Towards Financial Freedom
DBS Equity Research: Wired Daily 21 Apr 2016
Oil and Gas - Low oil prices are here to stay. M&A plays - Baker Tech, POSH, Mermaid; accumulate SCI, Ezion on dips
Singapore Exchange - 3Q16 results slightly below; downgrade to HOLD, TP cut to $7.70
We expect oil prices to average between US$35-40/bbl in 2016 (vs US$53.6/bbl in 2015). In the near term, oil prices could stay volatile and weaken further on the back of refinery maintenance and sentiment-hit from collapse of output freeze talk in Doha. The weak demand data, potential Fed rate hikes translating into stronger USD, and speculative pressures, could suppress oil prices before recovering somewhat towards the end of the year. We expect a gradual recovery to US$40-45/bbl in 2017 and US$55-60/bbl thereafter as production cuts filter through. OPEC's production stance and production disruption remain wild cards. The lower-for-longer oil prices set the stage for M&A activities. We identified several potential takeover / privatisation candidates. For SGX-listed plays: Baker Tech, Mermaid, PACC Offshore Services Holdings (POSH). Accumulate Sembcorp Industries, Ezion on dips.
3Q16 results for Singapore Exchange slightly below expectations; 5cts DPS declared for the quarter. 9-mth revenue and net profit accounts for 71% of our FY16 estimates. Improved market activities boosted Securities revenue; but derivatives were hit by lower contract value amid competition. Securities account for 27% of total revenue (24% in 2Q16), vs 40% for Derivatives (40% in 2Q16). Share price has surged 21% since our upgrade in January this year. Valuations on forward PE and P/B basis are currently close to average, vs -2SD level back in January. We continue to see challenges persisting in the Securities
market, as well as the Derivatives business. Downgrade to HOLD, TP reduced to $7.70 from $7.80.
1Q16 results for CapitaLand in line (20% of FY16F earnings excluding gains). China, Singapore and Vietnam recorded strong residential sales. We believe that CapitaLand offers compelling value, trading at an attractive 0.76x P/Bk and 0.65x P/RNAV. We expect the group's strategy to focus on growing its commercial portfolio, and coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, presents upside potential to our earnings. We maintain our BUY call with a target price of S$3.70.
Frasers Commercial Trust (FCOT) this morning reported a 2.9% increase in distribution per unit (DPU) for 2Q16 to 2.45 Singapore cents. This came on the back of a 19.5% rise in distributable income to S$19.4m. Net property income grew 16.7% to S$28.8m, bolstered by Alexandra Technopark and Caroline Chisholm Centre and the contribution from 357 Collins Street, which was acquired in August 2015 and has a full occupancy rate.
ST Engineering announced that its electronics arm, ST Electronics has secured about $505m worth of contracts in the first quarter of 2016 for Rail Electronics & Intelligent Transportation, Satellite & Broadband Communications, as well as Advanced Electronics & Information Communications Technologies (ICT) solutions.
In the fourth quarter of FY2015-16 (Jan - Mar), all Singapore aviation operating metrics for SATS improved. Unit services handled gained 14.5% y-o-y to 30,080 while flights handled improved 18.8% to 34,890. Passengers handled surged 21.2% to 11.72m. These metrics also saw improvements for the full year ended 31 March 2016.
Seroja Investments secures new 4-year coal transportation contract from PT Adaro Indonesia. Seroja is expected to transport about 7 million metric tonnes of coal a year for the next 4 years from the Adaro coalmines which will generate an estimated cumulative revenue of US$48m for the 4-year period from 2016 to 2019. This is part of the strategy of Seroja to establish a stable and reliable stream of business in its order books for next few years.
Anchun International Holdings expects to incur a loss in 1Q 2016, due to the delay in the delivery of finished goods previously ordered by customers and postponed new investment projects. These delays and new project postponements have resulted in a significant decrease of the Group's revenue in the first quarter of 2016.
US stocks edged higher in overnight trade following a rally in oil price that lifted energy stocks. Oil jumped after Iraq's oil minister said major OPEC and other oil producers will meet possibly next month in a new push to freeze output. Brent crude rose to a high of USD45.8pbl.
Source: DBS
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