DBS Equity Research: Wired Daily 8 Oct 2014

kiasutrader

Publish date: Wed, 08 Oct 2014, 10:11 AM

Vard Holdings - Looks oversold at these levels, maintain BUY with lower target price of S$1.10

Keppel Corp - Secured contracts worth S$153m

The benchmark STI should start weaker following the overnight fall on Wall Street. We maintain our view for the index to be underpinned at c.3200 (i.e. 3180-3220). At 3180, STI would be trading at 13.3x (-0.25SD) 12-mth forward PE. This is attractive based on the very decent current STI EPS growth forecast of 8.4% for FY14F and 8.8% for FY15. The 3220 level coincides with the 38.2% downward retracement level of STI's YTD rally magnitude from 2955 to 3388 while the 3180 level coincides closely with the 50% downward retracement level. c.3200 provides a short-term bargain hunting opportunity. The 'flight to safety' that led to a fall in US 10-year treasury yield to 2.34%, re-testing YTD lows, should see defensive/yield names better supported.

2H14 order wins for Vard Holdings is slower than 1H14, as expected. In line with lower order win assumptions, we cut our FY14/15F core earnings by 2% and 12%, respectively. Our target price is lowered to S$1.10 (Prev S$ 1.34), after factoring in a weaker NOK and a lower valuation multiple of 9x FY15F PE. However, the uncertainty regarding the tax provisions, combined with lower oil prices, has already taken a hit on sentiment with share price correcting by more than 20% over the last 2 months. We deem this an overreaction and see this is as an attractive entry point for the stock, given its solid reputation as a high end OSV shipbuilder, the expected earnings rebound in FY15 underpinned by an orderbook of close to NOK20bn. Maintain BUY.

Keppel Corp, through its subsidiaries, has secured contracts from repeat customers worth a total of S$153m:

1) Keppel Shipyard won a contract for the conversion of a Floating Production Storage and Offloading (FPSO) vessel for Armada Cabaca Limited, a wholly owned subsidiary of Bumi Armada Berhad. Work has commenced on the FPSO conversion and is scheduled for completion in 2Q16.

2) Keppel Nantong clinched a contract to construct a submersible barge for Smit Shipping Singapore, a wholly-owned subsidiary of Royal Boskalis Westminster Group. Work has also commenced for the barge.

These contracts lifted Keppel's YTD win to S$3.6bn, representing 60% of our FY14 assumption. Taking into account the 2nd FLNG project, which customer Golar has officially guided that contract will be finalized and awarded in near future, order win would have been S$4.5bn or 75% of our assumption. No change to our BUY recommendation and target price of S$12.60 for Keppel. We believe Keppel is in a better position to withstand industry challenges amidst softened oil prices and potential E&P slowdown given its diverse product range, established presence in protected markets and strong R&D capability.

Yongnam announced that it has entered into a sale and leaseback transaction with Axis Real Estate Investment Trust for its Malaysia freehold production facility located in Nusajaya Johor, Malaysia. Under the sale and leaseback agreement, Yongnam will sell the property for RM153.5m (c.S$60m) and will lease it for 15 years with renewal option for another 15 years. Non-core gains of S$34-35m will be recognized upon completion (by 31 Dec 2014). We believe there is potential for special dividends barring major acquisitions/projects. Maintain HOLD, target price S$0.23.

Tat Hong is exploring a possible spin-off of part or all of its tower crane rental business in China via a listing on a reputable Stock Exchange. The Directors believe that the proposed listing would provide access to additional source of funding to capitalise on growth opportunities for the capital-intensive Tower Crane Rental business in China. At the same time, it will also increase the overall financial capacity and flexibility of the Group to strengthen the growth of its other strategic business units in ASEAN and

Australia and unlock shareholder value for the Group.

Boustead Singapore has been awarded a contract in excess of S$20m to design and build the Airbus Asia Training Centre (AATC) for Airbus Asia Training Centre Pte Ltd (a wholly-owned subsidiary of Airbus) to be located at the Seletar Aerospace Park in Singapore. This is the 7th aerospace facility undertaken by Boustead at the world-class Seletar Aerospace Park. The latest contract will raise the Boustead Group's order book backlog (as at the end of June plus new orders since) to over S$315m.

Luxury boat maker Grand Banks Yachts is off the Singapore Exchange's (SGX) watch-list from Thursday, marking a turnaround for the firm which entered the list in 2011. Stronger demand for luxury boats in North America and Asia had lifted its earnings - the firm reported a full year net profit of S$1.03m in August, against a loss of S$5.2m last year. This came on the back of a 14.5% rise in revenue to S$40.3m, its highest in five years.

The International Monetary Fund (IMF) warned of stagnation in advanced economies as it trimmed its growth forecast for the whole world. The global economy faces an increase in risks this year from the Russia-Ukraine crisis and strife in the Middle East, and the wider economic threat if the Ebola outbreak in West Africa is not contained. The Fund said in its semi-annual World Economic Outlook report. It lowered its forecast for global growth this year to 3.3%, down 0.1 percentage point from July and 0.4 point less than it envisaged in April. The 2015 outlook has been cut to 3.8% growth, compared with 4.0% previously forecast.

US markets tumbled after the International Monetary Fund cut its growth forecast and warned of "frothy" equities amid signs of slowing growth in Europe. According to the IMF report, a sustained period of policy interest rates near zero in advanced economies has raised the risk that some financial markets may be overheating. It also warned about the risks of rising geopolitical tensions and a financial market correction as stocks reach "frothy" levels. A drop in Germany's industrial production (actual -4% m-o-m, consensus -1.5%) also raised concerns about slowing growth in Europe. The lower IMF forecast and subdued inflation fuelled demand for safety assets. US 10-year treasury yield fell to 2.34%, re-testing YTD lows and approaching the lowest levels in more than a year.

Source: DBS

Keppel Corp (BN4)Boustead (F9D)Grand Banks (G50)

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