DBS Equity Research: Wired Daily 24 Sep 2014

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DBS Equity Research: Wired Daily 24 Sep 2014

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Publish date: Wed, 24 Sep 2014, 01:53 PM

Marco Polo Marine - One of the best proxies to the booming oil & gas sector in Indonesia

SembCorp Marine - Secured contract worth US$190m. Maintain BUY

Cosco Corp - Secured US$230m contracts

For SGX-listed stock in this month's ASEAN Small Mid Caps Radar, we feature Marco Polo Marine. Marco Polo is one of the best proxies to the booming oil & gas sector in the protected Indonesia market, through its 49%-owned listed entity - PT Pelayaran Nasional Bina Buana Raya (BBR). It has two business segments: 1) Ship charting - owns c.50 pairs of tugs & barges and nine OSVs; and 2) Shipbuilding - capable of handling shipbuilding, repair and conversion jobs.

Trading at a historical low P/BV of 0.7x, the tide could be turning for Marco Polo against the backdrop of: 1) earnings recovery as things start to get moving post-election in Indonesia; 2) strong organic growth from delivery of seven OSVs; 3) securing a strategic partner to grow its new jackup rig business; and 4) clinching its first rig charter contract. These should drive the company's share price closer to its FY15E book value of 52 Scents on the back of a 10% ROE.

SembCorp Marine's subsidiary SMOE has secured a contract worth US$190m with Bechtel for the fabrication of liquefied natural gas (LNG) processing modules for a resource project in Western Australia. Work on the modules is expected to commence in Indonesia from November 2014. The contract has lifted SMM's YTD win to S$2.78bn. This is lagging behind our expectation given YTD win makes up only 56% of our FY14 assumption of S$5bn. We will likely revisit our assumption after 3Q results. Maintain BUY call and target price of S$4.82 for now.

Cosco Corp has secured contracts worth US$230m to build: 1) one Floating Accommodation Unit (FAU) scheduled for delivery in 1Q2017. The buyer has also secured options for five additional FAUs; 2) one 21,000DWT Module Carrier scheduled for delivery in 2Q2016, as an European customer exercised one of the two options secured in Sept'13. With these contracts, YTD win is lifted to US$1.6bn, forming 63% of our assumption of S$2.5bn. No change to our target price and recommendation at the moment. We may look to revise order win assumption after 3Q results announcement due on 3^rd Nov.

While Cosco is well recognized as one of the most established offshore yards in China and project execution has improved over time, profitability could remain thin given the diversified product range and competitive pricing, in our view. We believe the softness in rig ordering would hit the Chinese offshore yards in greater extent as current supply/demand dynamics hinder speculative rig orders. Maintain FULLY VALUED call.

SMRT subsidiary Singapore Rail Engineering (SRE) and Toshiba Corporation have decided to set up a joint venture to market and supply propulsion systems using Toshiba's Permanent Magnet Synchronous Motor (PMSM) technology to Mass Transit Operators globally. Tests have confirmed that Toshiba's PMSM technology will cut the power consumption of SMRT's first generation trains by 30%. The technology is also maintenance friendly, and Toshiba is targeting noise level reductions of up to 12 dB.

Shenzhen CIMC-TianDa Airport Support Co, a subsidiary of Pteris Global, has received a letter of award from Zhengzhou XinZheng International Airport for the supply and installation of Airport Passenger Boarding Bridges (PBB) for the airport's Terminal 2 Phase 2 expansion project. The Zhengzhou contract is valued at approximately RMB227m and the supply and installation of 128 Fixed Bridges, 83 PBBs and a PBB Monitoring system is expected to complete by end 2015.

OEL Holdings has entered into a non-binding memorandum of understanding (MOU) to buy a stake in a company indirectly involved with China oil giant PetroChina in developing two oilfields in China's Jilin province. OEL will buy a 60 to 100% stake in Hong Kong firm Allied Resources amounting to between S$22.5m and S$37.5m. Shares in OEL could be issued at 9.5 Singapore cents each to the seller or his nominee. Currently incurring losses, OEL gets income from property rental and ship repair.

Credit-rating agency Standard & Poor's (S&P) said that Keppel Reit's BBB rating is not affected by its proposed acquisition of a one-third stake in Marina Bay Financial Centre (MBFC) Tower 3. S&P expects the acquisition to enhance Keppel Reit's portfolio while keeping its financial strength intact.

Consumer price inflation continued to ease more than expected in August, dropping to a six-month low of 0.9% from July's 1.2% and also below consensus forecast for a 1.1% y-o-y rise. Core inflation - which strips out accommodation and private road transport costs - remains firm and elevated at 2.1%, and is more likely to affect monetary policy. Lower vehicle COE (certificate of entitlement) premiums were the main cause of August's lower inflation; private road transport costs fell 2.9%, following July's decrease of 1.6%. The soft housing rental market also exerted a drag on inflation. Accommodation costs declined 0.2% - the first fall into negative territory since 2010 - after coming in flat in July. Services inflation edged down to 2.1% in August from 2.5% in July, due to more modest rises in the costs of recreation & entertainment and holiday travel. Overall food inflation was slightly lower too, at 2.9% compared to 3% the previous month, as the increase in prices of prepared meals eased.

A Tuas Bay Close industrial plot for which the highest bid was shy of the consultants' forecasts points to further signs of a cooling industrial property market, as the effects of the government's anti-speculation measures kick in. Mezzo Development beat two other bidders to submit the top bid of S$25.5m. This works out to S$51.28 psf ppr.

Activity in China's manufacturing sector unexpectedly picked up in September. The HSBC/Markit Flash China Purchasing Managers' Index (PMI) rose to 50.5 in September from August's final reading of 50.2 even as factory employment slumped to a 5 1/2-year low. The market had expected factory growth to stall at 50, citing a further deterioration in business confidence and the rapidly cooling property market. Total new orders rose, and new export orders also climbed to their highest level since March 2010. The overall output level remained flat on the month, while output prices fell to a sixmonth low. But a measure of employment shed more than a point to drop to 46.9, its lowest since February 2009 during the global financial crisis, when a collapse in exports threw tens of millions of Chinese out of work.

US stocks fell, led by health-care shares amid a government crackdown on tax-saving mergers. Geopolitical uncertainties in the Middle East also weighed on sentiment as the US launched a series of air strikes against the IS, which led to a rebound in oil price and energy stocks. The airstrikes against the in Syria were prompted by plans for an "imminent" terror attack on U.S. soil, the Pentagon said. Data today showed the Markit Economics preliminary index of U.S. manufacturing held at a more than 4-year high of 57.9 in September.

Source: DBS

MarcoPolo Marine (5LY)Sembcorp Marine (S51)COSCO SHP SG (F83)OEL (584)Keppel Reit (K71U)

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