Friday, 30 December 2011


Phillip Securities on Dec 28

SATS announced that they had won the bid to operate the new Singapore International Cruise Terminal (ICT) at Marina South, through a consortium formed with Creuers del Port de Barcelona SA.
The lease will be firm for 10 years with an option to renew for another five years. Operations are expected to commence in Q2 FY2012 by its newly formed 60:40 JV, SATS-Creuers Cruise Services Pte Ltd.
The current cruise terminal operated by the Singapore Cruise Centre has two berths and had been in operations since 1991. The new ICT would double the number of berths to tap on this growth in demand.
According to a news report by Channel News Asia in 2009, Singapore hopes that the new terminal would be able to host the largest Oasis-class cruise ships and attract 1.6 million cruise passengers by 2015.
Comparing that target to the passenger throughput disclosed for 2009, we estimate that Singapore's cruise industry is expected to grow its passenger throughput by 5.8 per cent per annum from 2009 to 2015. Singapore is also expected to play host to one of the largest cruise ships, Voyager of the Seas by Royal Caribbean, in May 2012.
We view this as a positive development for SATS, as it would enable the group to grow in the hospitality business and derive synergies with its current airport ground handling operations. SATS began to offer fly-cruise services in 2011 in collaboration with various stakeholders, including Star Cruises, Changi Airport Group and the Royal Caribbean International. With its existing partnership with Royal Caribbean, we believe that it is likely that the new consortium would play host to Voyager of the Seas next year.
In valuing the stock of SATS, we used a discounted cash-flow model to arrive at our TP of $2.96. We opine that investors should look beyond the expected decline in profits for FY12 and look ahead to significantly better performance in the following year. Maintain 'buy'.

Thursday, 29 December 2011



IN an announcement issued last Friday, Wilmar International said its wholly owned subsidiary, WCA Pte Ltd (WPL), together with Kerry Properties (China) Limited (KPCL) and Shangri-La China Limited (SACL), entered into a termination agreement with the Laobian Branch of Yingkou City Land Resources Bureau (the Termination Agreement) on Dec 23, 2011, pursuant to which: 1) The notices to confirm the JV Parties' winning bid for the land use rights for the Laobian project sites will be terminated; 2) 271.57 million yuan deposit paid by the JV parties for the Laobian project sites bid will be returned to the joint venture company owned by WPL, KPCL and SACL (in the proportion of 35 per cent, 40 per cent and 25 per cent respectively); and 3) The JV Parties and the JV company will be relieved from all liabilities and obligations for the land use rights bid.
The JV company will be wound up after all matters relating to the termination of the acquisition of the Laobian project sites have been settled. As part of the winding-up process, all assets of the JV company will be distributed to the JV parties according to their respective interests in the JV company.
The JV parties have a project in the same city located at Bayuquan, Yingkou City (details of which are set out in Wilmar's announcement dated Dec 21, 2010).
Comments: No financial outlay and contribution from Wilmar's China property projects have been included in our forecasts. Hence, this latest announcement has no impact on our numbers. The deposit was returned, as we understand the winning bid was non-binding. However, this raised questions whether the local government can unilaterally do the same for Wilmar's other JVs in Bayuquan district; and whether the termination will have implications for the group's future opportunities in the Liaoning province. While we are awaiting answers from Wilmar, our recommendation and TP on the stock remains unchanged.



SEMISUB order from Sete Brasil: Confirming our confidence that Petrobras awards could materialise by Q1 FY12 (latest), Keppel said it has secured a US$809 million ($1.05 billion) order for a semisub drilling rig from Sete Brazil. The rig is based on Keppel's DSSTM 38E design and is scheduled to be delivered in Q4 FY15. We noted that: 1) the price of the semisub rig was 8 per cent higher than its semisub bid to Petrobras in Dec 2010 at US$749 million. 2) The contract period of more than four years (award to delivery) is longer than the period required for semisubs built in Singapore at around 40 months. This helps to alleviate some delay risks as the yard in Brazil is less efficient. 3) The order also marks the first full design and build semisub contract for Keppel since August 2008. We maintain our FY11-12F EPS estimates and raise FY13F EPS by +2 per cent, assuming the semisub achieve initial recognition in 2013 and 8 per cent operating margin.
We maintain our 'buy' rating on Keppel with an unchanged TP of $11.40.
Backlog order book climbed to $10.7 billion: This semisub is part of the proposal submitted by Keppel O&M to Sete Brasil in July 2011. This contract lifted its YTD 2011 order win to $9.8 billion (2010: $4.6 billion) and backlog order book to $10.7 billion, a level not seen since 2006.
We understand that this DSSTM 38E design semisub will be part of the 21 deepwater rigs offered by Sete Brasil to Petrobras. Queiroz Galvao (QGOG), one of Keppel's partners in the Petrobras bid, has previously taken delivery of two DSSTM 38 design semisubs from Keppel and could be the operator of this unit. Management has not guided on the potential margins for this project, and in our earnings model, we have assumed 8 per cent operating margin on this semisub. Bulk of the revenue for this semisub will be recognised in FY14-15 and hence, the impact on our FY13F EPS estimates is marginal (2 per cent). We believe there could be more deepwater rigs in the pipeline as Petrobras concludes its rig building programme with Sete Brasil and Ocean Rig. Keppel has submitted bids for six semisub units and more contracts could be on the way.

