Local Brokerages Stock Call 11 July 2013

From OCBC:
Ascott Residence Trust: Cut FV to S$1.31
The unit price of Ascott Residence Trust (ART) has fallen 13.3% since the high of S$1.50 on 22 May 2013 along with the general market pull-back over concerns about an early tapering of the Fed’s QE program. In this context, it is worthwhile highlighting that ART’s gearing has increased from 36% to 41% following the completion of the acquisition of three prime serviced residences in China and a portfolio of 11 rental housing properties in Japan for S$287.4m on 28 June 2013. The new gearing level is high compared to hospitality REIT peers, e.g. 28% for CDLHT and 29% for FEHT, and may be viewed less favorably by investors given an environment of higher interest rates. In addition, we expect fairly mute operational performance for ART’s assets in multiple geographies for the rest of the year. Given the increase in risk-free rates, we reduce our FV to S$1.31 from S$1.35 and maintain a HOLD rating on ART.  
 
Wilmar: No boost from Clariant JV
Wilmar international Limited (WIL) has just announced that it has received the relevant merger clearances for the establishment of a 50-50 JV called “the global amines company” with Clariant International Ltd (CIL), a world leader in Specialty Chemicals. However, WIL’s share price did not show any positive reaction to the news. Instead, sentiments were likely depressed by continued concerns over the slowing economy in China. Nevertheless, we opt to keep our forecasts for FY13 and FY14 intact for now; this as any downside risk is likely to be mitigated by a firmer USD. Maintain HOLD with an unchanged S$3.25 fair value (based on 12.5x FY13F EPS). 

From UOB KH:
Halcyon Agri Corp (HACL SP) 
Stretching Rubber Capacity For More Upside
Halcyon Agri Corp (HACL) operates in the midstream segment of the
natural rubber (NR) supply chain. This involves: a) procuring raw NR, b)
processing raw NR into technically specified rubber (TSR), and c) selling to
vehicle tyre manufacturers. It owns and operates two processing facilities
in Palembang, Sumatra, and is in the process of acquiring another two in
Ipoh, Malaysia. These factories are capable of producing two variants of
TSR – Standard Indonesian Rubber (SIR) and Standard Malaysian Rubber
(SMR) – in various grades.
• Initiate coverage with a BUY; target price of S$1.00 represents
29% price upside. Our target price is pegged at peers’ average of 10x
2014F PE. A medium- to long-term catalyst is its successful venture
into upstream operations, which could lead to better margins.

Overseas Union Enterprise (OUE SP, LJ3) –
Technical BUY with +8.7% potential return
Last price: S$2.85
Resistance: S$3.10
Support: S$2.66
BUY with a target price of S$3.10 (as per weekly watch
on 1 Jul 13) and tight stops placed below S$2.72. The
stock is likely to trend higher after it closed above its
mid Bollinger band and its 200-day moving average. Its
positive directional index looks poised to cross above its
negative pair. Watch to see whether prices could break
above its declining 50-day moving average. Our
institutional research has a fundamental BUY with a
target price of S$3.63.

Global Logistic Properties (GLP SP, MC0) –
Technical SELL with +10.2% potential return
Last price: S$2.84
Resistance: S$3.00
Support: S$2.55
SELL with a target price of S$2.55 and tight stops
placed above S$2.93. The stock could trend down
should the last price action form a lower high with
reference to its previous high near S$3.00 and a
‘bearish engulfing’ of its body of the previous day
candlestick. Its Stochastics indicator has formed a
bearish crossover in the overbought region and could
turn down. Watch to see if prices could break below
S$2.80 for further downside.

Vard Holdings (VARD SP, MS7) –
Take profit from previous technical SELL
Last price: S$0.83
Resistance: S$1.00
Support: S$0.83
The stock was featured as a technical SELL when it
opened at S$0.955 on 2 July. The stock has since
returned +13% on closing prices and has exceeded our
SELL target price of S$0.85. Some profits could be
taken off the table as the stock should consolidate near
S$0.83.

