DBS Equity Research: Wired Daily 1 Sep 2014

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Publish date: Mon, 01 Sep 2014, 11:07 AM

Olam - Re-rating to continue, upgrade to BUY with target price raised to S$3.05

With market volatility low and corporate earnings downward revision trend halted but yet to turn up, we see the Singapore market 'guided' along the 14.1x (+0.25SD) 12-mth forward PE line that delivers a year-end objective of 3435. Geopolitical uncertainties in Ukraine and Middle East have provided the excuse for profit taking whenever stock market indices rise to an overbought level. But at this stage, we do not see excessive volatility beyond a pullback to support level that helps cool off overbought technicals.

For the STI, this pullback support is at the 13.7x (ave) 12-mth forward PE level, currently at 3250. 3435 is our year-end objective but in the event that the earnings revision cycle turns positive before the end of 2H14, we see the STI heading for 3530 or 14.48x (+0.5SD) FY15F PE.

This will be the usual busy week for US data releases that culminate with August job numbers. Data ranging from the ISM manufacturing, services and employment is expected to show the continued recovery of the US economy. FED Chair Janet Yellen has kept mum about the timing to start rate hikes as she continues her pledge to look beyond headline unemployment rate. Consensus expects rates to start rising in about a year from now. Other developments this week are the ECB rates decision this Thursday while on the data front, China's manufacturing and services PMI as well as Singapore's PMI for August will be released. Investors will eye the release of China's August manufacturing PMI (consensus 51.2) this morning.

Olam'sFY14 core net profit up 29% y-o-y but missed both our and consensus estimates; 2.5 Scts special DPS was declared. Olam is on track to achieve FY16 gearing target and has completed 61% of its cash realisation plans. Re-rating is expected to continue on the back of strong earnings growth and positive Free Cash Flow to Firm (FCFF) by end FY15. Upgrade to BUY with target price raised to S$3.05.

Global Yellow Pages has entered into a conditional sale and purchase agreement to acquire the intellectual property rights for Wendy's Supa Sundaes brand for A$10m. The Wendy's Supa Sundaes is an iconic brand of desserts and treats with a store network of approximately 209 stores (both corporate and franchised stores) across Australia and approximately 35 stores across New Zealand. The proposed acquisition is a continuation of the Company's strategy to invest in the food and beverage sector.

With prices of thermal coal - and hence, the value of coal mines - at a five-year low, Geo Energy Resources is on the prowl for potential acquisitions. The low coal prices are not a concern for the coal mining group, its chief investment officer Mark Zhou said, because it takes a "long-term perspective" on coal in Indonesia. The group has, in late June, established a S$300m multi-currency medium-term note programme.

OKH Global will be issuing S$8m worth of redeemable convertible preference shares (RCPS), to fund its purchase of a 15% stake in Pan Asia Logistics Holdings Singapore (PAL). These RCPS carry a coupon rate of 11% per annum, payable every half a year. Each of the RCPS can also be exchanged for ordinary OKH shares at a 20% premium to the volume weighted average price of OKH shares traded on Aug 29.

Bank lending in Singapore dipped slightly in July from June, as a fall in loans to businesses offset a meagre rise in consumer borrowings, according to preliminary figures released by the Monetary Authority of Singapore (MAS). Over the month, total domestic banking unit (DBU) loans slipped by S$0.3 bn to S$597.4 bn, staying flat in percentage terms from June (which was also unchanged from May). Credit growth slowed on a year-on-year basis, increasing 10.8% in July compared to 12.3% in June. Loans to businesses fell 0.3% in July to S$366.3 bn - after also declining 0.3% in June - dragged down by lending to financial institutions (-2.4%) and general commerce firms (- 0.4%). These drops wiped off gains made in loans to the building & construction and manufacturing sectors, which stood at 1.5% and 3.5% respectively. Year-on-year growth in lending to businesses moderated to 14.1% last month from 16.2% in June. Consumer loans, however, grew by 0.3% month-on-month in July, from June's 0.6%. Compared to the same month a year ago, July registered a 6% increase in consumer loans, although this was slower than the 6.5% seen in June.

The authorities have trimmed development charge rates for non-landed residential use by an average of 1.6% from today. Landed residential DC rates were left untouched as were the rates for industrial use. For commercial use, DC rates were raised 1.9% on average. DC rates - which are payable for enhancing the use of some sites or building bigger projects on them - will go up by an average of 9% each for two use groups: one which includes hotels and hospitals, and the other, places of worship and civic and community institutions.

Luxury condo Marina One Residences is set to launch in mid-September at an average asking price of S$2,600 per square foot - a level that market watchers deem challenging given current market conditions. Only one out of the two 34-storey residential blocks in the 1,042-unit condo will be released for sale initially. The launch date is yet to be fixed but the sales gallery will be open from Sept 13 to Oct 12.

Source: DBS

Olam Intl (O32)Geo Energy Res (RE4)

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