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DBS Equity Research: Wired Daily 10 Nov 2014

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Publish date: Mon, 10 Nov 2014, 04:26 PM


Sembcorp Industries - 3Q14 net profit below, cut FY14/15F earnings by 9% each. Maintain BUY with lower fair value of S$5.40

Noble Group - 3Q14 core earnings below, FY14-16F earnings cut by 8-13%. Maintain BUY and S$1.60 TP

Hyflux - Misses estimates and guides low. Maintain HOLD, TP cut to S$1.10

We continue to expect a slowdown in STI's strong rebound momentum in the near-term. Market trading activity is also unlikely to pick up with the approach of the year-end holiday lull period typically from mid-Nov till mid-Dec. Still, the underlying trend remains firm. There is a bias for the STI to head for its 13.76x (average) 12-mth forward PE at least, given the upward earnings revision thus far this 3Q results season. We maintain the view that index pullback should be shallow, limited to 3250. Led by bank stocks, we expect the STI to make its way to 3350 in coming week(s) and 3400 by yearend based on 13.76x (average) 12-mth forward PE.

Sembcorp Industries' 3Q14 net profit of S$196.6m (-25% y-oy, +10% q-o-q) was lower than our estimate due to weaker than expected earnings from Marine and Urban Development. We have cut FY14/15F earnings by 9% each.Our fair value is reduced to S$5.40 (Prev S$ 6.00) due to lower target price for SembCorp Marine. Maintain BUY. 3Q14 core net profit for Noble Group was up 117% y-o-y, but below expectations, making up only 13% of our original FY14F, due to higher overheads and lower margins. To account for these factors, we have lowered our FY14-16F earnings by 8-13%. Nevertheless, we still estimate 28% earnings CAGR over the next three years. US$0.03 special DPS was declared and will be paid in Dec 14. Maintain BUY and S$1.60 target price.

Hyflux reported its first profitable quarter this year in terms of core earnings, but overall results still lagged expectations. We expect slower quarters ahead given delays in Tuas grid power connection and slow progress in India. This leads us to widen operating losses in FY14F and expect breakeven in FY15F. Maintain HOLD, TP cut to S$1.10 (Prev S$ 1.33).

3Q14 earnings for ST Engineering below expectations, dragged down largely by restructuring costs at ST Aerospace's European operations. Growth prospects in near term will be affected by weak macro conditions in Europe and China. We have cut FY14/15F earnings by 5% each. Maintain HOLD for 4% dividend yield; TP lowered to S$3.80 (Prev S$ 4.00) in line with the earnings cut.

Venture Corporation reported net profit of S$36.1m (+3% y-o-y, +8% q-o-q), in line even though sales fell short. Margin recovery continues through productivity gains and more value-added sales mix. Management is confident of continued growth in customer base. We have conservatively tweaked down FY14/15F earnings to reflect a lower runrate. Consequently, target price is adjusted down to S$8.40 (Prev S$ 8.80).Maintain BUY for attractive dividend yield of over 6%.

Yangzijiang Shipbuilding reported steady 3Q with healthy shipbuilding margins. 3Q14 net profit of Rmb811m is slightly ahead of our above-consensus forecasts. 9M14 net profit amounted to Rmb2.8bn, making up 82%/93% of our/consensus estimates. We believe the street will have to raise their conservative numbers. Meanwhile, we have revised up our FY14/15 earnings marginally by 2-3%. Order momentum has tapered off in 2H14, as the newbuild market takes a breather. We believe the shipping and shipbuilding markets are headed for a recovery path in the next two years, though it may be a bumpy journey. This will benefit established yards like Yangzijiang, whose orderbook of US$4.6bn translates into a healthy book-to-bill of 2.2x. Yangzijiang is also paring down its non-core investments as promised. Reiterate BUY; TP S$1.62 (Prev S$ 1.60).

3Q14 net profit for CapitaLand in line. Positive take-up was seen in China; Singapore residential exposure substantially de-risked. Multi-growth drivers abound; maintain BUY and TP S$3.84.

Ex biological asset losses, Japfa's3Q14 core earnings of US$12m (-3% y-o-y) were below, drag came from Indonesian poultry business. FY14F/15F/16F earnings cut by -33%/-17%/+4%, reduced target price to S$1.00 (Prev S$ 1.16); maintain BUY as correction is overdone.

Singapore Post reported 2Q15 net profit of S$ 37.6m (+5% y-o-y), in line with expectations. 1.25 Scts interim DPS also in line. Revenue of S$ 220.3m (+8% y-o-y, 4% q-o-q) was driven by e-commerce and related activities. Possible M&A and new investments to support growth. Maintain BUY with unchanged TP of S$2.12.

Tiong Seng registered headline losses of S$7.9m, dragged down by impairment of S$18.5m. Excluding impairment, core earnings exceed expectations, due to the recognition of variation revenue at the tail end of some projects. However, core construction and margin outlook remains weak. Maintain HOLD and S$0.19 target price.

Mapletree Logistics Trust (MLT) reported two deals - (i) the acquisition of 190A Pandan loop forS$34m which is located with a JTC food zone (yield estimated to be stable at 6.5%) and (ii) proposed divestment of 134 Joo Seng Road for S$13.5m (estimated exit yield of <3%) which is expected to complete in 1Q15. Proceeds from the sale will be channelled towards the funding of the new acquisition in (i). We estimate these two deal will have a minimal impact on gearing which is expected to remain stable at 36-37%. Maintain BUY, TP S$1.25. We see multiple growth drivers for MLT through executing on potential acquisitions opportunistically in the medium term.

US October non-farm payrolls rose a lesser-than-expected 214k (consensus 235k) but the unemployment rate fell to 5.8%, the lowest in 6 years. China releases its October inflation data this morning. CPI is seen rising 1.6% y-o-y while the PPI is expected to decline 2% y-o-y.

Source: DBS
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