Overseas Union Enterprise- Lodges preliminary prospectus for OUE
Hospitality Trust.
(OUE SP/BUY/S$2.85/Target: S$3.63)
FY14F PE(x): 22.5
FY15F PE(x): 19.7
Lodges preliminary prospectus for OUEHT. Overseas Union Enterprise
(OUE) has lodged its preliminary prospectus for OUE Hospitality Trust
(OUEHT). OUEHT will be offering 434.6m new units to public and
institutional investors at S$0.88-S$0.90 per unit to raise S$382m-452m,
while a further 247.2m units will be offered to cornerstone investors to
raise S$218m-223m. The total amount of funds raised will range from
S$600m-675m.
Special dividend still substantial with a 5.0-8.3% yield based on the
current share price and a payout ratio of 30-50% of the remaining net cash
proceeds following the offering. This is lower than our initial estimates of a
6-10% payout, although the higher stake retained will generate long-term
dividend income for OUE.
Maintain BUY with an unchanged target price to S$3.63/share which is
pegged at a 20% discount to our RNAV of S$4.54/share. We leave our
RNAV unchanged pending confirmation on the successful listing of the
hospitality REIT. OUE is trading at a steep 37% discount to its RNAV.

From Maybank KE:
Singapore Office Sector: Respite May Be Brief | NEUTRAL
The  Singapore office market appears to have stabilized in 1H13, as
the  slide in rents in 2012 has been stemmed by a temporary lack of new
supply.  However,  we  believe  the  respite  could  be brief with more
downside  in  spot  rents  possible  in  2014 as leasing demand remains
lukewarm.
We expect KREIT and CCT to report flattish QoQ DPU growth when they
announce  their  2Q13  results  on  15  and 17 July respectively. Their
prospects for 2H13 will be more important, with the yield protection at
CCT’s  One George Street expiring in July and the completion of KREIT’s
acquisition of 8 Exhibition Street completing in around August.
We  have adjusted our risk-free rate and cost of equity assumptions
and  consequently  lowered  our  target prices for CCT (TP:SGD1.28) and
KREIT (TP:SGD1.15). Our HOLD recommendations are maintained.

ComfortDelGro Corp: Minimal impact from Visa termination; Buy, TP $2.33
CD SP | Mkt Cap USD3.2b | ADTV USD16.3m
According to a channelnewsasia report, commuters will not be able to
pay  for  their  cab fares using Visa cards from July 15. Commuters are
currently charged an extra 10% administrative fee for the use of credit
card payments, which is a breach of contract terms.
Our   analysis   showed   that  cashless  transactions  contribute
approximately  6%  of  profits  for  CDG’s  Taxi business in Singapore.
However,  our  discussion with management suggests that majority of the
contributions  from  cashless  transactions  are  due  to other payment
modes,  such  as NETS, and market penetration for the use of Visa cards
had  been  low.  Hence, the termination of this payment mode would have
minimal impact on the profits for its taxi business in Singapore.
No earnings revision, Maintain Buy. We made no revision to our
estimates and reiterate our positive view on the stock. ComfortDelGro
offers a defensive business exposure and currently trades below its
historical valuation levels at only 15X FY14E P/E (long term average:
16X). 

From DBS:
Malaysia’s Jun13 palm oil stockpile dropped 9% m-o-m to
1.647m MT –c.11% below forecast – as same month output
came in 10% below expectations. Flat Jun13 palm oil exports
were partly compensated by higher domestic consumption.
Given YTD numbers and Ramadan slowdown, we cut Jul13
output forecasts by 3% to 1.656m MT. Jul13 stockpile may
further drop to 1.593m MT. Productivity may deteriorate if
low prices persist. In a weak CPO price environment, we
recommend stocks with young age profile, decent volume
growth, trading at a discount to peers, have relatively low
unit cost of production, and strong balance sheet. For SGX
listed stocks, we believe Bumitama Agri, First Resources and
Wilmar fit these criteria.

From DMG:
Overseas Union Enterprise (OUE) filed its REIT prospectus
yesterday, coming on the back of the SPH-REIT filing on 9-July-13. The OUE
REIT listing is expected to raise at least $600mil with OUE retaining 47.9% of the
issue, 18.9% for Cornerstone, 29.3% for institutional investors and 3.9% offering
to retail. The single asset REIT comprised of the Mandarin Orchard hotel (1,051
rooms) and the retail Mandarin Gallery mall (NLA 125k sqft), both of which sits on
leasehold land with 43years left. At the offer price of $0.88 - $0.9, the implied
FY14E net distribution yield of 7.3% - 7.5% seems relatively attractive (vs SPH
REIT 5.8%-6%, CDL-HT 7% and FE-HT 6.1%) while its gearing of 33% allows
sufficient capacity for future acquisitions. However, the high initial yield offer may
suggest a higher hurdle for future yield accretive acquisitions, while the short
lease duration may compress time frame for acquisitions. We currently have no
coverage on OUE, maintain SELL on SPH. 

