DBS Equity Research: Wired Daily 20 Oct 2014

kiasutrader

Publish date: Mon, 20 Oct 2014, 03:05 PM

SE Asia Oil & Gas Sector - Expect oil prices to be above US$90/bbl in the medium term; OSV/service providers are more resilient to lower oil prices vs E&P players or rigbuilders. Our conviction BUYs - Ezion, Pacific Radiance

Short-term stability looks returning to US bond and equity markets that should calm nervous investors. While the STI fell below the 3180 support level to touch as low as 3150 last week, we do not see this as indicative of a continued precipitous drop. Instead, we see this as a buy opportunity as further downside looks limited. We see an initial rebound potential to 3220. Beyond that, the next resistance to tackle is 3284. STI's low of 3150 last week is a mere 15pt above the 13x (-0.5SD) 12-mth forward PE level based on current EPS growth forecast of 8.4% for FY14F and 8.8% for FY15. At this valuation level, some form of earnings downgrade would have already been cushioned in.

Oil prices may weaken further in the next 12-24 months, unless OPEC reaches a consensus to cut production when it meets on 27 Nov. We cut our base case oil price assumption to US$95/bbl in 2015 and US$92 in 2016. OSV/service providers are more resilient to lower oil prices vs E&P players or rigbuilders.

The sell down in equities over the past 2 weeks has priced in our bear case scenario assuming oil prices fall to a sustained low level of US$75/bbl. We believe the rebound in oil prices to our base case scenario will drive stock prices up. Companies which are in a better position to withstand oil price volatility are those with exposure to oil production (instead of exploration), longer term charter contracts, more exposure to National Oil Companies (NOC) and less exposure to deepwater exploration activities. This underscores our preference for OSV players and we reiterate our conviction BUYs on OSV service providers. For SGX-listed stocks, we like Ezion and Pacific Radiance. Pacific Radiance has a rebound potential to $1.20 with initial resistance at $1.13. Ezion has rebound potential to $1.61 with initial resistance at $1.54. Rigbuilders Keppel Corp and SembCorp Marine could ride on a technical rebound with decent upside despite the cuts in price targets. We maintain our sell calls on VARD, following our cuts in earnings and valuation pegs.

3Q14 DPU for CapitaMall Trust rose 6.2% y-o-y to 2.72Scts, while YTD DPU of 7.98Scts comprises 73% of our full year estimates, which is in line with expectations given we expect a better 4Q due to the festive season. Gross revenue for 9M14 grew 3.7% on the back of new contribution from Westgate, higher occupancies at Plaza Singapura and Atrium, as well as the completion of AEI works at IMM and Bugis Junction. We maintain our BUY call as valuations are attractive. The stock is trading at close to -1SD of historical mean, and offers dividend yields of 5.7-5.9%. No change to our target price of S$2.12.

Sembcorp Marine announced that its subsidiaries Sembmarine SLP and Jurong Shipyard have secured offshore energy related contracts valued at a combined S$222m. The first contract, awarded by Siemens Transmission & Distribution, is to design and build the offshore substation platform for the Dudgeon Offshore Wind Farm. The second contract from regular customer MODEC Offshore Production Systems (Singapore), is to complete the repair and life extension, and conversion of a VLCC into a Floating Production Storage and Offloading (FPSO) vessel.

Vallianz Holdings is continuing to expand its global reach by clinching Letters of Award and new charter contracts with total value of US$64m in Mexico, West Africa and the Asia Pacific region. The Group will be supplying vessels ranging from anchor handling tug supply vessels (AHTS), platform supply vessels (PSV) and barges for periods of up to 3 years.

Keppel Land will redevelop the existing International Financial Centre (IFC) Jakarta Tower 1 into a 49-storey stateof-the-art office tower that will more than double its net leasable area (NLA) to approximately 69,800 sm of premium grade office space. The total cost to redevelop the building, excluding land cost, will be approximately S$266.4m.

Keppel Logistics, a wholly owned subsidiary of Keppel Telecommunications & Transportation, has expanded its logistics capabilities down under with Keppel Logistics (Australia). The wholly-owned subsidiary of Keppel Logistics will manage a 10,000 square metre warehouse in Brisbane, Australia.

Spackman Entertainment Group has entered into a subscription agreement to acquire 46.4% of Breakfastfilm Co., Ltd. for a total cash consideration of KRW 1,300,000,000 (S$1.55m). The acquisition is set to provide a more consistent flow of income to complement the Group's existing core film production operations. This will also position the Group to capitalize on the growing popularity of Korean‐made content and products in the China market.

Geo Energy Resources announced that the Group's subsidiary, PT Sumber Bara Jaya (SBJ) has signed a cooperation agreement with PT Bandar Laut Biru (BLB) for the management and operation of a port terminal for 15 years. This will provide additional revenue stream for the Group. The proximity of port's location to SDJ concession will allow cost saving, control over port scheduling and certainty to logistic availability for future production ramp up.

China Sunsine Chemical Holdings is expected to report a substantial increase in consolidated net profit, compared to the corresponding period from 1 July 2013 to 30 September 2013. The expected profit growth is mainly due to the increase in both average selling price and sales volume of the Group's products.

Singapore September NODX inched up 0.9% y-o-y, a far cry from the 6.0% gain in August and the 2.9% forecast by the market. The comedown was even more disappointing month on month. NODX in September tumbled a seasonally-adjusted 8.8% from August, overturning the 7.6% jump in the previous month. Non-electronics NODX expanded 3% y-o-y in September, though this was down from the month before when it grew 12.1%. Electronics NODX dipped 4%, after a 6.9% tumble in August. Electronics NODX's decline last month, for the 26th straight month, was again led mainly by PC-related shipments like parts of PCs and disk drives. Except for Hong Kong, Japan, the EU and Indonesia, NODX shipments to all of Singapore's top 10 markets increased in September. The top three contributors to the NODX rise last month were China, Taiwan and Malaysia.

US stocks rallied to par the week's losses as earnings beat estimates, consumer confidence reached a 7-year high and investors speculated that central banks will add more economic stimulus. Energy stocks led the market rebound. According to an executive board member of the ECB, the ECB will start "within the next days" to purchase assets in the new program to support the economy. At the same time, St. Louis FED Bank President said policy makers should consider delaying the end of bond buying. On the data front, US consumer confidence rose to a reading of 86.4 (consensus 84), the best reading in 7 years. Energy stocks led the market rebound. Morgan Stanley shares gained as its trading revenue rose at the fastest pace on Wall Street. General Electric Co. shares gained after the company beat analysts' third-quarter profit estimates as cost cutting helped boost margins in the industrial business. But Google Inc.'s Class A shares fell as the web-search provider missed profit and revenue estimates for the 3Q.

Source: DBS

Ezion (5ME)Pacific Radiance (T8V)Keppel Corp (BN4)Sembcorp Marine (S51)CapLand IntCom T (C38U)Geo Energy Res (RE4)

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