Towards Financial Freedom
DBS Equity Research - Wired Daily 5 Jan 2016
STI - Capricorn Rally attempt falters on poor start, minor rebound seen but upside capped 2870
Noble Group -TP lowered to $0.42 as Nobel Agri sold below book value
Riverstone Holdings - Target valuation multiple lifted from 18x to 20x blended FY16/17 PE on sector rerating
Global equities got off to a poor start for 2016, led by a 7% tumble in China equities that triggered a circuit breaker mechanism, which suspended trading for the day. Nervousness ahead of the imminent expiration of a share sales ban on listed companies' major shareholders and the weaker-than-expected December Caixin manufacturing PMI (actual 48.2, consensus 48.9) sank Chinese equities. The decline in the Chinese RMB against the USD (USDCNY 6.53) that sparked concerns about regional currency weakness further weighed down on sentiment.
The loud "thud" to start 2016 is within our expectation that the attempt at a 'Capricorn Rally' that started from the last 2 weeks of December will be short-lived or unsuccessful. Bargain hunting on a minor dip is expected for the current session but bounces should be capped at the near-term resistance of 2870. We maintain our view that equity markets will likely be weak in the initial months following the first FED rate hike in mid-December last year. A decline towards 2700 should present a good accumulate opportunity.
We have lifted our 12-month TP for Riverstone Holdings to S$2.83 (Prev S$2.49) after raising FY16F/17F earnings by 4%/8% on higher USD/MYR forecasts and margin assumptions, and as we revise target valuation multiple from 18x to 20x blended FY16/17 PE as the sector has rerated. Benefitting from low raw material prices, robust demand and as three new production lines were commissioned in 3Q15 - boosting production capacity by
13% to 5.2bn gloves, we expect top and bottom line to grow in 4Q15 by 55.8% and 62.0% to RM175m and RM36m respectively. This should bring FY15's net profit strongly up 77% y-o-y to RM126m. Maintain BUY.
Over the Christmas break, Noble announced it had agreed to sell its 49% stake in Noble Agri to COFCO International Limited for US$750m in cash, with the additional retention of upside participation in the future growth of Noble Agri, worth up to US$200m. This follows previous press reports indicating Noble was looking to sell its interest in Noble Agri. The entire proceeds of the disposal will be used to pay down debt. Despite the positive actions taken by Noble, Moody's downgraded Noble's rating to below investment grade, from Baa3 to Ba1.
With the disposal of the Noble Agri stake, Noble will no longer be accounting for Noble Agri's losses in its associate income line from end February 2016. Thus, we have raised our FY16-17F core earnings by 30-49%. However, we have lowered our TP to S$0.42 from S$0.49 as Noble sold its 49% stake in Noble Agri below its stated book value. Maintain HOLD.
ST Engineering announced that its marine arm, ST Marine has secured new orders worth about $344m for its Shiprepair and Engineering business groups in the fourth quarter of 2015. The contracts cover major upgrades, conversion, maintenance and repair of vessels in the naval and commercial segments. These vessels include patrol vessels, pipe-laying vessel, accommodation & work barge, oil & chemical tankers, and a cruise ship. The new orders also included logistics management services. These projects are being carried out in the Singapore facilities, and will be delivered progressively over the next two to six years.
Midas Holdings announced that its joint venture company, Nanjing SR Puzhen Rail Transport has secured a metro train contract worth approximately RMB1.28 bn. The contract is awarded by Guiyang Urban Rail Transit for the Guiyang Rail Transit Line 1, with delivery scheduled between 2016 and 2017.
Singapore Medical says it's in early-stage confidential discussions with various parties in relation to a possible transaction. Talks preliminary, no definitive agreements have been entered into and there's no certainty that a transaction will happen, the company said without giving details.
Ley Choon Group has been awarded a tender for a contract worth approximately S$7m by the Public Utilities Board. The contract is for watermain repairs and other contract work in relation to network services (east) division for year 2015 to 2017.
Albedoproposed placement of 100m new shares at an issue price of S$0.01 per share. The proceeds will be used for growth and expansion, and also for working capital purposes.
Private home prices registered the smallest quarterly decline in more than two years in the fourth quarter of 2015. The 0.5% quarter-on-quarter decline in the URA's flash price index for private residential properties in the fourth quarter brought the full-year fall to 3.7%, following a 4% drop in 2014. This ninth consecutive quarter of decline makes for a 8.4% drop from the peak in Q3 2013. The continued fall in private home prices came against a 0.2% rise in HDB resale prices in the fourth quarter, the first uptick in 10 quarters.
Source: DBS
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