Local Brokerages Stock Call 10 July 2013

From OCBC:
Roxy-Pacific Holdings: Acquiring KL site near upcoming Quill City
ROXY announced that it has acquired, for RM470k, a 47% stake in Macly Equity Sdn Bhd (Macly) which owns a 70k sq ft land site in Kuala Lumpur, Malaysia at Jalan Dewan Sultan Sulaiman. We understand this land site was acquired for RM89.8m by Macly and that ROXY is finalizing a JV agreement whereby it would likely fund the remaining commitment via a shareholder loan with the site valued at cost. This site has a total GFA of 686k sq ft and is strategically located beside the upcoming Quill City (a 7-acre mixed development on Jalan Sultan Ismail), the Sheraton Imperial Hotel and monorail Stations to Bukit Bintang. From our calculations, this acquisition would likely accrete 2.4 S-cents to ROXY’s RNAV. Maintain BUY with a higher fair value of S$0.76 (30% RNAV disc.) from this acquisition, versus S$0.74 previously.

Bumi Armada Berhad: Pipelay contract from Lukoil
Bumi Armada Berhad has signed a MYR567.6m (USD178.5m) contract with OAO Lukoil for pipelay work in the Filanovsky and Korchagin fields of the Caspian Sea. The work will be carried out using Bumi Armada’s derrick pipelay barge, the Armada Installer. Majority of the construction is expected to be carried out and completed in 2015. With the new contract, the group’s T&I order backlog increases to over MYR2b (USD 629.4m). As the new contract already forms part of our previous contract win assumptions, we will be keeping our forecast unchanged. Maintain HOLD with unchanged fair value estimate of MYR3.74. 

From UOB KH:
Mirach Energy (MENR)
Last price: S$0.37
Technically, MENR needs to break and close above
S$0.38 for further upside.
On 6 Jul 13, MENR entered into a convertible loan
agreement with six individuals for a total loan of up to
S$36m. The loan bears a flat interest rate of 7% and
matures two years from the date of the first drawdown.
Under the terms, the lenders shall make available a
total minimum loan of S$18m within a year. Each
drawdown of the loan will be in tranches of S$6m.
MENR intends to use the first tranche of the loan to
repay the S$16.9m 3% senior convertible bonds due
2014 to Legend Luso Investment Company Ltd and
Triple Master Investment Holdings Ltd. It intends to
use the balance of the loan to expand the business,
including the acquisition of new production oilfields. 

Cordlife Group (CLGL)
Last price: S$1.14
Technically, CLGL needs to break above S$1.18 to
test S$1.30 to avoid forming a top. Support appears at
S$1.00.
On 4 Jul 13, Cordlife Group announced that Cordlife
India has obtained the AABB accreditation and is one
of three AABB accredited Cordlife facilities. The group
is confident of gaining further market share in the India
private cord blood bank market, which grew at a 2007-
2011 CAGR of 35%. In our retail research report dated
20 May 13, we maintained CLGL as a HOLD and
raised our target price to S$0.86 as we lifted our net
profit estimates by 30% to reflect the impact of the
latest acquisitions and updated our outlook on the cord
blood and tissue banking business. We applied the
historical average PE of 16.1x to our FY14 EPS
estimate of 5.4 S cents to derive at our fair value. 

CapitaMalls Asia (CMA)
Last price: S$1.845
Technically, CMA is likely to retest S$1.70 should it fail
to trade above its 200-day moving average near
S$1.93.
On 8 Jul 13, CMA announced it will hold a Board
meeting on 23 Jul 13. The Board will, among other
matters, consider and approve the release of its
interim financial results for 1H13 and consider the
payment of an interim dividend. 

Ascendas REIT (AREIT)
Last price: S$2.20
Technically, AREIT could test S$2.06 should it
continue to be resisted by its declining 20-day moving
average near S$2.30/2.40.
AREIT is scheduled to post its 1QFY14 results on 16
July. In our institutional research report dated 11 Jun
13, we upgraded the stock to BUY from HOLD with an
unchanged target price of S$2.86, based on the
dividend discount model (required rate of return: 6.8%,
terminal growth: 2.0%). AREIT has taken advantage of
the low interest rate environment to extend its debt
maturity to 3.9 years, 18% longer than its average
maturity of 3.3 years between 2009 and 2011. Over
50% of its debt is maturing in three years or later, with
debt tenure extended to as long as 2024 (11 years). 

