Local Brokerages Stock Call 15 July 2013

From OCBC:
Technology Sector: PC slump continues
Summary: The worldwide shipment of PCs remained sluggish, falling 10.9% YoY to 76.0m units in 2Q13, according to research firm Gartner Inc. This was the fifth consecutive quarter of YoY decline. Besides the cannibalisation of PCs by mobile devices, we believe that the still uncertain macroeconomic backdrop has also played an inherent role in causing the sluggish demand for PCs. Just last week, the IMF trimmed its global economic growth forecasts for both 2013 and 2014. Although Singapore’s 2Q13 GDP growth managed to exceed the street’s expectations, we remain cautious on the downside risks on the tech sector given heightened concerns over China’s economy and persistent weakness in the eurozone area. Hence, we maintain NEUTRAL on the sector. We replace Venture Corp [HOLD; FV: S$7.37] with ECS [BUY; FV: S$0.57] as our top pick in the sector following our downgrade of the former after its weak 1Q13 results.

Ezra Holdings: Time needed for subsea to deliver sustainable earnings
Summary: Ezra Holdings (Ezra) reported a 19% YoY rise in revenue to US$317.1m but saw a 68% drop in net profit to US$7.2m in 3QFY13, such that 9MFY13 revenue and net profit accounted for close to 75% of our full-year estimates. However, stripping out one-off items, we estimate core net loss of US$54m for the quarter. Gross profit margin was only 1% vs. 17% in 3QFY12. The main reason for the poor performance was the subsea segment, which went into the red with delays in project executions and unforeseen costs. As highlighted in our earlier reports, we have been waiting for evidence of smooth execution in this business before we turn more positive on the company. In view of the lack of sustainable core earnings for now, we value Ezra using a P/B of 0.7x, such that our fair value estimate drops from S$1.10 to S$0.99. Maintain HOLD. 
  CapitaRetail China Trust: Acquiring Grand Canyon Mall in Beijing
Summary: CRCT has announced this morning that it has entered into a conditional call option agreement with CMA to acquire Grand Canyon Mall in Beijing. Including acquisition expenses, the total investment cost for the mall is expected to be about RMB1.82b (S$373.0m), or about RMB26k (S$5,329) psm, based on GFA (excluding the car park). The mall has been valued at RMB1.83b as at 15 April 2013 by CBRE.  The mall currently has an annualised net property income (NPI) yield of about 3.5%, based on the purchase price. The committed occupancy rate (92.7% as of April 2013) is expected to reach close to 100.0% next year. Leases accounting for about 27.0% of the mall’s monthly gross rent are expiring between this month and the end of the year. In management’s view, these leases allow for significant improvement in rental income when their average rent, currently over 90.0% lower than the market rate, is adjusted closer to the market rate. Furthermore, leases accounting for another 25.0% of the mall’s monthly gross rent will be expiring in 2014 and 2015. The proposed acquisition of Grand Canyon Mall is thus expected to be yield-accretive once the acquisition is completed. The target NPI yield is about 7.0% to 8.0% in the longer term. CRCT intends to fund the acquisition using its existing cash and new debt of between S$286.9m and S$327.9m, with the balance from new equity financing. The transaction is expected to be completed by 2Q14. Given that CRCT will release its 2Q13 results soon, we maintain our fair value of S$1.58 and BUY rating for now. 

From DBS:
Ezra Holdings reported disappointing core net loss of
US$58m in 3Q13. Write-offs on legacy projects and project
delays lead to negative contribution from subsea. Order win
momentum sustained but execution risks will likely
overshadow. Our target price is revised down to S$0.90,
based on 0.8x P/BV for Ezra’s core operations, down from
1.15x P/BV earlier, to account for lower margins and ROEs as
well as risks associated with a highly geared balance sheet
amidst a potentially rising interest rate environment in future.
Downgrade to Fully Valued.

From Maybank KE:
OSIM International: First Look At The New Chair; Buy TP $2.53
OSIM SP | Mkt Cap USD1.2b | ADTV USD1.9m
We had a firsthand look at the eagerly awaited new chair, which has
just  been  soft-launched in Hong Kong. The uInfinity has a much better
massage, though design was slightly underwhelming.
OSIM will announce 2Q13 results after market close on the 30th July.
For  the quarter, we are expecting revenue and profit growth of 15% and
18% (SGD26.5m) respectively.
We  trim  our earnings forecast by 2-3% on lower revenue estimates.
Our TP of SGD2.53 remains pegged to 18x FY13F. Maintain BUY. 

From UOB KH:
Noble Group (NOBL SP)
Waiting For Clearer Indicators
The worst for earnings could be over but the turning point remains unclear
with margin under pressure from weak demand and large soybean, sugar
cane and cotton supplies. New capacities could provide buffer and new
investment opportunities could lead to more offtake from miners. Upgrade to
HOLD as share price has corrected since our downgrade in May 13. Target
price: S$0.92. Entry price: S$0.83.

From DMG:
Ezra reported a poor set of operating numbers with a core
net loss of USD52m. Headline net profit of USD7.2m was boosted by USD59m
one-off gains primarily due to sale of Ezion shares. Following the results, we
slash our FY14-15F core EPS estimates by 12-24% on lower margins. In our
view, continued inability to deliver earnings, weak cash generation and industrywide
project delays could add further strain on the balance sheet. Downgrade to
Sell with a TP of SGD0.70 (from SGD1.15).

VARD Holdings: 2Q13 Results Marred By Loss-Making Brazil Unit (BUY,
SGD0.87, TP: SGD1.10)
VARD’s NOK20m net loss in 2Q13 was sharply below estimates,
weighed down by its Brazil yards. At a results briefing, Management
provided little clarity on margins and potential of more losses in
Brazil. As our model now assumes zero profit on all existing jobs in
Brazil, we cut our FY13-15F EPS by 22%-40%. Maintain BUY, with a
lower SGD1.10 TP, based on 10x FY14F EPS. These put the stock at
10.1x FY13F P/E and 7.4x FY14F P/E.