DBS Equity Research: Wired Daily 15 Dec 2014

kiasutrader

Publish date: Mon, 15 Dec 2014, 10:26 AM

Plantation Companies - Maintain CPO ASP of RM2,300 in 2015; expect softer prices in 1H15 followed by a recovery in 2H15.

Stocks are seen started the week softer following the overnight fall on Wall Street as the sell-off in oil and energy stocks spilled over the broader market. We keep our view for STI 3400 by year-end based on 13.76x (average) FY15 PE. STI registered a gain of c.5% thus far this year with less than 3 weeks to go before 2014 ends. Still, the firm underlying tone among the key index component stocks has failed to trickle down to the broader market small cap stocks as the FTSE ST Small Caps Index fell nearly 10%.

US stocks tumbled on Friday with the sell-off in oil and energy stocks spreading to the broader market as investors took profit. Brent crude fell close to USD60pbl after the United Arab Emirates said OPEC will resist output cuts even if prices slump as low as USD40pbl. Over the weekend, the US congress approved a USD1.1tril spending bill that averted the threat of a government shutdown. The FED meets mid-week to decide on interest rates policy. Investors will watch whether the FED keeps its pledge to hold interest rates low for a "considerable time".

We maintain our CY15F crude palm oil (CPO) average selling price (ASP) of RM2,300 RM/MT, and expect softer prices in 1H15 followed by a recovery in 2H15. Subject to changes in the Ringgit and our crude oil price assumptions, we expect palm oil prices to average RM2,300 in 2015, which is relatively weaker than 2014 average. Following a potential near-term correction between Jan15 and Mar15, palm oil prices should marginally recover in subsequent quarters, with more meaningful improvement in 4Q15, backed by inventory drawdown on both supply constraints and better offtakes. We recommend investors to accumulate upstream planters on any near-term weakness. Our pick for SGX-listed planters is Bumitama Agri.

Swiber Holdings has made its first foray into the offshore oil and gas market in West Africa by securing an award from a Houston-based oil and gas company to provide Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) services for an offshore field development project. The US$710m project award includes the provision of full EPCIC services of an Offshore Processing Facility, as well as associated subsea infrastructure developments. Swiber will commence work on the project from the first quarter of 2015 and expects completion to take place in the middle of 2017. For the year-to-date, Swiber has clinched contracts totaling to US$1.03 bn.

Vallianz Holdings has secured a time charter award worth US$97m with one of the world's largest national oil companies in the Middle East (NOC). Under the award, Vallianz will supply a specialised vessel for up to five years from the third quarter of 2015 to support the NOC's oil and gas production activities in the Middle East. This award, which is subject to formalisation, adds to Vallianz's ongoing contracts in the Middle East where it presently deploys 21 offshore support vessels (OSV). With this award from the NOC, the Group's order book will be strengthened to US$626.4m.

OlamInternational has secured a 5-year term loan of A$350m for its Australian subsidiaries Olam Orchards Australia and Olam Australia. Proceeds from the Facility will be applied towards refinancing of existing debt and meeting working capital and general corporate funding requirements of the Company.

China Environment announced placement of new shares and warrants. The 72.5m new shares will be placed at S$0.104 per Placement Share, for an aggregate amount of S$7.54m. The Issue Price represents a discount of approximately 9.09% to the last volume weighted average price. The 72.5m unlisted warrants will be issued at no consideration, granting the right to subscribe for one new Share for each Warrant at the issue price of S$0.104 per Warrant Share. The proceeds will be used for general working capital purposes comprising i) purchase of raw materials, ii) settling general overheads and iii) other operating expenses.

China's economy showed further signs of fatigue in November, with factory growth slowing more than expected and investment expansion hovering near a 13-year low. Factory output rose 7.2% in November from a year earlier, slowing from October's 7.7%. The reading missed consensus forecasts of 7.5% and marked the second lowest expansion since the depths of the global crisis in December 2008. The closure of many factories in northern China early in November to reduce air pollution as Asia-Pacific leaders met in Beijing was no doubt partly to blame for the weaker-thanexpected output. But recent surveys have also shown slackening growth in export orders while a cooling housing market is weighing on domestic demand for products from concrete to steel.

Source: DBS

Olam Intl (O32)China Env (5OU)

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