Warrants Highlight

STX OSV - MER's price target of $2.16

Two weeks ago on 14th November, STX OSV reported results in line with expectations, announcing profits of Nok228m. The same day, Macquarie Equities Research (MER) released a research report with an ‘Outperform’ rating and a 12 month price target of $2.16. Below are some excerpts from the report.

Macquarie’s STX OSV warrants

MER says that although order inflows slowed down a bit in the quarter, but the longer-term outlook on Offshore Support Vessels remains positive. At current valuations, STX OSV is MER’s top pick in the space as a 2nd derivative play on oil rig building.

The Good:
* Strong EBITDA margin of 13.5% in 3Q12: There has been some scepticism if STX OSV can maintain 13-14% margins. 9M margins came in at 13.8%.

* Robust order book of Nok16.4bn: Order book has grown 20% YoY with 49 vessels (5 for delivery in 2012, 24 for 2013, 12 for 2014 and 8 post 2014).

* New Brazil yard 60% complete: The yard in Promar is on track to begin building vessels by 2Q13, which will increase STX OSV’s vessel building capacity by almost 20%, in MER’s view.

The Bad:
* Year on year (YoY) decline in revenues and earnings due to high vessel deliveries: STX OSV delivered 8 vessels in 3Q12. Given revenue recognition is low towards project deliveries, revenues (-27% YoY) and earnings came in low in 3Q12.

* Temporary weak demand for anchor handling tug supply (AHTS) and platform supply vessels (PSVs): Although STX OSV has received robust Nok9bn orders in 2012 year to date, demand for these 2 segments has been weak in 3Q12 but has been made up by strong demand for offshore subsea construction vessel (OSCV), as subsea activity remains very strong, according to the management.

MER’s view:

STX OSV fundamentally well positioned to benefit from “high-spec” demand: UltraDeep and harsh water oil exploration should continue to drive demand for more high-spec support vessels. In addition, strong oil rig deliveries over the next 3 years will result in continued demand, in MER’s view.

Stock trading at large discount due to sale overhang: STX OSV is trading at a ~50% discount to Singapore yards on enterprise value/earnings before income tax, depreciation and amortization (EV/EBITDA) and price to earnings (P/E) multiples. It is also surprisingly trading at a ~50% discount on EV/EBITDA and a ~15% discount on P/E compared with listed offshore support vessels (OSV) peers despite much superior market share, balance sheet and return profile.

Singapore Market Wrap

STI took a breather yesterday

The STI's continuous 7-day gain has come to a halt amid risk warnings from the MAS. Yesterday, the MAS warned that households and businesses may be affected in their ability to repay loans should the economic situation deteriorate further or if interest rates rise. This is due to the corporate sector having more debt this year as well as household debt increasing faster than assets. The STI ended flat at 3,011.8 for the trading session.

Call STI 3100MBeCW130228 (RF9W) exercise level 3,100.*
Put STI 2950MBePW130228 (RG0W) exercise level 2,950.*

Olam fires back at Muddy Waters claims
Olam has released a statement refuting that Muddy Waters' report to be false and misleading. Olam stated that it does not face any risk of insolvency and it's financial statements and accounting policies strictly follow the Singapore Financial Reporting Standards. In addition, Olam believes that their differentiated business strategy is yielding the intended results and is helping the company to build leadership positions in many of their businesses. Olam dropped 3.9% to $1.50 day-on-day.

Call Olam MB eCW130603 (R3LW) exercise price $1.80.*

Capitaland continues its ascend
Capitaland continued it's eighth consecutive day of gain, rising 0.6% to close $3.48 yesterday. According to Bloomberg, it is within a whisker away from its year high of $3.50. The property industry has had a tough year since the MAS released a slew of policies aiming to curb hot money from flowing into the property market. As Capitaland derives a portion of their business from China, the slowdown in China may impact them as well. Despite this, Capitaland has been on an uptrend since May this year.

Call CapitalaMBeCW130204 (Q4HW) exercise price $3.40.*
Long Dated Call CapitalaMBeCW131202 (Q7YW) exercise price $3.60.*
Put CapitalaMBePW130702 (R0JW) exercise price $3.10.*

Overnight Market Wrap

Budget talks to reveal a solution before Christmas?

Yesterday, the Commerce Department data showed that purchases of new homes in the US unexpectedly declined 0.3%. This may show that the recovery of the housing sector is limited and the US indices declined.

However, the S&P Index erased losses in the later part of the trading session to close up 0.8% for the day.

This rally came after Republican house speaker John Boehner told reporters that he is optimistic that the fiscal cliff will be able to be avoided "sooner rather than later". President Barack Obama continued to add on that more Republicans are agreeing on a "balanced approach" to cut the budget deficit and he hopes that they will be able to reach a deal before Christmas.

Overnight Markets

Indices	Last	Change
STI	3011.77	-0.1%
HSI	21709.00	-0.6%
DJIA	12985.10	0.8%
S&P 500	1409.93	0.8%
Nasdaq	2991.78	0.8%
China A50	6919.05	-0.6%

Corporate News

Corporate Announcements

Sembcorp Marine has secures its 7th drillship contract worth US$806.4 million from Sete Brasil.

Capitaland has been conferred the Business China Enterprise Award at the Business China Awards 2012.

Cosco's subsidiary has secured a contract from a European company to build two bulk carriers, with a total contract value of over US$41 million.

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