Local Brokerages Stock Call 26 August 2013

From OCBC:
CPO Stocks : Outlook still fairly muted
Summary: Most CPO (crude palm oil) companies reported fairly disappointing 1H13 results recently, no doubt hurt by weaker CPO prices in 2Q13 (CPO prices fell 25% YoY and another 5% QoQ). But going forward, the outlook for CPO prices remains largely muted, given the sluggish economy, as well as the expected rise in production of vegetable oils. While most of the plantation stocks have corrected quite a bit of late, making valuations less demanding, we note that there could still be earnings disappointments for upstream players should CPO prices fall further. We have a SELL on GAR and are reviewing our Hold rating on GPR. While we have a HOLD on WIL, its downstream business may be vulnerable to further economic contraction in China.  


From UOB:
Highlights
We remain selective given limited earnings visibility as we approach
2014.
M1 is our preferred pick among telcos due to its attractive valuation
and sustainable dividend policy
We prefer Keppel Corp (Keppel) over SembCorp Marine (SMM) on
firm offshore & marine (O&M) margins.
Suntec REIT (Suntec) will benefit from an office sector turnaround
and its asset enhancement will boost rentals and property income

M1 (M1 SP, B2F) –
Attractive dividend; potential for special dividend
(BUY/Target: S$3.58)
M1’s management guided a moderate growth in earnings for 2013.
It continues to evolve into a triple-play telco and will invest to further
modernise its 3G network. It recently launched its new internet TV
service, and also expects the adoption of fibre broadband to
accelerate in 2013, which should improve its margins. The company
has a dividend policy of paying out 80% of net profit. The remaining
20% could be paid as special dividends if there is no urgent need
for additional capex. Assuming M1 pays out the 20%, total dividend
for 2013 could reach 18 S cents, and this improves the dividend
yield to 5.6%. M1 remains our preferred pick for the telco sector due
to its attractive valuation and sustainable dividend policy. We have
a BUY and DCF-based target price of S$3.58.
Technically, the stock could be forming another top should it be well
supported near S$3.10. The stock may top at S$3.55. The next
support is at S$2.90.

Keppel Corp (KEP SP, BN4) –
O&M margins appear to be bottoming
(BUY/Target: S$13.50)
We prefer Keppel between the two shipyards after they delivered
differing performances. In terms of margins, Keppel’s O&M margins
appear to be bottoming out at 14% while SMM’s is still at a low
10.5%. We have adjusted our earnings projections on this improved
operating margin outlook for Keppel. In terms of contract wins,
Keppel has won S$4b worth of contracts ytd, on track to meet our
full-year forecast of S$6b. SMM has a ytd contract win of S$3.5b.
We prefer Keppel with a SOTP target price of S$13.50.
Technically, the stock could have a technical rebound with
immediate support at S$10.14 and needs to break above S$10.75
for further upside.

Suntec Reit (SUN SP, T82U) –
Office sector turnaround; successful AEI
(BUY/Target: S$1.95)
In the property space, the main disappointments came from
developers while REITs were generally in line. Most office REITs
reported positive rental reversion, which reaffirms our positive view
on the office sector. On this note, we re-iterate our BUY call for
Suntec. We expect Grade-A office rentals to rise 8% in 2014 and
office demand to rebound, which should bode well for Suntec.
Furthermore, phase 1 of its renovations has progressively opened
since June with rents higher than management’s projections and
existing mall rentals. We have seen good foot traffic despite
minimal marketing efforts. As for phase 2, 70% has been precommitted
with majority of the large anchor spaces taken up. Our
target price of S$1.95 is based on a dividend discount model.
Technically, the stock looks poised for a technical rebound from
S$1.49/1.42 and is likely to be resisted near S$1.62.

Sabana Shari’ah Compliant REIT - Proposed acquisition of AMD
factory for S$68m.
(SSREIT SP/HOLD/S$1.135/Target: S$1.29)
FY13F DPU (S$ cent): 9.6
FY14F DPU (S$ cent): 9.3
Proposed Acquisition Of AMD Factory For S$68m. Sabana is proposing to
acquire AMD’s factory building for S$68m. Although AMD has only
committed to take up 50% of the facility, we anticipate that the well-located
facility will gradually see higher occupancies. We remain cautious in the
near term due to the expiry of the master-leases and potential equity-fund
raising as gearing approaches 40%.
We maintain HOLD with a higher target price of S$1.29 (from S$1.27),
based on DDM (required rate of return: 8.1%, terminal growth:1.8%). Entry
price is S$1.12. We raise our 2014-15 DPU estimates by 3-5% to factor in
the impact of the acquisition and also higher future occupancies for the
acquisition. Key near term risks remain the expiry of the master-leases in
Nov 13 and also potential equity fund raising to fund further acquisitions.

