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DBS Equity Research: Wired Daily 10 May 2016

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Publish date: Tue, 10 May 2016, 04:28 PM


Rebound in USDSGD a drag on Singapore blue chips in the current session

Cosco Corp - Watch for parent's restructuring. Upgrade to HOLD; TP raised to S$0.30

Riverstone - Lacklustre 1Q earnings to continue into 2Q. Downgrade to HOLD; TP lowered to S$1.00

US stocks ended mixed as gains in healthcare and consumer shares offset losses in commodity stocks. Oil price fell after shifting winds moved wildfires away from oil-sands facilities in Canada's Alberta region, easing speculation that production cuts would make a substantial dent in U.S. stockpiles, this according to Bloomberg. Asian currencies generally weakened, in line with the decline in the RMB amid recent weak Chinese trade data. The SGD weakened against the USD with the USDSGD rising to 1.37 despite weaker-than-expected non-farm payrolls figure last Friday. The weak SGD is likely to drag Singapore blue chip stocks in trading today.

Cosco Corpreported its fourth consecutive quarter of losses in 1Q16. Net gearing of 3.9x is a concern. We upgrade Cosco to HOLD with a raised TP of S$0.30 (prev S$0.24), based on 1.0x FY16 P/BV. We believe the multiple headwinds - deferments/cancellations and cost overruns amid the sector's downturn, have been priced in. While there might be limited re-rating catalysts from fundamental front in the near term, we continue to see possible privatisation of Cosco by its parent in subsequent phases of restructuring of the two shipping giants.

Riverstone Holdings'lacklustre 1Q16 earnings (+0.6% y-o-y to RM27.2m) is expected to continue into 2Q. Unfavourable mix shift towards more healthcare gloves offsets capacity growth in 2016. We reduce FY16F/17F earnings by -15/-20% on a combination of lower USD/MYR forecasts, higher healthcare glove output mix (which carries lower margins) and slightly lower healthcare glove margins, and also revise target valuation multiple from 18x to 16x blended FY16/17F PE to account for lower earnings growth. Downgrade to HOLD; TP lowered to S$1.00 (Prev S$1.30).

ST Engineering announced that its aerospace arm, ST Aerospace, has injected its pro rata share of US$24.5m (approximately $33.1m), as additional capital into its Guangzhou-based airframe maintenance, repair and overhaul joint venture company, ST Aerospace (Guangzhou) Aviation Services Company Limited. This additional funding will support the joint venture's expansion and business growth.

Swissco Holdings is expected to report a net loss for 1Q16. Three of its drilling rigs were off-charter and the protracted downturn in the oil and gas industry had affected the Group's 1Q16 performance.

Starland Holdings is expected to report a higher loss for HY2016 as compared to the corresponding period of the preceding financial year. The higher loss is mainly attributable to impairment loss provision on a development property in Singapore.

Asia Fashion expects to report an operating loss for the quarter ended 31 March 2016. The loss is mainly attributed by declined sales in the new construction materials business.

Singapore's economic growth for the first half of 2016 might come in at below 2%, as firms here continue to count on China for their sales performances, a survey has shown. Calculations based on reported net balances of 190 firms that responded to the latest quarterly Business Times-UniSIM Business Climate survey showed that Singapore's economic growth for the quarter ending June 30, 2016 will not change much from growth in previous quarters. The government's flash estimates put Q1 growth at 1.8% y-o-y, unchanged from the preceding two quarters.

Source: DBS
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