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Monday, July 8, 2013

Local Brokerages Stock Call 8 July 2013

From OCBC:
Viz Branz Limited – Finally, a GO
Summary: Viz Branz finally announced that its current CEO will launch a general offer for the company at S$0.78/share, which represents a 15.5% premium over the one-month weighted average trading price. The CEO already has a majority stake of 58.1% after acquiring his father’s 38.3% share, so Lam Soon is not expected to launch a counter-offer. As the offer price is above with our long-stated target price of S$0.74, we deem the offer to be fair and urge investors to ACCEPT THE OFFER. Furthermore, the CEO intends to take Viz Branz private and delist from SGX, which would result in limited upside and recourse for minority shareholders going forward.

CapitaRetail China Trust:  Time to enter on overselling
Summary: As part of the general sell-down in the markets, CRCT's unit price has fallen 25.2% since the peak of S$1.865 on 11 April 2013. Apart from the prospect of early tapering of QE by the Fed, CRCT has been affected by concerns of a moderation in retail sales growth from: 1) a de-acceleration of China’s economy and 2) President Xi Jinping’s campaign against conspicuous consumption. According to media reports, some Chinese retail landlords have recently begun offering preferential leasing terms for mass-market fashion brands, whereas previously such terms were only reserved for luxury brands. The malls which are facing such pressure typically have poorer locations in second-tier and third-tier cities. We note that CRCT’s malls are in good locations, with the bulk of assets in Beijing. Furthermore, the occupancies in CRCT’s malls are healthy (96%-100%, excluding those which are undergoing tenancy adjustments and AEI). CapitaMalls Asia, which runs the CRCT malls, has the experience and size to better weather the slowdown in China. Factoring in the more challenging operating environment, we reduce our fair value from S$1.76 to S$1.58 but upgrade CRCT to BUY from hold on valuation grounds.

ST Engineering: ST Electronics won S$206.8m of contracts in 2Q13
Summary: ST Engineering (STE) announced that its electronics arm, Singapore Technologies has secured new contracts worth about S$206.8m in 2Q13. This includes a number of rail electronics contracts worth some S$24.8m, with S$18m worth of the contracts awarded by the LTA. Work on the projects has begun and are expected to be completed by 2016. ST Electronics also secured contracts worth about S$182m for the supply of satcoms solutions and communications systems projects to local and international customers. The magnitude of the contract wins is in line with our expectations. We maintain our fair value estimate of S$3.97 and HOLD rating on STE. 

From UOB KH:
Looking Ahead
Plantation – Supply drying up. We upgraded the regional
plantation sector to OVERWEIGHT from UNDERWEIGHT
in view of
the recovery in CPO prices on the back of easing concern over high
inventory levels and a slower production growth in 2014. The hot
weather and the ringgit depreciation also provide short-term support
to CPO prices. We raised sector valuation to upcycle valuation given
the improving CPO price uptrend momentum.

Stock picks. For sector exposure, we prefer: a) young and efficient
upstream players like Bumitama and First Resources, b) integrated
players with catalysts like Wilmar, and c) companies with high beta to
CPO prices.

Bumitama Agri (BAL SP, P8Z) –
Strong FFB production
(BUY/Target: S$1.23)

Bumitama’s 1Q13 fresh fruit bunch (FFB) production growth was
one of the best among Indonesia-based plantation companies in
our coverage. It still has the highest oil extraction rate in the
industry, at 24%. We forecast a 28-30% yoy production growth in
2013, supported by its young age profile and more than 10,000ha of
new mature area. With this, we are expecting its cost of production
per unit to remain flat. Bumitama is on track to meeting its full-year
new planting target. Our target price is based on 15x PE.
Technically, the stock could be consolidating between S$0.93 and
S$1.04. The stock is likely to be well supported above S$0.93 for

Wilmar International (WIL SP, F34) –
Earnings recovery
(BUY/Target: S$3.80)

Wilmar has strong branding and a good distribution network in the
key emerging markets for its consumer pack business. Leveraging
on this, it has expanded its product range as it strives to maintain its
market leadership in this division. Thinning refining margins are in
line with our expectation but will be compensated by the expanded
capacity in Indonesia, which will drive sales volume. Going forward,
capex will be focused on greenfield projects with high potential. Key
expansion will be in the fast-emerging markets in Africa. We expect
the impact of this country diversification strategy to be positive for
Wilmar on the back of higher contributions from non-China markets.
We see an earnings recovery for Wilmar’s plantation and palm oil
businesses due to improving CPO prices. Strong production should
commence as well in 2H13. Our target price is based on a sum-ofthe-
parts model.

