its 2Q2013 financial results are likely to be below current consensus estimates due to difficulties in its operations in Brazil. The group had previously guided that its Brazil operations are coming under control and would stabilize by year-end. However, after a recent assessment, management found further delays, cost over-runs at its Niteroi yard due to lower-than-expected productivity, additional costs for outsourcing and higher start-up costs at the Promar yard. These issues have adversely impacted its 2Q margin. Operations elsewhere are stable and Vard Holdings as a group remains profitable. Our FY13F net profit estimate is 6% below consensus, but we would likely revise lower after speaking with management later to get more colour. Thus, we put our Buy rating and S$1.52 fair value UNDER REVIEW. 

From Maybank:
Cordlife Group: The Cords That Bind; Initiate at BUY TP $1.29
CLGL SP | Mkt Cap USD161.8m | ADTV USD5.0m

Initiate  coverage with buy at street high target price of SGD1.29.
Cordlife  is an umbilical cord blood bank which provides cord blood and
cord   tissue   storage  services  in  6  countries  with  either  high
penetration  rate  or  high  birth rate within Asia. Occupying a strong
platform  to expand its product range combined with a dominant position
in  Singapore, Philippines, Indonesia and strong presence in Hong Kong,
India  and China, it is poised to transform into Asia’s infant products
champion over the next two years.
At its current price, we believe the market has not fully priced in
Cordlife’s   favourable  market  position,  strong  regional  presence,
excellent product expansion opportunities, exceptional margins and high
competitive  advantages  As  a result, its valuation multiple is deeply
depressed.  Our  TP of SGD1.40 is pegged at 23x FY14F PER, in line with
its global peers and 27% discount to its local peers.
The nationwide rollout of cord tissue banking coupled with completed
acquisition   of   established  operations  overseas  are  expected  to
significantly boost Cordlife’s revenue in FY14F.

Banks and Property: Standardising the Debt Servicing Ratio
The  Monetary  Authority  of  Singapore’s  (MAS)  latest Total Debt
Servicing  Ratio (TDSR) framework should be viewed more as a prudential
measure  to  streamline  the  DSR  computation, rather than as a policy
tightening measure or property cooling measure, in our view.
While  some  cooling off of property loan approvals cannot be ruled
out,  we  expect the impact to be limited, given that the DSR currently
averages a comfortable 40-50% for the Singapore banks.
We  maintain our Neutral stance on the banks with DBS being our top
pick – 2013 yields are a decent 3.7% post-correction while the group is
least exposed to Singapore’s property sector (19% of total loans ex DBS
HK vs 23% and 26% for OCBC and UOB respectively, ex-Malaysia).
We  also  expect  some immediate negative impact on property sales,
mainly  as investment demand may be dampened. We maintain that the mass
market  residential  segment  is  the most vulnerable to downside price
pressure  and  total  new home sales should come in at 16-17k units for
2013. Prefer diversified developers and retail mall players.

Vard Holdings: Brace for a Roller Coaster Ride; Maintain Buy TP$1.52
VARD SP | Mkt Cap USD1.0b | ADTV USD5.6m

Vard issued a profit warning stating that it expects 2Q13 net profit
to be lower than current consensus market estimates. Further delays and
cost  overrun at the Niteroi yard in Brazil resulted in additional cost
in outsourcing.
Our  view  has been to look beyond FY13F for the recovery growth in
FY14F.  While  our  FY13F forecast is lower than consensus, our initial
assessment  after  our  call  with  management is that FY13F net profit
could be even lower than our expectations.
We  cut our FY13F/14F/15F net profit forecasts by 19%/5%/3%.  Brace
for  a  roller-coaster  ride  in  share price in the short term, but we
maintain  our  view that (1) better-than-expected order wins will drive
FY14F   recovery  and  (2)  valuations  at  current  levels  are  still
unjustifiably  low after our earnings cut. TP thus falls SGD1.52, still
pegged to 9x PER on average FY13-15F earnings.

From DBS:
Vard - 2Q to miss expectations; downgrade to HOLD
with lower TP of S$1.16
We expect 2Q13 earnings for Vard to miss expectations
due to cost overruns of Brazil projects. This is a dampener
on confidence, and our analyst has cut FY13/14F earnings
by 11/7%. Downgrade to HOLD; TP lowered to S$1.16
(Prev S$ 1.46).

Plantation counters are still in the last leg of correction.
Our analyst recommends investors who are underweight
in this sector to start rebuilding positions in the latter part
of the year – when palm oil stockpiles peak. He expects
CPO prices to weaken between now and end of the year
on rising inventories and to rebound by next year, led by
global demand recovery. He has cut CY13/CY14/CY15
crude palm oil (CPO) price forecasts by 11%/2%/4%, and
expects spot CPO prices to average RM2,350 (US$791) in
3QCY13 and RM2,300 (US$777) in 4QCY13. The
upcoming 2Q13 results are expected to lag consensus, as
realised CPO ASP is lower than market expectations.
Switch to Singapore listed planters (close to -1SD forward
PE); accumulate others by year-end. Upgrade to BUY for
Bumitama Agri (TP: S$1.23, (Prev S$ 1.12)) and Wilmar
(TP: S$3.48, (Prev S$ 3.72)); maintain BUY for First
Resources (TP: S$2.18, (Prev S$ 2.14)).

SembCorp Marine has secured two turnkey contracts for
jack-up rigs from repeat customer Oro Negro worth
US$417m in total, scheduled for delivery by Jul 2015 and
3Q 2015. Including the two jack-up rigs ordered in Dec
2012 and two in Mar 2013, Oro Negro now have six
units of Pacific Class 400 jack-up rigs on order with SMM.
These new contracts will bring SMM's YTD wins to
S$3,212m, making up 64% of our new order assumption
of S$5bn. Maintain (HOLD, TP: S$4.70).


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