UOBKayhian 4 Sep 2014
FY14F PE (x): 10.8
FY15F PE (x): 8.9
Malaysian beckons. Management sees continued strong demand for liftboats in Asia
Pacific and the Middle East. In particular, Malaysia will be the single largest potential
market for liftboats in the next five years, given the country’s plan to activate marginal
fields, which are expected to be the largest in the region. In Petronas’ 2012 annual
report, the national oil company stated that 80% of Malaysia’s oilfields are technically
suitable for enhanced oil recovery, based on initial screening studies. The application
of EOR could boost the recovery factor to more than 40% and the fields’ life could be
extended to beyond 2040. Separately, India will be an important market in the medium
term as it is imperative for the country to step up domestic oil production to stem rising
oil imports. The situation there is somewhat similar to what Indonesia has experienced.
Fleet to double by 2016. As of mid-14, Ezion's fleet stood at 18 vessels (excluding unit
no. 2 which was sold) with 18 more vessels to be delivered between mid-14 and 3Q16.
All in all, Ezion has a fleet of 36 vessels.
Maintain BUY and target price of S$2.62, based on 11x 2015F PE, or a 15% premium
to the long-term (2004 to current) 1-year forward PE mean of 9.5x for OSV-owner
segment of the oilfield services sector.
Thursday, 4 September 2014
Offshore & Marine Sector
Kim Eng on 4 Sept 2014
Growth shifts to OSVs. With their depleting oil fields, oil companies are under pressure to focus their spending on undeveloped fields, to bring them into production. This will require increasing support from OSVs, including pipelay vessels, liftboats and construction vessels.
OSV shipyards first to benefit... In anticipation of this upturn, OSV operators have started to place newbuild orders, to ensure they have the youngest and right assets to meet demand. This should first benefit OSV shipyards, Nam Cheong (BUY, TP SGD0.55) and Vard (BUY, TP SGD1.25). Order momentum for both has been good, with both optimistic on their future order wins.
… followed by asset owners. Asset owners with newer and better vessels should be preferred by the oil companies. OSV operators with the right fleets should edge out those slower to optimise their fleets. We initiate coverage of POSH (BUY, TP SGD1.26) and Pacific Radiance (BUY, TP SGD1.74). We believe these two have the correct mix of assets to be lifted by the rising tide.
Next in line are maintenance providers. More offshore platforms and subsea pipelines and a bigger infrastructure will require more maintenance and subsea IRM (inspection, repair and maintenance) work. This should benefit Ezion (BUY, TP SGD2.85) and Mermaid Maritime (BUY, TP SGD0.60).
NEUTRAL because of large-cap rigbuilders. We are overall Neutral on the sector because of our HOLD ratings for the large-cap rigbuilders: Keppel Corp, Sembcorp Marine and Sembcorp Industries. However, we see opportunities for the small-mid-cap asset players.
- Cycle now favours oilfield service asset owners with high-quality assets. Industry’s production push to profit OSV supply chain. Time to position in selective OSV operators.
- Initiate coverage of PACC Offshore (POSH SP, TP SGD1.26) and Pacific Radiance (PACRA SP, TP SGD1.74) with BUYs.
- Sector still a Neutral in view of HOLD ratings for large-cap rigbuilders. Top picks are Ezion, POSH and Pacific Radiance.
Growth shifts to OSVs. With their depleting oil fields, oil companies are under pressure to focus their spending on undeveloped fields, to bring them into production. This will require increasing support from OSVs, including pipelay vessels, liftboats and construction vessels.
OSV shipyards first to benefit... In anticipation of this upturn, OSV operators have started to place newbuild orders, to ensure they have the youngest and right assets to meet demand. This should first benefit OSV shipyards, Nam Cheong (BUY, TP SGD0.55) and Vard (BUY, TP SGD1.25). Order momentum for both has been good, with both optimistic on their future order wins.
… followed by asset owners. Asset owners with newer and better vessels should be preferred by the oil companies. OSV operators with the right fleets should edge out those slower to optimise their fleets. We initiate coverage of POSH (BUY, TP SGD1.26) and Pacific Radiance (BUY, TP SGD1.74). We believe these two have the correct mix of assets to be lifted by the rising tide.
