DBS Equity Research: Wired Daily 9 April 2015

kiasutrader

Publish date: Thu, 09 Apr 2015, 11:54 AM

Singtel - Downgrade to HOLD with revised TP of S$4.45.

The stock is up 25% over the last one year Singtel acquires 98% stake in US-based cyber security firm Trustwave at US$850m enterprise value. We expect earnings accretion from third year. Cyber Security is an exciting but fragmented area with many players. Technology research companies have mixed reviews on Trustwave. We treat the acquisition as valuation neutral for now. Downgrade SingTel to HOLD with revised TP of S$4.45 (Prev S$ 4.28), due to revision in Telkomsel & Bharti's valuations. The stock is up 25% over the last one year. Singtel offers mid-single-digit growth mainly on the back of growth in India, Indonesia and Australia, while Singapore earnings are under pressure due to weakness in the enterprise business and losses in the digital business.

Based on the latest STB statistics, 2M15 Indonesia arrivals (the largest source market) was weak, down 16% y-o-y (Jan15: -17%, Feb15: -16%). We believe 25% cuts in 1H15 seat capacity from Low Cost Carriers (LCCs) flying from Indonesia to Singapore will cause Indonesian arrivals to be weak this year. Meanwhile, 2M15 Chinese arrivals continue to be soft, down 3% (Jan15: -25%, Feb15: 17%). Although arrivals recovered in February, we think this is largely explained by the difference in the timing of Chinese New Year this year. With declines in the two largest source markets, 2M15 total arrivals fell 6% y-o-y. On the back of a drop in tourists, industry 2M15 RevPAR was down 7% y-o-y, triggered by falls in both ARR (-5% y-o-y) and occupancy (-150bps). Singapore-focused hospitality REITs are likely to report weak 1Q15 results. We recommend that investors focus on REITs with geographically diversified portfolios. Top pick - Ascott Residence Trust (BUY, TP S$1.34).

Losses continued from 1Q-FY15 as Ezra recorded net loss (after minority interest) of around US$1m in 2Q-FY15 (Aug'14-Feb'15). Without forex gains of close to US$9m, the numbers would look worse. The disappointing set of results can be again largely attributed to the Subsea Division EMAS AMC, which recorded lower than expected revenues and gross margins as one of its key vessels - the Lewek Express -stayed in drydock for a longer than expected timeframe. OSV division saw continued weakness in gross margins as well.

Overall orderbook declined from US$2.5bn at the end of 1QFY15 to US$2.3bn at the end of 2QFY15, as subsea order wins remained slow. We cut FY15 earnings (after preference dividend) by 45% to US$10.2m on the back of this set of results. Further downside risks from higher interest charges as refinancing issues loom; maintain HOLD with lower TP of S$0.51 (Prev S$ 0.59).

United Envirotech (UEL) secures RMB 800m TOT (Transfer-Operate-Transfer) cum BOT (Build-Operate-Transfer) Projects in Gaoyang County, Hebei Province, PRC. This will add 200,000 m3/day of industrial wastewater treatment capacity and 20,000 m3/day of recycled water to UEL's existing plant portfolio, which constitutes a significant increase. The Phase 1 and Phase 2 treatment plants are currently operating at nearly full capacity. The acquisition will give the Group the right to develop Phase 3, which involves the construction of a

60,000 m3/day wastewater treatment plant and the construction of a 40,000 m3/day recycling plant. The total investment for this BOT project is estimated to be RMB 300m.

OUEhas sold five-year S$300m bonds at 3.8% amid strong demand. The issue, OUE's first since 2012, is also the year's largest non-bank, non-perpetual deal. The unconditional, unsubordinated and unsecured notes are off the issuer's S$3 billion multicurrency debt programme. OUE and the bonds are unrated.

U.S. stocks rose and bond yields edged higher after minutes from the last FOMC meeting indicated officials were split over whether economic data was strong enough to raise interest rates as soon as June. The minutes showed that while several Fed officials said the economic data and outlook probably warranted higher rates at the June meeting, other policy makers argued that lower energy prices and dollar strength would damp inflation, delaying the need for rate rises. Bets on a September increase rose .In after hours, Alcoa shares fell after it reported top line that missed expectations and said to expected a surplus in aluminium for 2015.

Source: DBS

Singtel (Z74)Ezra (5DN)OUE (LJ3)

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