Wednesday, 28 December 2011


OCBC Research on 23 Dec 2011

Passenger, freight and aircraft movements at Singapore’s Changi Airport YTD rose 11.0%, 2.2% and 14.1% respectively, and SATS Ltd Group (SATS) has benefited from the higher volumes. But falling global air freight volumes, usually a leading indicator of air travel, and declining business confidence have clouded the outlook for SATS. During the year, SATS sold its wholly-owned U.K. subsidiary Daniels Group (Daniels) and its Japanese subsidiary TFK turned in an operating profit of S$1.8m in 2QFY12, from the operating loss of S$6.5m in 1QFY12. TFK was boosted by higher volumes from its main customer Japan Airlines, after a major earthquake hit Japan in Mar 2011. We maintain our fair value estimate of S$2.43 per share but upgrade SATS to a BUY based on valuation grounds, after it has been sold down along with the aviation sector in recent weeks.

Strong volumes out of Changi but uncertainty lies ahead. Passenger, freight and aircraft movements at Singapore’s Changi Airport YTD rose 11.0%, 2.2% and 14.1% respectively, and SATS Ltd Group (SATS) has benefited from the higher volumes. While the operational numbers are still strong, falling global air freight volumes, usually a leading indicator of air travel, and declining business confidence have clouded the outlook for the aviation sector and SATS. In addition, SATS’ management warned that inflationary pressures are expected to last at least a few more quarters.

SATS sold Daniels for GBP159m. SATS announced in Oct 2011 that it has agreed to sell its wholly-owned U.K. subsidiary Daniels Group (Daniels) to The Hain Celestial Group, Inc. By selling Daniels, SATS is able to focus on its gateway services and food solutions businesses. And Daniels, which deals more on the production and distribution of food products, is different from its catering-focused food solutions business in Singapore. The total cash consideration for the sale was divided into three tranches of GBP149m, GBP2m and GBP13m. SATS estimated the total sale consideration to be GBP159m (or S$321.1m).

Turnaround at TFK and other positives. Japan Airlines, the main customer of SATS’ Japanese subsidiary TFK, has seen demand and load factor recovering in the aftermath of the earthquake that hit Japan in Mar 2011. Boosted by higher volumes, TFK turned in an operating profit of S$1.8m in 2QFY12, from the operating loss of S$6.5m in 1QFY12. In addition, there are other recent positives for SATS such as (1) its Hong Kong subsidiary SATS HK won a key new business from Hong Kong Airlines, and (2) SATS partnered with Creuers del Port de Barcelona S.A. to win a 10-year lease to manage and operate Singapore’s new International Cruise Terminal.

Maintain fair value S$2.43 and upgrade to BUY. Since we have previously 1) adjusted SATS’ PATMI estimates to account for the impact of the Daniels sale and the strong recovery of subsidiary TFK, as well as 2) factored in the uncertain outlook for the aviation sector, we opt to leave our estimates unchanged for now. Hence, we also maintain our fair value estimate of S$2.43 per share. However, we upgrade SATS to a BUY based on valuation grounds, after it has been sold down along with the aviation sector in recent weeks.

SIA Engg

OCBC Research on 23 Dec 2011

Both global air passenger load and capacity have been growing in CY11, diminishing the impact of the decline in air freight load and capacity on the maintenance, repair and overhaul (MRO) service providers such as SIA Engineering (SIAEC). But falling global air freight volumes, usually a leading indicator of air travel, and declining business confidence have clouded the outlook for the aviation and related sectors. But air travel traffic is expected to continue growing in the longer term and the global passenger aircraft fleet is forecasted to double from now to 2030. SIAEC’s setting up of two joint ventures with SAFRAN and Panasonic Avionics Corp in FY12 resulted in revenue, which would otherwise have contributed to its top-line, to be recorded at the joint venture level. Management explained that despite the near-term cannibalisation effect, these joint ventures will help it to gain a bigger growth potential in the longer term. With the longer-term outlook still relatively upbeat for SIAEC, we maintain our fair value estimate of S$3.88 per share and upgrade SIAEC to a BUY.

