Warrants Highlight

Sembcorp Marine - MER targets $6.00

Macquarie is listing a new warrant over Sembcorp Marine this morning given the sharp decline in the stock.

Last Monday, Sembcorp Marine announced their third quarter results whereby net profit fell 48% year on year to S$116 million. Revenue was 30% below Macquarie Equities Research’s (MER) estimates. However, MER attributes the disappointing results to the delay in revenue recognition.

MER has an ‘Outperform’ rating on Sembcorp Marine with a 12-month price target of S$6.00. Below are some excerpts from MER’s report which was released on 5 November.

Why did revenues come 30% below estimate in 3Q12? SMM hasn’t yet started work on 4 Jack-up orders from Noble that it received in 2011. In addition, delivery of 1 Jack-up order has been pushed from Dec 2012 to Jan 2013 which means re-adjustment between quarterly revenues.

Will full year revenues be impacted? Not by much. MER has reduced full year estimate by only 4% as MER thinks 4Q12 will be substantially higher (+36% QoQ), also due to 1st time revenue recognition from Petrobras’ Drillship.

Will we see a big jump in revenues in 2013 and why? MER expects 42% jump in total revenues in 2013. Sembcorp Marine will start work on 4 new Jack-ups and 3 new Semi-subs in 2013. In addition, it will deliver 7 Jack-ups in 2013. This means that the revenues from rig building will jump by almost 85% to S$3.9bn in 2013 from S$2.1bn in 2012.

Positive margin surprise in the quarter; Moderating margin estimates: Sembcorp Marine reported strong 14.1% margin in 3Q12 after 2 weak quarters. MER is moderating margin estimates from 14.0-14.5% earlier to 13.5-14.0% now, given that MER thinks there will be competitive pressure on new orders.

MER’s outlook for Sembcorp Marine
* Getting quarterly revenue recognition right is not possible and it is important to focus on the annual numbers: Due to constant shifting of projects by 1 or 2 months, getting quarterly revenues right is not possible in MER’s view, which is why investors should not lose sight of the bigger picture. Revenues will see a big jump in 2013 due to reasons explained above which will flow down to earnings in MER’s view.

* Revenue and earnings profile will only get better from here: A 40% jump next year should be followed by another 5-10% earnings growth in 2014 and 2015, which implies a strong earnings compounded annual growth rate of 19% over 2012-2015E.

* A very healthy order book; More in the pipeline: Sembcorp Marine has S$12.1bn of order book now (14 Jackups, 3 Semisubs and 6 Drillships) with an accommodation Semisub order from Prosafe in the pipeline for 4Q12. MER expects Sembcorp Marine to announce a couple of new Semi-sub orders in 1Q13.

Singapore Market Wrap

Obama unable to save the markets

Last week's biggest event saw Barack Obama being re-elected as the US president. Despite leading a comfortable 332 to 206 in Electoral votes, the markets did not show favour with the president-elect. Major indices worldwide were down week-on-week (w.o.w) with the STI ending the week down 1.0% to 3009.56.

Call STI 3100MBeCW130131 (PA7W) exercise level 3,100.*
Put STI 2800MBePW130131 (PA8W) exercise level 2,800.*

Wilmar's 26% net profit increase
Wilmar has posted a 26% increase in net profit to US$405.8 million for 3Q 2012 and remains positive on it's long term prospects. Besides Oilseeds & Grains and Plantations & Palm Oil Mills, most segments reported higher profit for the quarter. Wilmar rose 1.9% to close at $3.17 last week.

Call Wilmar MBeCW130702 (R0LW) exercise price $3.20.*
Put Wilmar MBePW130116 (Q5RW) exercise price $3.15.*

OCBC reports record 3Q 2012 net profit
OCBC announced a record third quarter net profit of S$1.85 billion which includes divestment gains of S$1.13 billion. Excluding this, OCBC would have reported a net profit growth of 41% year-on-year from S$513 million to S$724 million. These were driven by higher net interest income, improved trading performance as well as profits from life assurance. OCBC ended flat at $9.10 w.o.w.

Call OCBC Bk MBeCW130702 (R0KW) exercise price $9.10.*
Put OCBC Bk MBePW121203 (Q4SW) exercise price $9.00.*

Overnight Market Wrap

First gains after elections

The S&P gained 0.2% last Friday, closing at 1379.85 after President Obama's first speech since his re-elections.

Obama announced that he was sticking with his position of higher taxes from those with higher incomes, adding that he will bring in business, civil and labour leaders into the budget discussions. The plans would have to strike a balance between tax increases and spending cuts. After his speech, stocks pared gains.

The index initially gained after the US announced good economic data, indicating that the economy might not be as bad as previously feared. Consumer sentiments climbed more than expected, wholesale inventories rose at a fastest pace this year and import prices moved higher in October, beating the Bloomberg survey.

Overnight Markets

Indices	Last	Change
STI	3009.56	-0.1%
HSI	21384.40	-0.8%
DJIA	12815.40	0.0%
S&P 500	1379.85	0.2%
Nasdaq	2904.87	0.3%
China A50	7163.56	-0.2%

Corporate News

Corporate Announcements

Earnings release dates:
Mon 12 Nov: Genting (3Q12)
Mon 12 Nov: ComfortDelGro (3Q12)
Mon 12 Nov: Golden Argi (3Q12)
Wed 14 Nov: GLP (2Q13)
Wed 14 Nov: City Dev (3Q12)
Wed 14 Nov: Midas (3Q12)
Wed 14 Nov: Singtel (2Q12)
Wed 14 Nov: China Minzhong (1Q13)
Wed 14 Nov: Olam (1Q13)
Wed 14 Nov: STX OSV (3Q12)

Ex-dividend dates:
Fri 7 Dec: SPH ($0.17)