Next in line are maintenance providers. More offshore platforms and subsea pipelines and a bigger infrastructure will require more maintenance and subsea IRM (inspection, repair and maintenance) work. This should benefit Ezion (BUY, TP SGD2.85) and Mermaid Maritime (BUY, TP SGD0.60).
NEUTRAL because of large-cap rigbuilders. We are overall Neutral on the sector because of our HOLD ratings for the large-cap rigbuilders: Keppel Corp, Sembcorp Marine and Sembcorp Industries. However, we see opportunities for the small-mid-cap asset players.
Wednesday, 3 September 2014
Oil and Gas Sector
OCBC, 2 Sep 2014
In our earlier report, we highlighted that international oil companies are reining in their capex plans, though national oil companies are still keen to sustain their spending. With softening day rates in the deepwater and ultra-deepwater rig segment, and potential headwinds for the jack-up rig segment next year, we are neutral on the rig market. The outlook for the OSV market remains positive, though one must also differentiate between vessel types, sizes and geographical areas. Meanwhile, there are also pockets of opportunities in other offshore assets. We still see significant upside for Nam Cheong [BUY, FV:S$0.55] and Ezion Holdings [BUY, FV: S$2.78]. While KEP’s [BUY, FV: S$12.31] “Near market, near customer” strategy puts it in good stead to secure more orders, we see diminishing upside should the stock maintain its current upward trajectory. Along with our earlier downgrade of Sembcorp Marine and Sembcorp Industries, we downgrade our sector rating to NEUTRAL. Over the long term, however, we are convinced about the positive outlook for the entire sector.
Rig market – neutral
In our earlier report “Going to where the customers are” on 2 Jun 2014, we highlighted that international oil companies are reining in their capex plans, though national oil companies are still keen to sustain their spending. We have already seen a softening in the day rates for deepwater and ultra-deepwater rigs, and though charter rates for jack-ups are still holding up, we see greater downside risks given the substantial newbuild deliveries ahead. However, companies with a strong presence in growth areas such as Mexico and Brazil may still be able to secure orders going forward.
OSV market- overweight, but be selective
The outlook for the OSV market remains positive, though one must also differentiate between vessel types, sizes and geographical areas. Currently, day rates in Indonesia are buoyant with the cabotage law, but in neighbouring Malaysia, the President of Petronas has sounded caution over charter rates and a potential oversupply. Meanwhile, Mexico is a bright spot, as PEMEX’s tendering activity for OSVs has been rising. In the Middle East, AHTS utilisation rates are likely to be more positive, but players seem to hold less optimism for the North Sea.
Other offshore assets – pockets of opportunities
The demand for liftboats in Asia Pacific is good and looks set to grow with increasing acceptance by oil companies. Industry players are also positive on the outlook for certain large-size accommodation vessels, as well as subsea construction vessels, given the relative scarcity of such assets.
NEUTRAL, but positive long-term
We still see significant upside for Nam Cheong [BUY, FV:S$0.55] and Ezion Holdings [BUY, FV: S$2.78]. KEP's [BUY, FV: S$12.31] “Near market, near customer” strategy puts it in good stead to secure more orders, but we see diminishing upside should the stock maintain its current upward trajectory. Along with our earlier downgrade of Sembcorp Marine and Sembcorp Industries, we downgrade our sector rating to NEUTRAL. Over the long term, however, we are convinced about the positive outlook for the entire sector.
In our earlier report “Going to where the customers are” on 2 Jun 2014, we highlighted that international oil companies are reining in their capex plans, though national oil companies are still keen to sustain their spending. We have already seen a softening in the day rates for deepwater and ultra-deepwater rigs, and though charter rates for jack-ups are still holding up, we see greater downside risks given the substantial newbuild deliveries ahead. However, companies with a strong presence in growth areas such as Mexico and Brazil may still be able to secure orders going forward.
OSV market- overweight, but be selective
The outlook for the OSV market remains positive, though one must also differentiate between vessel types, sizes and geographical areas. Currently, day rates in Indonesia are buoyant with the cabotage law, but in neighbouring Malaysia, the President of Petronas has sounded caution over charter rates and a potential oversupply. Meanwhile, Mexico is a bright spot, as PEMEX’s tendering activity for OSVs has been rising. In the Middle East, AHTS utilisation rates are likely to be more positive, but players seem to hold less optimism for the North Sea.