Growing air passenger traffic has provided good support. Both global air passenger load and capacity have been growing in CY11. And since the global passenger aircraft fleet is many times bigger than that of the freight aircraft fleet, the impact of the decline in air freight load and capacity on the maintenance, repair and overhaul (MRO) service providers, has been small.

Uncertain in short term but looks better in the longer term. Falling global air freight volumes, usually a leading indicator of air travel, and declining business confidence have clouded the outlook for the aviation sector. Similarly for the MRO service providers, such as SIA Engineering (SIAEC), the overhang surrounding the aviation sector may eventually cascade down to affect their business. However, the longer-term outlook for MRO service providers is looking good. Despite air travel being hit by terrorism, SARS and a global financial crisis, global annual air travel traffic still grew by 45% over the last 10 years. Adding further optimism, the global passenger aircraft fleet is forecasted to double from now to 2030.

Using joint ventures to expand footprint. The setting up of two joint ventures with SAFRAN and Panasonic Avionics Corp in FY12 resulted in revenue, which would otherwise have contributed to SIAEC’s top-line, to be recorded at the joint venture level. Management explained that despite the cannibalisation effect of the move, setting up these joint ventures is akin to giving up part of the work in Singapore in order to gain a share of the regional business. Revenue and net profit contribution could fall initially but the potential growth, as these joint ventures mature, will more than offset the short-term pain.

Maintain fair value of S$3.88 and upgrade to BUY. The share price of SIA Engineering Co Ltd (SIAEC) has recently been sold down by investors, together with most aviation-related names. Though the aviation sector is currently clouded by uncertainties in the global economy, the longer-term outlook for MRO service providers is still intact. Thus, we maintain our fair value estimate of S$3.88 per share and upgrade SIAEC to a BUY rating.

Tuesday, 27 December 2011


Kim Eng Research 27 Dec 2011

Unlocking value in Gloucester Coal
Proposed merger. Noble Group’s 64.5%-owned ASX-listed subsidiary,Gloucester Coal, has announced a merger with Yancoal, the Australianmining assets of Hong Kong-listed Yanzhou Coal Mining. Uponcompletion of the deal, Noble will hold an estimated 13.7% stake in theenlarged entity and Yanzhou, approximately 77% stake. Cutting a dealso close to the Christmas holiday season suggests to us that Noblemanagement is fully committed and firing on all cylinders.
Realising value upfront. Noble stands to book a one-off gain ofUS$200m from the transaction, lifting its NTA per share by about 5% toUS$0.69. Also, prior to the merger, Gloucester will conduct a capitaldistribution at A$3.20/share, with Noble receiving US$416m. With thecontingent value rights given to Gloucester’s minority shareholdersguaranteeing a price of A$6.96/share, this implies a value of A$10.20/share for Gloucester (A$2.1b), a 45% premium over its last traded price.
Freeing up cash at an opportune time. One major benefit of theproposed transaction is that it frees up cash for Noble at a time whenthere may be other distressed assets for sale. As part of the agreement,Yanzhou will bring in financing deals worth US$2.7b, enablingGloucester to return Noble’s shareholder loans and also accelerateprojects to optimize its massive coal reserves potential.
Off-take agreements will continue. Noble has off-take agreementswith Gloucester Coal, which will remain in place after the transaction.The group will thus continue to market Gloucester’s coal for a fee,which is, arguably, its core business. The enlarged entity will become aleading mining company on ASX and will have the ninth-largest coalreserves globally. This suggests more business for Noble, enhancing itsposition as a leading coal marketer globally.
A positive move in our opinion. Since its 3Q11 profit disappointment,Noble has been trading closer to book value. Hence, any move tocrystallise book value should be positive for the stock price. The deal issubjected to approvals by various authorities. Earnings impact is notquantifiable yet, but should be mildly positive. We have kept ourestimates and target price of $2.00 (13x FY13F). Maintain Buy. 

Friday, 23 December 2011


OCBC Research 23 Dec

Keppel Corporation: Secures US$809m semi-sub rig from Sete Brasil

 Keppel Corporation (KEP) announced that its O&M arm has secured a contract worth about US$809m from a subsidiary of Sete Brasil for the design and construction of a semi-submersible drilling rig based on KEP’s proprietary DSS 38E design. This semi-sub is part of KEP’s proposal submitted to Sete Brasil in Jul this year for Petrobras’ 21-rig tender – recall that KEP has partnered drillers/contractors such as Odbrecht Oil & Gas and QGOG to offer to build six semi-sub rigs. The semi-sub is scheduled for delivery in 4Q15, and will be used to support the exploration of Brazil’s deep-sea oil and gas reserves. Along with news this week that SMM will be starting construction on its new integrated yard in Brazil, we think that more orders related to Petrobras’ rig tender may be forthcoming for both KEP and SMM. Including this latest win, KEP has secured new orders worth about S$9.8b YTD. Maintain BUY with S$12.02 fair value estimate. 

