Local Brokerages Stock Call 29 July 2013

From OCBC:
Golden Agri-Resources: Downgrade to HOLD
Summary: Golden Agri-Resources (GAR), being one of the largest palm oil plantation owners in the world, is likely to remain vulnerable to further pullbacks in CPO prices, which had recently hit their lowest levels since Nov 2009. In view of the more muted outlook for CPO, we deem it prudent to lower our 2013 forecast to US$700/ton from US$750 previously. This results in our FY13 revenue and core earnings estimates easing by 2%. Our fair value also drops from S$0.63 to S$0.57 as we are also lowering our valuation peg from 12.5x previously to 11x. Given the limited upside and still uncertain outlook, we downgrade our call to HOLD.

CDL Hospitality Trusts: 2Q13 results miss street's expectations
Summary: CDL Hospitality Trusts reported a 4.4% YoY fall in net property income in 2Q13 to S$32.6m. Income available for distribution contracted 6.4% YoY to S$29.4m. 2Q13 RevPAR for the Singapore hotels fell 8.5% YoY to S$193, affected by increased competition, weaker corporate demand and the absence of the biennial Food & Hotel Asia event in Apr. The results were in line with our expectations, but missed the street’s. Estimating the financial effect of the planned closure of most of the Orchard Hotel Shopping Arcade for AEI (excluding the Galleria) from late 2013, and adjusting our assumptions for the non-Singapore hotels, our FY13F DPU falls to 10.4 S cents from 10.9 S cents. Incorporating a risk-free rate of 2.5% (versus 2.2% previously) into our model, our FV drops to S$1.73 from S$1.79. We maintain a HOLD rating on CDLHT.

TEE International: FY13 earnings marred by admin expenses
Summary: TEE reported 4Q13 PATMI of S$6.4m, down 45% YoY mostly due to a S$4.1m increase in administrative expenses. Due to this, FY13 PATMI of S$13.1m was judged to be somewhat below our full year expectations. The order book of the Engineering segment now stands at S$215.4m, which remains fairly stable on a YoY basis. We like management’s active stance on seeking accretive acquisitions; note that TEE recently announced an MOU to invest in a waste-water treatment plant in Huzhou, China and also formed a JV for a S$8.6m 3-year contract for a water management project near Chao Phaya River, Thailand. We currently have a HOLD rating on TEE with a fair value estimate of S$0.38. However, given the attractive dividend of 2.50 S-cents ahead, which translates to a yield of 6.8% on the last closing price of S$0.37, we believe the downside may be capped from here.

Telco Sector – SingTel to offer BPL cross carriage Summary: SingTel will have to offer its BPL content to rival StarHub customers after the Ministry for Communications and Information (MCI) rejected its appeal for a stay of the Media Development Authority (MDA) ruling for the cross-carriage of the closely followed football content. However, the subscription comes with a price – new subscribers will have to fork out S$59.90 (before GST) for the stand-alone package, while existing mioTV subscribers can continue with the existing pricing of S$34.90 (before GST). While we may see some migration of subscribers from mioTV to StarHub’s cable TV platform, we do not expect a huge number. For now, we maintain our NEUTRAL rating on the sector. While we also maintain our HOLD rating on SingTel, we are putting our Hold rating on StarHub under review. 
 

First REIT: 2Q13 results within expectations
 Summary: First REIT (FREIT) reported its 2Q13 results which were within our expectations. Gross revenue surged 43.4% YoY to S$20.1m due largely to contribution from its four newly acquired properties in Indonesia (two acquired in Nov 2012 and two in May 2013). Distributable amount to unitholders rose 4.0% YoY to S$12.7m but DPU fell 4.1% YoY to 1.85 S cents. However, if we strip out an exceptional distribution in 2Q12, FREIT’s distributable amount to unitholders and DPU would instead have increased by 26.6% and 16.4%, respectively. As FREIT had already made an advance distribution of 0.99 S cents on 26 Jun 2013 (prior to the issuance of new units for payment of its acquisitions), only the remaining 0.86 S cents will be paid to unitholders. For 1H13, gross revenue rose 34.2% to S$37.6m and constituted 45.2% of our full-year projection. DPU (after stripping out the special distribution highlighted earlier) increased 12.9% to 3.59 S cents, or 45.5% of our FY13 forecast. We expect 2H13 to be stronger on a HoH basis due to a full-quarter of contribution beginning 3Q13 from the two hospitals acquired in May 2013. We will provide more details after the analyst briefing. Meanwhile, we maintain our HOLD rating and S$1.20 fair value estimate on FREIT. 