Other offshore assets – pockets of opportunities
The demand for liftboats in Asia Pacific is good and looks set to grow with increasing acceptance by oil companies. Industry players are also positive on the outlook for certain large-size accommodation vessels, as well as subsea construction vessels, given the relative scarcity of such assets.
NEUTRAL, but positive long-term
We still see significant upside for Nam Cheong [BUY, FV:S$0.55] and Ezion Holdings [BUY, FV: S$2.78]. KEP's [BUY, FV: S$12.31] “Near market, near customer” strategy puts it in good stead to secure more orders, but we see diminishing upside should the stock maintain its current upward trajectory. Along with our earlier downgrade of Sembcorp Marine and Sembcorp Industries, we downgrade our sector rating to NEUTRAL. Over the long term, however, we are convinced about the positive outlook for the entire sector.
Tuesday, 2 September 2014
Rex International
UOBKayhian, 2 Sep 2014
FY14F PE (x): n.m.
FY15F PE (x): n.m.
New technology Rex Gas Indicator added to portfolio. In Aug 14, Rex added Rex Gas
Indicator (RGI) to its suite of Rex Technologies (RT). RGI is able to detect hydrocarbons
in the gaseous phase using conventional seismic data. The addition of RGI to its
portfolio is expected to give Rex access to new markets (gas prospectivity market),
increase the potential in existing and new portfolio as gas prospects can be added to
the resource pool, and increase the attractiveness of REX as a partner to other E&P
companies.
1H15 early oil production in Oman still on track. Management is in the midst of getting
the necessary approvals for technical appraisals from the Ministry of Oil & Gas in Oman.
Early well production is still on track to commence by 1H15, and we understand that
production from the well may be about 5,000-6,000 bopd.
Maintain BUY and target price of S$1.27, based on the expected monetary value of
Rex’s exploration assets using forecasts from traditional geologist findings
FY14F PE (x): n.m.
FY15F PE (x): n.m.
New technology Rex Gas Indicator added to portfolio. In Aug 14, Rex added Rex Gas
Indicator (RGI) to its suite of Rex Technologies (RT). RGI is able to detect hydrocarbons
in the gaseous phase using conventional seismic data. The addition of RGI to its
portfolio is expected to give Rex access to new markets (gas prospectivity market),
increase the potential in existing and new portfolio as gas prospects can be added to
the resource pool, and increase the attractiveness of REX as a partner to other E&P
companies.
1H15 early oil production in Oman still on track. Management is in the midst of getting
the necessary approvals for technical appraisals from the Ministry of Oil & Gas in Oman.
Early well production is still on track to commence by 1H15, and we understand that
production from the well may be about 5,000-6,000 bopd.
Maintain BUY and target price of S$1.27, based on the expected monetary value of
Rex’s exploration assets using forecasts from traditional geologist findings
Halcyon Agri Corp
CREDIT SUISSE, Sept 1
WE reinstate coverage of Halcyon Agri with an "outperform" rating (previously "neutral") and target price of S$1.20 (previously S$0.80). We believe there is over 40 per cent share price upside driven by significant capacity growth and supported by increasing demand in the global tyre market, which should lead to a five-fold growth in net profit over 2013-16 estimated.
Following the acquisition of Anson Company from Lee Rubber for a consideration of S$450 million, Halcyon's licensed capacity will increase by 408,000 tonnes to reach 748,000 tonnes, making it one of the largest producers of Technically Specified Rubber (TSR) globally. Rising demand for natural rubber is likely to be driven by an expanding tyre market, which we expect to grow at 3.8 per cent per annum in 2013-17 estimated.
With the use of Halcyon's sales and marketing to support Anson's operations, we see scope for Anson's margin to increase from US$161/tonne in 2013 to US$320/tonne in 2016 estimated, in line with Halcyon's margin. Overall, we expect the volume growth and acquisition synergies to drive an increase in net profit from US$9 million in 2013 to US$50 million in 2016.