Transport Sector

OCBC Research 23 Dec

Transport Sector: Likely bumpy ride ahead – seek defensives

 The uncertain economic outlook ahead continues to weigh down on business confidence, which in turn negatively impacts global travel and trade volume. Weak demand outlook and high current fuel prices raise concerns on both the aviation and shipping sub-sectors and we are UNDERWEIGHT on both these sectors. While the weakness seen in the aviation sector may filter down, we are NEUTRAL on the aviation service providers. The outlook on these service providers is still healthy because air traffic and global aircraft fleet should continue to grow over the longer term. We are OVERWEIGHT the land transportation sub-sector in Singapore because it has no viable large-scale substitute. We prefer ST Engineering [BUY, FV: S$3.01], due to its diversified revenue streams, and SMRT Corp [BUY, FV: S$2.04] for the defensive nature of its business. 

Thursday, 22 December 2011


DBS Vickers Securities, 21 Dec

SINGTEL will launch its 4G (Long Term Evolution - LTE)-based mobile broadband service today for both consumers and businesses in selected districts. 4G plans will initially be limited to dongle-based users as there is a lack of LTE-enabled smartphones in the market.
Typical download speeds would be 3.4-12 Mbps, which is 3-4 times faster than 3G. More importantly, SingTel is offering lower data-cap in LTE plans to monetise data usage.
First-stage pricing: The new 4G plan will bundle 10 GB of LTE data along with existing 50 GB of 3G data for an additional $10 on top of $59.90.
Second-stage pricing: Upon the LTE roll-out reaching 80 per cent of users by end-2012, 50 GB 3G data cap will shrink for new subscribers of the plan and for existing subscribers on contract expiry.
Third-stage pricing: When LTE roll-out reaches 95 per cent by Q1 2013, 3G data cap may be dropped altogether, leaving new subscribers with 10 GB of LTE data.
Telcos are rectifying their mistake of offering too generous data caps in the past. Telco are offering users with incentives of higher speeds and better quality of service (priority pass from SingTel) to encourage more data usage at higher price. SingTel revealed that 11 per cent of users account for 60 per cent of data traffic and there is a need to charge these users for using the network.
All three players are limiting data caps gradually. StarHub has one 3G plan with 30 GB cap, while other plans are unlimited plans. M1, however, has plans with 5GB, 12 GB and 50 GB caps. M1 launched 4G in June 2011 for business use only while StarHub will launch LTE in 2H12.
We prefer SingTel and StarHub to M1 as the National Broadband Network is progressing slower than expected. While the weakening of the Indian Rupee in the last six months (about 15 per cent) may impact SingTel's earnings adversely by 3-4 per cent, regional associates in India and Indonesia are in good shape.


Kim Eng Research 22 Dec

Wrapping up CY11. Singapore Exchange (SGX) will announce its 2QFY Jun12 results on 16 January 2012. We revise our securities daily average trading value (SDAV) assumptions going into CY12, which could turn out to be a slow year in terms of trading activities. We believe this period gives us an insight into likely SDAV trend going into the new year.
September-November period may be a good gauge. Given that the global equity market meltdown first started on 1 August, we think the SDAV of $1.3b for the three-month period from September to November (December is seasonally low) gives us a good gauge of SDAV, should 2012 turn out to be a quiet year as many now expect. SDAV for the August-December period was $1.38b.
Our target entry price of $5.85 is near. In our Market Strategy Report: 2012 Recovery Portfolio, we highlighted that our entry price for SGX is $5.85, based on a worst-case SDAV of $1.25b and an implied dividend yield of more than 4%. Even in this scenario, we expect EPS of $0.235 and free cash flow of $0.28 per share, which should form some support for the share price.
Non-SDAV income continues to be strong. We expect income support from non-SDAV sources, where we believe there is structural growth outside of the volatility of market trading conditions. For example, derivatives volume is one bright spot which continued to show strong growth even up till November 2011, and we estimate could make up a record high 27% of group income for FY Jun12.
Maintain Buy. We lower our SDAV assumption for FY Jun12 to $1.4b to reflect likely market conditions for the next year. Our target price of $6.78 remains pegged at 25x FY Jun12F, also implying a yield of 4%. SGX is currently trading at 7.9x FY Jun12F P/BV, below its historical mean of 9x (trough of 5x in 2009). Our profit estimate for 2QFY Jun12 is $75m, which would be flat on a YoY basis but down 15% on a QoQ basis.

