DBS Equity Research: Wired Daily 24 Feb 2016

kiasutrader

Publish date: Wed, 24 Feb 2016, 03:11 PM

Singapore Strategy - Trade the bounce on oversold stocks; stay safe with dividend plays

Oil & Gas Service Providers - More impairments likely in 2016

A counter-trend rally from the recent low of 2530 for the STI is in the making, supported by a) US rate hike expectations have back-pedalled, a March rate hike is unlikely and consensus thinks that the FED may even hold off rate hikes this year; b) strength of US$ is less of a worry; our currency strategist has lowered his USDSGD forecast to 1.43 by year-end as rate hike expectations are lowered. A pullback in USDSGD is short-term positive for Singapore equities as funds outflow reverses; c) possible 'buy-inanticipation' trade ahead of expectations that the ECB will dish out more stimulus at the next policy meeting on March 10; d) the oversold market that has led to PB and PE valuations matching several major market troughs in the past. Longer term uncertainties linger on. While we are short-term positive, we believe that even in a 'best case' scenario, the magnitude of the current rise in the Singapore market is unlikely to stretch beyond the 2900 level for the STI over the next 2 months. Trade the bounce on oversold stocks - OCBC, OSIM, SembCorp Industries and Capitaland. Trim oil and gas stocks on rebound. Stay safe with dividend plays- ComfortDelgro, ST Engineering, SIA Eng, Sheng Siong, Ascendas Reit, Mapletree Logistics Trust, Thai Bev. BUY Innovalues, our new initiation

The protracted period of low oil prices since mid-2014 has engendered a tumultuous environment for offshore support players. Lower day rates and utilisation mean that many are operating at near-breakeven levels. Asset prices are also tumbling. We have highlighted the risk of impairments in earlier reports, and with the oil price hovering around US$30/bbl, this risk has now materialised. Some of the companies under our coverage, namely Mermaid and Ezion, have recently warned of asset impairments, guiding for a kitchen-sinking 4Q15, while POSH has recently taken a US$148m impairment in 4Q15. Offshore support players have experienced a significant 30-40% decline in newbuild prices (which we use as proxy for second-hand prices) and many have market capitalisations below net assets (or P/BV < 1x) - two suggested criteria that constitute an indication of impairment that should trigger an impairment test. We think 2016 will present a wave of asset impairments as these companies attempt to kitchen-sink losses while the industry is down and out.

4Q15 results for Sheng Siong in line, growth driven by new stores and better margins. FY15 generally saw margins expand from supplier discounts through lower food prices and more bulk purchase activities. A final DPS of 1.75 Scts was declared. Dividend payout ratio amounted to 93%, higher than our 90% assumption. Maintain BUY, TP S$1.01.

Petra's 4Q15 were marginally below our expectations, which we believe was a kitchen-sinking quarter. 4Q15 net profit ended at US$0.8m down (-94% y-o-y) from US$12.3m a year ago. We are projecting earnings turnaround in 2016. We believe the worst could be over, though recovery of earnings to FY14 levels will take some time. We expect earnings of US$28m/ US$42m for FY16F/17F, implying a (pre-exceptional) growth of 82%/50%, on the back of improving sentiment in Indonesia, helped by a more stable IDR. Upgrade to HOLD; TP raised to S$2.21 (Prev S$2.05).

4Q15 earnings for Bumitama came in better than expected on faster capacity expansion, higher net interest income. FY16F/17F earnings revised up by 30% and 25%. TP raised slightly to S$0.96 (Prev:S$0.95). Maintain BUY.

Hiap Hoe expects to report a profit for 4Q15 as compared to a loss recorded in 3Q15. However, the Group is still expected to record a loss for FY15. Its results will be announced on 29 Feb 16.

Aztech Group will record a loss for 4Q15 and FY15. The expected losses for 4Q15 are primarily due to losses incurred in the Group's Material and Marine Logistics Segment. In view of the protracted weakness in the global marine industry, the Group will register additional impairment charges on its fleet of vessels.

Chip Eng Seng Corp has emerged as the top bidder of the land parcel at New Upper Changi Road/Bedok South Avenue 3 (Parcel B) for residential development. The tender price for the Site is S$ 419.4m or S$8,187 sqm per plot ratio. The Site has a land area of 24,394 sqm and tenure of 99 years.

The Singapore economy grew at a slightly slower-than expected 1.8% y-o-y in the fourth quarter of 2015, as the manufacturing sector contracted more than anticipated and services expanded at a slower pace than initially thought. This came under the initial flash estimate of 2% growth, and brought full-year 2015 growth to 2%. On a q-o-q basis, it grew 6.2%, above the flash estimate of a 5.7% expansion, and the market's forecast of 4.5% growth. This was thanks to a faster pace of expansion in the services sector, which offset a deeper-than-anticipated contraction in the manufacturing sector. The Singapore government maintained its 2016 full-year growth forecast of 1-3%. Singapore NODX down 0.1% in 2015; forecast stays at 0 to 2% for 2016. Fullyear headline inflation rate is now expected at -1 to 0%, lower than the previous official forecast of -0.5 to 0.5%. Core inflation forecast unchanged at 0.5 to 1.5%.

US stocks retreated as crude price fell on concern OPEC members won't curb output. Iran's oil minister had labeled a plan by Saudi Arabia and Russia to freeze output as "ridiculous". Saudi Arabia also indicated it won't cut oil production as other countries would be unlikely to assist in restraining output. Equity market sentiment was also affected after China's central bank unexpectedly weakened the reference rate used for managing the RMB. The USDCNY inched higher to 6.572.

Source: DBS

Delfi (P34)Bumitama Agri (P8Z)Sheng Siong (OV8)

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