DBS Equity Research: Wired Daily 11 Sep 2014

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Publish date: Thu, 11 Sep 2014, 10:10 AM

SembCorp Marine - Acquires SSP Offshore; more details on capex plan for new yard

SembCorp Marine has announced: 1) acquisition of SSP Offshore's SSP Floater technology and entire portfolio of proprietary SSP solutions; and 2) capex commitment for the Integrated Yard @ Tuas. SMM has signed a sales and purchase agreement with the Houston-based design and engineering solution provider - SSP Offshore (SSP), to acquire its flagship SSP Floater technology and entire portfolio of proprietary SSP solutions for US$21m. SSP Floater technology is basically the next-generation circular hull form. The SSP base design can also be further modified for FDPSO (floating, drilling, production, storage and offloading), floating LNG, well test and early production applications as well as customised for regionspecific operating requirements, harsh environments and arctic conditions. The acquisition is in line with SMM's strategy of diversifying its product offerings and expanding into new market segments, a positive move to sharpen its technological capabilities and competitive advantage in the long term. This enables SMM to offer a suite of innovative solutions to cater to customers' diverse operating requirements.

On its capex plan for the new yard, SMM intends to spend approximately S$711m for a highly automated steel fabrication facility and phase II development of the Integrated Yard @ Tuas. SMM plans to spend approximately S$222m to build a new steel fabrication facility at its Integrated Yard @ Tuas, which will offer a streamlined, seamless and extensively automated production process from steel stock yard to final assembly and finishing shop. Upon completion in 3Q2015, the new facility will have a tonnage capacity of more than three times that of the existing hull shop at the Group's Tanjong Kling yard. SMM also highlighted that the construction of Phase II development of the new Tuas yard has commenced at the 34.5 hectare site. The Group intends to build another three dry docks on the Phase II site. These investments are expected to be funded through its recently announced S$600m bond issue and through internally generated funds. SMM has net cash of S$880m as of end June 14. No change to our BUY recommendation and TP of S$4.82 on SMM. We prefer Keppel Corp over SMM given the mixed outlook of the sector.

Malaysia's end-Aug14 palm oil stockpile soared 22% m-om; on stronger-than-expected 22% m-o-m jump in output and flat exports. Sep14 stockpile forecast at 2.091m MT, as output moderates 13% m-o-m while exports expand 4% m-o-m. CPO discount to soybean oil has narrowed, but subsequent recovery may be gradual. Some stocks are oversold. We maintain our BUY calls for Genting Plantations and TSH Resources. We expect plantation companies' 2H14 results to remain flat vs. 1H14 - if not lower. Seasonally higher volume and lower unit fertiliser cost should be offset by drops in both CPO and PK ASP.

SIIC is buying two BOT project companies in Dongguan for a total consideration of RMB166.6m. These target companies have total wastewater treatment design capacity of 110,000 tons/day. These are positive but small acquisitions. The aggregate capacity is 7-10% of SIIC's aim to add 1-1.5m tons of Treatment capacity each year.

Including these transaction, SIIC has secured an effective 650k tons of capacity via BOT/ TOT/acquisitions year to date. We believe the company is firmly in position to expand further.

China Merchants Hldgs (Pacific) (CMHP) has received approval for its acquisition of Jiurui Expressway, and that its major shareholder China Merchants Group has also converted its remaining block of Redeemable Convertible Preference Shares (RCPS) into 135.78m equity shares in the company. Following these two new developments, China Merchants Group will have a 71.9% stake in CMHP. We believe CMHP can sustain its 7-Sct annual dividend payout comfortably, post conversion/dilution. Our target price of S$1.32 already takes into account dilution from RCPS and convertible bonds but we have yet to update our numbers and TP for the Jiurui acquisition. Maintain BUY and S$1.32 TP for now.

See Hup Seng proposed a 1-for-2 bonus warrant issue of up to 304.2m warrants to its existing shareholders. The warrants can be converted into ordinary shares at an exercise price of S$0.20 each, representing a discount of 34.5% to the last volume-weighted average price.

Assuming all bonus warrants issued are exercised at S$0.20 per new ordinary share, the Group will receive net proceeds of approximately S$60.3m which will be used for funding the Group's existing and potential projects in the near future, as well as business expansion, strategic investments and any acquisition opportunities.

Pan-United Corporation has acquired a 60-year leasehold industrial land in Johor Bahru, Malaysia for MYR10.6m cash. The acquisition is in line with the Group's plans to expand its cement, aggregates and ready mixed concrete (RMC) businesses in the Southeast Asian region. The Group plans to use the Property for manufacturing of RMC and slag, a cementitious material mainly for use in the Group's Singapore RMC business.

Consensus forecasts have cut their 2014 growth forecast for Singapore to 3.3%, following a disappointing second quarter. But some economists warn that more downgrades could still come in, as the Republic grapples with restructuring pains amid a patchy global recovery. Professional forecasters, polled by the Monetary Authority of Singapore (MAS) from mid-August, have tempered their full-year growth projections for Singapore by half of a percentage point, down from the 3.8% median forecast seen in June's survey. The lower 2014 growth estimate now falls within the government's forecast range of 2.5-3.5%.

Source: DBS

Sembcorp Marine (S51)SHS (566)PanUnited (P52)

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