Wednesday, 21 December 2011


From Business times 21 Dec 2011

SingTel launches 4G plan and battleship in data war
Shift in pricing strategy will help telco charge heavy data users in ways that current plans don't allow

(SINGAPORE) The days of virtually unlimited mobile data usage are numbered. SingTel will be launching Singapore's first fourth-generation (4G) - or Long Term Evolution (LTE) - mobile broadband service for both consumers and businesses tomorrow, as the first of a three-part pricing strategy.

For now, network coverage will be mainly in the Central Business District - alongside pockets of coverage in Bukit Panjang, Boon Lay, Bedok and Changi. It will expand to 80 per cent of mobile data users by end-2012 and to 95 per cent by the first quarter of 2013.The new 4G plan - known as Broadband on Mobile Prestige 75 - heralds a shift in pricing strategy that will help SingTel gain revenue on heavy data usage in ways that it has not been able to with current 3G price plans.
The new 4G plan will bundle 10 gigabytes (GB) of LTE data along with 50GB of 3G data for $69.90 a month. It is only for dongle modems, not smartphones or tablets.
This is essentially SingTel's priciest 3G plan - the Premium 21 with a priority pass - with LTE data and speed thrown in for an additional $10. Existing users of Premium 21 will be able to upgrade to this plan for $10 a month,
When a user of the new plan uses 3G services in areas not covered by the LTE network, he will experience typical download ranges of 1.7-4.8 megabits per second (Mbps).
In comparison, the LTE service that kicks in when the user is within range of the LTE network offers typical download speeds that are about three times faster of 3.4-12 Mbps.
While the Prestige 75 has a theoretical download speed of up to 75 Mbps, the typical download speed range better reflects what a consumer experiences under actual loaded network conditions.
When subscribers use up their 10GB LTE data allocation in areas covered by the LTE network, they do not switch to the 3G network and consume their 3G data quota.
Instead, they will be charged for additional LTE data usage at $0.512 per megabyte (MB), the same rate levied for current 3G plans. This is capped at $94.16 per month.
This pricing structure will change by the end of next year when LTE coverage hits 80 per cent of users. Then, the 50GB 3G data quota will shrink for new subscribers of this plan.
When coverage reaches 95 per cent of its users in 2013, the divide between 3G and LTE will be made explicit - the price plan will most likely drop the 3G component altogether, leaving new subscribers with a 10GB quota of LTE data, as opposed to a combined data quota of 60GB (3G and LTE) for people who had subscribed during the first leg of the new plan.
This will have significant implications for SingTel's long-ranging plans to monetise data usage. Currently, the data cap for all of its 3G plans stands at 50GB.
The pool of people paying for additional data is tiny. Less than 1 per cent of dongle and tablet users consume more than 50GB a month, according to data that SingTel released yesterday. In fact, 89 per cent of them use less than 10GB of data.
The price plan set-up is not much different for its rival, StarHub's. It has one 3G plan with a 30GB cap and three other costlier plans with no data limit. M1, however, has plans with 5GB, 12GB and 50GB caps.
Yuen Kuan Moon, executive vice-president of SingTel's digital consumer group, likened 3G consumer habits to a 'buffet-style consuming behaviour' in which consumers pay a flat fee in return for consuming almost all they can.
Consequently, the telco has found itself in a situation where 11 per cent of its subscribers account for 60 per cent of data traffic, even as marginal revenue has not kept up with increasing data usage.
'Many operators in the world have looked at repricing 3G because the way data has been used and offered in the market encourages a very weird sort of usage behaviour. This has affected the entire quality of the network,' said Mr Yuen.
With users of the LTE network, at least, SingTel will eventually be able to make heavy users of data pay for what they consume beyond the 10GB point, as opposed to the 50GB point which forms its current cap.
Even some of the 89 per cent of users who consume less than 10GB of data might find themselves venturing into paying-per-MB territory, as higher speeds tend to encourage more data usage.
The same principles will apply to LTE price plans for smartphones and tablets when they are eventually launched, SingTel said.
StarHub said yesterday that it will likely launch its LTE services in the second half of 2012, 'given the device roadmaps of most device manufacturers'.
When it does, the accompanying price plans are bound to be different in a similar vein. StarHub previously told BT that it 'will look at how we price LTE subscription plans closely so as to help us monetise mobile data. Hence, it will be different from the current 3G/HSPA+ mobile data pricing plans'.
M1 was the first to offer any form of LTE service in June, limited to its enterprise customers. It had previously said: 'Nationwide LTE network is currently being rolled out and will be launched in the second half of 2012.'

