Local Brokerages Stock Call 11 April 2013

From CIMB: Ezra Holdings

2Q13 preview: muted subsea

UNDERPERFORM - Downgrade | S$1.10 - Tgt. S$0.90 We expect Ezra’s 2Q13 results to remain weak as subsea activities in the North Sea could be affected by poor weather conditions from Dec-Feb. We have slashed our EPS by 24-38% for FY13-15 on lower subsea margin as it could take longer to beef up this new segment. Downgrade to Underperform from Outperform with a lower target price of S$0.90, based on 10x CY14 P/E, -1 s.d. below its 5-year mean (previously 12x on small/mid-cap industrials' 5-year mean). Its share price could be weighed down by a weak 2Q13. Plantations A more difficult upward march NEUTRAL - Maintained We have cut our average CPO price by 2-5% for 2013-2015 to account for lower biodiesel demand from Europe and higher palm oil and soybean supplies. 1Q13 CPO prices were below our expectations as high palm oil stocks continue to put a lid on price rallies. We cut our EPS forecasts for planters by 1-30% to reflect our crude palm oil (CPO) price downgrade. This reduces our target prices by up to 2-24% across the board. We have downgraded ratings for AALI, SGRO, SIMP and IFAR due to weaker earnings prospects, and upgraded IOI Corp to Neutral. Our sector rating remains Neutral as we believe its underperformance has priced in weaker earnings prospects. Our key top picks are Wilmar and BW Plants.  Courts Asia Cavalier no more OUTPERFORM - N/A | S$0.98 - Tgt. S$1.32 Courts’ bad debt problems are a thing of the past. It still makes money from consumer financing, but it is more aware of the risks and has taken steps to control it. Today, it is proxy to a spurt of completed housing units in Singapore and store expansion across the region. We think it is a reasonable consumer play. We initiate coverage with an Outperform. We value Courts using a residual income model with 8% cost of equity and 1% terminal growth. Our target price implies 15x CY14 P/E, which is a 25%-discount to regional peers. We see catalysts from Singapore same-store-sales growth (SSSG) and regional store expansion.  From UOB KH: Overseas Education  We initiate coverage on Overseas Education (OEL) with a BUY recommendation and a DCF-based target price of S$0.88, implying a 21.4% upside from the current price. OEL is one of four Singapore-listed education service providers and is the investment holding company of Overseas Family School (OFS), the third-largest foreign system school (FSS) in the country. Backed by a 20-year history, OFS continues to benefit from resilient demand for quality education as Singapore’s foreign talent population grows. It is set to increase its capacity by 22% with the potential opening of a new campus in 2015. With strong cash flow and balance sheet, we expect OEL to be able to retain its net cash position throughout the construction of its new campus.   DBS Group Holdings- 1Q13 results preview: Operationally a strong quarter. (DBS SP/BUY/S$15.60/Target: S$19.90) Our target price is S$19.90, based on 1.55x P/B, derived from the Gordon Growth Model (ROE: 11.4%, required return: 8.0% and constant growth: 1.8%). SIA Engineering- Attractive 4.5% yield, but likelihood of special dividend cannot be ruled out. (SIE SP/BUY/S$4.87/Target: S$5.20) Maintain BUY. We continue to value SIAEC on a DDM basis. We also believe that the stock has little downside risk and should be viewed as an alternative to traditional yield instruments such as REITs. Ying Li International Real Estate (YINGLI SP, 5DM) – Technical BUY with +26.3% potential return The stock appears to be supported above its mid Bollinger band and its 50-day moving average… Chip Eng Seng Corp (Chip SP, C29) - Technical BUY with +9.6% potential return The stock appears to be supported above its mid Bollinger band and has been trending above its 50-day moving average… Wilmar International (WIL SP, F34) – Technical BUY with +6.8% potential return The stock appears to be supported by its rising trendline and its lower Bollinger band. The potential rebound from here From OCBC: KSH Holdings: More earnings growth momentum likely We recently met with KSH management and keep intact our FY13E and FY14E forecasts at S$30.7m (up 68% YoY) and S$53.0m (up 72% YoY), respectively, which are underpinned by progress billings for already-sold projects in Singapore. Beyond FY14, we see earnings growth momentum likely continuing due to the upcoming launch of its Beijing condo project this year (Liang Jing Ming Ju Phase 4) which would contribute an estimated S$23m net earnings upon TOP. We also understand management is also focused on launching Phase 1 of