DBS Equity Research: Wired Daily 27 Apr 2016

kiasutrader

Publish date: Thu, 28 Apr 2016, 10:47 AM

Monthly Strategy - Take profit on Genting, SembCorp Marine, Keppel Corp, SPH; accumulate SembCorp Industries & Ezion on Brent pullback

Mapletree Industrial Trust - Downgrade to HOLD on valuation grounds

The STI now trades at slightly above the 12.09x (-1SD) FY16/FY17 PE level of 2900. Further upside for the STI beyond 2965 is hard to justify unless the USDSGD continues its decline. Furthermore, stock prices could pullback with many stocks going XD soon. Upside looks limited, another pullback looks due. We peg a range of 2800 to 2965 till end-May with support along the way at c.2860. Take profit on Genting Singapore, SembCorp Marine, Keppel Corp and SPH as these stocks have risen beyond our fundamental TP. Accumulate Sembcorp Industries and Ezion on Brent pullback, SIA Engineering on potential dividend upside.

4Q16 results for Mapletree Industrial Trust (MINT) in line but growth momentum is slowing down. Organic growth profile is turning flattish given the tough operating climate. We downgrade MINT to HOLD (from BUY) largely on valuation grounds as share price has hit new multi-year highs. While yield of c.6.7% is attractive, we believe that the REIT's strong stability is priced in. In fact, we see downside risk to DPUs in the coming two years, on the back of potential downward rental reversions.

Parkway Life REIT's DPU (ex one-off gain) +5% y-o-y; in line. 1Q16 net property income recorded strong growth of 9% yo-y mainly from Japan assets (asset recycling) and increase in rental for Singapore assets. Maintain Buy; raise TP to $2.65 from $2.50 by reflecting the negative interest rates in Japan.

1Q16 DPU for Far East Hospitality Trust (FEHT) rose 1% y-oy to 1.08 Scts. This represents c.25% of our FY16F DPU of 4.3 Scts which is in line with expectations. Underpinning the improved performance was lower expenses which resulted in overall net property income rising 1% while top line was flat y-o-y. As it is still unclear whether the Singapore hospitality market has conclusively bottomed and FEHT trading above our TP of S$0.63, we maintain our HOLD call. At current levels, FEHT offers a FY16F yield of 6.5%.

PACC Offshore Services Holdings (POSH) has been awarded long term charters for eight offshore supply vessels with a combined value of approximately US$167.5m by a Middle Eastern national oil company. The Group will supply eight Anchor-Handling, Supply and Safety Standby vessels, of which six will be newbuilds. The vessels, on a firm five-year charter with two one-year extension options, will support the national oil company's operations at the Arabian Gulf. The charters will commence progressively following delivery, with vessels to be handed over to the client starting from December 2016. The contracts awarded are in addition to the earlier 4 newbuilds awarded in February this year.

With reference to the contracts for the design and construction of six semisubmersible drilling rigs entered into with the respective Sete Brasil, Keppel has been informed by Sete Brasil that the shareholders of Sete Brasil had approved a resolution for Sete Brasil to file for a judicial recovery. Keppel has stopped work on the rigs since last year and will not resume construction until payment re-commences. Keppel had made a provision of about S$230m for these contracts in the last financial year and believes that the provisions are sufficient.

Singapore's industrial production in March shrank by 0.5% yo-y, beat consensus forecast for a 2% drop. This was dragged down by a decline in the transport engineering cluster. Excluding biomedical output, the fall was sharper at 5.5%. February's output was revised to a smaller 3.8% decline, while January saw a 1.1% growth. The transport engineering cluster was the weakest performing, with output falling 23.1% y-o-y in March. The marine and offshore engineering segment, in particular, fell 35% on account of lower level of rig-building activity and weaker demand for oilfield and gas field equipment amid the low oil price environment. The biomedical manufacturing cluster's output expanded the most, at 23.1% in March compared to the same period a year ago. The pharmaceuticals segment of this cluster increased 27.9% on the back of a different mix of active pharmaceutical ingredients produced, while the medical technology segment's output grew 9.4% with higher export of medical devices. Output of the electronics cluster increased 5.8% in March compared to the same month last year.

US stocks ended mixed ahead of the FOMC meeting outcome tonight amid a day of mixed corporate earnings and as oil price rebounded. While the expectation is for the FED to hold rates steady tonight, investors will be looking for any clues on potential shifts in the trajectory of the FED funds rate. According to Bloomberg, consensus projects a 9.2% decline in 1Q profit for S&P 500 companies, compared with forecasts for flat growth at the start of the year. Of those that have released results so far, 80% beat profit projections, while 59% topped sales forecasts.

Source: DBS

Mapletree Ind Tr (ME8U)ParkwayLife Reit (C2PU)Far East HTrust (Q5T)Keppel Corp (BN4)

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