Towards Financial Freedom
DBS Equity Research: Wired Daily 6 Aug 2015
Sembcorp Industries - Upgrade to BUY; India growth to mitigate weakness in Singapore
SIA Engineering - Watch out for signs of operational improvement as well any potential corporate activity. Upgrade to HOLD
ST Engineering - M&A could fast track growth. Maintain BUY
Keppel Corp - HOLD for decent dividend yield and potential value-unlocking corporate actions.
NOL - Valuation at attractive level of 0.6x P/BV; looks ripe for M&A activities. Maintain BUY
Sembcorp Industrieshas corrected 28% since end-April following disappointing 1Q15 results and uninspiring outlook guidance. 2Q15 was decent. While the Singapore power business remains under pressure, we could expect the ramp-up in India power plants to drive sequential improvement. Valuation is undemanding, with 19% upside potential to our new TP of S$4.10 (Prev S$4.30). Upgrade to BUY.
The share price underperformance for SIA Engineering in recent months looks to have largely priced in the weak earnings performance in recent quarters. We believe it could be time to watch out for signs of operational improvement as well any potential corporate activity triggered by the decline in share price. Upgrade to HOLD on the back of dividend yield support (>4%) and potential M&A activity. TP: S$3.70.
ST Engineering'sorderbook of S$12.2bn as of end-1Q15 provides good visibility on revenues and underpins our steady c.6% growth in earnings over FY15/16. Order wins by Aerospace and Electronics divisions in 2Q15 have been encouraging. A combination of low oil prices and positive outlook for US and Asian airlines - ST Aerospace's key customers - bodes well for MRO revenues and margins in the near to medium term. M&A potential remains untapped. ST Engineering sits on a very healthy balance sheet with more than S$500m cash hoard. Maintain BUY with a target price of S$3.80.
Keppel Corp remains committed on paying out 50% of its earnings to reward shareholders. Although DPS could moderate with earnings decline, yields remain fairly attractive at 5-6% based on our forecasts. Upside surprises could come from gains from disposal / divestments. In addition, infrastructure should recover with the delivery of all EPC contracts, mitigating the weakness from O&M. Maintain HOLD, TP: S$8.14 (Prev S$9.32).
Supply continues to be an issue with container fleet expected to expand by almost 7% in FY15, while demand growth is expected to be more sedate at 3-4%. But NOL was able to record significant cost savings (around US$223m) in 2Q15 from better network planning, return of expensive charters and more targeted cargo selection strategy. With the peak season coming up in 3Q, we see hopes of the liner returning to the black. With valuation at an attractive level of 0.6x P/BV, we believe NOL looks ripe for M&A activities as consolidation is surely the way forward for the container shipping industry. Maintain BUY with a TP of S$1.08 (0.8x P/BV).
We reckon order momentum for SembCorp Marine will likely lag any oil price recovery amid rig supply glut and keen competition. Nevertheless, SMM offers decent dividend yield of 4-5% on the back of 40% dividend payout. Maintain HOLD, TP cut to S$2.55 (Prev S$2.89).
2Q15 results for Yangzijiang slightly above; shipbuilding gross margin was low at 15% due to conservative recognition for new projects. Yangzijiang has secured new orders worth US$510m in Jul-Aug. It is a prime beneficiary of industry consolidation. Reiterate BUY with S$1.62 TP plus 4-5% dividend yield.
StarHub's 2Q15 net profit of S$99m (+5% y-o-y, +34% q-oq) was slightly below consensus expectations of S$103m as 1H15 profit of S$172.8m declined 6%. Handset subsidy costs were higher than expectations due to iPhone 6's popularity. Maintain Fully Valued with unchanged TP of S$3.70.
Venture Corp's 2Q15 net profit of S$36m (+8% y-o-y, +11% q-o-q) was in line with our expectations.Strong USD and higher shipments resulted in a solid 10% rise in revenue but it was offset by higher tax rate due to expiry of tax incentives. Maintain HOLD with unchanged TP of S$8.40.
Earnings for PACC Offshore Services Holdingswere dragged down by losses at OSV segment. Accommodation division performs well, provides recurring earnings base from longterm contracts However we expect further delays in contract award for the 2nd SSAV. Maintain HOLD with lower TP of S$0.41 (Prev S$0.50).
Singapore firms showed a further improvement in overall business conditions in July, according to the Nikkei Singapore purchasing managers' index (PMI). July PMI rose slightly to 51.3 from June's 51.1, marking the second successive monthly rise. Even with July's higher 51.3 reading, the rate of improvement remained modest overall, and slower than the series average. The Nikkei Singapore PMI is an economy-wide indicator of activity, with each sector weighted for their contribution to gross domestic product (GDP). Sectors reflected include manufacturing, services, construction, transportation & storage, and retail. In contrast, the Singapore Institute of Purchasing & Materials Management's (SIPMM) PMI covers only the manufacturing sector. SIPMM said its manufacturing PMI reverted to contraction mode in July, slipping 0.7 point to 49.7 after rising for two straight months.
Source: DBS
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