DBS Equity Research: Wired Daily 26 Sep 2014

kiasutrader

Publish date: Fri, 26 Sep 2014, 01:20 PM

Starburst - Initiate coverage with BUY call and TP of S$0.77. Starburst is a beneficiary of higher defence spending in South East Asia and the Middle East.

The local bourse is seen starting the session lower on the back of the overnight fall on Wall Street. The increasing volatility is not unexpected. We've said in our Wired Weekly that factor such as US rate hike worries, US market valuation as the 3Q results season draws near, US mid-term election in November; and geopolitical uncertainties can trigger profit taking in the short-term. For the STI, we keep our view that the 3250-3270 level that is around the 13.7x (average) 12-mth forward PE should limit near-term downside for the Singapore market as we head to the 3Q results season.

We initiate coverage on Starburst with BUY recommendation, 30% upside to target price of S$0.77 based on 25% discount to peers' PE. Starburst is a beneficiary of higher defence spending in South East Asia and the Middle East. The Group is bidding for ten contracts worth >S$100m over the next 2-3 years and its recurring Maintenance income will expand along with a higher installed base. We believe its niche capability and higher barrier to entry would support net margins of >30%. On the valuation front, the stock is attractive at 8.4x FY15PE for 16% earnings CAGR from 2014-16, vs industry averages of 15x PE.

Ezion Holdings has entered into a memorandum of understanding with a large multinational fuel trading and distribution company for the potential storage and distribution of fuel on Port Melville in Northern Australia. The main activities of Port Melville will be marine base support and port services.

Sino Construction intends to make an off-market takeover bid to acquire a 100% stake in Australian-listed Guildford Coal (GUF). GUF is a mineral resources company that has coalmining projects in Queensland, Australia and Mongolia, Central Asia that are in various stages of development, with the Mongolian projects having commenced production. The Mongolian projects are valued by GUF at A$300-400m. The takeover bid will be made at a bid price of A$0.0613 (approximately S$0.069) per GUF share. The consideration will be satisfied via an allotment and issue of 1 new ordinary share in Sino Construction for every 4.5 GUF Shares.

The family behind homegrown developer and construction firm Lee Kim Tah Holdings is taking the company private by offering S$1.08 per share in cash, valuing it at S$546m. The founding Lee family already owns 71.34% of the company, whose key asset is a half-stake in Jurong Point. The offer price of S$1.08 per share works out to a 6.4% premium to the last traded price.

YuuZoo Corporation has signed an exclusive partnership agreement for China with Turkey's largest Social fashion ecommerce aggregator-Bukombin (www.bukombin.com). Under the agreement, YuuZoo will launch Bukombin in China as part of its fully localized and mobile-optimized social ecommerce shopping mall-www.yuuzoo.cn.

Teho International has signed a non-binding letter of intent to acquire a full stake in ECG Property Services for S$17m. If this goes through, it will be the marine and offshore oil and gas firm's second property-related acquisition, following its purchase of boutique property developer TIEC Holdings for S$12.3m. Singapore's population growth has slid to its lowest in a decade, fertility rates have fallen further, and ageing continues at a rapid pace. Latest government figures released by the National Population and Talent Division (NPTD) show that the total population grew at its slowest pace in 10 years, expanding just 1.3% to 5.47 million as of June this year. While these may have negative repercussions on the economy, some economists say the situation may not be as dire as generally predicted, since more older citizens are opting to work past retirement age. The easing in total population growth was driven by slower expansion in the non-resident population, which now stands at 1.6 million - an increase of 2.9% compared to 4% a year ago. This was, in turn, a result of the government's tight restrictions on foreign labour inflows, which saw foreign employment growth slow to 3% versus 5.9% the previous year.

Singapore Exchange (SGX) chief executive Magnus Bocker has pledged his commitment to eventually do away with board lots, and has spoken up for retail participation and sustainability as he outlined strategies to address lacklustre markets. The minimum number of shares that investors can trade in a lot will shrink to 100 shares in 2015, from 1,000 now. Improving retail participation is also a priority for the exchange, which saw stock market trading volume drop 22% during the year ended June 2014, he said. He noted that only about 8% of the potential investor population in Singapore actively trades stocks, about half the rate in Australia and one third that in Hong Kong.

In property news, the Urban Redevelopment Authority (URA) and the Housing & Development Board (HDB) are releasing two sites under the H2 2014 Government Land Sales Programme. Jointly, they are expected to yield about 1,000 units. The first is a residential site, with its first storey allocated for commercial activity, located along Upper Serangoon Road. It is for sale under the Confirmed List and is expected to yield about 340 housing units. The 99-year leasehold plot has a site area of 10,097 square metres (108,685 square feet), and a permissible gross floor area (GFA) of 30,292 sq m (326,060 sq ft). The second site, a 99-year leasehold residential plot in Dundee Road near Commonwealth Road, was available for sale on the Reserve List. The 10,516.1 sq m (113,194 sq ft) site, with a maximum GFA of 51,529 sq m (554,653 sq ft), is expected to yield 645 units.

U.S. stocks tumbled as Apple Inc. led the technology sector lower on complaints related to its new smartphone and amid signs of worsening conflict in Russia and the Middle East. Rate hike worries resurfaced after data on equipment orders and jobless claims bolstered speculation the economy is strong enough for the Federal Reserve to raise rates sooner than estimated. Sentiment was also affected by a report that Russian lawmakers drafted legislation that would allow the government to seize foreign assets.

Source: DBS

Starburst (40D)Ezion (5ME)YuuZoo Networks (AFC)Teho Intl (5OQ)SGX (S68)

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