Friday, November 30, 2012

52 wk highs / lows

52 wk highs: Property -- Wing Tai, Ho Bee, CapitaLand, Low Keng Huat, United Engineers, Blumont, GLP, Fortune Reit, FCOT, CCT Yield -- SIA Engg, ST Engg, SPH Others -- Tat Hong , Casa, Asiasons Capital, Del Monte, Southern Packaging, Silverlake Axis, SIIC Env (formerly Asia Water), Vicplas, Nobel Design, Oriental Group, Albedo 52 wk lows: Libra, Trek 2000, Moya Asia, Fujian Zhenyun Plastics


Blumont (formerly Adroit Innovations): the stock has had a sustained strong performance, appearing regularly on our 52 wk high alerts. There is no research coverage on this company, which has appreciated a whopping 842% ytd from 1.9cts to the current 17.9cts. We note the following newsflow on the e-business solutions provider (under Adroit) turned sterilization provider and property developer. i) significant sh/h Ooi Cheu Kok has been raising his stake over the Oct to Nov '12 period , to the current 7.59% level, while previous signficant sh/h Chan Kern Miang has exited his 6.44% stake entirely. ii) 3Q12 results were good, with net profit up 5-fold at $4.4m, thanks to higher revenue from its sterilization business, as well as big jump in other gains due to increase in fair value gains on quoted financial assets. The stock trades at 6.5x annualized 9M12 P/E (though note that EPS is lumpy in nature), and 3x P/B. iii) on 6 Sep '12, the group finally completed the proposed acquisition of 6 units of properties at Clear Water Residence located on Changkat Semantan, Damansara Height, northwest of KL, Msia. The acq was first proposed exactly 2 yrs ago on 6 Sep '2010, but fraught with delays. The group intends for the new acq to add to its investment property portfolio. An interesting observation is that Ipco, which is also listed on SGX, owns a 9.7% stake in Blumont. Ipco's share price performance has been relatively moderate vs Blumont's, and is -4.8% vs the latter's +24.7% move today.


Yoma: is acquiring the land devt rights for a site in downtown Yangon via a 80% stake in Meeyahta International Hotel. The site will be turned into an integrated development comprising residential, retail, hospitality and commercial property. To fund the 80% share, a 1-for-4 rights issue to raise more than $91.2m is proposed. DBSV notes that this project will generate long term recurring income from the hotels/service apartments/office even though it’s aggressive in scale and costs. The house has not factored in potential dilution from the rights issues at this juncture. Based on its proforma estimates, the rights issue could dilute RNAV to $0.72 (from $0.80). The house maintains Buy with TP $0.79 or theoretical ex-rights price of $0.72. The stock price has risen tremendously in the past 3 months, coming from $0.375 to the current $0.65. DBSV says technically, further upside from here is likely capped at $0.72 (prior to ex-rights adjustment).

China Fish / Pac Andes

China Fish / Pac Andes: recall, yday’s news that Russia’s foreign invmt govt commission has ordered Pac Andes to sell the Russian fishing assets it acquired in violation of the law. Pac Andes group and CFISH have yet to be contacted by the Russian govt. UBS notes Pacific Andes group does not own fishing assets in Russia, it has only supply agreements, so the key is how the Russian govt interprets the supply agreements. CFISH's CFO says, if these agreements are considered as fishing assets and will be void, CFISH should be able to obtain compensation from fishing companies for the costs of sourcing the same quantity of fish. The co has yet to pre-pay the 4th supply agreement, and if it goes ahead to pre-pay this agreement, the US$150m will only be a deposit in an escrow account. Since Russia has to sell majority of Alaska Pollock catch outside Russia and the Pac Andes group has established the distribution network outside Russia, one of the scenarios is that, if the supply agreements are voided, Pac Andes group has to source fishes from middlemen rather than directly from fishing companies in Russia. CFISH's margin could then be notably lower. Russian operations accounted for 77% of its EBITDA and EBITDA margin of those operations are c45% in FY12. Assuming its EBITDA margin is cut by half, its net debt/EBITDA and EBITDA/interest ratios will worsen from 2.5x to 4x, and 8.2x to 5.0x respectively. USB believes there remains a high level of uncertainty as to how the Russian govt will interpret the supply agreements, and if these agreements are voided, how and whether CFISH will obtain compensation from Russian fishing companies. There are also high levels of uncertainty as to how the Russian govt will enforce the selling of Pac Andes group's "fishing assets", who can buy the assets, timing of the sales. The house does not expect the company and even the Russian govt to have clear cut answers to those questions at the moment. CFGSP 2019 fixed income drops 8%. China Fish stock is -1.7% at $0.565. Pac Andes stock is +0.8% at $0.135.

Olam (Muddy's Response)

Olam: Muddy Waters says Olam's response attempts to be substantive, but "contains numerous instances of irrelevant information , factual inaccuracies, misleading statements and mischaracterizations" of its earlier report. Challenges Olam to accept its offer to pay for Olam to have one of its public debt issues rated by S&P. Leaves the offer open before 5 Dec '12, 5pm. Adds sh/h might have reason to worry that senior mgt could be facing margin calls (that could cause it to liquidate Olam shares) bcs it possibly pedged significant numbers of shares, citing how Mr Verghese refused to answer a qn about share pledges on a recent conference call. The stock is -0.6% at $1.55, pulling back from an earlier high of $1.58.

SGX (technical)

SGX : Trading Central notes share price posted a 61.8% retracement and has bounced off from the key horizontal level at $6.50. The stock has also crossed above its 50day moving avg, while daily RSI has struck against a major support area around 30% and strongly reversed up. Believes further upside is likely to $6.97 and $7.12 in extension, as long as $6.65 support holds .

Tuan Sing

Tuan Sing: has formally commenced the redevt of Robinson Towers, the annex and the immediately adjacent International Factors Building as a single commercial / office devt in the prime CBD. Today, tenants will be served with termination of lease notices of 6mths. The proposed redevt on the 1,725 sm site will comprise a grade A office tower with retail podium at total gfa of ~23,900 sm. The building is expected to be completed in 2016. The news is not entirely new, as over the past mths, Tuan Sing has been seeking regulatory approval and planning for the building redevelopment. Nevertheless, analysts have in the past highlighted that this could be a key catalyst to boost Tuan Sing's NAV. The stock is +3.3% at $0.315.

KTL Global

KTL Global: has secured ~US$9.3m worth of orders from two subsidiaries of Ezra. i) to supply ~US$3.2m worth of mooring chains and accessories to EMAS Offshore Construction and Pdtn ii) to supply ~US$6.1m worth of side thruster and shaft, and reduction gearbox propellers to Triyards Marine. The orders are expected to contribute to the group’s FYJun13 financials. KTL is a supplier of rigging eqpt and related services to the O&G, marine and construction industries. It is also a supplier of premium steel wire ropes and fittings for lifting and mooring. The counter trades at 0.6x P/B, ~29x FYJun12 P/E. Stock is illiquid though with no trades done for this session and wide bid/ask spread.


Olam: non-executive and independent directors Robert Michael Tomlin and Michael Lim announced open mkt share purchases, each buying 200k shares at $1.55/sh and $1.545/sh respectively. Both directors had nil shares in Olam prior to this purchase. The insiders’ share purchases, coupled with Olam’s quick and firm rebuttal to short seller Muddy Waters’ negative report, may further bolster investor confidence in the company. The stock extends its recovery, adding 0.1% to $1.575.


Singtel: Nomura: Upgrades to Buy, and raises TP to $3.80 from $3.27, noting that most of its businesses performing at the same time: 1) Optus downgrade is behind and not likely to see further negative surprises in the near term. 2) Singapore is trending well and Most of its Associates should see underlying earnings improve after 2yrs of declines. and 3) Cashflows remain strong and diversified, with around $3bn in annual FCF(7-8% adjusted FCF yield). Its valuation looks compelling at 13x FY14F P/E, a 15% discount to regional peers. Catalysts wld be: 1) Operating trends and earnings growth, expect 6-8% pa EPS growth in FY14-15; 2) NetLink Trust’s partial divestment by mid-2014 could realise ~SGD1bn, which could boost dividends; 3) No special dividends are likely until May-2014, but its ordinary yield of 5% is 350bps higher than Singaporean bonds; 4) FX volatility will impact earnings, while Associates’ dividends/cashflows are generally hedged.


CapitaLand: is the top bidder for the Bishan residential site with bid of $505.1m ($853 psf gfa), a narrow 3% above the 2nd highest bid. The parcel is next to CAPL’s Sky Habitat project, and a short walk to Bishan MRT and Junction 8. With a max gfa of 592.2k sf, it can be developed into a 645 unit condo. Deutsche estimates breakeven at $1,280 psf, which implies margins of 15% based on ASP of $1,500 psf, broadly on par with Sky Habitat. This acq is of strategic importance to CAPL, given its proximity to Sky Habitat (where sales have been relatively sluggish with 28% sold to date at benchmark prices), allowing it to protect its turf. The house estimates a minor 1ct/sh accretion to NAV. This latest site boosts CAPL ‘s Spore residential inventory by 27% to ~2.8m of attributable gfa and increases its mid-end exposure. Deutsche continues to like CAPL for its deep devt pipeline, improving earnings profile as projects mature and see mgt succession as positive for execution. Says valns appear undemanding at 1x P/B and 23% discount to RNAV. Keeps at Buy with TP $3.87. Technical outlook for CAPL is positive, with the stock having made a new multi year high yday. We note the Fibo retracement levels (using the Jan ’10 peak to Dec ’12 trough) have worked well thus far. A successful breach above the 0.62x resistance at $3.52 could see the stock as a potential bullish breakout candidate, and move next to test the 0.78x Fibo level at $3.88.

Genting SP

Genting SP: CIMB downgrade grp to UnderPerform from Neutral with $1.20 TP. House believe the co faces not just earnings risk but increased risk premium from overregulation and other issues that will restrict its capacity to grow. Make no changes to EPS forecasts and RNAV-based target price. M&A seems to be the only rerating catalyst at this stage. Believe the weak performance seen over the last two qtrs represents the start of a protracted earnings downcycle. Think there is more downside risk as Resorts World Sentosa (RWS) grapples with the challenges of restricting its focus on the international mass mkt as the only avenue of growth.