Tuesday, 20 December 2011


Kim Eng Research 20 Dec
Rail defects, faulty trains. Three train disruptions in four days haveled the Land Transport Authority (LTA) to order SMRT Corp to observecertain restrictions, effective yesterday. These included reduced trainfrequency during morning peak periods and slower speeds alongcertain stretches of the rail network. The measures followed aninspection of the affected tracks and trains by SMRT and LTA officers,which uncovered 61 rail defects and 13 faulty trains.
Government takes a serious view. Prime Minister Lee Hsien Loonghas ordered a public inquiry. We understand that a formal Committee ofInquiry will be convened soon, similar to that which was formed afterthe collapse of Nicoll Highway on 20 April 2004. The committee willcomprise some members of the independent team of technical expertsand will be assembled by Transport Minister Lui Tuck Yew. It isexpected to make its findings public in the next couple of months.
Earnings to take a hit. We lower our FY Mar12-14 EPS estimates by2-3% as repair and maintenance costs (about 9% of 1HFY Mar12 farerevenue) will likely increase. Other one-off expenses that will beincurred include refunds and provision of free shuttle bus services tohelp affected passengers, as well as possible punitive fines by LTA ofup to $1m under the Rapid Transit Systems Act.
No shoo-in with LTA? The long-term complications associated withrepeated service disruptions cannot be underestimated, in our view.Plans are afoot to build two additional lines, the Thomson Line (TSL)and the Eastern Region Line (ERL), and the government has given thego-ahead for the TSL to be built by 2018 and the ERL by 2020. Eventhough the bids to operate the new lines are not yet open, we believeLTA will take the recent train incidents into consideration, particularlyservice reliability, when awarding the tenders in the future.
Possible dividend cut. We forecast a 0.5 cents cut in dividend payoutto $0.08 along with the decline in earnings. We downgrade the stock toSell with the reduced target price of $1.50, based on 15x blendedFY Mar12F/13F PER (the same multiple we apply to ComfortDelgro). 


Kim Eng Research 19 Dec
Indian headwinds. SingTel is facing growing headwinds from India asthe rupee has fallen by 19% YTD, making it the worst-performing Asiancurrency this year. Also causing some uncertainty are potentialchanges to government regulations surrounding additional spectrumfees, as well as the removal of domestic roaming fees and halving ofmobile termination rates. While associate Bharti Airtel’s growthprospects appear to be reviving at last, we still prefer StarHub toSingTel given the latter’s rising risk profile.
Free-falling Indian rupee. The Indian rupee has tumbled by 19% YTDand fell further to an all-time low of Rs41.43 against the S$ last week.SingTel’s 32.2%-owned Bharti has accounted for 28% of associatecontributions YTD, and will contribute an estimated 16% of FY Mar12Fpretax profit. As the rupee is currently below our assumption of Rs39 forFY Mar12, we cut our full-year earnings forecast for SingTel by 3%.
Uncertainty over new telecom policies. Potential changes to government regulations surrounding additional spectrum fees, as well as the removal of domestic roaming fees and halving of mobile termination rates, are also causing uncertainty at this time. Bharti believes things will only clear up early next year. But there may also be M&A opportunities as the government is encouraging consolidation of 54.1 the market, where new 2G players are bleeding heavily.
On the bright side, domestic growth prospects should revive. Our Indian telecom analyst expects earnings growth of 6% in FY Mar12 and 44% in FY Mar13 for Bharti, led by 3G operations breaking even and strong growth in Africa. As at 2QFYMar12, Bharti’s core market margins have also begun to expand again on rising tariffs. However, if the new telecom policies fail to play out well, he expects FY Mar13 EPS to be cut by 22%, reducing full-year growth for Bharti to 16%.
Prefer StarHub. We maintain our Buy call on SingTel as it still offers a relatively safe refuge for investors looking to park funds away from current stock market volatility. On balance, however, we prefer StarHub given SingTel’s rising risk profile. 


