DBS Equity Research: Wired Daily 18 Jan 2016

kiasutrader

Publish date: Tue, 19 Jan 2016, 12:10 PM

STI - Failure of 2650 points to 2500 before next major inflexion point, temporary support around 2600

Ezra - Expect no respite from losses; downgrade to HOLD

US stocks fell on Friday with the Dow down 390pts as worries about China slowdown, the drop in oil price and rising interest rates accelerated. STI fell below our stated 2650-2700 support last Friday. The probability of STI falling towards 2500 that coincides with the 50% downward retracement level before the next major inflexion point has increased. Along the way down, we do not rule out a temporary bounce around the 2600 level.

Ezra reported a net loss of US$55.3m for 1QFY16, much steeper than expected, even after adjusting for a US$13.9m hedging loss. The subsea division alone posted larger-than expected losses of US$36.7m in 1QFY16, more than double its US$16.7m loss in 4QFY15. Utilisation of the subsea fleet was poor - below 50% - amidst a lack of jobs in the market as low oil prices take their toll. Management expects the subsequent 12-18 months to remain challenging. Ezra's valuations look very depressed at the moment but given the weak oil price outlook, potential heavy losses, and vulnerability to interest rate hikes, we do not see any investment merit for the stock. Downgrade to Hold, sum-ofthe-parts target price is reduced to S$0.08 (Prev S$0.30).

Keppel REIT announces the divestment of its 100% interest in 77 King Street in Sydney, Australia, to ARE Noble Pty Ltd, a wholly-owned subsidiary of Invesco Asia Core Fund for A$160m. K-REIT is expected to reap a divestment gain of approximately A$28m. The sale price is c. 40% above Keppel REIT's original purchase price of A$116m in 2010 and c. 27% premium to its last valuation of A$126m. The Manager intends to use the sale proceeds to repay existing debt, fund general corporate and working capital purposes and/or for future investment opportunities. Based on the exit price, it implies a yield 5.2%. We believe this to be a positive development for K-REIT as it further highlights value in the REIT's Australia assets, which were acquired a couple of years ago.

Keppel Land has acquired a 22.4% stake in 112 Katong lifestyle mall for S$51.4m. The acquisition of the stake in the mall from BHG Holdings, BreadTalk Group and Perennial Real Estate Holdings will be made via wholly-owned subsidiary DC Reit Holdings. It is to be funded through internal working capital. The other 77.6% of the mall is owned by Alpha Asia Macro Trends Fund (AAMTF), which is managed by Keppel Land's property fund management vehicle Alpha Investment Partners. BreadTalk Group is expected to record a gain of S$8.5m before transaction costs.

StarHub is partnering Netflix to offer the latter's streaming service to its Fibre TV customers, days after Singtel signed a similar deal with Netflix. StarHub said that its customers will be able to access Netflix through their set-top boxes by the second quarter of this year, and will able to pay for their subscriptions via their StarHub bills.

Halcyon Agri confirmed market speculation that it was in talks with Sinochem International Corporation, but said an agreement on a deal is "not imminent". Halcyon Agri said that the discussions with Sinochem involve combining Halcyon Agri's assets with Sinochem's interests in GMG Global and certain rubber-related assets, as well as the possibility of Sinochem taking a controlling stake in Halcyon Agri.

Singapore retail sales grew 4.7%, thanks to a massive 59.7% jump in motor vehicle sales. But excluding cars, retail sales would have fallen 2%. Apart from car sales, only two other segments - department stores and medical goods & toiletries - experienced growth. All other segments reported a slippage in retail sales, with the worst-performing category being petrol service stations, with a 15.8% drop. Food & beverages followed, with a 11.4% decrease. On a seasonally-adjusted basis, retail sales increased 1.4% in November over the previous month. Excluding motor vehicles, however - sales of these fell 0.6% month-on-month - retail sales would have increased a larger 1.9% from October.

Construction demand this year will be propped up by public sector projects amid an expected slowdown in the private sector, with a major shift towards more civil engineering works. The Building and Construction Authority (BCA) said that S$27-34 bn worth of construction contracts are expected to be awarded this year, of which 65% will come from the public sector.

Iran's sanctions were officially lifted yesterday. Iran vows that it is ready to raise its crude oil exports by 500,000 bpd or approx. 0.5% of global consumption. It is widely expected to raise its production from <3mmbpd currently to its presanction level of 4mmbpd eventually. It remains a big uncertainty as to the pace and rate of increase of oil supply from Iran. While this will be partially offset by the production slowdown of shale oil and elsewhere with the plunge in oil prices, further pressure on oil prices are expected in the near term.

Source: DBS

Ezra (5DN)Keppel Corp (BN4)StarHub (CC3)Halcyon Agri (5VJ)

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