Kreuz: UOB Kay Hian maintains Buy with $0.53 TP. House note that Kreuz is a key beneficiary of strong subsea capex spending in Asia. Kreuz’s current tenderbook remains robust at about US$500m, and expect the group to clinch about US$200m worth of new contracts in 2013, up 29% from the US$155m clinched to date in 2012. Add that Kreuz’s orderbook currently stands at US$220m, lower than US$248m qoq, but higher than US$185.0m yoy. Ytd, Kreuz has announced US$155m worth of new contracts. Contract wins typically are lumpy. Furthermore, overall outlook for the offshore subsea market is positive. According to Infield, Asian subsea capex is expected to be more than US$7b between 2011 and 2015, compared with US$2.25b over the previous five years. In addition, total annual expenditure on Remotely Operated Vehicles (ROV) used in subsea operations is expected to grow from US$891m in 2010 to US$1,692m in 2015.


Ezion: UOB Kay Hian maintains Buy with $2.00 TP. House note that Liftboats and service rigs are gaining acceptance among NOCs in Asia Pacific. Ezion’s recent breakthroughs include securing more charters from Pertamina and maiden charters from Petronas. Potential demand for liftboats and service rigs in Asia Pacific is huge as the current fleet is still relatively small, compared to Asia Pacific’s fixed platform fleet that they can service. Add that grp’s earnings will ramp up as more liftboats and service rigs come on-stream. New demand is booming, now that NOCs in this region are convinced over the superior efficiency of liftboats and service rigs over traditional OSVs

Nam Cheong

Nam Cheong: CS has an unrated report. House met We met with mgt post its 3Q12 results and note that Nam Cheong is the largest Msian-based OSV shipbuilder, delivering vessels from its own yard in Miri, Sarawak and three partner yards in Fujian, China. Nam Cheong has been operating a Build to Stock (BTS) model since 2006, where market research and feedback from key customers and industry players are used to forecast OSV demand, with construction of OSVs undertaken in advance of orders to minimise order-delivery lead times. Grp is expecting 18/19 vessel deliveries in 2012/2013 respectively under its shipbuilding programme. YTD orders secured for these vessels are at 16/9 vessels, respectively. Mgt reiterated that all previously built ships have been sold upon completion, since the inception of the BTS model. Nam Cheong is currently trading at 7.1x 2013E P/E, vs. the sector average of 8.1x, and a 2012 P/B of 1.8x against an expected ROE of 25.5%. We like to highlight that recent stocks which CS did an unrated report (e.g Sheng Siong & Cordlife) did experience some positive price momentum and do not rule out the same for Nam Cheong. Counter currently has a market cap of $449.6m, while some foreign houses have mandates of coverage on counters only with a market cap of > $500m.

Singapore market (30 Nov 12)

Singapore market: the bullish performance in the Europe and US markets yday may drive a firm open to the Spore market. Markets are choosing to hear the positive spin regarding the fiscal cliff for now, but note that sentiment could change on a dime, depending on the next comments from the politicians. In the region, KOSPI is down 0.3% while Nikkei is up 0.1% at 8.17am. Trading could be a little more volatile today, particularly towards market closing, due to month-end window dressing, as well as the MSCI index changes taking place across SE Asia. Recall, CCT has been added from the MSCI Spore Index, while Cosco, NOL will be removed. Technically, the STI has cleared the 3,027 resistance-turned-support. Yday’s gap up and long white candle is a further positive signal. See next resistance at 3,087. The RSI and Stochastics continue to rise steadily along with volume traded, which bodes well for near term momentum. Corporate newsflow continues to be thin. CapitaLand may be in focus after winning the top bid for a Bishan residential site. Technicals for the counter continue to be favorable. Olam may see further support, after non-executive and independent directors Robert Michael Tomlin and Michael Lim announced open mkt share purchases.

Thursday, November 29, 2012


Yanlord / China Property: Moody's has changed its outlook for China's property industry to stable from negative on the expectation that the trend of improved sales and access to funding will continue in 2013. The views are encapsulated in its latest rpt on the Chinese property market titled, "Improving Sales and Access to Funding Support Stable Outlook”. Moody's expects property sales to grow in the single digits in percentage terms over the next 12 months. Says easing mortgage financing for first-time home buyers, increasing devt of mass-market products, solid underlying demand, and continuing urbanization will lead to improved sales, which in turn will lower the inventories of property developers. In addition, Moody's believes that the Chinese govt is unlikely to impose further regulatory restrictions to tighten the property market, because the current restrictions have been effective in controlling speculation and reining in prices. Moreover, a further cut back in investment in the property sector would also weigh on an already slowing economy and make it difficult for the govt to achieve its stated target of GDP growth of 7.5%. Moody's also expects that developers will be able to refinance debt maturities expiring in the next two years, as a variety of funding channels, such as offshore bond financing and asset sales, are now available to them. In addition, only a limited amount of offshore bonds will mature between 2012 and 2014. Yanlord 10.625% bonds seeing bids 4% higher. The stock is +5.8% at $1.455, extending this morning’s gains. Recall our earlier comment that Citi raised TP to $1.90 from $1.56.

United Engineers (technical)

United Engineers: OCBC Technicals says the counter could resume its long-term uptrend after initiating a rebound at its lower channel boundary support and the $2.38 key support recently; this was followed by a bullish break above its 2-month downtrend resistance on heavy volume yday. Notes MACD has just initiated a bullish crossover as well; this suggests that the upside momentum is picking up again. Believes the counter is likely to head higher towards the next key obstacle at $2.64 (key peaks) in the weeks ahead. Eyes immediate support at $2.38, while tipping a stop-loss exit slightly below at around $2.35.

Sunvic (technical)

Sunvic: OCBC Technicals says a key resistance has been conquered, and the counter could see further recovery after initiating a bullish break above its $0.385 key resistance on heavy volume. Notes MACD has also just initiated a bullish crossover; this suggests that the upside momentum is building up now. Tips the counter is likely to head higher towards the next key obstacle at $0.465 (key support-turned-resistance) in the weeks ahead. Advocates a stop-loss exit around $0.36, which is slightly below the newly established resistance-turned-support of $0.385.

UOB (technical)

UOB: has seen a strong bounce over the past two wks. While near term momentum is positive, with the key indicators above neutral levels and rising steadily, share price is now approaching multiple resistance levels, the first at $18.68 (200day MA) and a stiffer resistance level at $18.80 (50day MA). There is a possibility of slowdown in upward momentum, and a slight pull back, before the stock moves to test the resistance levels mentioned above, in which case, a successful break above those levels would be a confirmation of the counter's upward trend. See firm support at $18.00.

DBS (technical)

DBS: the gap up on 27 Nov has sustained, and pushed share price above the key 50 day and 200 day moving averages. The break of the downward trend channel is a positive, and could signal the beginning of a new longer term uptrend. The key indicators are above neutral and rising steadily, suggesting that near term momentum has legs to continue. See support at $14.10 (50day MA), resistance at $14.80 (close to the mid Sep 2012 peak).

Food Empire

Food Empire: official opens its new manufacturing facility in Ukraine, located in Zolotonosha, in the Cherkasy region, occypying 5.4 ha. Food Empire has invested an initial amt of US$11.4m in the facility. Pdtn will be sold in the Ukrainian mkt as well as exported to neighboring countries in Easter Europe. Food Empire has been active in the Ukraine mkt for more than 15 yrs and its brand, MacCoffee and Petrovskya Sloboda have a a strong following from local consumers. Chariman Tan Wang Cheow says Ukraine is the group’s second largest mkt in terms of revenue and its pdts current command a mkt share of more than 40% of the 3-in-1 instant coffee mkt. The stock trades at 13.1x P/E. The counter is at $0.625, +5.9%. It earlier touched $0.635, a new multi year high.

REITs / Business Trusts

REITs / Business Trusts: With investors desperate for yield, shares of trusts have surged so far this year in Asia. But that enthusiasm has been largely focused on real-estate investment trusts (REITs) and hasn't been reflected in demand for business trusts. In Singapore, 90% of the assets in a REIT must be fully developed and already drawing income. Business trusts, meanwhile, can house assets such as ports, ships or water-mgt facilities, as well as real estate. But these assets may still be under development, and the returns tend to be less predictable. Int’l law firm Paul Hastings notes, in the current risk-adverse environment, people are flocking to buy into high-yielding bonds. With that kind of mentality, REITs' stable structure is more appealing, compared to the business trusts. Adds, business trusts are more difficult to understand and is a more complicated asset class in terms of assessment for investors. S- REITs have to distribute 90% of their income to shareholders. There is no such requirement in business trusts. S- REITs have current yields of between 6% and 7%, compared with an interest rate of 0.25% on SGD deposits over a 12-month period. Yields on business trusts tend to be even higher, reflecting greater risk. Still, in recent months planned business-trust offerings have been delayed. Aberdeen notes less-familiar asset classes are a harder sell for investors. i) Reliance Communications postponed a plan to list its undersea-cable assets in a Singapore IPO of up to US$1 b in July. The Indian company had been offering a yield of around 11.5%, twice the average yield of other Singapore-listed business trusts and REITS. ii) GE Capital Aviation Services pushed back its planned $750 m IPO in Singapore due to general wariness about aircraft being a depreciating asset, on top of lack of interest in IPOs in general. iii) Also in Nov, Japanese shopping-mall operator Croesus Retail Trust delayed the $650 m IPO of a business trust of shopping malls because of uncertain markets. The yield being offered was between 7% and 8%. In general, business trusts that have been listed haven't done well after their IPOs. i) Religare Health Trust, a collection of hospitals owned by Indian hospital chain Fortis Healthcare, is down 9.4% from its Oct IPO price. ii) PCRT, whose portfolio includes some offices and shopping malls still under construction, is down 31% from its IPO price since listing last year. iii) HPH Trust, which holds port assets in HK and China, is down 25% from last year's IPO price. Instead, many REITs have done well. Far East Organization and Ascendas group listed their hotel and serviced-apt assets in 2H12 through REITs. Far East Hospitality Trust and Ascendas Hospitality Trust are up 6.5% and 2.3%, respectively, from their IPO prices.

Wing Tai

Wing Tai: announces that its subsidiary Winzen Invmt has been awarded the tender for a 70 yr leasehold land parcel F1-3 at Luodian New Town in Shanghai Baoshan District having an approx site area of 53.8 sm at a price of Rmb 533m. The site is slated for residential devt. The stock is +1.1% at $1.74, earlier hitting a new 2 yr high at $1.745.


IEV: has terminated the disposal of 58% stake in IEV Energy, as the Investor has failed to make payment for the first 2 tranches of consideration, which is deemed as a material breach of term in the sales & purchase agreement. IEV Energy owns a 95% interest in PT IEV Pabuaran KSO, which has entered into an agreement for the “Operation Cooperation” program of the Pabuaran Blaock at onshore West Java (KSO Contract). The co is considering other funding alternatives for the KSO Contract and will update the mkt accordingly. Recall on 14 Aug, IEV announced it would sell the stake to Altfield, a co owned by several individuals who are Indonesia businessmen. The consideration was $7.6m. Based on FY11 numbers, this would have boosted IEV’s NAV/sh by 4.17ct to 21.62ct , and EPS by 4.98ct to 8.10 cts. The counter trades at 14.3x P/E.