Kim Eng Research 16 Dec
Maintain Buy despite continued slide. Singapore Airlines’ (SIA)November load factors are showing further weakness, especially forpassenger. This is a continuation of the slide seen in October. On thepositive side, fuel prices are coming off in line with an anticipatedslowdown in global economic activity. Fuel remains the biggest swingfactor for earnings. Our valuation is unchanged at 1.2x P/BV, based onSIA’s robust balance sheet. Maintain Buy and target price of $14.40.
Passenger traffic falls for first time. Despite a 2.2% increase incapacity, passenger load factors for November fell to 75.2% from78.9% a year ago. On a YoY basis, traffic itself slipped by 2.6%, thelargest decline this year. Load factors were also slightly belowOctober’s 76.7% on a sequential basis. However, regional airline SilkAircontinued to grow, with passenger traffic up 8.4%, versus an 11.8%increase in traffic, for a relatively healthy load factor of 79.0%.
Cargo has not deteriorated further. Cargo load factors weresustained on a YoY basis at 64.2%, but did decline sequentially as theairline’s seasonal holiday peak came to an end. Both traffic andcapacity were slightly higher on a YoY basis. Overall, SIA did not see aparticularly good performance during its historically busiest period.
Oil prices finally coming off. Crude oil prices are finally showing signsof weakness as a slowdown in global economic activity looms. Crude oilhas declined by about 5% over the past week and jet fuel has followedsuit. The current spot price of US$120.80 per barrel is below our full-year assumption of US$130 per barrel. To recap, our sensitivityanalysis indicates that every US$10 decline in market jet fuel price willboost SIA’s earnings by around S$300m pa.
No change to our outlook. With operating earnings volatile and nearbreakeven, we retain our asset-based valuation of SIA. Our target priceis unchanged at $14.40, based on 1.2x P/BV. The 2008 troughvaluation was a P/BV of 0.8x, translating to an implied floor of $9.50. 


OCBC Research
Sembcorp Marine: Ground-breaking at new yard in Brazil

Sembcorp Marine (SMM) has announced the ground-breaking of Estaleiro Jurong Aracruz to mark the commencement of the yard’s construction works. This new yard is close to the rich oil and gas basin of Espirito Santo, one of Brazil’s giant pre-salt reservoirs. Recall that the freehold site was acquired in 2010; with this ground-breaking event, we think that the award of Petrobras’ rig tender should be finalised soon, probably by 1Q12. Although full completion of the yard is scheduled for end 2014, it will be developed in stages and we think certain offshore work could be done in tandem with yard construction. Preliminary projection of the development costs is estimated to be around US$550m, and will be funded with debt and internal funds generated from operations of existing yards. Meanwhile, SMM also announced yesterday that Sembawang Shipyard has won a US$140m contract from Equinox Offshore Accommodation to convert a ropax vessel to a DP2 accommodation and repair vessel. Maintain BUY with S$5.63 fair value estimate.


Kim Eng Research in a Dec 12 research report says: "While mortgages account for about 30% of UOB’s Singapore loan portfolio, the bank has a higher 90% exposure to private residential, which is a segment that is likely to be harder hit by the government’s recent imposition of the additional buyer’s stamp duty.
"At 9.4% of shareholders’ funds, UOB’s Eurozone exposure is likely to remain a drag on sentiment relative to peers, in our view. UOB’s share price has declined by 27% from its peak of $21 this year, and has just about breached our previous target price of $15.60.
"We nevertheless continue to expect headwinds ahead, not least because the latest round of housing curbs will compound the negatives. Target price lowered to $14.20, pegged at a lower FY12F P/BV of 1x (1.1x previously). UOB traded at a GFC trough P/BV of 0.8x. MAINTAIN SELL."

Sunday, 11 December 2011

Keppel & SembMar

OCBC Research, Thu, 8 Dec 2011,

The FTSE Oil and Gas index has been outperforming the broader market till the global sell-down in Aug, during which this higher-beta sector suffered under the prospect of a poorer-than-expected global economic outlook. However, the spread has narrowed in the past two months with increasing market realisation that offshore activities remain robust as the favourable oil price environment is conducive for capital expenditure. Stepping into 2012, we expect the local rigbuilders to continue securing orders, albeit at a slower pace. The offshore support vessel sub-sector should also see a continued recovery as the oversupply situation for certain segments runs its course. Meanwhile, tendering activity in the subsea sub-sector is firm. Maintain OVERWEIGHT as the offshore sector has strong long-term fundamentals; countries also have an interest in fulfilling as much domestic oil demand as possible to boost energy security. We prefer Keppel Corporation [BUY, FV:S$12.02] and Sembcorp Marine [BUY, FV:S$5.63], while Ezion Holdings [BUY, FV:S$0.97] is an attractive small-mid cap play.

A tale of two halves… almost. The FTSE Oil and Gas index broadly tracked the STI till early Mar then divergence emerged when the oil and gas index outperformed the broader market. The outperformance continued till the global sell-down in Aug which was led by the historical downgrade of the US government credit rating by S&P, as well as concerns over the Eurozone’s debt situation. The higher beta oil and gas stocks suffered under the prospect of a poorer-than-expected outlook for the global economy, but the spread between the FTSE Oil and Gas index and the STI has narrowed in the past two months with increasing market realisation that offshore activities remain robust as the favourable oil price environment is conducive for capital expenditure in the sector.