 
Lian Beng: Construction order book at S$1.3b
Summary: Lian Beng announced FY13 (ended 31 May 2013) PATMI of S$39.4m – down 23.4% – this is mostly due to an absence of a S$7.9m gain from an investment property sale in FY12. FY13 topline, however, increased 13.6% to S$505.6m on higher revenue recognition from its construction and ready-mixed concrete segments. We note that Lian Beng’s construction books as at end May 13 are at a very healthy level of S$1.3b, which is expected to underpin firm revenue numbers over the next 2-3 years. We would speak with management regarding FY13 results later today and, in the meantime, our rating and fair value estimate is under review. 
 
Swiber Holdings: Wins US$435m contracts; sets up Islamic Trust Certificates
Summary: Swiber Holdings announced that it has clinched contracts worth about US$435m, US$330m of which were secured under the Swiber group and about US$105m under a joint venture company. Work will commence immediately and is expected to be completed by 2015. Meanwhile an SPV of the company has also established a US$500m multicurrency Islamic Trust Certificates Issue Programme; proceeds from new issues will be used to refinance existing borrowings and fund capital expenditure, amongst others. Recall that the company had said that it was exploring options to establish Islamic Trust Certificates in Jun. Maintain BUY with S$0.86 fair value estimate. 

From Maybank KE:

ST Engineering: Robust Outlook To Support Lofty Valuations; BUY, TP $4.80
STE SP | Mkt Cap USD10.7b | ADTV USD9.3m
Despite  premium  valuations,  ST  Engineering  (STE)’s defence and
commercial-driven  record  order book of SGD13b, along with a potential
catalyst  in  the  form of a major billion-dollar contract, continue to
justify  a  BUY  rating. As a heuristic gauge of the stock’s valuation,
STE  trades  at  an undemanding market capitalisation-to-order ratio of
1.0x,  below  its  market  cycle  average  of 1.2x. Our target price of
SGD4.80 is based on 23x blended FY13/14 PER.
STE  is in the running for a major contract from the US Coast Guard
(USCG), which could be worth c.USD10b. This could be announced as early
as 3Q13. Closer to home, a recent Singapore Navy patrol vessel contract
could be its biggest since 2008.
ST  Aerospace’s  recent  acquisition  of a 35% stake in EADS EFW, a
Centre of Excellence for freighter conversions, is meant to leverage on
its years of experience in passenger-to-freighter (PTF) conversions. It
plans  to  develop  a  conversion package for two versions of converted
freighters  -  A330-200P2F  and  A330-300P2F  –  where there is a major
market  opportunity,  as  Airbus  estimates that 847 mid-sized aircraft
would be converted into freighters over the next 20 years.
   
 Lian Beng Group: And The Sky Clears; Maintain Buy, TP $0.69
 LBG SP | Mkt Cap USD243.2m | ADTV USD1.1m
 Lian Beng posted a full-year revenue of SGD505.6m (up 13.6% YoY) on
 contributions  from  its construction and manufacturing of concrete arm
 and  net  profit  of  SGD39.4m  (down  24.3%  YoY). Excluding a one-off
 SGD7.9m  gain  from  sale  of investment property in FY5/12, net profit
 would have fallen by 11%
 We expect property development earnings to begin to shine through as
 well  as  ex-Seletar  Garden  and  Changi  Road  sites to launch in the
 following year.
 Maintain BUY with raised earnings on the back of new contract wins.
  
 Economics
 Singapore Industrial Output, June 2013: Slipped Back Into The Red
 Industrial  production  (IP)  in  June  2013  slipped back into the
 negative  territory  with a -5.9% YoY contraction (May 2013: +2.3% YoY)
 following  the  steep drop in biomedical output.  Excluding biomedical,
 IP fell by a smaller quantum of -0.5% YoY (May 2013: -2.2% YoY).
 2Q  2013 IP suggests downward revision to the quarter’s GDP.  IP in
 2Q 2013 was up marginally by +0.2% YoY compared with -6.7% YoY reported
 in  1Q  2013,  and  shrank  -3.2%  YoY in 1H 2013 (1H 2012: +1.5% YoY).
 Assuming  no  drastic  change  in  the  numbers  for  the  services and
 construction  sectors, the 2Q 2013 real GDP growth should be lower than
 the  advanced  estimate of +3.7% YoY as the manufacturing sector turned
 out  to be “flattish” as opposed to the preliminary figure of +1.1% YoY

  growth.
 This  justified  our guarded response to the advance estimate of 2Q
 2013  GDP,  where despite the better than expected figure that resulted
 in  the preliminary 1H 2013 real GDP growth of +2.0%, we maintained our
 +2.3% full-year growth forecast. 

From DBS:

STI has rebounded 210pts over the past month since the June
3066 low. A choppy trend could be in stall for August ahead
of consensus expectation for QE tapering to start in
September. Still, follow the line projection towards 3430 by
year-end positions the STI at 3345 by early October. Thus, we
expect a higher low on the pullback. We currently peg index
support at 3170, which is the 50% downward retracement
level, assuming a short-term high last week at 3277.