CPH: enters into placement agreement with DBSV as placement agent. To issue 150m new shares (13.9% of existing sh base) at placement price of 0.99 cts/sh. This translates to a 17.5% discount to the counter’s last closing px at 1.2cts. There is no moratorium on the placement shares. Est net proceeds is ~$1.44m, of which 70% will be used for invmt and business expansion through acq, JVs and collaborations in businesses other than the PCB business as and when opportunities arise, and the remainder to be used as general working capital purposes for the purchase of raw mat’ls in the PCB business. Based on FYMar12 numbers, NAV/sh will decrease from 1.91ct to 1.79ct. The co was loss making in FY12.

Superior Multi-Packaging

Superior Multi-Packaging: the unconditional cash offer with offer price at $0.14/sh closed yday, 28 Nov ’12. The resulting total shares controlled by the Offeror (Crown Speciality Packaging Invmt) represents ~85.1% of shares out. As the Offeror did not achieve control of 90% or more of shares out, it does not have nay rights for compulsory acquisition. The counter will continue trading normally.

Asia Water

Asia Water: EGM held yday. Shareholders approved, i) the transfer of the counter from Catalist to the Main Board, ii) change of name of company to “SIIC Environment”. Both changes take place wef tmrw, 30 Nov ’12.


Cosco: its 51% owned Cosco (Guangdong) Shipyard has secured a contract from a European co to build 2 bulk carriers of 35,500 dwt each. Both vessels are scheduled for delivery in 2H14. The total contract value is over US$41m. The counter trades at 16.9x P/E.


Ezra: UOB Kay Hian hosted an oil service conference in Singapore on 26-27 Nov, which saw the participation of eight oil service companies and the attendance of about 30 fund managers. Note that Lewak Constellation, Emas AMC’s state-of-the-art pipelay vessel, will be a gamechanger vessel that could earn US$1b subsea revenue p.a as it is geared for large jobs of US$0.5b-1b each. It could secure its maiden contract in 1H13, which could be a major share price catalyst for Ezra, in our view. Emas AMC – excluding Lewek Constellation – posted total subsea revenue of US$552m in FY12. House maintain BUY with TP of $1.53.


Singtel: CS note that it had upgrade grp to OUTPERFORM on 19 Nov, with a more positive view on Bharti, and expect all four key associates to contribute to SingTel’s profit growth despite a challenging growth outlook for its core businesses. Expect a 17% CAGR in the FY3/12-15E PBT contribution from associates to drive a 5% profit CAGR for SingTel over the period. House note that Bharti’s weak results have been one of the key headwinds for SingTel over the past few years. However, believe new regulations and experience from Bharti’s price aggression over the past 12 mths could make the Indian market receptive to tariff hikes. Moreover, regulatory uncertainties have declined as spectrum auctions are behind us and key decisions have been taken by the govt. House believe reducing competitive intensity means the QoQ recovery trend that already started in 2Q3/13 could be sustained. Add that while core businesses should be resilient. SingTel is facing challenges in its core operations in Singapore and Australia. However, note that: (1) it has shown effective cost control so far, (2) base case has already factored in a decline in EBITDA (-1.5% FY3/12-15E CAGR), and (3) the co is already working on improving data monetisation and other initiatives (e.g., Digital Life strategies) that could add to medium- to longer-term growth

IHH Healthcare

IHH Healthcare: Citi maintains Sell, noting weaker-than-anticipated set of 3Q12 results reaffirms house view that consensus expectation of a sharp pick-up in earnings is overly optimistic. House reiterate position that IHH is likely to undergo a transition phase where margins will see some compression owning to the slower ramp-up of new hospitals. FY13-14E earnings estimates remain 11-13% below the Street; and see a high likelihood of negative stock price catalysts arising from downgrades over the coming mths

Olam (CLSA)

Olam: CLSA note that just 24 hours after Muddy Waters (MW) posted their 133page report, Olam has responded with their own 45pg refutation. Digging through the details, and house is happy to see an increased level of transparency within Olam’s announcements that believe would help address much of investors’ concerns. In their report, Olam focussed on explaining 4 key issues: their funding requirements, accounting issues, viability of business model, and the supposed difference between announced and recorded spending on acquisitions and capex. House see the explanation as providing quite a bit of detail into Olam’s day-to-day operations. Given Olam’s clarification and openness in providing such sensitive information, house believe this would have a positive effect on investor’s confidence in the co and think that the burning issues have mostly been answered in a relatively clear fashion. Meanwhile Olam note that the preparing another report which will go into even more detail to rebut the allegations. Many analysts appear to be assuaged by Olam’s counter-report but they expect volatility in the stock to continue at least for the short-term.


SCI: is considering the acquisition of distressed assets in India, has dispatched a team to seek investments in Myanmar, and is also seeking opportunities in Indonesia, says CEO Tang Kin Fei in an interview. Adds, “we’re still very bullish; over a longer period of time, we still see increasing demand for devt in the Asian region. With this growth and population moving from rural areas to new urbanization there is demand for power and water.” SCI currently gets 68% of its profit from utilities, but aims to boost its energy output by 72% in the next three to four years, and water production by 37% in 4-6 years. The co has moved into Oman through a venture and expanded into renewable energy with the acquisition of a stake in a wind farm in China. Sembcorp is developing a coal-fired power plant in India under a partnership, and may expand its utilities business in the country by adding more capacity to the power plant that is under construction, or acquire distressed assets. In Myanmar, the co is keen on developing so-called townships, where Sembcorp could build industrial parks and apartments, before branching out to the supply of power and water. In Singapore, Sembcorp is building its second combined- cycle gas turbine cogeneration plant to increase its power capacity to 1,615 MW from 815 MW. The facility, which will also produce 400 tons per hour of steam, will start initial operations at the end of 2013. Sembcorp also started operations on its biggest industrial wastewater treatment plant in Singapore to produce as much as 9,600 cubic meters of recycled water a day. While the co expects margins from its utilities business in Singapore to face pressure next year with new power suppliers in the market, Tang still predicts “decent spreads” as his competitors have a higher debt burden with newer plants. Sembcorp also supports the liberalization of power supply to homes in Singapore, Tang said, as it’s in a “good position” with a ready customer base through its waste-collection operation in the city state. Tang believes, “as long as there’s global growth and demand, I have growth opportunities for us. We are good hunters.”


SMM: secures its 7th drillship contract worth US$806.4m from Sete Brasil. Pricing is on par with avg drillship price for its order of 5 drillships from Sete Brasil in Aug ‘12, and above the US$792.5m pricing for one drillship order also from Sete Brasil back in Feb ’12. All the drillships will be built based on the Jurong Espadon design, which represents the next generation of high spec drillships with advanced capabilities for operational efficiency and ultra-deepwater operations. It will be capable of operating at 10,000 ft water depth and drilling to depths of 40,000 ft with accommodation facilities for a crew of 180 personnel. This order is scheduled for delivery no later than 3Q16. The previous 6 drillship orders have deliveries ranging from 2Q15 to 4Q19. Ytd, SMM has secured approx $10.1b in new orders, and net orderbook stands at approx $13.1b, with slightly more than half from Petrobras. The stock trades at 15.2x P/E. The majority of the Street continues to rate the stock positively, with 16 Buys, 7 Holds and 1 Sell. Consensus TP is $5.40.

Singapore market (29 Nov 12)

Singapore market: may open firm this morning, following the strength in US markets overnight, on the back of upbeat remarks regarding the fiscal cliff negotiations. In the region, Kospi and Nikkei are +0.6% and +0.5% respectively, at 8.25 am. Technically, the STI managed to bounce off the 3000 support level yday. The above neutral and rising RSI and Stochastics bodes well for near term momentum for the STI to test the 3,027 resistance. In corporate newsflow, focus may be on SMM which announced a new order win, and SCI, after its CEO revealed the group’s growth plans in an interview. Olam trading will likely remain volatile, with CEO Sunny verghese further dismissing claims from Muddy Waters of potential insolvency by pointing to the group’s more than $10b of liquidity.

Wednesday, November 28, 2012

Jardine-linked stocks

Jardine-linked stocks: are lower, with Jardine C&C down 2.0% at $47.82, while Jardine Matheson is off 2.3% at US$58.01 and Jardine Strategic is off 1.3% at US$33.80. The declines may be related to a 5.1% fall in Astra. Market watchers note Astra is over 30% of the NAVs of JM and JS. Astra is responsible for over 90% of JC&C's profit. Nevertheless the declines in JM and JS aren't very large in context of their performance in recent months. A local fund manager in Indonesia says Astra is down on profit-taking, while another fund manager says there's speculation about the impact of rising minimum wages on Astra's costs, although since Astra already pays above minimum wage, he isn't sure of the exact impact.

SingXpress Land

SingXpress Land: remains halted. Haiyi said it will make a mandatory unconditional cash offer for shares of the Catalist-listed property developer, that it does not already own, at 1.18 cts/sh. This represents a 21.3% discount to the counter’s last traded share price of 1.5 ct. The offer comes after Haiyi (owned entirely by a Tang Yigang and his wife) decided to convert all its cumulative non-redeemable convertible non-voting perpetual preference shares (NRCCPS) in SingXpress Land, into ordinary shares that represent 62.17% of shares on an enlarged basis. SingXpress's Hong Kong parent, Xpress Credit Ltd, has irrevocably undertaken not to accept the offer from Haiyi. Xpress Credit currently holds about 2.55b shares, representing 19.73% of shares on an enlarged basis. Haiyi's move comes barely four months after it was announced that it would subscribe to the 80 units of the NRCCPS issued by SingXpress Land at $1.18 m per unit, or ~ $94.4m in total. Each of these units can be converted into 100 m SingXpress Land shares after Haiyi gives a written notice of at least 15 days to the company. Then, SingXpress Land MD Chan Heng Fai said that the Haiyi investment would strengthen its balance sheet, and "allow SingXpress Land to take a quantum leap in the execution of its investment banking approach to property" and that "the investment is significant not just for the amount, but also for the strategic input and network which Mr Tang brings". In particular, Mr Chan highlighted that Mr Tang (who is a Chinese national and a Singapore PR with investments and real estate holdings in China, the US and Singapore) will add favourably to the strong capital market background of the group's senior mgt team. "And this expertise in securitisation, syndication and risk management will allow our team to build a network and an eco-system of financial and strategic partners focused on real estate and adopt fresh approaches to unlocking value in developing real estate in Singapore," noted Mr Chan in Aug. For FYMar12, SingXpress Land recorded a 70% drop in revenue from a year ago to $880k. It made a loss of $338k, compared with a net profit of $1.7m a year ago.


