DBSV S'pore Wired Daily 2 August 2012

kiasutrader

Publish date: Thu, 02 Aug 2012, 11:45 AM

Today's Focus

Hi-P - Upgrade to BUY with higher TP of S$0.91; buy ahead of new phone launches

U.S. stocks fell moderately as the outcome of the FOMC meeting offered nothing new for investors hoping to hear a more definitive sign of further monetary easing. Attention remains on the outcome of the ECB policy meeting and expectations are high after President Mario Draghi said the ECB will do whatever it takes to preserve the Euro. If the ECB disappoints, financial markets could react again.

STI's rise above 3025 this week is within our expectation and we maintain our view that even as this level gets taken out; the index would soon have to face a stronger resistance around 3100. A pullback looks ever more likely with even inch that the index claws higher. Blue chip stocks that had led the STI rally becomes more vulnerable to profit taking as the index inches higher.

OCBC's 2Q12 net profit came in at S$648m (-22% q-o-q; +12% y-o-y). Results were 5% above consensus (S$616m) but slightly below our analyst's forecast (-3%, S$670m). Key disappointment was net interest margin (NIM) which fell by 9bps q-o-q; 10bps y-o-y. Loan growth recovered at 3% q-o-q, 14% y-o-y largely from housing loans and construction. Non- interest income fell due to lower insurance contribution. Non- performing loan (NPL) ratio improved to 0.9% (1Q12: 1.0%) while loan loss coverage improved to 125% (1Q12: 106%). Maintain Buy with TP raised to S$11.00 (from S$10.50) after rolling forward valuation window to FY13.

Hi-P reported weak Q2 dragged by low margin mix but second half is expected to see magnificent rebound. Ramp up could start as early as Jul/Aug, driven by new smartphones and tablets for customers such as Apple, Amazon and RIM. Our analyst has adjusted FY12/13F earnings by -4%/14%. Upgrade to Buy with higher TP of S$0.91(Prev S$0.86). At current valuations, Hi-P is cheaper than the average for its peers.

2Q12 results for CapitaLand were within expectations, lifted by higher operating performance and portfolio and revaluation gains. Our analyst expects a better 2H as more residential project contributions kick in, with Singapore residential continuing to drive profits. Maintain Buy, TP $3.42, (Prev S$ 3.39). ROE will likely trend up from next year after declining in the past couple of years as new projects bear fruit.

2Q12 net earnings for Cosco Corp in line; gross margins lifted by better ship-repair and conversion margins and writeback of provisions. No turnaround for shipbuilding orders till 2014 while offshore space is competitive. Margins from shipbuilding will be under pressure as it continues to deliver on low margin contracts secured in 2010, eroding efficiency gains. While offshore demand is strong, keen competition and the absence of a solid track record will lead to low margin contracts and projects secured on balloon payments. This will stretch its balance sheet. Maintain Fully Valued and S$0.88 TP.

Japan's Suntory group is taking Cerebos Pacificprivate with an offer to buy all outstanding shares for about $365m. The offer price of $6.60 per share for the 17.42% stake it does not already own represents a premium of 22.7% to the last traded price of $5.38 on Monday. The offer is at an implied EV/Ebitda (FY 2011) multiple of approximately 10.6 times.

Koon Holdings intends to buy four properties in Malaysia belonging to two controlling shareholders and their family members. The $17m consideration will be funded by a proposed three-for-five rights share issue. Koon plans to develop the four properties in Johor Baru for sale as commercial units. Koon has proposed the non-renounceable, non-underwritten rights issue to raise at least $17.7m, and up to $18.4m, for the property purchase. The issue involves the sale of up to 98.5m new shares at 19 cents each, vs its last traded price of 20 cents.

Tiong Woon is expected to report a loss for the full year ended 30 June 2012, largely due to foreign exchange loss and provision for doubtful debts.

Asia Fashion Holdings is expected to report a significant loss for 2Q12 as a result of significantly lower revenue and gross margin. The reason was mainly attributable to the decline of sales and average selling prices due to weakened demand in fabrics from its existing customers.

Singapore's July PMI failed to buck the regional trend of contracting PMIs for a third month. July's PMI dipped 0.6 point to 49.8, as new domestic orders fell and new orders from abroad grew slower. Its electronics index fell a larger 1.2 points, after above-50 readings throughout the first half of the year. Growth in the electronics sector was derailed due to contractions in new orders, output and employment readings.

Elsewhere in the region, China's official PMI for July weakened to an eight-month low of 50.1 while the HSBC gauge, which captures more SME activity, still indicated shrinking industrial activity with a reading of 49.3. Major Asian exporters such as Japan, Taiwan and South Korea also reported PMIs showing deeper contractions. Japan's fell to a 15-month low of 47.9, South Korea's fell to an eight-month low of 47.2 and Taiwan's fell to a seven- month low of 47.5. India stayed above the 50-point threshold in expansion zone but its PMI of 52.9 was an eight-month low and severe power cuts this week cast a shadow on the economy.

Our economist has lowered Singapore's full-year GDP growth for this year to 3.0%, from 3.5% and lowered 2013 forecast to 4.3% from 5.0%. Inflation remains high, one of the highest in Asia, with full year average inflation estimated at 4.5%.

Source: DBSV

COSCO SHP SG (F83)

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