DBS Equity Research: Wired Daily 6 April 2015

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Publish date: Mon, 06 Apr 2015, 01:50 PM

F&N - Re-instate coverage with HOLD; sum-of-parts based TP of S$2.80

We peg an April range from 3430 to 3520 based on 13.4x (-0.25SD) 12-mth forward PE that is viewed as the near-term support to 13.76x (ave) 12-mth forward PE that is viewed as the near-term resistance. Any undershoot below 3430 should be limited at 3400. For the quarter, the index was up 82pts (+2.4%). YTD, the STI performed in-line with the MSCI Asia Ex-Jap Index. This is on par with our Regional Strategist's Neutral rating on the Singapore equity market.

We re-instate coverage on F&N with HOLD and sum-of-parts based TP of S$2.80. Since our last report in Sep'13, there have been several developments - dividend-in-specie of Frasers Centrepoint Limited, $0.42/share capital reduction, amongst others. Taking these into account, shareholders would have gained c.28% total returns since Sep'13. Pertaining to FNN's 55% stake in Myanmar Brewery Limited (MBL), the arbitration tribunal has ruled that FNN is compelled to sell its stake to its JV partner, but at a valuation done by a jointly appointed independent valuer. The estimated value of MBL is S$1.2bn (S$0.88/share), given robust growth prospects. Besides an outright sale, other remote possibilities may surprise, in our view. Key risk to our recommendation is lower-than-expected valuation for MBL.

AusGroup announced the award of a five-year maintenance services contract with Chevron. AusGroup will provide brownfield maintenance and support services to Chevron for the operational phase of its Western Australian assets. The scope of work encompasses maintenance and brownfield execution services. The services will be delivered as part of a five-year multi-discipline contract.

Rowsley has decided not to proceed with the proposed joint venture in relation to the HAGL Myanmar Centre announced in February, as an agreement could not be reached over the details of the investment structure.

Joyas International Holdings has received orders for approximately 1 million metric tonnes of nickel ore, which shall be divided into twenty (20) shipments within the next twelve months. Based on the current market price of nickel ore, the orders are worth approximately US$60m.

In property news, caution about the local residential market has kept developers' bids for state land tenders this year in check, marking a reversal from the bidding fever more than a year ago that stoked fears of land costs outpacing fundamentals. Winning bids for residential sites sold under the Government Land Sales (GLS) programme this year have come down by a broad range of 3-24% in prices relative to comparable sites sold in 2013 or 2014. As a ballpark estimate, land costs typically make up 50-60% of overall costs, and construction costs account for the second largest share of 30-40%.

Singapore's manufacturing sector contracted further in March, going by the latest purchasing managers' index (PMI). The March PMI of 49.6 signalled four consecutive months of shrinking activity, down from February's 49.7, primarily due to a fall in new orders - both locally and from abroad. Amid the gloom, the electronics sector provided some cause for cheer, as the electronics PMI inched back up above the 50- point threshold to indicate expansion.

China's services sector expanded in March even as growth in employment and new business fell to their lowest in at least eight months. The HSBC/Markit China Services Purchasing Managers' Index (PMI) inched higher to 52.3 in March, compared with February's 52.0. But the marginal expansion was offset by lacklustre growth in employment, which fell to a 10-month trough of 51.1. Growth in new businesses was at an eight-month low.

In US, equity indices rose after March non-farm payrolls (actual 126k, consensus 245k) came in much weaker-thanexpected, pushing back expectations for the start of the rate hike cycle. Treasuries yield decline and the USD retreated. The USD is now trading at 1.349 against the SGD. Alcoa Inc. unofficially kicks off the earnings season when it reports results April 8. According to data compiled by Bloomberg, analysts estimate 1Q profits for S&P 500 companies will decline for the first time since 2009. Consensus had projected earnings growth for the period as recently as January.

Source: DBS

F & N (F99)AusGroup (5GJ)Thomson Medical (A50)Joyas Intl (E9L)

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