DBS Equity Research: Wired Daily 26 Oct 2015

kiasutrader

Publish date: Tue, 27 Oct 2015, 11:24 AM

STI - ECE QE speculation fuels rebound towards 3150 by November but risks stalling there

Keppel Corp - 3Q15 results demonstrated resiliency of a diversified business. HOLD for decent dividend yield; TP adjusted to S$7.40

ECB President Mario Draghi's comments last week that hinted of more QE injected 'fresh life' into the current rebound in global equities. Bond yields fell and expectations for the FED to start raising rates have also taken a step back.

For the STI, we now see the possibility for the current rebound to extend moderately further towards 3150, which coincides with the 50% upward retracement and closer to the 200-day exponential moving average. Near-term support is around 3045, firmer at around the 3000 level.

It's a short-term liquidity driven rally rather than an improvement in economic fundamentals or corporate earnings outlook. Thus, we view the current recovery as a counter-trend rally and is watchful of the rise stalling should the STI heads closer towards 3150 over the next 2 weeks. That is, ride the trend now but further gains towards 3150 opens up more profit taking opportunities.

3Q15 results for Keppel Corporation in line; weaker O&M earnings were mitigated by the stellar property performance. Another three jackup rigs are deferred by 3-4 months with compensation from customers. Order book dwindled from S$11bn as of end-Jun to S$10bn as YTD wins have been slow at S$1.7bn. We have trimmed our FY16F earnings by 11% after cutting 2015 order wins by S$500m to S$2bn and pushed back the commencement of the remaining three Petrobras rigs by another 6 months. While we remain cautious on the rigbuilding outlook in anticipation of sluggish order flow and prevailing deferment and cancellation risks, Keppel's valuation is inexpensive, with the stock trading near its GFC low of 1.1x P/Bv and offering decent dividend yield of 5%. Maintain HOLD, TP adjusted to S$7.40 (Prev S$7.50).

Sembcorp Marine's 3Q15 earnings were way below on profit reversals, associate losses and impairment of its stake in Cosco. The rising number of deferments is a worrying trend; we expect bumpy earnings ahead. We trimmed our FY15/16F earnings by 25%/8% to reflect the one-off items in 3Q, project deferments and a further 6-month delay in the commencement of the remaining three units of Petrobras drillships. Maintain HOLD. Maintain Hold, TP lowered to S$2.32 (Prev S$2.48).

3Q15 earnings for Sheng Siong Group were in line, driven by new stores. Store expansion is on track while margins are set to improve going forward. Long-term drivers like online initiative and expansion into China continue to develop. Maintain BUY and S$1.01 TP.

We see headwinds abound for Suntec REIT. In the year ahead, the REIT's earnings will be driven by new contribution from recently completed Suntec City Mall redevelopment. Due to headwinds in the retail sector however, we believe that earnings upside is capped as the mall's rents have underperformed the Manager's initial target. In addition, there could be downside risk for the REIT's office assets, which are expected to see some volatility in rents and occupancies when new office supply enters the CBD from 2016 onwards. Maintain HOLD, TP S$1.58.

China Everbright Waterproposed the reduction of share premium account to set off against the accumulated losses of the company. We reckon that the main reason for the reduction of share premium account or the elimination of accumulated losses is to pave way for dividend payment in the future. Thus, we view such exercise as positive. Note that the above transaction will be carried out in the accounts of the holding company, i.e. not the consolidated accounts of the Group. On the Group level (or in the consolidated accounts), share capital will not be affected and total equity remains unchanged. Thus, the exercise will not affect CEWL's financial ratios and EPS.

GRP Limited is proposing to undertake a bonus issue of up to 100.4m free warrants, each Warrant carrying the right to subscribe for one (1) new share at an exercise price of S$0.20 for each New Share, on the basis of one (1) Warrant for every two (2) existing shares held. The estimated net proceeds from the exercise of the Warrants is approximately S$19.8m, and may be applied towards potential acquisitions, joint ventures, strategic alliances and/or working capital requirements of the Group.

FIRST Ship Lease Trust(FSL Trust) has entered into a memorandum of agreement (MOU) to purchase a medium range product tanker for US$21.8m. Upon delivery of the vessel, FSL Trust's fleet will stand at 24 vessels, comprising seven containerships, 12 product tankers, three chemical tankers and two crude oil tankers.

The Public Transport Council (PTC) announced a 1.9% reduction to fares for the 2015 Fare Review Exercise. This comes on the back of lower energy prices, offset by increases in other operating costs. The fare reduction will be effected on 27 December 2015, to coincide with the opening of Downtown Line Stage 2. We have already taken the fare reduction into our forecasts and hence do not expect major changes to our forecasts. In any case, the PTC indicates that this fare reduction will see lower revenues for SMRTand SBS Transit by S$20.4m and S$15.7m. SMRT is due to report its 2Q16 results on Wednesday evening, 28 Oct. We expect higher operating expenses to weigh down on profits and should see y-o-y drops.

Residential property prices continued to fall in the third quarter, with the year-to-date drop in the Urban Redevelopment Authority's private home price index standing at 3.2% - similar to the 3% fall in the same year-ago period. In the year to date, the Housing & Development Board's resale price index has retreated 1.8% - down from a 4.6% drop a year ago. The HDB index posted the smallest quarteron-quarter (q-o-q) fall of 0.3% in nine consecutive quarterly declines; on the other hand, the 1.3% q-o-q drop in URA's index was the steepest in eight straight quarters of declines.

Despite the usual drops in car prices and accommodation costs, Singapore's inflation rate in September rose marginally - but remained in negative territory for the 11th straight month. Headline inflation picked up slightly to -0.6%, against August's -0.8%, mostly on the back of a stronger rise in the prices of consumer services and retail items. Headline inflation is in line with the market's forecast. Core inflation increased to 0.6% last month, from 0.2% the month before.

Source: DBS

Keppel Corp (BN4)Sembcorp Marine (S51)Sheng Siong (OV8)Suntec Reit (T82U)China Everbright (U9E)FSL Trust (D8DU)SBS Transit (S61)

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