CapitaLand group of companies: The upcoming Westgate mall development in Jurong East has seen healthy interest a year ahead of its targeted opening in Dec next year. CMA, CMT and CapitaLand, which own the mixed development through a JV, said that to date, about half the retail space has been pre-leased. This is despite rents being generally higher than at CMA's two other Jurong East properties, IMM Building and JCube. Westgate commands rents of $16 - 18 psf pm - at the upper end of the $10 to $18 psf pm for all three properties. Among the Westgate mall's anchor tenants are Isetan, which will run its first supermarket outside Orchard Road, and Food Republic; other tenants include Yamaha music school, Paradise Dynasty restaurant and Paul Bakery. The mall will have a net lettable area of 416k sg - about the same size as the retail area in Raffles City Singapore. The venture said that the mall would tap a captive market of more than a million people living or working in western Singapore, though its catchment will come from across the island. That the mall will be connected to the Ng Teng Fong General Hospital and LendLease's JEM mall will bring it traffic; its link to the Jurong East MRT station and proximity to the Jurong East bus interchange will also bring some 1.8 m. Besides the seven floors of shops of this family and lifestyle mall, Westgate will have a 20-storey office building called Westgate Tower, into which the CapitaLand Group will move from end-2014. The Westgate development is part of Jurong Gateway, which the URA has earmarked as one of three key commercial hubs outside the city centre that will provide jobs closer to where people live.


Hisaka: FYSep12 results. Weak business conditions led revenue to fall by 28% to $49.1m. Gross margin rose to 23.1% vs 22.5% last yr as the co focused on selling higher margin pdts. Marketing & admin expenses fell 7% to $7.8m, suggesting that the co did reduce costs to maintain profitability. However the Tianjin JV swung from a $1.4m profit last yr to a loss of $0.3m, more than offsetting lower costs. This JV has since been disposed and should no longer be a drag on Hisaka’s results in FY13e. Net profit was $0.4m, which included $1.3m of allowance for inventory impairment, $0.6m of loss on disposal of JV and $0.3m operating loss from the JV. Excluding these items, net profit would have been $2.9m instead. Sias anitipcates some recovery in 2HFY13e and forecasts revenue growth of 5% in FY13e and net profit of $3.6m in the absence of further write offs. Believes Hisaka should return to strong growth in Fy14e on the back of new pdt sales. Notes Hisaka’s portable blood bag warmer system (PBBWS) received the CE Mark of approval earlier this yr and the co has participated in overseas trade exhibitions. The system is now in process of being approved by the Spore Health Sciences Authority before it can be exported to overseas mkts. At the same time, Hisaka is seeking relevant authority approvals in Europe, Taiwan, Thailand and Philippines. The house believes contribution will be more significant in FY14e. Hisaka declared a combined final div of 0.75ct and special dividend of 0.25 ct. Together with the interim div of 0.5cts, this translates to a yield of 8%. Sias keeps its Buy rating with TP $0.315.

HK Land

HK Land: is down 3.9% at US$6.38, extending Tuesday's 1.8% decline. Macquarie cites three reasons for the fall. i) The broader Hong Kong stock market is down, ii) data on commercial properties' rents show "Central is not obviously recovering. Rents are still under pressure moving into Nov and probably into Dec. If people are expecting some recovery this month or next, it's not happening," iii) there is mkt talk that a major investment bank is looking to give up office space in Central and while it's not in HKL's portfolio, it could weigh on rents.


XMH: DMG initiates at Buy with TP $0.26, based on 5x FY13e P/E plus net cash of $0.13/sh. Says XMH enjoys a special position of being the exclusive distributor of multiple marine equipment brands in multiple countries. XMH was recognised by Mitsubishi as its largest worldwide distributor for marine diesel engines for the last seven consecutive years. In particular, XMH is a proxy to Indonesian energy demand growth, as it counts half of the 90+ yards on Batam among its customers. With Indonesia being an archipelagic country its demand for tugs and barges will grow in line with energy demand and GDP growth. Indonesia needs to increase its oil & gas production as well to reduce the burden of its fuel and energy subsidies, hence the country’s drive into offshore oil & gas, combined with the Cabotage law, bodes well for stronger demand for small-/mid-OSVs. DMG adds XMH is attractively valued. Three quarters of the share price is net cash, with $51m in net cash, vs $68m market cap. EV/EBITDA is 1.2x which makes XMH an ideal acquisition target, were management inclined to sell. Believes XMH share price should be further underpinned by its capacity to raise the dividend payout by 30% to 1.3¢ per share, implying a yield of 7.4%. The stock remains untraded for today. Last closed at $0.175.

Noble (technical)

Noble: Trading Central says the stock remains in a bearish trend and is capped by its moving averages. But tips a technical rebound, as prices have rebounded on a major medium term support at $1.05. Adds the RSI is starting to hook up from oversold levels and still has potential for a rise. Says above $1.05, a continuation for rebound to $1.16 (coincides with 20day MA) remains the most likely scenario. But warns a penetration of the $1.05 support could trigger a bearish reversal to $1.00 and $0.91 in downward extension.

Olam (reply from management)

Olam: to lift halt at 10.45am. Issues a 45 pg response to Muddy Waters' report findings.$file/OlamRespondstoMW-ReportFindings_28Nov2012.pdf?openelement


Albedo: proposes a renounceable non-underwritten rights cum warrants issue, on the basis of 4 rights shares with 4 free detachable warrants for each one Albedo share. The rights will have an issue price of $0.005 per rights share, and each warrant will have an exercise price of $0.005 for each new share. The existing dilutive securities are as follows: i) 6.08m outstanding sh options ii) 30m outstanding warrants iii) convertible bonds amounting to $540k, exerciseable into 9.8m shares. Madam Oei Siu Hoa (sister of famous investor Oei Hong Leong), currently holds 23.9% stake, and as the Undertaking Shareholder, has separately undertaken not to exercise any of the New Warrants such that as a result of the exercise, the co failed to meet the minimum Public Float Requirement.


Olam: UBS gives its take on Muddy waters view. House note that many of the allegations are known to credit investors including the highly leveraged balance sheet, the significant capex commitment and refinancing needs. House has always adjusted to exclude biological gains from net profits on an unadjusted basis. Moreover, per the co's statement released last wk, the accounting treatment of both biological gains and negative goodwill follows the requirements of SFRS. The standard applied to biological gains is also followed by other listed companies which have similar asset type. Hence, don’t consider these allegations as new. Some additional allegations include the lack of clarity on capex announced and spent, the maneuver of margin accounts, and underperforming assets from acquisitions. While some issues would require further clarifications from management, the co has been upfront about its capex plan for the next few yrs and stressed that free cashflow will remain negative (i.e., cashflow returns will likely be slow). The speed of cash burn and returns on those investment/capex are however worth a closer monitoring and investors will likely demand more and better disclosure on this going forward. The company has $3.8bln of debt (73% are bank loans) coming due in the next 12mths, as disclosed in the co's quarterly financial statement. This raises refinancing risk but cash on hand of $1.4b and RMI (readily marketable inventory) of $3.7bln should provide some liquidity buffer.

WE Holdings

WE Holdings: requests for suspension. Says it is currently in negotiations with potential investors regarding a proposed subscription of new shares. Also, the co's controlling sh/h are in discussion with independent third parties for the disposal of some of their shares in the co. The co is working towards the execution of definitive agreements , if any, by 30 Nov '12.

Marco Polo Marine

Marco Polo Marine: FYSep12 results in line. Revenue grew 8% to $89.8m, while net profit rose 23% yoy to $21.3m. Gross margin was 32.5% vs 28.1% yoy, mainly due to ship repair which performed well in the yr. Revenue from shipbuilding and repair increased 33% to $69.3m, while shipchartering registered a 23% fall to $20.5m. MPM has been reflagging its vessels to Indonesian flag and parking then under its 49% owned associate, BBR, due to the Indonesia cabotage rule. Now the shipping business of MPM has been confined to waters outside of Indonesia while BBR assumes the Indonesian chartering business. OCBC believes there is a possibility of a BBR listing on the Jakarta Stock Exchange in the coming months. It currently has 35 pairs of tugs and barges and three OSVs, but the former is expected to decrease over time as proceeds from sales will be used to fund the growth of the OSV fleet. As the OSV fleet grows, BBR may be able to brand itself as an entity for investors to gain exposure to Indonesia’s growing offshore sector. There are currently relatively few of such companies listed in Indonesia. Mgt mentioned that it is still receiving enquiries for ship repair, outfitting and conversion services. As for the chartering side, MPM expects charter rates for offshore vessels as well as tugs and barges to remain stable. OCBC maintains at Buy, with higher TP at $0.56 vs $0.53 previously, as it rolls forward to FY13 P/E with an unchanged multiple of 8x.

HPH Trust

China Ports / HPH Trust: Deutsche sees an improving outlook and compelling valuations for Chinese ports. Believes trade outlook has improved, and China’s port throughput to the US may surprise on the upside going forward, on the back of strong housing recovery in the US. Its bottom up checks also suggest that the confidence with mnftg exporters appears to be picking up lately, which gels with the macro leading indicators. In the mid-to-long term, believes Chinese ports should benefit from the rapid growth of China’s trade with Asean and emerging countries, more back haul cargo from developed countries and the strong growth of domestic trade. The house likes HPH Trust (TP US$0.83), as its terminals appear to be well positioned to capture the opportunity presented by growth in vessel size. Of the total existing orderbook, nearly 50% are now large-sized ships with TEU above 10k. Notes ports with appropriate infrastructure and reasonable cargo concentration should continue to gain competitiveness in this environment. Tips HPH Trust as its preferred higher yield player with a yield of 7.8% for 2013e.

Super Grp

Super Grp: UOB Kay Hian raise 2012-14 net profit forecasts by up to 15%, factoring in higher margins for its ingredient and branded consumer segment. This leads to a 24% rise in our PEG-based target price to $3.71 (previously $3.00). Super remains on house BUY list with potential catalysts from further consensus profit upgrades, rising dividends and potential M&As. House see see promising growth prospects for consumer branded goods in key mkts such as Thailand and Myanmar, which could deliver top-line growth in excess of 10% p.a. The group is also enjoying a strong pick-up in demand growth from the Philippines and Msia. The latter is due to a revamp in its distribution channel in Msia. As a single mkt, Southeast Asia (SEA) enjoyed a strong uplift of 19% yoy in 3Q12 sales. Despite the high valuation, house believe its improving brand positioning, strong cashflow (of more than $60m p.a.), solid execution and market share in selective growth markets such as Myanmar, Indonesia and Philippines puts the group on a new growth trajectory. Following its strong execution, project its ROE to range 20- 21% in 2013-14. This is at its historical high since 2003.

