DBS Equity Research: Wired Daily 18 Sep 2015

kiasutrader

Publish date: Fri, 18 Sep 2015, 04:19 PM

Oil and Gas - Lowering forecast for 2016 Brent crude price to US$60/bbl. Financially sound and fit picks - Ezion, PACRA. Rock-bottom valuations - SCI, Ezra, Mermaid

The FED leaves rates unchanged, adds a new element citing economic weakness in China and Emerging markets as a reason to hold off rate hike while noting that US inflation remains below the 2% rate. The chance of a December hike remains but the probability has fallen to 45% (source: CME FedWatch).

A mixed performance for Asian markets thus far this morning. For the STI, we see more sideways movement within the 2750-3050 range but tracking a slight downward bias. Banks stocks should dip while companies with borrowings such as properties and SREITs perform slightly better.

While the FED holding back rate hike is seen as providing some relieve, there is little to be optimistic about because the weak outlook right here in Asia is one of the reasons why rates stayed put. Technically, we do not expect Asian currencies to strength against the USD. Meanwhile, technically, we think the USDSGD has found support around 1.39 yesterday. Expect the level to hold and the USDSGD to strengthen heading towards the MAS policy meeting in October. On charts, we continue to USDSGD heading closer to 1.45 by end-Oct.

We now reckon Brent Crude oil prices will remain in the US$45-55/bbl level for the rest of 2015, and range between US$55-65/bbl (average around US$60/bbl) for 2016 (compared to our earlier estimate of US$65-75/bbl range). The lower estimate reflects the widened supply/demand gap and lifting of Iran sanctions, but should be supported by slowing growth at US shale fields. Meanwhile OPEC seems to have softened their tone a bit of late, and a change in production stance in an emergency meeting or next scheduled OPEC meeting on 4th Dec could be a wildcard.

Against this backdrop, we have three Investment Theme for the Oil & Gas stocks :-

1) Financially sound and fit- Ezion, Pacific Radiance. Both Ezion and Pacific Radiance have lower near-term refinancing risks. We believe Ezion's strong market positioning and resilient demand for service rigs, and Pacific Radiance's superior management team and cost competitiveness are key differentiators that will allow them to better navigate through the downturn.

2) Rock-bottom valuations- Having lost up to 85% of market capitalisation, value is emerging for some of the O&G names. For SGX-listed plays: Sembcorp Industries, Ezra, Mermaid.

3) M&A plays - The prolonged low oil prices is set to fuel another wave of mergers and acquisitions, as major

players shed non-core assets and smaller companies merge in an attempt to scale up and survive. We identify some potential takeover targets to be Ezion, Dyna-Mac and Ezra Group companies like Triyards and EMAS Offshore.

Ascendas Real Estate Investment Trust (A-Reit) is looking to make its maiden acquisition of 26 logistics properties in Australia for A$1.013 bn from GIC and Frasers Property Australia. The proposed acquisition is expected to generate a net property income yield of about 6.4% pre-transaction costs in the first year (6% post-transaction costs). The target portfolio has a committed weighted average lease expiry (WALE) of 6.1 years as at June 30. The proposed acquisition is expected to be completed in the fourth quarter of 2015.

Silverlake Axis is buying the entire stake in SunGard Ambit (Singapore) (previously known as System Access Limited) for US$12m to expand its suite of software and services as well as deepen and broaden its customer relationships and geographical presence.

Soilbuild Construction Group has been awarded a construction contract worth approximately S$39.7m, by Land Transport Authority to construct Covered Linkways to Downtown Line 3 and Tuas West Extension Stations. Having been a building contractor, the contract marks the Group's first foray into the domain of civil works construction.

TTJ Holdings has secured structural steelworks contracts for a Liquefied Natural Gas (LNG) project at Pengerang, Johor and for the provision of civil defence doors for MRT Stations along the Thomson Line totalling $16m. These projects, which are expected to be substantially completed between FY2016 and FY2017, raise the Group's current order book to $122m.

The Central Provident Fund Board has initiated the sale of its iconic building in Robinson Road via a public tender. No indicative pricing has been given, though its sole marketing agent CBRE drew reference to a 99-year commercial site on Cecil/Telok Ayer Street sold to Frasers Commercial Trust (FCT) in August 2013 in a government land sale. Based on the S$1,112 psf ppr that FCT paid for the Cecil/Telok Ayer Street site, the land cost of the CPF Building could be around S$870 psf ppr for its remaining 51-year lease. Excluding the estimated differential premium (DP) of about S$75.5m payable to maximise the GFA for the balance lease, it may work out to about S$450m for the CPF Building.

Source: DBS

CapLand Ascendas REIT (A17U)Silverlake Axis (5CP)Soilbuild Const (S7P)TTJ (K1Q)

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