Stick with a bottom-up approach. A focused stock-picking strategy would have fared relatively well in 2011, and we would stick to a similar style in 2012, overweighting companies that are operating in sub-sectors with more favourable demand-supply dynamics, have strong balance sheets and order books to weather a downturn. We see credit tightening as a key risk for the sector, given the capital intensive nature of the business. Stepping into 2012, we expect the local rigbuilders to continue securing orders, albeit at a slower pace compared to 2011’s newbuild rush. This excludes Petrobras’ orders, which may be awarded by 1Q12. The offshore support vessel sub-sector should also see continued recovery as the oversupply situation for certain vessel segments runs its course, resulting in more favourable utilisation and day rates. Meanwhile, tendering activity in the subsea sub-sector is firm, though benefits to contractors in terms of earnings contribution may not be felt in the near term.

Strong long-term fundamentals; energy security is the key. We believe that the offshore sector has strong long-term fundamentals as countries have an interest in fulfilling as much domestic oil demand as possible, in order to boost energy security. In Asia, this does not just apply to China and India, but also to places such as Malaysia and Indonesia which face production declines if they do not increase investments in this industry. Going into 2012, we remain OVERWEIGHT on the oil and gas sector, preferring Keppel Corporation [BUY, FV: S$12.02] and Sembcorp Marine [BUY, FV: S$5.63]. Ezion Holdings [BUY, FV: S$0.97] is an attractive small-mid cap play. 

Friday, 9 December 2011


DMG & PARTNERS RESEARCH, Dec 7AT SingTel's 2011 Regional Mobile Investor Day (RMID), the senior managements of six subsidiaries and associates - SingTel Singapore, Optus, AIS, Telkomsel, Bharti and Globe - addressed analysts in parallel breakout sessions. The event's overriding themes were on data, specifically:i) the trend towards new converged services on the National Broadband Network (NBN) in Singapore and Optusii) the use of 3G networks to drive data uptake in the under-penetrated markets of Indonesia and India (Telkomsel/Bharti); andiii) emerging data play with new network investments in nascent 3G markets (Thailand/Philippines). Group-wide trials on Long-Term Evolution (LTE) have been successful, with Optus rolling out its LTE network in 2Q12.SingTel showcased its Next Generation Network (NGN) services/applications across multiple platforms and cloud services on the sidelines of the event. We believe that concerns of its competitors taking a chunk of its lucrative enterprise customers under the NGN are overdone as the group appears to have pre-empted competition well via the up-selling of services and more competitive pricing to migrate customers.NEUTRAL

Thursday, 8 December 2011


DBS Vickers Securities in a Dec 6 research report says: "CD has announced revisions to its taxi fare structure. Given that CD has about 66% of the taxi market share in Singapore, we expect other operators to soon follow suit. "We expect demand for taxis to drop off initially before gradually recovering and that eventually taxi drivers should see higher income. This is only a fare revision which will affect taxi passengers' travelling costs and hirers' income. We don’t expect an immediate change to hire out rates and lease out rates so we keep our earnings estimates for now. "We continue to like CD as our preferred Singapore land transport play over SMRT with its geographical diversity and more attractive valuations. Target price of $1.95. MAINTAIN BUY."


Nomura Research in a Dec 2 research report says: "Ample SGD liquidity (3Q SGD LDR at just 62%) continues to allow DBS to actively leverage the SGD-USD swap market, giving it a crucial edge in USD funding that is driving loan growth (YTD: 22%) as well as market share and customer acquisition (especially Chinese corporates). "Given stronger-than-expected YTD loan growth and non-interest income performance, we raise FY2011-2013F earnings by 2-7%. However, elevated dependence on potentially volatile USD funding, as well as on Greater China assets (c.30% of group) and corporate clients translates into an increased risk profile (and hence higher risk premium) for the franchise. "Reflecting net impact of forecast adjustment and increase in cost of equity input (to 9.5%), new GGM-derived target price is $15.80 or 1.2x FY12F book. MAINTAIN BUY."


OCBC Investment Research in a Dec 2 research report says: "The Australian Competition and Consumer Commission gave the final approval to the alliance between Singapore Airlines (SIA) and Virgin Australia (VBA), Australia's number two carrier. "On top of code-sharing on one another's international and domestic flights under this alliance, SIA and VBA will be able to work together closely on schedule planning so as to provide passengers with seamless flight connections. VBA sees this alliance as a way to capture a larger market share of the lucrative business travel segment from Qantas Airways (QAN), Australia's flag carrier. "While the alliance with VBA is a positive development for SIA, it is too early to quantify its impact to SIA's bottom line. We maintain our fair value estimate of $10.85. MAINTAIN HOLD."