Singapore Aviation Support Services- Adjusting to the new normal.
Raising our risk free assumptions by 80bp and adjusting target prices. We
maintain our neutral stance on Aviation support services sector but lower
our DDM-based target price for the three stocks within our coverage by 8-
13%. The target price adjustment is mainly due to an 80bp upward revision
to our risk free assumptions to 3.0%, on the back of the recent spike in 10-
year Singapore Government Securities (SGS). Despite the downward
revision in target prices, we believe the sector will outperform REITs as all
three are in net cash and with relatively higher ROE. ST Engineering
(STE), which is Triple-A rated by Standard & Poor’s and Moody’s, which
explains why it has the lowest spread to 10-year SGS (excluding the land
transport stocks, which have lower payouts). Our top picks in the sector
are STE and SATS.

STE is our top pick in the sector but lower our target price to S$3.93.
We lower our target price by 13% to S$3.93 after raising our risk free rate
assumption by 80bp. Its dividend yield spread to 10-year SGS stands at
1.7%, the lowest among the aviation support services sector and other
equity yield instruments. The relatively low yield spread is due to the fact
that it has consistently paid out at least 90% of its earnings, strong
government links, strong credit ratings and cash flow as well as record
order book. STE will also benefit from a recovery in the US economy as
implied by the rise in 10-year US Govt Bond yield. About 27% of STE’s
revenue is derived from the US, primarily from the Aerospace and Marine
divisions. Every 1 cent rise in US dollar will lead to approximately S$20m
in revenue and S$2m in PBT. Ytd, the US dollar has gained 4 cents
against the Singapore dollar. At our target price, the stock will offer a yield
of 4.5%. Recommended entry price is at S$3.60 or 4.9% yield.

SATS (HOLD, Target: S$3.13). We had lowered our target price by 8% on
5 July, adjusting for a higher risk free rate. Operationally, food solutions
remain the key business driver accounting for 82% of operating profit with
margins four times higher than gateway services. Key concern is the rising
staff costs and competitive pressures. Maintain HOLD, target price of
S$3.13 based on a discount rate of 7.0% and terminal growth of 1.2%. At
our target price, the stock offers a yield of 5.1%. Entry price is S$2.90.

SIA Engineering (HOLD, Target: S$4.65). We lower our target price by
10.5% to S$4.65 after raising our risk free rate assumption by 80bp.
Operationally, SIA Engineering (SIAEC) is most dependant on line
maintenance revenue as margins from this segment at 20% is almost three
times that of airframe maintenance. Any slowdown in visitor arrivals will
thus impact SIAEC’s earnings. There is also little earnings visibility on third
party maintenance or from its associates. For these reasons, SIAEC
deserves to trade at a higher yield that STE. Currently, SIAEC trades at a
188bp spread to 10-year SGS, vs SATS’ 2.26% and STE’s 1.73% Entry
price is S$4.25. 

From Maybank KE:
Singapore Press Holdings: Another Step Closer to REIT IPO; Buy, TP $4.52
SPH SP | Mkt Cap USD5.3b | ADTV USD21.4m
SPH  REIT  filed prospectus with MAS yesterday after market closed.
Despite  the  recent  market  uncertainty,  it  seems to us that SPH is
getting  closer  to  a  successful  spinoff.  We  continue to like SPH.
However,  due  to  the  rising  interest  rates of Singapore government
bonds,  we adjust our risk free rate assumption in our DCF valuation to
3% from 1.3% before. Maintain BUY but lower TP to SGD4.52.
Limited  free  float could help a successful IPO despite the recent
market  uncertainty.  We  expect  the  IPO process to finish by August,
slightly later than management’s original plan.
Short  term  downside  risk  for  the  stock is mainly the possibly
lower-than-expected 3QFY13 results which will be announced next Monday 

From DBS:
Our analyst sees potential earnings downside for Tat Hong in
1Q14F from weaker AUD and slower mining and
infrastructure spending in Australia. 2H13 revenues from
Australia fell 12% y-o-y, affected by a slowdown in mining
and infrastructure spending. These could result in slower
equipment sales/rental and translation losses for 1Q14F. The
outlook for mining in Australia will likely remain weak with
infrastructure spending expected to slow down over the next
two quarters. Australia will potentially drag earnings growth,
thus FY14F/FY15F earnings cut by 20%/21%. Maintain BUY
with lower TP of S$1.43 (Prev S$ 1.80). The stock has
corrected from S$1.54 since May. In the near term, the stock
looks technically oversold and the support is at S$1.12.