Hour Glass

Hour Glass: CIMB has an unrated report. House believe that the co is worth around 9-10x P/E as it is more profitable than other watch retailers that are currently trading at 6x P/E. House recently met up with mgt following Non-rated note earlier this yr. The key takeaway from the meeting was that although there is weaker sentiment for luxury spending this year, broader positive structural trends are in place from which The Hour Glass is poised to benefit. Singapore and Hong Kong, among the fastest growing watch markets in the world, are cities where the company has significant retail presence. The Hour Glass is still the best performing retailer with one of the fastest inventory turns. In the near term, mgt will be focussing on driving up the yields of the five new stores opened in the last two yr. Further, the co is in net cash. House however do not cover the stock due to the low free float and trading vol. Estimate that about 80% of the shares are locked up with insiders.

Bio Sensors / China health Care

Bio Sensors / China health Care: CS just concluded its Asian Healthcare Conference. As per the attending co’s, the sector will get future polarised and the reshuffle will accelerate.News reports on two SFDA updates during the conference: 1) A draft for comments regarding generic drugs approved before the implementation of “2007 drug registration regulation” to be reviewed in batches in the next 5–10 years. Those who cannot meet the same quality standard of their original drugs will be eliminated; and 2) SFDA will add staff for new drug approval. House believe both will benefit innovative drug makers, if implemented. Like Sino Biopharm and China Medical System for their rich exclusive drug portfolio and believe they will be the biggest beneficiaries in the sector reshuffle. Top pick in medtech is Mindray for its stable growth prospect in China. Also prefer MicroPort over Biosensors for its faster movement in diversification.

Dukang Distillers

Dukang Distillers: Grp clarified that it has no plans to delist from SG and Taiwan and list on the Shanghai Stock Exchange (SSE). An article published on Monday in Taiwan's Commercial Times and another in the China Times last week quoted an "internal source" as saying the co might list on the SSE and delist from Singapore and Taiwan due to low mkt liquidity and fund-raising constraints. Grp note that while Dukang had seen a decline in mthly trading volumes for its Taiwan TDRs this year, there was a resurgence of interest for its shares on SGX this year. Year-to-date average daily trading volumes are 2.7m shares, up from over 400,000 shares a day last year and 1.1m in 2010. Add that the co was not concerned about getting financing as it was growing fast, could finance its own capital expenditures, and could get loans from banks if needed. There is also no need to raise funds from shareholders via placements.


Olam: requests for trading halt. Insists there is no substance in Muddy Waters’ broad allegations. Says it will continue to study the rpt in greater detail and will provide a fuller response in due course. Says it will clear its name and hold Muddy Waters accountable for their damaging actions. Meanwhile, bonds of Olam are approaching levels considered “distressed” after research firm Muddy Waters likened the co to Enron and said it is likely to fail. Olam’s unrated US$500m of 5.75%, 5-year notes issued at par in Sep have tumbled to 86.5 cts on the dollar to yield 9.3%, according Bloomberg data. Average yields on junk-rated notes, ranked below Baa3 by Moody’s and lower than BBB- at S&P, are 7.04%. Muddy Waters, founded by short seller Carson Block, rated Olam a strong sell in a 133-page report published yday. The research firm says Olam uses non-cash accounting gains to boost its earnings, has been “burning cash” and will need to raise or refinance as much as $4.6b of debt over the next year to remain solvent. “There is just a lot of uncertainty around the name and I think right now simply nobody knows whether Olam or Muddy Waters is right,” says a money manager at Mirante Fund Management. OCBC is in process of reviewing its Hold call and TP $1.80, expects share px volatility to persist until Olam can propvide a more substantial response that addresses the specific issues raised by Muddy Waters. UOBK however believes barring outright fraud, Muddy Waters’ concerns could be overblown. Maintains Buy with TP $2.38. Olam shares dropped 9.8% to US$1.19 in OTC trading in New York yday. They have declined 10% in Singapore since Block first talked about his short position. Olam supplies 21 products from cocoa to rubber from 65 countries to 12,300 customers. It’s one of the world’s top six cotton traders. Temasek is Olam’s second-largest shareholder with a 16.3% stake.

Singapore market (28 Nov 12)

Singapore market: may take a breather today, in view of weaker markets in the US overnight, as well as in the region this morning. KOSPI is -0.6%, Nikkei is -0.4% at 8.09 am. Concerns in the US continue, with Senate Majority Leader Harry Reid saying Democrats and Republicans have made little headway in negotiations over how to avoid a yr end fiscal cliff. Local and macro news flow continues to be dry. Olam is halted, as the co prepares its response to Muddy Waters highly anticipated Sell rpt published yday. SMRT says it has lodged a police report for further investigation into possible breaches of law, regarding the 88 Service Leaders who continued not to show up for word yday. Reiterates its priority is to ensure that bus services are restored to normal as soon as possible. Technically, the STI featured a hanging man candle yday, which could signal that selling pressure is starting to increase. Nevertheless, there is no damage yet to the RSI and Stochastics. Hence expect the index to be confined within the 2,977 – 3,027 range in the near term.

Tuesday, November 27, 2012


KepCorp: Sias Research tip Keppel could be nearing some resistance after its recent surge. Note that it seems that price tested the 50% Fibo level at $10.69 and failed, closing below the 38% Fibo level at $10.52. This is a very bearish sign, indicating that the recent bullish trend may turn out to be a bearish reversal. On the other hand, Oscillators remain resilient; RSI showing sign of fatigue, after testing its equilibrium point, while Stochastic and MACD are still showing strong buying momentum picking up. It tips immediate support at $10.31, with resistance at $10.52-$10.69. Investors who participated in the earlier rally could consider liquidating their positions as the counter seems bearish.

Olam (Muddy Water)

Olam runs a high risk of failure. Its “asset heavy” strategy appears to be an off-the-rails CapEx and acquisition binge. Management talks about the “gestation” of these projects, but our research makes clear that they are marred by incompetence and perhaps significant misconduct. The vast majority of the acquisitions we have researched are of low quality assets that appear to bring little more than cosmetic benefits to Olam. In short, these projects are “pie in the sky” that we strongly believe are destroying substantial amounts of capital. Bondholders in particular should be asking where their money goes (and how will they get it back). Olam has spent S$571.0 million less on acquisitions than announced. However, it has spent $996.2 million on unattributed non-acquisition CapEx – most of it since FY2011. One possible interpretation is that Olam is doing far more greenfield projects than realized, which greatly increases its risk profile. Another possible interpretation is that Olam has problems with internal controls and significant cash leakage. Over the years, Olam has committed a shocking number of accounting gaffes. We can conceive of two possible interpretations of its accounting track record – either its accounting functions are blithely incompetent; or, there could be malfeasance. (Both could be true as well.) The former interpretation has ominous implications for Olam’s oft self-promoted ability to manage risk. The latter interpretation obviously has even more dire implications. We believe it is instructive to view Olam through the lens of failed US trader Enron Corp. There are a number of material similarities in the way their businesses developed, and their action. We value Olam on a liquidation basis because our opinion is that it is likely to fail. In the event of a liquidation, we estimate the present value of unsecured bonds to be 14 to 33 cents on the dollar. The equity would likely be wiped out, or given “nuisance value” at best.

Olam (CLSA)

Olam: falls 3.0% to $1.61 in strong volume, the worst-performing STI component today. There's nothing specific weighing on the stock, says CIMB; "there's an overhang on the stock arising from the Muddy Waters allegations." The impending release of the research report is a concern as it could throw out new issues. The stock may remain within the $1.545- 1.70 trading range it has held since short-seller Carson Block and his research firm Muddy Waters put it in the cross hairs; Olam has initiated legal action in Singapore against Block and Muddy Waters for alleged "libel and slander" for statements which caused its stock to plunge last week. Muddy Waters' PR firm said Block and his firm are ready to "vigorously" defend their views. Olam, criticized by Muddy Waters LLC for its spending, said it will continue to raise debt to fund expansion as the company defends its reputation against the short seller in its first ever lawsuit. “It could be any pool of debt capital markets that we would tap,” whether bank lending, syndication, bond markets or Islamic finance, CEO Sunny Verghese said, in an interview. “We don’t think it’s in the best interest of our continuing shareholders” to abandon spending plans.That includes committing to investments of $3.2b to $3.7b in FY13-15, against $3.3b spent from 2010-12, the first three years of a six-year program.


Msia: KLCI slips below a key support level and is down 0.5% at 1599.73 midday break amid selling pressure from both foreign and local investors across the board. The benchmark index appears to be in for more downside after breaching the 1600 psychological mark; technical analysts tip the 1550-1580 area as immediate support. Market breadth sees losers outnumber gainers more than 3-to-1 with 580.6 m shares changing hands. MSM Malaysia is down 3.0% at RM 4.91 and Wah Seong Corp falls 1.7% to RM 1.77 after disappointing quarterly results from both companies. Sime Darby is down 0.1% at RM9.52 ahead of the release of its quarterly results due later in the day.


SGX: UBS upgrades to Neutral from Sell, albeit on a lower TP of $6.50 from $6.60. Says, over the past 3 months EPS expectations for FY13 have moderated another 3-4% as trading volumes have in general remained weak. YTD average daily turnover for the securities market is $1.29b. Meanwhile, the past quarter the shares have underperformed the STI by some 5%. As such, the stock trading more in-line at 21.7x fwd P/E, just marginally ahead of the 5 year avg fwd P/E of 20.7x. Valuation relative to HKEx has also swung in SGX’s favour, after HKEx’s significant out-performance over SGX, leaving SGX now trading 1.2 std dev below its 5 year average P/E relative. Yield at ~4.5% provides additional support to the shares.

Genting SP

Genting SP: CLSA says the stock is “a bit rich for now”, keeps at Underperform with TP $1.33. Notes gaming volume has been under pressure this yr, evident from the decline in volumes in 3Q. With hotels near full occupancy, CLSA says there is less room for GENS to grow the foreign mass mkt they are targeting. Adds the Spore mkt is entering a seasonally slow period with local gamblers staying at home for family duties. Given the slower growth outlook, believes that the valn premium attained by GENS in the past will decline and returns now look to struggle to keep up with Genting Msia (GENM). CLSA tips GENM at Outperform, notes GENM now trades at half the valn multiples of its Spore cousin.

