DBS Equity Research: Wired Daily 19 Nov 2015

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Publish date: Sat, 21 Nov 2015, 10:23 AM

Innovalues - Revving up on auto growth; fair value of S$0.89 based on 12x FY16 PE

Innovalues is a potential beneficiary of trend towards greater eco-efficiency. The rising awareness and stricter regulatory standards on safety and emissions present sustainable opportunities for auto component manufacturers. As a veteran in this field, Innovalues is able to draw on its existing products and engineering capabilities to tap into the growth potential arising from this trend. Greater focus on eco-efficiency and plans to grow sensor business could drive revenue to grow at 11% CAGR from FY14 to FY17F while earnings are expected to grow at 20% CAGR over FY14-17F, which is supported by enhanced productivity. We have a fair value of S$0.89 based on 12x FY16 PE.

Marco Polo Marine (MPM) has terminated its jackup rig contract with Sembcorp Marine (SMM)'s PPL Shipyard. We expect SMM to reverse the revenue and profit recognized for this contract in 4Q15, which could be around S$217m and S$21.7m respectively, assuming 80% recognition of the S$271m contract price and net margin of 10%. Impairment losses may be required. The dispute is likely to take some time to resolve. We have a HOLD call on SMM (TP S$2.32). While we expect near term downside from a knee-jerk reaction to this news, SMM is trading close to its GFC low of 1.5x P/BV and is supported by decent dividend yield of 4%.

Separately, Sembcorp Marine announced that it has secured a contract from its repeat customer - MODEC, to build a new floating, storage and offloading (FSO) vessel. Scheduled for delivery in 1Q2018, the FSO unit will be SMM's first FSO newbuilding secured on a full turnkey project basis. When completed, the FSO will be deployed at Maersk Oil's Culzean field in the North Sea. While the contract value is not disclosed, we estimate it to be around US$150m. This brings SMM's YTD win to S$3bn.

We maintain our BUY call for IREIT Global with revised TP of S$0.77. While the market has rightly placed a liquidity discount over IREIT due to (1) its small free float (c 29.5%) and market cap, and (2) risk of further devaluation of the EUR versus SGD on the back of potential QE by the ECB, we believe these risks have largely been priced in. This is because even with a further 10% devaluation of the EUR, IREIT's FY16F yield is still attractive at 8.5% versus our current forecast of 9.4%.

We maintain our HOLD recommendation for Religare Health Trust (RHT) with TP of S$0.97. While we are positive on RHT's expansion plans and exposure to the growing demand for healthcare services in India, we believe these attractive attributes have largely been priced in. Looking ahead, we expect RHT's development and asset enhancement initiatives to drive future growth. RHT has significant balance sheet headroom, with gearing at only 12.1% as at end-Sept 2015.

Viva Industrial Trust has placed out 52m new stapled securities at an issue price of S$0.725 per security to raise gross proceeds of approximately S$37.7m. This is part of a broader equity fund raising exercise which includes a preferential offering comprising an issuance of 101.1m new stapled securities at an issue price of S$0.715 per security to raise gross proceeds of approximately S$72.3m.

In property news, bids for the CPF Building at 79 Robinson Road have gone past S$500m - surpassing the S$450m that market watchers were expecting when the tender for the ageing office block was launched two months ago. The tender exercise is said to have drawn fewer than 10 bids.

US stocks rallied and yields pulled back after the latest FED meeting minutes bolstered confidence in the strength of the US economy and reinforced speculation that interest-rate increases will be gradual. The minutes showed the central bank signaling that "it may well be appropriate" to raise rates next month as economic data since then have been encouraging, with payrolls logging the biggest gain this year and unemployment falling to 5%. There is a 66% probability that the Fed will raises its benchmark rate in December, this according to futures data compiled by Bloomberg. The USD stayed firmed against the Euro at 1.065 while oil price was little changed.

Source: DBS

MarcoPolo Marine (5LY)Sembcorp Marine (S51)RHT HealthTrust (RF1U)IREIT Global SGD (UD1U)

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