Cosco Corp announced that it has secured contracts worth
US$216m in total, comprising: i) Four 111k dwt tankers, ii)
One 22k dwt tanker and iii) One stinger barge. This brings
Cosco's YTD wins to US$744m, forming 37.2% of our order
win assumption of US$2bn. Maintain FULLY VALUED; TP:
S$0.75. 

Local Brokerages Stock Call 9 July 2013

From OCBC:
Ascendas REIT: Under-rated industrial blue chip
We are turning positive on Ascendas REIT (A-REIT). Its unit price has fallen by 22.7% from its peak of S$2.86 on 15 Apr, due partly to concerns on an early tapering of US Federal Reserve’s quantitative easing programme and an accompanying hike in interest rates. Based on our analysis on interest rates, however, we believe that the impact on A-REIT’s DPU and book value is likely to be limited, as a considerable 74.8% of its total debt is fixed and the weighted average term of debt is a long 3.9 years. At present, A-REIT is trading at 1.14x P/B, even lower than some of its peers’ P/B ratios in the industrial REIT space, which are hovering around the 1.2x mark. In addition, A-REIT’s forward DPU yield of 7.2% is comparable to the subsector average yield of 7.5%. This is despite the fact that A-REIT is the largest Singapore-listed industrial landlord by market cap and portfolio size. We revise our fair value from S$2.63 to S$2.45 to reflect current higher risk-free rates but upgrade A-REIT from Hold to BUY on attractive upside potential.

Midas Holdings: Seeking more contract wins
Midas Holdings (Midas) recently clinched a CNY44.3m metro contract, thus bringing total YTD order wins to ~CNY423.2m. Looking ahead, Midas will continue to strive for potential new metro and international railway contract wins of ~CNY380-580m for the rest of 2013. We are buoyed by the positive news flow happening in China’s metro industry, and see Midas as a key beneficiary given its track record as a supplier to major Chinese train manufacturers. However, the time frame for new high-speed railway train car tenders by the China Railway Corporation remains uncertain, although there is optimism that it could be resumed in 3Q13. Maintain our BUY rating and S$0.54 fair value estimate on Midas, pegged to 1.1x FY13F P/B. 

From UOB:
Hongkong Land Holdings (HKL SP, H78) –
Technical SELL with +9.2% potential return
Last price: US$6.69
Resistance: US$7.09
Support: US$6.22
SELL with a target price of US$6.22 and tight stops
placed above US$6.84. The stock is likely to continue to
trend lower as it appears to be resisted by its declining
50-day moving average and its 50-day and 200-day
moving averages look poised to form a dead cross. Its
daily Stochastics has formed a bearish crossover and
could trend down. Watch to see if prices could retest the
previous low on 25 Jun 13. Our institutional research
has a fundamental SELL with a target price of US$6.43.

Triyards holdings (ETL SP, RC5) –
Technical BUY with +10.0% potential return
Last price: S$0.710
Resistance: S$0.815
Support: S$0.685
BUY with a target price of S$0.815 and tight stops
placed below S$0.685. The stock has rebounded from
its recent low and prices have closed above its mid
Bollinger band. Its daily Stochastics indicator has
hooked up and may continue to trend higher. Watch to
see if prices could break above its declining 35-day
moving average for further upside. Our institutional
research has a fundamental BUY with a target price of
S$1.11.

Jiutian Chemical Group (JIUC SP, C8R) –
Technical BUY with +16.1% potential return
Last price: S$0.109
Resistance: S$0.13
Support: S$0.10
BUY with a target price of S$0.13 and tight stops placed
below S$0.10. The stock is likely to continue to trend
higher as its rising 50-day moving average appears to
be acting as a support, with prices closing above its mid
Bollinger band. Its daily MACD indicator has formed a
bullish crossover and could continue to trend up higher.
Watch to see whether the stock could break above its
recent high at S$0.123.

From Maybank KE:
Suntec REIT: Reward Awaits The Patient Investor; Maintain Buy TP $1.75
SUN SP | Mkt Cap USD2.8b | ADTV USD14.0m
Suntec’s 2Q13 DPU is likely to be lackluster, dragged down by Suntec
City  Mall’s  (SCM)  ongoing  renovation  works.  We  estimate that the
largest  dip on FY13 DPU will occur in both 1Q & 2Q13, when Phase 1 new
tenants  have  yet  to start paying rentals and Phase 2 old tenants are
being vacated for the AEI.
We  noted  that many Phase 1 tenants (H&M, Uniqlo, etc.) have begun
operations in Jun, but they are likely to be still on rent-free periods
(1-2  mths.  We  forecast 2Q13 DPU at 2.23 SG-cts (flat QoQ; -5.5% YoY)
and FY13 DPU at 9.23 SG-cts. (-2% YoY).
Suntec  received cash proceeds of ~SGD147m from the sale of Chijmes
in  1Q12.  So  far, it has topped-up SGD2.7m in 1Q13 and we do not rule
out  another  top-up  in  2Q13,  as 1Q13/2Q13 quarters will witness the
largest  occupancy  dip.  We  raise  our risk-free rate to 3% from 1.4%
previously. Reiterate BUY with reduced TP of SGD1.75.