Keppel T&T

Keppel T&T: will jointly develop and operate a Chinese cold-chain logistics park in Luan city, Anhui province, riding on the Chinese govt's priority of improved food safety. The 33-ha Keppel Wanjiang International Coldchain Logistics Park (Anhui) will be 60 km west of Hefei, Anhui's capital, and will serve the central China region that includes Anhui, Henan, Hubei, Hunan and Jiangxi. The JV will be 60% held by KT&T and the rest held by the Jin'an district govt, and private investors. The registered capital of the JV will be Rmb 180m. The logistics park is scheduled for operations by end 2014. KT&T trades at 13.2x P/E. The stock is +0.4% at $1.29.

Cosco (technical)

Cosco: UOB Kay Hian reiterate technical BUY call with a target price of$1.025. Note that the stock could have formed a bottom afterrebounding from recent low. Prices have also traded above the 12- and 25-day moving averages and a bullish crossovercould have formed at its MACD indicator. Stops could beplaced at below $0.855. House institutional research has a fundamental SELL with a TP of $0.84.

Bumitama (technical)

Bumitama: Technical Buy call by UOB Kay Hian with a potential 8.5% return. House Maintain BUY with a target price of $1.15. Prices appear to trade above the 12- and 25-day moving averages and the MACD is also pointing higher towards the above-mentioned resistance. Stops could be placed below $0.995. House institutional research has a fundamental BUY with a target price of $1.28.

Far East Orchard

Far East Orchard (FEOR) / Far East Hospitality Trust (FEHT): Far East Organization (FEO) is studying plans to buy Straits Trading’s hospitality assets in a bid to expand its hospitality-mgt business beyond its core market in Singapore. FEOR says it signed MOU to explore acquiring Straits Trading's hospitality-mgt arm, and is also studying purchase of 50% stakes in three of Straits Trading's Australia hotels -- Rendezvous Studio Hotel Perth Central, Rendezvous Grand Hotel Melbourne and Rendezvous Hotel Perth. FEOR would then run the expanded portfolio through a newly created hospitality-mgt co, in which Straits Trading can acquire a stake of up to 20%. The deal, if successful, would allow FEOR to expand its hospitality-mgt business into markets like China, Australia and New Zealand, and boost its portfolio to more than 30 hotels and serviced apts and more than 6,000 rooms. The unit would also gain trademark rights to the "Rendezvous" and "Marque" brands. The Rendezvous Hospitality Group manages and operates hotel assets across the Asia Pacific region. Under a separate MOU, FEHT is studying plans to acquire leases for Straits Trading's Rendezvous Grand Hotel and its enjoining retail wing, Rendezvous Gallery, located in Singapore's Bras Brasah district. The two Far East entities didn't provide potential values or a timeline for the deals. Any definitive agreement for the planned acquisitions would only be signed after the end of this year.

Noble Group

Noble Group: UOB Kay Hian upgrades to Hold from Sell. House note that Noble’s stock price has fallen to more attractive levels following the release of weaker-than-expected 3Q12 results. Improvements in its Brazil sugar business may be offset by weak China soybean crushing margins. Overall, Upgrade to HOLD. Target price: $1.17. Entry price is S$1.06.

WBL / Straits Trading

WBL / Straits Trading: Straits Trading purchases 23.6% stake in WBL from Third Avenue and Aberdeen, lifting holding to 40.6%. A manadatory general offer of 1.07 Straits Trading shares or $3.41 for every 1 WBL share, will be triggered on satisfaction or waiver of conditions under the purchase agreements with TA and Aberdeen. Only then will Straits Trading announce a firm intention to make the Offer.

EMS Energy

EMS Energy: responds to SGX query on trading activity. Says it is constantly on the lookout for business opportunities and is currently contemplating a corporate action. However, the terms of the corporate action have not been finalized, and it will make additional updates in due course. The stock was +17% yday on above avg volume.


SMRT: Approximately 102 SMRT Chinese national bus drivers went on strike early Monday morning due to wage disputes. According to local press articles, the drivers were disgruntled about a recent pay increase. Reportedly, Malaysian drivers received a $275 pay adjustment along with 1 month’s bonus vs Chinese nationals which received a $75 pay increase without bonus. It has been reported that the co will come back with a reply in approximately one week and the drivers will return to work. Deutsche says, while the financial impact of this devt is not material (estimate a <1% impact to net profit from a pay realignment), it highlights the sustained cost pressures taking place within the company. Recall that 2Q12 staffing costs rose 9.7% YoY. The house sees few positive near-term catalysts that will drive material re-rating from current levels – particularly given ongoing uncertainties around the company’s asset renewal plan and future growth profile. Maintains at Hold with TP $1.59.


MDR: Stock could see positive interests, after grp announced it is planning to set up a JV with 3 other firms to break into the teleco industry in Myanmar. MDR signed a non-binding heads of agreement with Be-Well (Myanmar) Co, Be-Well Corp and Avitar Enterprises, to form a JV firm. MDR will hold a 51% stake in this tie-up. The JV co aims to provide after-sales services for telecommunication devices. It is also looking to provide exclusive consultancy and retail franchisee procurement services for Myanmar-based Golden Myanmar Sea (GMS). To Recap, mDR operates Singapore's largest network of more than 50 retail stores providing M1 and SingTel services including mobile, fixed and wireless broadband. Besides Nokia and Samsung concept stores, it also manages Handphone Shop, 3Mobile shops, and Gadget World. Technically, $0.012 would be stock’s near-term resistance.

Singapore market (27 Nov 12)

Singapore market: there was a lack of major drivers overnight in the US, as the US fiscal discussions continue. Nevertheless there may be some relief after Euro-area finance ministers reached agreements on Greece’s debt burden and its funding gap after a nearly 13 hr meeting. In the region, KOSPI is +0.6% and Nikkei is +0.4% at 8.29am. Technically, the STI continues to climb, with near term momentum evident from the rising RSI and Stochastics. Having resurfaced above the 20day MA, the index could test the 3,027 resistance level next. A break above that would be a further positive. Downside support is at 2,977 (coincides with the 200day MA). Dry on the corporate news front today. MDR is the latest company to jump onto the Myanmar bandwagon. The co plans to set up a JV with 3 other firms to break into the telco industry in Myanmar, providing after-sales services for teleco devices, and to provide exclusive consultancy and retail franchisee procurement services. SMRT may see weak sentiment after some 100 SMRT bus drivers have reportedly gone on strike over salaries.


Europe: Eurozone finance ministers and the IMF have reached an agreement on Greek debt, which paves the way for the release of much-needed loans. After nearly 10 hours of talks, it was agreed that the country's public debt should fall to 124% of GDP in 2020 through a package of extra debt cutting measures. "It's going very slow, but we have financing and a Debt Sustainability Analysis. We've filled the financing gap until the end of programme in 2014," one official said, adding that talks on the details of the debt cutting measures with the IMF were still ongoing. The deal is a breakthrough towards releasing the next tranche of loans to Greece after its US$31.2b package was suspended in the summer over concerns it was not meeting the conditions of its bailout programme. The IMF has said Greece's debt as a proportion of GDP must be cut to around 120% by 2020, from a forecast 190% next year, for it to be manageable in the long term. It was not immediately clear how the debt would be reduced from its currently forecast level of 144% in 2020 to the target, but it is expected to involve a series of measures including the lowering of interest rate on loans to Greece.

Monday, November 26, 2012

SingTel (technical)

SingTel: the stock has reverted to its usual trading range, btwn $3.02 – 3.24. Near term momentum may be slightly biased on the downside, given the downward sloping 20day and 50 day MA. However, no big moves are expected for the stock currently, as the key indicators have all flat lined.


Noble: is +p 2.3% at $1.10, the best-performing STI component stock. Beyond the company's disposal of wholly-owned subsidiary coal company PT Alhasanie for US$4.0 m, "there's really nothing," says OCBC, noting that the market is chasing up high-beta stocks amid a broad rally. "It's more trading than anything. The stock has fallen quite a bit since the results." The stock remains down nearly 14% since the company released its results after market close on Nov 8


YHM: is -16% at 3.6cts. UOBK includes the counter as a restricted stock for online trading. Link here:

Courts Asia

Courts Asia: HSBC initiates at Overweight with TP $1.29, implying 73% potential upside. Notes the stock is attractively priced at 8x FYMar14e P/E, vs the wt sector avg FY13e P/E of 14.7x. Courts Asia is a leading electrical products, IT products and furniture retailer in Singapore and Malaysia. It is 68.2% owned by the Asia Retail Group, which in turn is owned by four key investors. The co has experienced strong earnings growth over the past three years, with earnings up 22% to $39m for FY12. The co operated 70 stores at end-Mar 2012, with 57 in Malaysia and 13 in Singapore. Nomura forecasts its store portfolio to grow to 94 by end- 2015, with 18 new stores in Malaysia, 3 in Singapore and 3 in Indonesia. Pencils revenue growth of 12-15% in FY13-14e, with earnings increasing 13-19% over the same period.

Key Macro

Key Macro Data this week Mon 26 Nov: US Dallas Fed Manufacturing Activity (Nov) Tues 27 Nov: US Richmond Fed Manufacturing Index (Nov), US Consumer Confidence (Nov) Wed 28 Nov: US New Home Sales Thu 29 Nov: US Fed Beige Book, US Initial Jobless Claims Fri 30 Nov: Eurozone Unemployment Rate (Oct), US Personal Income


SPH: Morgan Stanley initiates coverage with UnderWeight Call and TP $3.50. Note that defensiveness in the price. House see a risk to SPH's dividend given weak ad revenues as growth in the local economy remains tepid. Expect dividend payout to drop 9% in FY13 and 2% in FY14 owing to earnings falls of 2-3%. Forecast a 2% decline in advertising revenue in FY13 owing to cautious marketing spend by companies. Also expect classifieds to remain weak as firms continue to be cautious on employment. Retail properties generate stable rental but upside is limited given softening consumer sentiment. Note that SPH trades at a 2013 P/E of 18.7x, above its 15.8x long-term average and at a 23% premium to MSCI Singapore (above the 6% LT average). SG REITS and telecoms offer superior yield and earnings growth.

Sembcorp Marine

Sembcorp Marine: Citi maintains Buy, TP 5.40 from 6.10, Strong Orderbook prospects, but shadowed by Margin Concerns. House lower earnings forecast to reflect lower revenue recognition and margin assumptions, but believe that street concerns over its prospects are overdone. SMM remains a viable play on the strength of the E&P cycle and its enlarged product mix has broadened its market opportunity. House cut 2012-13E EPS by ~4-11% (largely on lower margin projections) but raise 2014E by ~6% (higher repair contributions & drillship revenue recognition). With the stock trading below mid-cycle valuations, the recent weakness could be an enhanced buying opportunity.


