Towards Financial Freedom
DBS Equity Research: Wired Daily 17 Dec 2014
City Developments - Upgrade to BUY, TP S$10.71, based on 15% discount o RNAV
Olam - Strategic expansion of cocoa platform. Maintain BUY, TP revised up to S$3.15
US markets returned back an early session rally to end lower with weakness in technology stocks offsetting gains in the energy sector. Sentiment was affected by the sell-off in emerging markets after the Russian ruble continued its plunge as investors shrugged off a surprise Bank of Russia decision to lift its key interest rate to 17% from 10.5%. Tonight is the outcome of the FOMC meeting. Investors will eye if the Fed looks past low inflation and drop a pledge to keep interest rates near zero for a "considerable time".
STI's 79pt tumble yesterday to 3215 sliced through our stated 3280 near-term support and pulled the market valuation down to 13.02x (-0.5SD) FY15F PE, the lowest in months. We see the next near-term support at a tat above 3200.
City Developments(CDL) together with Blackstone and CIMB will form a new investment platform which will acquire the cashflows and future distributions of Quayside Collection. This transaction will raise S$1.5bn through the creation of: (i) S$750m of profit participation securities (PPS) and (ii) S$750m in new debt facilities. PPS investors will be paid a coupon of 5% p.a. for a 5-year tenure. Through this transaction, CDL will have substantially passed on the risk/reward of future sales at Residences at W - Sentosa Cove, which the group has found it difficult to move volumes (only 4 out of 228 units sold since Apr'11) given government cooling measures. The transaction is net positive on CDL as it gives CDL opportunity to redeploy cash or a potential special dividend. Recent price decline places valuation at 1.08x P/Bk NAV, near to its historical - 1SD range of 0.95x P/Bk NAV, implying c.13% total returns to our target objective. Upgrade to BUY, TP S$10.71.
Olam acquires Archer Daniels Midland Company's global cocoa business for US$1.3bn (S$1.7bn). Olam is now the third largest cocoa processor with a 16% global market share, with exposure to growing US$16bn mid-stream market. This acquisition should translate to 10-14% accretion to FY16-18F core profits, with an uplift in medium term cashflows and ROEs, leading us to also revise our TP to S$3.15 from S$3.10. Maintain BUY. We believe Olam is undervalued based on its 30% 3-year earnings CAGR.
Vard Holdings has secured a contract for the design and construction of one Offshore Subsea Construction Vessel (OSCV) for Farstad Shipping. Delivery is scheduled from Vard Vung Tau in Vietnam, in 4Q 2016.
ISOTeam, an eco-conscious Repairs and Redecoration (R&R) and Addition and Alteration (A&A) specialist in Singapore, announced it has been awarded nine new contracts worth approximately $22.2m in public and private sector. Six projects totalling approximately $15.4m are for R&R works to 90 blocks of HDB flats and three food centres which are expected to be delivered over a period of the next 15 months. The Group also secured a Neighbourhood Renewal Programme (NRP) project totalling $18.9m and an interior design projects totalling $3.3m.
Share buybacks accelerated last week in total value terms, with two of the five biggest purchases done by oil-related firms, Singapore Exchange (SGX) data show. These totalled S$91.1m by 24 listed companies last week, up 3.52% from the total of S$88m seen in buybacks a week earlier.
Activity in China's industrial sector contracted in December for the first time in seven months. The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 consensus forecast. The new orders subindex fell to 49.6, the first contraction since April.
Source: DBS
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