DBS Equity Research: Wired Daily 16 Mar 2016

kiasutrader

Publish date: Wed, 16 Mar 2016, 11:59 AM

Oil & Gas companies - More impairment/provisions could be seen for Ezra, Cosco and Keppel in 2016. Ezion and SCI remain our BUYs among Singapore O&G stocks

4Q15 saw the realisation of the long anticipated impairment/provisions for Oil & Gas (O&G) companies. Most of them reported disappointing 4Q15 results. Going forward, we believe that Ezra is most likely to see impairments in 2016, as it has made none so far. Keppel could be under pressure to make provisions for non-Sete Brasil projects of up to S$200m, amid rising deferment / cancellation risks. Coscocontinues to face cost overrun issues. Sembcorp Marine seems to have made adequate provisions for non-Sete projects (S$280m in 4Q15) but risks of further provisions for Sete projects remain. Meanwhile Ezion, Mermaid, Pacific Radianceand Yangzijiang are the least likely to see further impairments, after the recent round of aggressive write-downs. The recent rally of O&G stocks, alongside the bounce in oil prices could be shortlived in the absence of meaningful change in fundamentals. Our only BUY calls remain Ezion, Sembcorp Industries and Yangzijiang.

Sembcorp Industries(SCI) announced that it is raising shareholding in its 2nd thermal power plant in India - NCC Power Projects (NCCPP), which has been renamed Sembcorp Gayatri Power, from 49% to 88%. The remaining 12% shares will be held by partner Gayatri Energy Ventures (GEV). Total consideration, estimated to be around S$134m, will be funded by a mix of internal funds and borrowings. Valuation is similar to the acquisition of initial stake in Feb-2014, where SCI acquired 45% stake in NCCPP for S$175m. The transaction is expected to complete in 2Q2016. We have forecasted the plant to make startup losses of S$10m in 2016 and S$20m profits in 2017. The stake increase could have 2-3% impact to FY16/17 bottomline.

YTL Starhill Global REIT announced that the master tenancy agreements for its Malaysian properties, namely Starhill Gallery and Lot 10, have been extended for a third three-year term commencing 29 June 2016. The total annual rental under the Master Tenancy Agreement for the third three-year term is RM84.4m, which is approximately 6.67% above the annual rent in the previous three-year term. Revenue from Malaysia accounted for 11.3% of SGREIT's 2QFY15/16 total revenue. Moving forward, SGREIT could also benefit from the Toshin rental renewal at Ngee Ann City, Singapore. The first rental reversion is due in June 2016, and the agreement allows for upward-only rental reversions, capped at +25%. Toshin accounts for 19.3% of SGREIT's gross rent in 2QFY15/16. Maintain BUY, TP S$0.84.

Vard Holdings has signed a Letter of Intent (LOI) for the construction of four luxury expedition cruise vessels for French cruise company PONANT. Delivery is scheduled from VARD in Norway in the period summer 2018 to summer 2019.

GKE Corporation has entered into a chartering contract at a gross rate of US$33,000 per day for its first liquefied gas carrier vessel. The bareboat charter contract is for six months starting mid-April 2016, with an option of an additional six months. The charter contract value is up to US$12m, including the option.

In property news, February remained another quiet month with a 23% y-o-y drop in new private residential units sold to 301 transactions (430 units including executive condominiums). YTD, sales in Outside Central Region (OCR) was up 5% y-o-y, vs central region's -41%. The recent launches showed some signs of improvement in buyer sentiment but we do not believe it to signal a turnaround in the expected downtrend in prices in the medium term. While we remain cautious, volume may increase if projects are priced attractively.

Boosted by car sales and pre-Chinese New Year shopping, Singapore's retail sales climbed 7.5% in January - streaking past expectations for a more moderate year-on-year increase of 3.1%. Excluding car sales, retail sales would still have posted a rise of 1.4%. Apart from car sales, two other segments reported double-digit increases - medical goods and toiletries (16.3%) and department stores (11.9%). Supermarkets, mini-marts and convenience stores, wearing apparel and footwear, and optical goods and books were up 7.9%, 6.1%, 1.4%, and 1.4% respectively. However, all other segments declined, led by non-essential goods. Telecommunications apparatus and computers suffered the worst, with a 30.5% drop. Watches and jewellery followed with an 8.4% y-o-y fall.

With job growth this year at only a fraction of the last two years', and layoffs at the highest since the 2009 recession, the Ministry of Manpower (MOM) expects labour demand to be modest and wage hikes, moderate, this year. MOM's Labour Market 2015 report noted that the jobless rate stayed low at 1.9% last year and that job openings outnumbered job seekers. The weakening labour market has already sparked speculations that the coming Budget will provide some boosters. Our economist Irvin Seah said that the budget could include measures like a temporary deferment of income tax payments for retrenched workers, subsidies for employers' CPF contributions and boosts to the Workfare Training Scheme to upgrade the skills of low-wage resident workers.

Source: DBS

Keppel Corp (BN4)COSCO SHP SG (F83)Sembcorp Marine (S51)Ezion (5ME)Mermaid Maritime (DU4)Pacific Radiance (T8V)YZJ Shipbldg SGD (BS6)Sembcorp Ind (U96)GKE (595)StarhillGbl Reit (P40U)

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