We prefer companies that offer good earnings visibility, are in
a net cash position and offer good dividend yield. Our picks
continue to be ST Engineering, Comfort Delgro and
SingPost. For ST Engineering and Comfort Delgro, we prefer
to be buyers on pullback as both stocks have performed well
over the past month.

The 2Q results season that’s currently in progress has been
unable to fire up optimism thus far as most companies have
reported either in-line results or outlook lacked shine.
Singapore banks will be releasing results this week. Shares of
OCBC have continued to lag behind UOB. This is likely
because of concerns about possible mark-to-market losses on
Great Eastern's non-par insurance portfolio in the upcoming
results. Support for OCBC shares is at $10.22. UOB shares
have clearly outperformed, rising to a touch below $22 that
lifted it back to the previous YTD high. Technically, we think
the stock has touched near-touch resistance last week. A
pullback to $20.9 is likely.

Results for Hi-P will be out on Friday. The group reported a
strong set of 1Q13 results. Shares of Hi-P rose 11.4% last
week ahead of its results release. The stock currently offers a
modest 6% upside to our 88cts TP. Technically, immediate
term upside looks capped at $0.85 ahead of earnings release.
Immediate support is at $0.79.

2Q13 results CDL Hospitality Trusts was weak but in line.
Gross revenue and NPI declined by 3% and 4% y-o-y to
S$35.6m and S$32.6m respectively. Looking ahead, the
group is seeing demand stabilizing in 3Q13 with bookings for
the Sept’13 Formula One race looking brighter compared to a

year ago. Thus, 2H13 performance is likely see a sequential
improvement. Acquisitions are likely catalysts. We believe
CDL HT deserves a re-look, Upgrade to BUY, TP S$1.89 (prev
S$ 2.07) (adjusted for higher risk free of 2.8% vs 2.1%).
DPU of 2.43 Scts for Mapletree Industrial Trust in line.
Looking ahead, the manager expects steady earnings
growth backed by decent operational performance and
completion of development projects. Maintain BUY, TP
revised to S$1.52 (prev S$ 1.63) as we raise our risk free
assumption to 2.6% from 1.8%.

From UOB KH:

Pan-United Corporation (PAN SP, P52) –
Largest cement and ready-mixed concrete supplier
(BUY/Target: S$1.25)
Pan-United is Singapore’s largest supplier of cement and readymixed
concrete with a market share of 28%. With a range of quality
products and timely delivery guarantee, the company has
established an impressive track record, supplying ready-mixed
concrete for the construction of both the Circle Line and the
Downtown Line (DTL). The company’s controlling interest in one of
China’s top 10 river ports also provides a steady recurring
alternative source of income that formed 15% of Pan-United’s FY12
net profit. Positive earnings prospects, solid fundamentals (net cash
of 10 cents/share) and a stable dividend payout make Pan-United
one of our top picks for the sector. Our target price is based on a
SOTP model.
Technically, the stock is likely to head higher should it be well
supported above S$0.78. Resistance is at S$1.08.

Kori Holdings (KHLL SP, 5VC) –
Underground specialist
(BUY/Target: S$0.60)
Through its strategic relationships with both foreign and local
contractors, Kori has a stellar track record, securing contracts for all
three stages of the DTL. With Singapore looking to increasingly
utilise its underground space, the outlook for the underground
tunnelling specialist is set to remain upbeat. Even with a remarkable
72% rise in its share price since its IPO last year, valuation remains
undemanding at 4.6x 2013F PE, vs peers’ average of 8.8x, and is
underpinned by a strong net cash of 14 cents/share. We also like its
strong cash flow and earnings that support its dividend-payout
ability. While the company does not have a dividend policy, we
render a conservative 25% payout will offer an attractive dividend
yield of 5.4%. Our target price is based on 5.5x 2014F PE.
Technically, it has managed to break above S$0.43 recently. The
next potential resistance could be around S$0.51.

Yongnam Holdings (YNH SP, Y02) –
Diversifying into infrastructure investments
(BUY/Target: S$0.45)
Yongnam has more than 40 years of experience in steel fabrication
and engineering solutions. The company has worked with
numerous reputable contractors and was also involved in many
major projects that changed the architectural landscape in
Singapore. As part of its diversification strategy, Yongnam has
joined a consortium to evaluate a project tender for the construction
and management of an international airport in Myanmar. We view
this positively as the company will be able to enjoy recurring income
from infrastructure investments rather than lumpy project earnings
recognition. A strong pipeline of projects will keep Yongnam busy
for a while. Management guided that within these two years, the
company has a total tenderbook of over S$1.2b. Our target price is
based on a peers’ average 2014F PE of 9.7x.
Technically, Yongnam could be supported near S$0.325 should
prices retrace further. The stock has been resisted near S$0.40 as
mentioned as our technical buy target on 7 May 13.