Local Brokerages Stock Call 5 July 2013

From OCBC:
COSCO Corp (Singapore): Don’t catch a falling knife
COSCO Corp (Singapore)’s share price has fallen by about 14% since our last update (“Downgrade to Sell – Missed Expectations”, 6/5/2013) such that it is close to our previous S$0.76 FV. However, we do not think it is time to upgrade our call. The macro environment is looking increasingly gloomy. In China, an unexpected credit squeeze in the Chinese interbank market raised concerns over the fragility of the Chinese banking system. The surprise was that the PBOC took an unusually tough line by refusing to inject liquidity, at least for a few days. Should the credit conditions deteriorate, we think that COSCO, with its large debt burden, will be vulnerable. The group’s net gearing climbed to 131% as of end 1Q13, from just 10% as of end FY10. We estimate about half of its existing debt (S$3.4b) would need to be refinanced within the next 12 months. Considering the risks, we cut our PBR peg to 1.0x (or 2 std dev below) and FV to S$0.60 (previously S$0.76). Maintain SELL. 
 
Petra Foods: Fully valued ahead of 2Q results
Since our sell call a month ago, Petra Foods’ share price has fallen by as much as 17.9% before recovering to close about 7% lower. Although the outlook is still challenging for Petra – the World Bank recently trimmed its forecast for Indonesia’s economic growth this year to 5.9% from 6.2% previously – we believe that the sell-offs are about done and Petra is fairly valued at this point. Ahead of its 2Q13 results release, we upgrade Petra to HOLD on valuation grounds, with an unchanged fair value estimate of S$3.88. Investors should also expect a larger than expected loss from the divested cocoa ingredients segment in 2Q13.

From UOB KH:
SATS (SATS SP)

Cost Pressures Remain The Key Challenge

Our recent company visit indicates that competition pressures and cost

challenges continue to persist. We lower

our full-year pax, cargo traffic, unit

meal assumptions and increase our risk-free rate by 80bps to reflect the

increase in 10-year SGS. Maintain HOLD with a lower target price of

S$3.13. Entry price is S$2.90. 

 

From DMG:

AusGroup: SGD0.37      

SELL (TP: SGD0.33)

A Few Little Fish, Where's The Big Tuna?
AusGroup announced that it has won an AUD36m contract extension for a calciner overhaul and maintenance project with Alcoa of Australia for the next 39 months. While the recent series of small order wins is encouraging, the orderbook still suffers from a lack of visibility. After taking the recent plunge in the AUD and 4QFY13F earnings risks into account, our TP drops further to SGD0.33. Maintain SELL.

Another in a series of small contracts. AusGroup has won a number of small contracts recently (all under AUD50m) but so far we have not seen the large (>AUD100m) contracts that will really give the orderbook the necessary boost to strengthen the outlook. The orderbook now stands at AUD252m, up from the AUD215m reported at the end of 3QFY13. However, this is still less than half a year of revenue visibility.
 

Our TP is lowered to SGD0.33 based on 0.8x P/B (-1SD from its 5-year average; AUD sinks to 4-year low. The AUD has collapsed to a level not seen since July 2009 (See Figure 1), pressured by weak commodity demand from a slowing China. This looks like a structural issue, and is unlikely to see a major reversal in the near term. Investors are buying into weaker earnings denominated in a weakening currency.

Potential risks to 4QFY13F earnings. The Karara Mining client non-payment issue is a key concern because AusGroup may have to take provisions on the receivables. With revenues having slid for four consecutive quarters, this might be the last straw that breaks the camel’s back, sending AusGroup into the red for the quarter. In any case, the full-year figure will be a sharp drop from FY12’s strong AUD23.3m profit, which may catalyse another retreat in the share price.

Fundamentals eroding. Maintain SELL, with lower SGD0.33 TP. Low visibility, structural pressures on the functional currency, and a clear risk to earnings are strong reasons against attempting to bottom-fish at this price. Technical analysis may also fail given that the prices of the last four years were all based on a much-stronger AUSee Figure 2). Maintain SELL.