First Resources (FR SP, EB5) –
No hotspots spotted so far
(BUY/Target: S$2.60)

Management clarified that no hotspot has been spotted on the
company’s Riau estates so far, and it is keeping its FFB production
growth guidance at 10% for the year. FFB production is expected to
pick up gradually as we enter the high production season in 2H13.
However, rainfall has been low in Riau since Jan 13 and if this
continues, productivity in 2H13 to 2014 might be impacted. CPO
production grew 7% yoy in 5M13, mainly boosted by an additional
mill in West Kalimantan. Ground checks suggest First Resources’
higher CPO selling prices than peers’ are likely to continue into
2Q13. Our target price is pegged at 15x PE.
Technically, the stock needs to be supported above S$1.67 and
break above S$2.05 for further upside. Otherwise, the stock may
fall towards the next support level at S$1.50.

Singapore Press Holdings- Back to basics.
(SPH SP/HOLD/S$4.20Target: S$4.25)
FY14F PE(x): 20.5
FY15F PE(x): 21.0

SPH REIT IPO is temporarily on hold. In view of the currrent poor
sentiments on REITs, Singapore Press Holdings (SPH) said it continues
“to monitor market conditions and will make an announcement at the
appropriate time”.
Back to basics. So, it is back to its core print media business and
advertising revenue (AR) growth. Our monthly page monitor of The Straits
Times suggests a flattish (1-3% yoy growth) advertising spending
(adspend) in 3QFY13 (Mar-May). SPH is due to announce its 3QFY13
results on Monday, 15 July, after market close. Despite a flattish adspend
implied by our page-counts, we expect SPH to report an AR contraction,
but this should be smaller than the 9.3% contraction in 2QFY13. The sharp
fall in 2QFY13 AR (in particular display ads, -10.2% yoy) was due to a
knee-jerk reaction to additional property measures and the new stringent
measures on car loans.
Maintain HOLD. We lower our target price from S$4.50 to S$4.25. We
raise our DCF discount rate on a higher risk-free rate, but reduce our
discount to sum-of-the-parts valuation (SOTP). We raise our risk-free rate
to 3.0% (from 2.2%) due to a cyclical turn in interest rates.

From Maybank KE:
Neptune Orient Lines: Near Term Earnings Weakness; Hold, TP $1.25
NOL SP | Mkt Cap USD2.1b | ADTV USD3.5m

We assume coverage of NOL with a HOLD rating and TP of SGD1.25 based on FY13-14E P/BV of 1.1X (long term average: 1.2X).
Fundamentally, we believe that the container shipping industry is near its cyclical trough and expect better times ahead as the supply overhang diminishes over the next few years.
However, we remain cautious in our recommendation as the prospect of a third consecutive year of losses in FY13 (on our estimates) will likely weigh on sentiment towards the stock, especially as we believe consensus expectations of a profitable FY13 will be missed.

 From DBS:
Cambridge Industrial Trust announced that it is proposing to
divest Lam Soon Industrial Building for S$140.8m. The
proposed selling price represents CREIT’s 69.4% stake in the
strata share value of the property and is a 28% premium over
the latest valued book value. The exit yield is estimated to be
c2.3%. We view that a strata-sale process is not optimal
given that it is likely to be a lengthy process coupled with
uncertainty regarding the eventual sale of its entire stake.
Our DPU/NAV estimates are revised slightly to account for
this sale. We have also switched our valuation methodology
back to DCF compared to SOTP previously where we had
factored in the full potential of an enbloc sale and
development of its portfolio. Our new DCF-based TP is
S$0.78 (previous TP: $0.93).

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