CapitaLand: SCB raise RNAV for CapitaLand (CAPL) by 12% on a more positive view on CapitaMalls Asia (CMA). Potential catalysts could also come from new redevelopment projects in Singapore or commercial investments in China. House continue to expect strong residential profits from SG to support EPS CAGR of 25% in 2012-15E. Catalysts include new projects in Singapore and China, new leadership style. Channel checks indicate that Capitaland continues to seek to invest in Singapore, particularly the redevelopment of older commercial assets for commercial or residential uses for superior returns. Past examples include CapitaGreen and Ascott Raffles Place. CAPL could also potentially double its assets in China from SGD 13b currently. In Oct12, the co announced that four Chinese banks had granted its China businesses credit limit allocations of up to $10b in aggregate.


CMA: SCB raises TP to $2.60 from $2.21. House expect CAM to move back to a divestment phase. Believe the “inflection point” in CMA’s China earnings has been priced in current share price level and now expect CMA to go back into divestment mode for the next several years, especially in China. House think this will surprise the market., citing a $300-500m p.a. asset sales possible in China. CMA’2006 and 2007 vintage malls have begun to hit double-digit yields on cost, and house identify $350m of divestment candidates in the next 12 mths and crystallise value and fund capital commitments. House raise FY12-16E core earnings estimates by 2-13% on China performance, and double expectations for annual revaluation gains. Lift 2013E RNAV/sh and price target by 23% each to $2.60 and $2.21 (0.85x RNAV), respectively. CMA is one of house top picks in the SG property space.

Singapore market (26 Nov 12)

Singapore market: there is a dearth of macro and company-specific leads following a relatively quiet wkend. The Spore mkt in general, may be buoyed at the open, taking cue from the strong close in US markets last Friday. In the region, KOSPI and Nikkei are +0.2% and +1.3% respectively, at 8.23 am. Technically, the STI has resurfaced back above the 200 day MA. Together with RSI and Stochastics trending up steadily from oversold levels, this bodes positively for near term momentum. Initial resistance at the psychological 3,000 mark (coincides with the 20 day MA), followed by 3,027. Support at 2,977, also near the 200 day MA.

Friday, November 23, 2012


STX OSV; Citigroup opines the shipbuilder’s post-results share-price correction offers an attractive buying opportunity as investors may have taken an overly bearish view with risks being mispriced. House reasons that 3Q12 revenue declined 26% qoq largely on normal fluctuations from project recognition, which is typically lower at construction's tail-end. While management's 3Q12 outlook highlighted low core AHTS and PSV segment activity and financing constraints hindering OSCV contract wins, comments from customers indicate the outlook has not changed materially since 2Q12. Although the risk of weaker-than-expected order wins should not be overlooked, Citi believes the weaker 3Q12 order wins were more likely due to lumpy contract wins rather than severe outlook deterioration. Weaker 3Q Ebitda margins were largely on a smaller labor-cost fall vs the revenue decline. It maintains its Buy call but cuts its target price to $1.70 from $1.95 after lowering FY13-14 earnings estimates by 8-11% on lower margin estimates, in line with management guidance, and on a lower 9x 2013 P/E multiple vs 10X previously.


ComfortDelgro: Nomura lifts its target price to $1.86 from $1.72, highlighting the new Downtown Line to achieve profitability sooner than expected from faster ridership ramp-up as the DTL passes through more densely populated areas, higher rental income from DTL’s retail space (4x more than current NEL) and strong cashflow with more capex costs borne by LTA. House also expects govt subsidies to offset losses in Spore bus operations and stricter Spore taxi regulations to reduce competition. It also sees further earnings upside from accretive acquisitions as CD’s overseas ventures have yielded respectable returns. Backed by its strong balance sheet and zero gearing, dividends are expected to remain stable with potential for capital management. The stock trades at 12.6x/11.5x FY13/14 P/E and ~1.5x P/B, which is at the low-mid end of its 39-year trading band of between 11-15x). At current levels, it offers a FY12 dividend yield of 4%.


NOL: CLSA has upgraded NOL to a Trading Buy with target price of $1.37 following the recent 9% fall in share price. House believes valuations are now supportive with the shipper company aiming to cut US$500m of costs in addition to declining bunker prices from US$720/tonne to the current 4Q forecast of US$625/tonne and remaing at US$600/tonne in 2013. Expect a 2H earnings momentum to continue into 2013 with 5.4% volume growth and 2.8% higher rates. Seasonally and technically house reckons this is also the right time to buy with a median return of 19% typically by buying in late Nov and selling in May. A small acquisition in logistics is in line with expanding the less volatile part of the business. Forward P/B of 0.86x is approaching 1 std dev below 5-year mean. Street has 10 Buy calls on the stock against 11 Sells with consensus price target of $1.17.

Olam (CIMB)

Olam: CIMB reckons the short term overhang pending the release of short-seller Muddy Waters' research report could present bargain-hunting opportunities. Believes Olam will be able to ride out the storm as Muddy Waters' track record is spotted with hits and misses. CIMB has a Trading Sell call with $1.59 target, premised on near-term uncertainties; but says if the stock drops on its publication, there could be bottom-fishing opportunities. Cautions this could be a risky trade to take advantage of short covering and possibility of share buybacks. Olam's lawsuit against research firm Muddy Waters and its director Carson Block could also be a long-drawn affair. Given a lack of precedents (besides Sino-Forest), it is difficult to gauge Olam's chances of success. But CIMB notes the lawsuit could affect Muddy Waters' decision to publish the report, believed to be 80 pages long. The stock is down 2.4% to $1.645


IPC announced that it has acquired the 117-room Hotel Resol Sapporo, a business hotel in Hokkaido, Japan for $6.5m. The purchase is funded fully by internal resources with part of the rights proceeds completed in Jul 12. The Sapporo hotel is leased with a fixed term till Dec 13 to Resort Solution, which operates 12 hotels under the Hotel Resol brand and 16 hotels and spas in Japan. The transaction is expected to have a positive contribution in FY13 and is in line with the group’s strategy to acquire more income generating assets with the view of having a constant income stream. Including the Sapporo Hotel, IPC has purchased a total of 6 business hotels with total of 924 rooms in Japan over past 30 months. For 9M12, the group booked a net profit of $0.7m on revenue of $15.1m. Book NAV stood at $0.2027.

Global Palm Resources

Global Palm Resources: OCBC is not sanguine about the company after it slashed its planting target by >60% to 300-400 ha for 2012 as it now faces increasing difficulties in its negotiation with the local population. Instead, management is exploring various opportunities for acquisitions to boost its plantation size; and believes that the process to be easier now with the drop in CPO prices. Nevertheless, house notes that rising inventory levels could remain an issue which could see stockpiles rising further in 4Q12 and even 1Q13 due to continued strong CPO production and muted demand. Unless there is a sharp recovery in CPO prices or a sizable brown-field acquisition, OCBC does not see any catalyst in sight. Keeps Hold recommendation with an unchanged fair value of $0.19 even based on 10x FY13 earnings.

Karin Technology

Karin Technology: OCBC expects Karin to be a key beneficiary of recent new product launches by Apple, given the latter’s leadership position in the smartphone and tablet space. Karin has the license to sell the full range of Apple products through its In-Smart retail stores in HK, which includes the iPhone 5, iPad Mini and 4th-generation iPad. The limiting growth factors would be supply constraints and low margins on these products. Management is also increasing focus on higher margin network security products and enterprise software solutions to mitigate margin pressure from consumer electronics products. OCBC keeps Hold rating and $0.25 target price, based on 6x FY13 core earnings and highlights attractive dividend yield of 8.2%.

Keppel Land

Keppel Land trading unchanged after it established a US$3b multicurrency medium-term note program. Net proceeds from notes will be used to refinance debt for general corporate purposes or acquisition opportunities. OCBC notes KepLand's net gearing was a healthy 21%, as of end-Sep. Adds this program will enhance financial flexibility to its balance sheet, particularly as the group continues to look into allocating capital into accretive land acquisitions. But it sees limited catalysts for the stock given limited visibility for major launches and the MBFC Tower 3 divestment. House keeps a Hold call with a $3.49 fair value, set at a 35% RNAV discount.

Wilmar Int’l

Wilmar Int’l: Stanchart has identified Wilmar as the key stock to own in 2013 and raised its target price to $4.15 from $3.50, citing an earnings turnaround in oilseeds and grains processing margins to US$10/mt in 2013 and $US$20/mt in 2014 (vs long term average of US$23) due to a reversal of negative commodity speculation and financing effects. House also believes the shift in investment towards consumer, palm, sugar, Indonesia, Africa and India, will change the mix and lift returns. Shares are also down 37% ytd, resulting in compelling valuation of 1.2x P/B or nearly 2 std deviations from mean. This also appears to have prompted some rare buying by its founder and major shareholder Kuok Khoon Hong, who picked up 2.63m shares @ $3.16 on 14 Nov, his 2nd purchase sine the Oct 08 lows.

Golden Agri

Golden Agri will continue to expand its palm plantation areas in the next year, mainly by focusing on acquisitions in Indonesia's Kalimantan. The move to snap up existing estates comes as Indon firms are finding it increasingly difficult to obtain new licenses from provincial and state govts due to stricter environmental rules that would have otherwise allowed them to clear land and grow oil palm trees. Adding a sense of urgency, Malaysia, the world's no. 2 producer, is forecast to run out of available oil palm land in another 2-3 years at a time when global consumption for the tropical oil is rising. Owning a substantial landbank in Indonesia will also ensure the group has enough feedstock to meet demand from its downstream palm oil refining business, which aims to boost capacity from the current 1.4m tons to 2.6m tons annually by end 2014. Golden Agri has total oil palm land area of 459,500 ha, of which some 225,000 ha are located in Kalimantan. The group is accelerating its growth through M&As and is looking to expand its plantations by 20,000-30,000 ha next year. To fund these expansion plans, the group issued RM1.5b Islamic MTN earlier this week, which is part of a 5-year RM5b program. There are also significant opportunities for oil palm development in Africa and the group has, through its fund Golden VerOleum, formed a US$1.6b partnership with the Liberian govt in 2010 to develop 220,000 ha of land but its infrastructure remains poor and available labour limited. The stock currently trades at a FY12 P/E of 12.3x with consensus target price of $0.76.