From DBS:
Volume growth at Hutchison Port Holdings Trust terminals in
HK has been below par so far in FY13, with the port workers’
strike in April adding to the woes. But the worst should be
over and even though Europe trade remains weak, US
volumes show relatively positive signs and upcoming peak
season should provide more visibility for investors. Our analyst
has revised down FY13/14F DPU by 8%/6% to 5.3UScts/
5.9UScts, given lower volume estimates. 1H13 DPU could be
around 2UScts, and should improve in 2H13 in line with trade
flows. Maintain BUY with lower TP of US$0.82 (Prev US$
0.87). HPHT share price has corrected significantly in line with
market sentiment, and we believe it has more than priced in
lower DPU expectations.

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
now.

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).

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.
 

Local Brokerages Stock Call 4 July 2013

From OCBC:

 SingTel: No Myanmar, no problem
SingTel, despite being widely touted as a front-runner, was not among the two winners of the 15-year telecommunications licences in Myanmar. But not winning it may not be a bad thing, given the massive scale of the infrastructure roll-out, and the still uncertain regulatory environment in the nascent mobile market. However, we believe that there are still opportunities for SingTel to get involved at a later stage when the industry is more settled and the regulatory environment is more established. Separately, we see the recent volatility in the regional currencies as the biggest risk factor, as SingTel is especially exposed to AUD/SGD movements because of Optus. However, we do note that some value is starting to emerge around current levels, as SingTel has fallen back to below our SOTP fair value of S$3.83. Hence we maintain our HOLD rating and would be buyers closer to S$3.50.

ST Engineering: Reducing peg from 22x to 20x
The share price of Singapore Technologies Engineering (STE) has fallen 12.1% since the peak of S$4.56 on 24 Apr 2013. But we note recent contract wins that attest to the group’s market leading positions. Just yesterday, ST Aerospace announced that it has signed a long-term agreement with UTC Aerospace Systems to provide maintenance, repair and overhaul (MRO) services on the Boeing 787 Dreamliner nacelle systems for the Rolls-Royce Trent 1000 and General Electric GEnx engines. Nevertheless, as the market seems to be taking a more “risk off” approach, we are now using a lower 20x peg (versus 22x previously) against our FY13F EPS, which results in our fair value easing from to S$3.97 from S$4.36. We maintain a HOLD rating on STE, supported by an estimated FY13 dividend yield of 4.5%.

Midas Holdings: Wins CNY44.3m metro contract
Midas Holdings (Midas) announced last evening that it has secured a CNY44.3m metro contract for the Changchun Metro Lines 1 and 2. This involves the supply of aluminium alloy extrusion profiles for 44 train sets (or 264 train cars), with delivery slated to occur from 2013 to 2015. This latest development brings total YTD contract wins by Midas to ~CNY423.2m and also illustrates the positive momentum in China’s metro industry, given the development of new metro lines and upgrading of existing systems. We are keeping our estimates intact as our projections allow for such contract wins. Maintain BUY and S$0.54 fair value estimate on Midas, based on 1.1x FY13F P/B.

From Maybank KE:
Biosensors International: More Risks To Licensing Revenue; Hold, TP$1.17
BIG SP | Mkt Cap USD1.5b | ADTV USD3.0m
We flag further risks in licensing revenue from Terumo which could cap share price recovery. Not time for re-entry, maintain Hold, SOTP-based TP trimmed to SGD1.17.
We note in Terumo’s “The New Mid-Term Plan (FY2013 – FY2016)” dated May 2013 that a new Drug Eluting Stent (DES) was introduced in its product pipelines. We suspect that this is intended to eventually replace the Nobori DES once the licensing agreement with Biosensors expires in 2016.
Biosensors has a sound business strategy to transform into a multi-product platform and we recognise the long-term potential. However, given the difficulties in quantifying the long-term potential and risks from M&As without more clarity, we have been holding back our optimism. We await value accretive M&As as potential catalysts for upgrade.