DBS Equity Research: Wired Daily 3 Nov 2014

kiasutrader

Publish date: Mon, 03 Nov 2014, 11:21 AM

Swissco - The "second Ezion in the making"; our ballpark fair value of S$1.20 implies 48% potential upside

SMRT - Benefitting from lower oil prices; upgrade to BUY with target price at S$1.86

Stocks should start the session higher on the back of the overnight rally on Wall Street. Our decision to adopt a shortterm positive stance around mid-October below STI 3200 has gone well. STI's rebound is approaching our second short-term rebound objective of 3284. Given the strong 175pt rebound in the benchmark STI during this brief period, further immediate upside should be capped at 3284-3294 ahead of the US midterm elections this week.

Still, a benign 3Q results season thus far for the Singapore market should limit downside. The 3Q results season is in progress. Thus far, we have raised FY14F and FY15F earnings for the stocks under our coverage by 1.0% and 1.2% respectively, mainly due to the banks. The recent low at 3150 is likely significant. Strong support is at 3240 or slightly higher. STI should pause for a breather between 3250-3294 in coming days/week. Should the 3Q results season end well, the 3294 level will likely get taken out ahead heading for the next level at 3350.

In this month's Small Mid Cap radar, we feature Swissco for SGX-listed counter. Swisscois cast as the "second Ezion in the making" following its acquisition of Scott and English (S&E) from Kim Seng Holding (KSH). Since its foray into the service rig business in mid-2014, Swissco has expanded its fleet from four rigs to eight with an ambitious target to reach 15 rigs by end of 2015, driving exponential earnings growth of c.90% CAGR in FY14-16. The recent share price correction on oil price weakness presents opportunities to bargain hunt Swissco, which has fallen 23% since early Oct to trade at an undemanding <7x FY15F PE, despite its relatively resilient earnings profile backed by long term charter contracts and promising growth prospects. Our ballpark fair value of S$1.20 implies 48% potential upside.

SMRT reported 2Q15 results above expectations on lower fuel costs and operating efficiencies. Lower oil prices provide tailwinds for improving earnings coupled with operating efficiencies. We raised FY15F-FY17F earnings by 16-25%, and upgrade to BUY with target price at S$1.86 (Prev S$ 1.60), presenting 27% potential total return upside.

Neptune Orient Lines reported another disappointing quarter with red ink. There is no respite from losses even in peak quarter. Lower oil prices may actually lead to industry overcapacity worsening, if slow steaming reduces, which currently help absorb 7% of industry capacity. There is also no clarity on any potential sale of its logistics division. Maintain HOLD with lower target price of S$0.88 (Prev S$ 1.00).

Keppel Corp has secured a jackup rig contract from BOT Lease Co Ltd, an affiliated company of The Bank of Tokyo-Mitsubishi UFJ, for a KFELS Super B Class jackup rig worth about US$240m. The contract lifted Keppel's YTD win to c.S$4bn, made up 73% 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$4.9bn or 89% of our assumption. Maintain BUY and target price of S$11.10

SembCorp Marine (SMM) announced this morning that it has secured a jackup rig contract from BOT Lease for US$240m, similar to Keppel Corp's contract win from the same customer last Friday. The contract value may be higher on additional specification requirements to be negotiated among the parties involved. This will be the second jack-up rig that PPL Shipyard is building for BOTL. The new orders have lifted SMM's YTD wins to S$4.1bn, making up 93% of our full year expectation of S$4.5bn. No change to our BUY recommendation and TP of S$4.00.

Tiong Seng Holdings is expected to report a net loss for 3QFY2014, as a result of impairment loss for the Group's property development business in the PRC.

China Yuanbang Property is expected to report a loss before tax for the financial period ended 30 September 2014 (1QFY2015). The expected loss is attributable mainly to the delay in the handover of the residential units under Xilang project, namely Ming Yue Shui An, pending completion of the necessary certification procedures in China.

Dukang Distillers expects to report a net loss for 1Q2015. This was mainly due to the decrease in average selling prices and sales volumes of Luoyang Dukang and Siwu products as Chinese government's continued austerity measures affect the sales of wine and spirit across the nation.

Hiap Seng Engineering is expected to record a net loss for 2QFY2015 and 1HFY2015. The weaker than expected financial performance for the above periods is attributable to cost overruns on certain projects.

The number of workers made redundant in Singapore went up in the third quarter of 2014 to 3,400, in what the Ministry of Manpower (MOM) describes as a sign of the ongoing effects of business restructuring. This figure is higher than the 2,410 workers affected in the second quarter, and the 2,710 laid off in the third quarter of 2013. Services formed the majority of the redundancies (1,900 or 56%), followed by manufacturing (1,300 or 38%) and construction (200 or 5.9%). According to preliminary estimates, the overall seasonally adjusted unemployment rates dipped slightly to 1.9% in September, from 2% in June. The rates for residents and citizens were unchanged over the quarter at 2.8% and 2.9% respectively.

Total loans in Singapore dollars stood at S$605 bn for September, unchanged from August, data from the Monetary Authority of Singapore (MAS) showed. This compared with a 1.2% jump in lending in August from July that followed two months of flat growth. The drag in September came from weaker lending to businesses, which contracted 0.4% to S$371 bin, particularly to the construction and manufacturing sectors, as well as for trade. Loans to the construction sector, which make up the largest contribution at one-fifth of all business lending, fell 0.7% to S$98.6 bn. This comes amid reports of rampant payment delays in the construction industry, and as productivity gains in the sector remain unimpressive. Consumer loans climbed 0.5% in September to S$234 bn, growing at the same pace as in August. On a year-on-year comparison, overall Sing-dollar bank lending in September grew 10.6%, or at a slower pace compared to 11.8% in August.

Business optimism has waned across both the services and manufacturing sectors, according to government surveys conducted in September and October. Findings show that although there continue to be more optimistic firms than negative ones, the magnitude of positive sentiment has gone down, compared with the previous six months.

Source: DBS

Swissco Hldg (ADP)Keppel Corp (BN4)Sembcorp Marine (S51)Hiap Seng (510)

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