DBS Equity Research: Wired Daily 7 Nov 2014

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Publish date: Fri, 07 Nov 2014, 10:14 AM

Kim Heng - Downgrade to Hold with reduced $0.22 TP post results

CWT posts strong 3Q14 results, maintain Buy and $2.08 TP

3Q14 net profit for CWTgrew 70% y-o-y to S$32.5m on 70% y-o-y growth in revenue to S$3,767m. 9M14 net profit up 52% y-o-y to S$97.7m, making up 82% of our full year forecast. The strong performance was led by Commodity Marketing, Financial Services and Logistics Services. Going forward, the group's core logistics business continues to be a key driver of growth and with the planned mega logistics hub. CWT also announced that it will re-develop its existing Jalan Buroh warehouse site into a mega logistics hub, and has received written approval for JTC for the redevelopment, which comes with a land lease extension of nearly 30 years. Maintain BUY and S$2.08 TP.

3Q14 net profit for China Merchants rose 45% y-o-y to HK$145.8m due to both firm core earnings growth and oneoff items. The acquisition of Jiurui E'way will help expand the Group's business and drive earnings going forward. Our TP of S$1.42 is based on DCF. Valuations remain attractive at less than 10x FY15 PE (diluted for convertible bonds), less than 1x P/B and offering 7.9% dividend yield currently.

Ezion's recurring PATMI grew 30% y-o-y and 8% q-o-q to US$49.2m in 3Q14, bringing 9M14 net profit to US$140m, or c.68% of our/consensus FY14 estimates, in-line with expectations. Sequential growth in the next 2 quarters should be underpinned by a 4Q headline profit boost from the potential disposal gain of c.US$30m from a successful spin-off of Port Melville to Ausgroup, which should be completed very soon. We have trimmed our FY14 recurring PATMI by 5% after factoring in the projected lower offshore logistic income and changes in delivery schedule. Our TP is however raised to S$2.35, as we roll over to FY15, still pegged to 10x PE. The stock's current valuation is undemanding at only 6x FY15 PE

Kim Heng's 3QFY14 net profit plunged 68% y-o-y, 32% q-o-q to just S$1.0m. Revenue fell 32% q-o-q to S$13.8m due to further delays in the arrival of drilling rigs and offshore support vessels from customers. The overall weaker rig market also dragged on performance. Going forward, we expect sequential improvement in 4Q with potential revenue contribution of S$10-15m as we understand that 2 out of 4 Noble rigs came in Oct and the other 2 will be arriving by end of 4Q14. We have cut FY14/15F recurring PATMI by 39/31% after trimming revenue by 24/18% and margins by 2ppts for each year. Our TP is lowered to S$0.22, pegged to 9x FY15F PE. Downgrade Kim Heng to HOLD. We would like to see clearer signs of earnings recovery in 4Q before turning positive. Upside risk to our forecasts is a stronger than expected pickup in business and potential rig conversion projects.

Our analyst recently visited Midas'plants in Jilin, Henan and Nanjing (NPRT). Phase 1 of its new 200,000 tons per annum aluminium alloy plates and sheets plant should start commercial production by 2H15, and contribute positively to earnings in 2016. While we expect Midas to see substantially better gross profit in 2015F (+46% y-o-y), much of that growth is to be offset by higher operational and finance costs. FY14F/15F earnings estimates are cut by 67%/51% respectively. Maintain BUY with a reduced TP of S$0.45, based on 0.9x FY14F P/B.

2Q15 revenue and NPI for Ascendas Hospitality Trust rose 6% and 7% to S$56.5m and S$22.8m respectively, in line with expectations. The results were driven by contribution from Osaka Namba and an improvement in performance from the Australian portfolio. However, DPU disappointed, falling 10% y-o-y to 1.27Scts due to higher than expected costs associated with the unwinding of cross currency swaps. Moving forward, we expect ASCHT to deliver solid underlying results over the next few quarters underpinned by its properties in Australia. With limited upside to our DCF-based TP of S$0.72, we maintain our HOLD call. At current levels, ASCHT offers yields of 5.5-6.2%.

Jiangsu Changjiang Electronics Technology Co., Ltd. Has made a non-binding proposal to STATS ChipPAC to acquire all of the issued and paid-up ordinary shares for USD780mil. The proposed acquisition does not include STATS's subsidiaries in Taiwan.

ECB President Mario Draghi said policy makers will be ready to implement further stimulus measures if needed as he signalled officials may cut growth forecasts next month. ECB officials were unanimous on more stimuli if needed, Draghi told reporters today after holding interest rates steady. Draghi faces pressure to do more to support a slowing Euro-area economy after the BOJ unexpectedly boosted its stimulus plan last week.

Source: DBS

Kim Heng (5G2)Ezion (5ME)Midas (5EN)

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