Olam Int’l

Olam Int’l has strongly rejected “baseless and unsubstantiated assertions" made by short seller Carson Block and his hedge fund firm Muddy Waters. The commodities supplier pointed to its sound financial position, which has been subjected to annual audits by Ernst & Young. The company had on Wed sued Block and Muddy Waters for libel and slander about Olam's "unsustainable" business model, "highly leveraged" financial position and "aggressive" accounting practices made by Mr. Block at the Ira Sohn Investment Conference on Mon. E&Y has written a letter to Olam that it stands by the audit opinion on the financial statements of the company and reaffirmed that Olam's financial and accounting policies strictly follow the S’pore Financial Reporting Standards. Olam said its debt-to-equity ratio, a commonly used measure of indebtedness, is expected to be around 2.5x, where a large part of working capital is used to fund hedged inventories and secured receivables that are regarded as near cash. For the 1QFY13, the group’s debt-to-equity ratio was 2.03, which is comfortable for the company to continue on its growth path. It has no current plans to raise fresh equity. On specific accounting related issues raised by Muddy Waters on valuation of its biological assets such as orchards and dairy farms, Olam said they were in accordance with S’pore rules that prescribe how such assets need to be recognized and presented.


F&N: The battle for local property and beverage group F&N continues after Thai whiskey king, Charoen Sirivadhanabhakdi, extended his offer deadline until Dec 11 without improving on his $8.88 offer price. This would give the TCC Assets/ThaiBev group time to evaluate OUE's offer documents, which are expected between Nov 29 and Dec 6, before he makes his next move. With a combined 35% stake, it appears that the Thais are playing a waiting game to see if minority shareholders throw in their lot with Indon-controlled OUE, which has only garnered the backing of Kirin Beer’s 14.8% stake, before responding with a counter-offer. Market observers think the Thai tycoon is playing a shrewd game of poker. If OUE/Kirin fail to win over shareholders, they will end as the weaker party in F&N and may just give in to the Thais. If more shareholders back the Riadys, then the Thais can raise its offer and probably try to persuade investors that they will keep F&N intact instead of spinning off the F&B arm. But if OUE is forced to raise its bid even higher, the Thais could walk away with enough cash to invest elsewhere. Indeed, the Thai tycoon is reportedly eyeing ING’s insurance business in Thailand, which could cost him $400-500m. Meanwhile, investors can sit back and watch the game being played out. There is no hurry to show hand at this point in time. As it is, the current share price of $9.40 is well above TCC’s $8.88 and OUE’s $9.08 offer prices.

SG Market (23 Nov 12)

SG Market: S’pore share may stall as the STI approaches the 3000 resistance mark with holidays in the US on Thu and Japan today likely to keep action muted. Cues from regional markets already trading are mixed as Asian markets normally lack direction when Wall Street is closed. Among stocks likely in focus, TCC Assets extended the deadline for its $8.88/share takeover bid for F&N, which is likely to keep speculation of a bidding war with an OUE-led consortium. Keppel Land established a US$3b multicurrency medium-term note program. Golden Agri plans to continue expanding its palm plantation areas next year, mainly by focusing on estate acquisitions in Indonesia's Kalimantan. Olam remains in the news as traders are still waiting for a report from short-seller Muddy Waters after comments from the research firm's founder sent the shares sharply lower earlier this week.

Thursday, November 22, 2012


NOL +5.7% to $1.12 on strong volume, riding on overall market sentiment as well as positive China data which shows Nov's preliminary PMI data bobbed into expansionary territory for the first time in a year. Resistance for the stocks lies at $1.13 level, where its 50-day and 100-day moving averages converge.

CapitaMall Trust

CapitaMall Trust: UOBKayHian opines that the private placement of 125m new units @ $2 to raise gross proceeds of $250m may be a prelude to the acquisition of Star Vista, the recently completed CapitaMalls Asia shopping mall in Buona Vista. The latest committed occupancy for Star Vista is above 90%, up from above 80% in Aug-12. Other potential uses of the funds would be to fund an AEI at Funan DigitaLife Mall, or other acquisitions from the sponsor such as Ion Orchard. Management guided that the placement would enable the group to optimise its capital structure, thereby increasing our debt headroom and putting it into a better position to embark on future opportunities to boost unitholders’ returns.” This differs from the $250m private placement on 01-Nov-11 where the proceeds were largely used for capital expenditure and AEIs.

Keppel Corp

Keppel Corp: Barclays views the order for 2 semi-submersibles by Ukraine's Naftogaz may mark a new wave of orders for drillships. House believes the outlook for semi-submersible orders remains robust, despite the strong wave of orders for drillships in 2012. They expect potential new orders to come from other national oil companies, including Norway's Statoil, Mexico's Petroleos Mexicanos, or Pemex, and Azerbaijan's Socar. With harsh-environment regions, such as the North Sea, Black Sea and Caspian Sea, requiring harsh-environment semi-submersibles, we expect the pause in semi-submersible orders to only be temporary. Positive for both Keppel Corp and Sembcorp Marine, which has faced a wave of selling pressure recently amid lower margin expectations and greater competition from Chinese and Korean yards.

Petra Foods

Petra Foods: OCBC initiates coverage with a Buy rating and TP pf $2.98, based on 24x forward P/E. Highlights the group as one of the world’s largest producers and suppliers of cocoa ingredients and counts a stable group of F&B giants such as Nestle, Cadbury, Mars Group as its key clients. Its branded consumer division, contributes 30% of revenue and is a first mover into emerging Asia consumer demand. Given its competitive advantage via an extensive distribution network and strong brand equity, Petra Foods has achieved a dominant market share of more than 50% and 10% in the growing markets of Indonesia and the Philippines respectively. Combined, these 2 divisions form a formidable “twin-engine” growth strategy for the future.


DBS: Bank of the Philippine Islands (BPI) is in merger talks with Philippine Nat’l Bank and Allied Banking Corp (both of which are already in process of merging), on a deal that could create Philippine's largest bank. Allied Bank's strength lies in the Chinese market and PNB niche is with the govt, while BPI has the corporate and consumer base. Merger of the 3 will have combined assets of 1.2t pesos or $35.7b. DBS currently has a 9.9% stake in BPI. Meantime, DBS US$6.85b bid for Danamon remains stuck in limbo as the bank awaits regulatory approval. While new rules governing ownership of Indonesian lenders offer DBS a path to full control, Danamon's share price closed 15% below the bid yesterday, suggesting little market faith in this transaction being closed. Indonesia's central bank is pushing for more access for its own lenders in Spore, a request MAS will not easily grant as it seeks to maintain control over Spore's banking system. DBS highlights the transaction is still under process. DBS currently trades at 1.1x P/B, below its historical mean of 1.4x. Street is generally maintaining its buy rating (63%) for the stock with consensus TP of $16.36.


SIA: Nomura re-assumes coverage with a Buy, on lower TP of $12.50 (from $18.25), pegged to mid-cycle 1.1x P/B. Says earnings close to bottoming, although expects a gradual recovery ahead. Despite slow business class travel, expects the airline’s focus on market share in the passenger segment and reduction in transportation costs in its cargo segment, to drive a gradual recovery in overall yields. Notes fuel remains the single largest cost item, at 40% of 2QFY13 costs, and mgt est each US$1/bbl chg in brent oil would result in annual cost savings of $45m. Adds SIA’s valuation is backed by its solid net cash position, at $3.7b as at Sep ’12.


DBS: Macquarie raises to Outperform from neutral on valuations, with TP $15.16. Says, hile tepid earnings growth are expected in 2013 and 2014, the stk has fallen to attractive levels, and current level offers opportunity to accumulate.


CMT: placed 125m new units via a private placement at issue price of $2.00/unit, 5.2% below last close at $2.11. The private placement has been oversubscribed and the no. of new units to be issued was upsized from the previous 100.5m guidance due to positive mkt demand from more than 60 existing and new institutional investors from Asia, US and Europe. Gross proceeds of $250m will be primarily used to finance capex and asset enhancement initiatives of CMT properties, refinancing of existing debts of CMT and/or working capital. Assuming the net proceeds will be used to repay existing debts, CMT’s aggregate leverage is expected to be reduced from 37.7% to 35.1%. In conjunction, there will be an advanced distribution for the period from 1 Oct ’12 to the day immediately prior to the issue of new units (est. 30 Nov ’12). CMT est the adv distribution will be btwn 1.5-1.6 cts. JPM was the lead manager of this deal.


Olam: says it has initiated legal action in a Singapore court against short-seller Carson Block and his research firm Muddy Waters LLC, for statements which caused its shares to plunge earlier this week, on grounds of alleged "libel and slander" and the company is seeking damages based on the advice of its lawyers. Dukas PR, an external communications agency hired by Muddy Waters, said that the research firm hasn't seen the lawsuit but both the company and Mr. Block are "always ready to defend our views vigorously." Recall. Mr. Block, the founder of Muddy Waters, said Monday at a conference in London he was betting against Olam, and questioned the firm's accounting methods. On Tuesday, Olam CEO Sunny Verghese defended the co's accounting and said that he felt Mr. Block's statements alleging improper accounting standards at Olam were a "very concerted and unfair attack on the company." Muddy Waters then said in an open letter posted on its website and addressed to Olam's CEO and board members that it stood by Mr. Block's comments. The key points Mr. Block raised at the Ira Sohn investment conference in London relate to Olam's debt load and its reporting of biological gains on investments. Olam's debt totaled $8.4b in 1QFYJun13, +12% qoq and more than quadruple the $1.9b in 2007. The recent increase in borrowings has pushed the debt-to-equity ratio, up to 2.03 in 1QFY13, compared with 1.81 in the preceding three months. But Olam said in its post-earnings presentation that its adjusted debt-to-equity ratio, counting inventory as cash, was much lower, at 0.57%. Meanwhile, Citi says Olam's $640m in biological assets is about 5% of assets and 19% of the firm's equity and even if the value was halved, it won't be at risk in terms of banking covenants and gearing limits.

Keppel Corp

Keppel Corp: its Keppel FELS unit has been selected by Ukraine’s National Joint Stock Company, Naftogaz, to build 2 semi-sub drilling rigs. The co is now in further contract negotiations with Naftogaz on the price and delivery schedule before the final contract is signed. Based on recently transacted prices for semi-submersible newbuilds, the two semi-submersible rigs are likely to cost in excess of US$1.2b. This announcement of its win follows the closure of the tender on Oct 29, and confirms earlier reports that KEP had submitted the most competitive bid among four parties. Naftogaz is an established customer of Keppel, after taking over 2 Keppel FELS rigs from a previous Keppel customer Standard Drilling. The state-owned company recently took delivery of its second KFELS jack-up rig on Jun 30, with the rig to be deployed on the Ukrainian shelf of the Black Sea for its owner Chernomornaftogaz. According to Ukraine’s official estimates in 2011, the country has proven reserves of natural gas (1,200 b cubic metres) and oil and gas condensate (220m tonnes). Nomura reiterates Buy on KEP, with TP $13.80. Notes current FY13e/14e P/E of 13.2x and 12.8x respectively, are at the lower end of its historical P/E band of 8-22x and its div yield are attractive at 4.5%. Current orderbook as at end 9M12 was $13.1b with deliveries extending into 2019.