Towards Financial Freedom
DBS Equity Research: Wired Daily 28 Jan 2016
Singapore Rigbuilders - Temasek weighing various options of Keppel and SCI divesting non-core assets and issuing rights. Divestment of M1 by Keppel possible.
Bloomberg reported that Temasek Holdings is discussing various options for Keppel Corp (Keppel) and Sembcorp Industries (SCI), ranging from divesting non-core assets to selling shares, to brace for a prolonged sector downturn, during a regular portfolio companies review meeting on 25 Jan. In our view, the divestment of non-core investment like M1 is a strong possibility as it has been parked under the investment arm for several years. This could free up over S$400m for capital recycling. We see lower likelihood of divestment of K-REIT (worth S$1.2bn) as it is one of the two property fund management vehicles for Keppel Land, although it remains to be seen if Keppel will pare down its stake in K-REIT. As for Keppel Infrastructure Trust (KIT) and Keppel DC REIT, which are worth S$330m and S$250m respectively, both are core to Keppel and thus unlikely to be put on sale. Other investments - K1 Venture, KrisEnergy and Dyna-Mac - are possible divestment candidates but values are relatively small, worth a total of $265m.
Fresh injection of capital via rights issues for Keppel Corp and SCI are arguable as the stocks are trading at 20% to 30% discounts to their respective book values. Recent spate of events has turned for the worse for Singapore's rigbuilders. We believe injection of Keppel O&M into SMM via RTO could be feasible. We reiterate FULLY VALUED on SMM with lower TP of S$1.35 (Prev S$1.85). Maintain BUY on SCI, TP lowered to S$3.50 (Prev S$3.80).
In a separate announcement, Keppel Corp and BG Group jointly win the LNG bunker supplier licence to supply LNG bunker to vessels in the port of Singapore. We understand the other supplier selected was Pavilion Gas. This is a long term strategy, tapping on Singapore's aim to be the LNG hub in this region. We do not expect material contribution in the near term as the LNG Bunkering Pilot Programme is expected to be launched in 2017. We maintain our HOLD call on Keppel Corp with S$5.25 TP.
Mapletree Commercial Trust reported DPU of 2.08 Scts, flat y-o-y, and up 3% q-o-q, in line with our expectations. Revenue rose 1.2% and net property income (NPI) was up 3.5% y-o-y, while property expenses fell 5.5%. VivoCity will undergo asset enhancement, frictional vacancy likely but long-run earnings may surprise on the upside. Maintain BUY, TP S$1.40. MCT offers resilient office portfolio due to city fringe locations and low lease expiry.
Taiwan Stock Exchange (TWSE) and Singapore Exchange (SGX) announced the establishment of a strategic partnership, where a subsidiary of TWSE, Global Link Securities, will join SGX as a remote trading member, a significant first step towards wider partnership between the two exchanges. The agreement will allow TWSE member brokers to directly trade SGX-listed securities, thus making such international trades more efficient and cost effective for Taiwan investors. Trading of Singapore listed securities through Global Link is expected to go live in second quarter of 2016. This is a positive development as SGX has been exploring various avenues to boost the liquidity in the Securities market. In the latest set of 2Q16 results, Securities revenue decreased 10% y-o-y and made up 24% (vs 26% in 2Q15) of total revenue, due to a decline in market activities. We expect initial contribution to be small but this should gradually pick in the medium to long term as SGX and TWSE will jointly launch a series of market education and awareness programmes in Taiwan to generate interest. No change to our earnings forecasts for now. Maintain BUY, TP: S$7.80.
F&N has indicated that it has expressed an interest to acquire the Peroni and Grolsch beer brands. This was in response to a Reuters article reporting that ThaiBev is using F&N as the vehicle to bid for the beer brands. Funding could likely be a mix of internal cash, debt and equity.
Tat Hong Holdings is expected to report a loss for 3QFY2016. This is primarily attributable to costs and provisions associated with exiting the excavator distribution business in Indonesia, weak performance from its Australian operations as well as foreign exchange losses. 3QFY2016 results will be released on or around 12 February 2016.
US stocks fell after the FED left rates unchanged and signalled that financial-market turmoil may pose risks to its outlook for the U.S. economy, while largely maintaining its policy stance. The Dollar fell and oil price rebounded. The Federal Open Market Committee is "closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook," the central bank said. The probability for a March rate hike has been further reduced.
Source: DBS
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