its 533-hectare Gaobeidian township project (GBD), located 30 mins away from Beijing city via high-speed rail. For upcoming FY13E results, we expect final dividends in the range of 0.5 – 1.5 S-cents and possibly a bonus share issue as well. Maintain BUYwith an increased fair value estimate of S$0.73, versus S$0.62 previously, as we now incorporate accretion from Liang Jing Ming Ju into our SOTP valuation model and raise our PE multiple for the construction segment from 4x to 5x, in line with peers trading at 5-7 times. Rotary Engineering Ltd: Ceasing coverage Rotary Engineering Ltd (Rotary) had a difficult year in 2012, as it battled escalating cost over-runs on its US$745m SATORP mega-project and repeated delays on its S$260m Fujairah Oil Terminal project. In 4Q12, the group appeared to be making progress on its SATORP project, although the non-controlling deficit is still a thorny issue. The group recently secured S$42m of project work in Singapore’s Jurong Island, and S$300m of EPC work in Pulau Busing. However, the tighter foreign labour market in Singapore could mean lower project margins over the medium term horizon. Coupled with the uncertainty at its SATORP JV, it may still be too early for investors to buy its shares, which are currently trading at 1.4x PBR. Meanwhile due to a reallocation of resources, we have decided to CEASE COVERAGE. ST Engineering: ST Aerospace won S$480m of contracts in 1Q13 ST Engineering (STE) announced that its aerospace arm, Singapore Technologies Aerospace Ltd (ST Aerospace) has secured new contracts worth about $480m in 1Q13. The contracts are for airframe, component and engine maintenance, as well as engineering and development, which will be carried out through its global maintenance, repair and overhaul (MRO) network. As this is in line with our expectations, we maintain our fair value estimate of S$4.12 and HOLD rating on STE.  From Maybank KE: Privatisation Plays - From Hot Buns to Beams of Steel The  appearance  of  Thai  F&B  player  Minor International as a 10%  shareholder  in  Breadtalk  is  currently tantalizing the taste buds of local investors. We think the flour will not stop rising yet.   Our  analysis  of  54  such  M&A  transactions  since 2011 show that   consumer  stocks  are  popular  and takeover premiums were mostly above   20%.    We  put  on  our  tall  thinking  hats and came up with nine quality    small-mid  caps  with favorable chances for positive corporate actions.   These  are  China Minzhong, Dukang Distillers, Hotel Properties, Midas,   Sarin, Sing Holdings, Super Group, Viz Branz and Yongnam. From OSK DMG: Scoop of the Day: China Animal Healthcare (CAL SP, US$340m market cap) announced that it has entered into conditional subscription for shares and warrants in the company by Lilly Nederland Holding B.V. to form part of the funding of its possible delisting offer. CAL had announced in May 2012 its intention to de-list from SGX (but keep its HK listing status) at a possible offer price of S$0.30. The new investment will be carried out in two tranches - 1) 53m shares at issue price of S$0.30 and 106m warrants at nil consideration with exercise price of S$0.30 (equates to 8.33% of issued capital on a fully- diluted basis), and 2) 240m shares at issue price of S$0.30 (equates to 11.20% of issued capital on a fully-diluted basis). Lilly is one of the largest pharmaceutical company in the world and its investment in CAL is likely to add positive synergies to the group. In a recent media report, we note that Lilly is committed to providing innovative solutions to enhance food production and companion animal care. This, in turn, helps to ensure a growing supply of safe, affordable and abundant food in China. The latest announcement is likely to add clarity to the de-listing process and we believe there will be more positive developments following an outcome. As noted in the media report, both parties have agreed to work on opportunities for future commercial collaboration activities. Hence, investors might want to opt to migrate their shares to HKSE. In the meantime, share price could see positive impact from the latest announcement. (Singapore Research) ComfortDelGro: Positive On London Bus Acquisition (BUY, S$1.90, S$2.20) ComfortDelGro (CD) announced that it is acquiring part of FirstGroup’s London bus business for GBP57.5m (SGD109m). The purchase price implies an EV/EBITDA of 5.2x while CD currently trades at 6.1x FY13 EV/EBITDA. We are positive on the acquisition, and raise FY13/14 earnings by 2.9%/5.5%. Maintain BUY with higher TP of SGD2.20 (from SGD2.10 previously) based on DCF (WACC:9.0%; TGR: 2.5%).