DBS Equity Research: Wired Daily 5 Jan 2015

kiasutrader

Publish date: Tue, 06 Jan 2015, 09:08 PM

Yangzijiang Shipbuilding - Secured US$1.8bn new shipbuilding contracts in 2014

The holiday lull period ends but we do not see bulls rushing in like the flick of a switch to greet the New Year. We see a slow start to the year but interest should pick up from February as investors once again position ahead of blue chips' FY exdividend period typically in the months of Apr-May. There is the likelihood of a near-term pullback to support at 3300-3330. Support is firm at 3250 that is close to 13x (-0.5SD) 12-mth forward PE. The underlying trend remains up and we have a 2015 year-end target of 3600 based on a conservative 13.3x (-0.25SD) FY16 PE.

A steady stream of US economic data releases this week that starts with manufacturing and services numbers and culminates with December employment data. Consensus expects non-farm payrolls figure of 243k while the unemployment rate shows a dip to 5.7%. Continued strength in the US labour market will underpin the belief that the FED is set to start its rate hike cycle later this year. Our economist expects the FED to start raising rates in 4Q15 while consensus sees it happening a quarter earlier.

Yangzijiang Shipbuildingannounced that it had entered into thirteen (13) new shipbuilding orders in 4Q2014 including nine (9) effective orders with a total contract value worth for US$388m and four (4) new options worth with an aggregate value of US$122m. The nine (9) new effective contracts are scheduled for deliveries from 2015 to 2017. Total order wins for 2014 stood at US$1.8 billion, consisting of 41 vessels. In addition, six (6) outstanding options including two (2) 10,000TEU containerships, two (2) 36,500DWT bulk carriers and two (2) 2,700TEU containerships were carried forward to year 2015. The Group aims to rationalize existing shipbuilding resources and prioritize orders with optimal terms and in line with long-term strategy.

PCI proposes to acquire a piece of land including the building erected on 35 Pioneer Road North, Singapore from Amtek for S$22.5m. The Property covers a land area of approximately 7,688.70 square metres. PCI intends to relocate to and use the Property as its new headquarters for its electronic manufacturing services, including design and development, materials engineering and qualification testing, manufacturing engineering and prototype production and testing services, as well as for its supply chain management and logistics services.

The market expects private home prices in Singapore to continue slipping in the single-digit percentage range this year, following the 4% full-year drop last year, although much will depend on when and how the government starts to roll back some of the cooling measures and how interest rates pan out, among other factors. Last year's 4% drop in the widely-watched overall private residential property price index of the Urban Redevelopment Authority (URA) factored in a one per cent quarter-on-quarter decline in the fourth quarter, and marked the first full-year decline in the index after five consecutive full-year rises. In 2008, the index fell 4.7%. From its global crisis trough in Q2 2009 to the recent peak in Q3 2013, the benchmark index rose 62.3%.

The HDB Resale Price Index (RPI) dropped 6% for the whole of last year, the steepest decline since 2001.The estimated 1.4% quarterly drop in the fourth quarter - though milder than the 1.7% fall in the third quarter - marked a sixth straight quarter of decline. While the extent of price falls came largely within market's expectations, this shift from a seller's market to a buyer's market is not over yet, property consultants say.

Singapore's interest rates have been on a slow upwards creep, rose to a 52-week high as the Singapore dollar continues to weaken against the greenback. The key three month Sibor, or Singapore interbank offered rate, on which most home loans are pegged rose to 0.45738 per cent on Jan 2, up 17.6% from the low of 0.38885 per cent on Feb 21. The benchmark rate had been flatlining for much of the first half of 2014 until it began its slow rise from August, then picked-up pace steadily as the USD rallied. The SGD has fallen to four-year lows against the USD.

Source: DBS

YZJ Shipbldg SGD (BS6)

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