From Maybank KE:
China Minzhong: Earnings Preview; Buy TP $1.36
MINZ SP | Mkt Cap USD520m | ADTV USD2.4m
China  Minzhong  will  publish  its  4QFY6/13 results this Thursday
before  market.  We are looking at revenue of RMB685m and net profit of
RMB164m. Possible YoY and QoQ decline are due to seasonality reason.
In  our  view,  there are two short term catalysts for Minzhong: 1)
supply contracts from Indofood and 2) first dividends payout since IPO,
which could help to argue for a re-rating case for the stock.
Recent developments of the company include the first-time credit
rating (Ba3) given by Moody’s and the issuance of USD150m syndication
loan underwritten by Citibank and Standard Chartered. In our view, this
could help to rebuild investors’ confidence. Maintain BUY and TP
SGD1.36, pegged to historical average of 5x FY6/14 PER.

Economics
Singapore CPI, July 2013 - Up Slightly, To Stay Moderate This Year
Inflation  rate  in  July  2013 increased slightly to +1.9% YoY (June
2013: +1.8% YoY) on higher transport and food costs.
However, core-inflation rate (CPI excluding accommodation and private
road  transport)  moved  in  the  opposite  direction  as it moderated
slightly  to  +1.6%  YoY  (June  2013:  +1.7%  YoY) amid moderation in
accommodation costs.
With inflation rate in the first seven month of 2013 at +2.7% YoY, we
have  adjusted  our  full-year forecast to +2.5% from +2.3% previously
(2012: +4.6%).  Official forecast is 2%-3%.

From DBS:
Asia’s emerging markets sold off last week as the derisking
trend continues. DBS Research says while shortterm
pressure may still persist, a repeat of the 1997 Asian
financial crisis (AFC) is unlikely. The accelerated currency,
bonds and equity market slides accentuated the downside
risks to growth as sentiments weakened. But the bigger
and longer lasting reason behind capital inflows into Asia
has always been structural and it will soon return. In the
context of ASEAN, Singapore looks resilient. But a slow
growth and a tightening environment is unlikely to drive
the index.

For the Singapore market, the reversal in fund flows out
of Asia and emerging markets back to developed
economies, triggered by the anticipation of QE tapering,
rising US 10-year treasury yields and a rebound in the
USD, Euro and GBP had exposed the structural
vulnerabilities of emerging market economies with high
current account deficits. While the Singapore market has
outperformed regional bourses, we expect a rocky ride for
Singapore equities, held hostage by the still developing
emerging markets uncertainties.

STI has fallen 10% to 3088 since May 22 when FED
Chairman first hinted of QE tapering. We are close to the
support level of 3050, at 13.1x PE (-0.5SD). Consensus
has been expecting the FED to start to taper in Sept, a
positive signal that the US is on a firmer footing for
recovery, which could provide some stability to the
market. Recovery names should outperform in this
situation while yield sensitive sectors such as SREITs will
remain under pressure. If tapering of QE is pushed back,
volatility continues, and could push STI to test 2900 (12.9x
PE or -1 SD) if the selldown in emerging economies
continues. 

Growing optimism about the improving US recovery and
Europe’s economy moving past the recession trough
should see a return in interest among recovery names and
companies with significant revenue exposure in both
regions. Technology stocks are early recovery plays – CSE
and Venture have significant exposure to US/Europe and
offer attractive yields of 4.7% and 6.7% respectively.
Selected industrials – Ezion and Goodpack will leverage
on their niche positions in the global arena. Stocks with
earnings visibility supported by yield are likely to remain in
favour - our picks are SingPost, Comfort Delgro, ST
Engineering and Hutchison Port. Avoid stocks with
exposure to emerging markets which are likely to
Underperform - Petra, Acott REIT, Religare, AIT and
SingTel. 

4Q13 core earnings for Amtek Engineering were below
but sequential improvement suggests worst is over for
now. New programmes and continuous cost
management are expected to drive core earnings growth.
Upgrade to HOLD, upped TP to S$0.48 on earnings
rollover to FY14F.