DBS Equity Research: Wired Daily 30 Mar 2015

kiasutrader

Publish date: Mon, 30 Mar 2015, 05:42 PM

STI - Recent positive view vindicated, near-term support 3405, near-term resistance 3500

Our recent positive view on the Singapore market at STI 3380 and slightly below has been vindicated. STI's rise in the past 2 weeks has lifted valuation back above the 13.4x (-0.25SD) 12-mth forward PE currently at 3405 that is viewed as the near term support. It heads towards the 13.76x (ave) 12-mth forward PE currently at 3500 that is viewed as the near-term resistance.

It was reported that illegal payments had been made in connection with contracts entered into by Petrobras and/or Sete Brasil. SembCorp Marine is unable to comment on the truth or otherwise of these allegations and its internal investigations are continuing. At this juncture, the scandal has affected Sete Brasil's fund-raising activities and thus payments to rigbuilders since Nov'14. The other three Brazilian shipyards who were awarded 16 rig contracts in total have or are considering to cancel the rigbuilding contracts. Singapore rigbuilders have previously mentioned that they would continue with the rig construction while awaiting Sete Brasil's secure of fundings. We believe cancellation risk is relatively low for Singapore rigbuilders, being the few yards that are competent to deliver rig and production platform on time, unless Sete Brasil fails to secure funding for a prolonged period and the shipyards decided to withdraw. In that case, yards could suffer financial loss given the higher production cost in Brazil and declining asset price.

Loyz Energyhas entered into two binding memorandum of understanding (MOUs) with Sun Petrochemicals Private Limited (a leading manufacturer of petroleum products). Under the first MOU, Loyz will jointly bid for potential upstream E&P projects and enjoy a carried participating interest. For the second MOU, Loyz Energy will assign Indian assets to Sun Petrochemicals, receive 7.5% of the monthly net profits and 50% of the recovery cost once certain criteria are satisfied.

MTQ Corporation is likely to incur goodwill impairment charges with respect to the Engine Systems and Binder Engineering operations in Australia in the last quarter of the financial year ended 31 March 2015 (FY2015). The goodwill impairment charges will result in a loss making 4Q15. Nonetheless, the Group is expected to be profitable for FY2015.

Changjiang Fertilizer Holdings proposed placement of 17.995m new shares at S$0.02 per share, and also an unsecured interest-free convertible loan of a principal amount of S$359,900, convertible into 17.995m new at a conversion price of S$0.02 per share. The fund raised will allow the Group to strengthen its cash and to be less reliant on external sources of funding.

Chip Eng Seng has sold a vacant development site in Melbourne for A$64.8m (S$69.3m). The sale of the 2,927 sq m site near the edge of the Melbourne central business district includes a planning permit obtained in 2014 and marketing material for a 72-storey, 1,035-apartment mixeduse high-rise development. Chip Eng Seng bought the site in 2013 for A$32m.

US stocks rebounded modestly as semiconductor stocks rose after the Wall Street Journal said Intel Corp was in talks to acquire Altera Corp. In the comments made just before the stock market closed for the week, FED Chair Janet Yellen said she expects the Fed to raise interest rates this year, and that subsequent increases will be gradual without following a predictable path.

Sembcorp Marine (S51)CapAllianz (594)MTQ (M05)Chip Eng Seng (C29)

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