Halcyon currently trades at a 2015 estimated PE of 9.2x and 2016 estimated PE of 5.8x, a discount to global tyre manufacturers and commodity traders. Our S$1.20 target price is based on a 2016 estimated PE of 8.0x, in line with its peers. In our view, the successful execution of its planned capacity growth would drive re-rating. Key risks include high net gearing post acquisition of 2.5x, which would be closer to 2.0x after adjustment for working capital loans.
OUTPERFORM
Olam International
DBS VICKERS RESEARCH, Sept 1
FY14 core net profit was up 29 per cent y-o-y but missed both our and consensus estimates; 2.5 Singapore cents special DPS (dividend per share) was declared. Olam is on track to achieve FY16 gearing target and has completed 61 per cent of its cash realisation plans. Re-rating is expected to continue on the back of strong earnings growth and positive Free Cash Flow to Firm (FCFF) by end FY15. Upgrade to "buy" with target price raised to S$3.05.
BUY
OSIM International
Kim Eng, 2 Sep 2014
OSIM may not have a specific target for acquisitions yet using the proceeds from its recently-issued SGD170m convertible bonds due 2019, but it is very clear on the kind of companies it wants to buy. They must be positioned at the mid- to upper end of the well-being and lifestyle market, have a promising brand, can be scaled up rapidly, is already in China or heading there, and have an interesting product with the potential to dominate its market.
Shareholders will be protected
The 2019 CBs will add 6.2% to its outstanding shares while the upsize option of SGD30m may add another 1.1%. However, its 2011 CBs actually did not dilute EPS much as OSIM repurchased 41m shares in 2011-13. These almost fully offset the 65m new shares issued when the 2011 CB holders converted. Management intends to repurchase shares in any market correction.
Steady as she goes
So far in 3Q14, sales growth has been steady. Its new sofa chair, uDiva, is being progressively rolled out in China, to steady sales. TWG is focusing on North Asian expansion, now that OSIM owns 88% of TWG North Asia, its JV with TWG. There will be greater international expansion of its franchise business for chairs and TWG Tea in 2H14 and FY15. Maintain BUY on the same TP, now on 20x FY15E fully-diluted P/E (previously 19x), in line with the higher valuations for its regional and global peers.
- No acquisition target yet but clear on what will pique its interest. Maintain BUY and SGD3.50 TP on 20x FY15E EPS. Catalysts from signs of greater new product traction in 2H14.
- Shareholders will be protected. No dilution if enough shares are repurchased, similar to 2011 CBs.
- Steady sales growth so far in 2H14. Eyeing North Asia for TWG store expansion and to add franchisees internationally.
OSIM may not have a specific target for acquisitions yet using the proceeds from its recently-issued SGD170m convertible bonds due 2019, but it is very clear on the kind of companies it wants to buy. They must be positioned at the mid- to upper end of the well-being and lifestyle market, have a promising brand, can be scaled up rapidly, is already in China or heading there, and have an interesting product with the potential to dominate its market.
Shareholders will be protected
The 2019 CBs will add 6.2% to its outstanding shares while the upsize option of SGD30m may add another 1.1%. However, its 2011 CBs actually did not dilute EPS much as OSIM repurchased 41m shares in 2011-13. These almost fully offset the 65m new shares issued when the 2011 CB holders converted. Management intends to repurchase shares in any market correction.
Steady as she goes
So far in 3Q14, sales growth has been steady. Its new sofa chair, uDiva, is being progressively rolled out in China, to steady sales. TWG is focusing on North Asian expansion, now that OSIM owns 88% of TWG North Asia, its JV with TWG. There will be greater international expansion of its franchise business for chairs and TWG Tea in 2H14 and FY15. Maintain BUY on the same TP, now on 20x FY15E fully-diluted P/E (previously 19x), in line with the higher valuations for its regional and global peers.
Olam International
OCBC, 1 Sep
Olam saw FY14 revenue fall 6.6% to S$19421.8m, or about 15.7% below our forecast, while reported net profit jumped 67.8% to S$608.5m. Olam noted that operational PATMI was actually down 6.7% at S$325.4m. We estimate that core earnings would have come in around S$364.1m, but still about 8.4% below our number. Olam declared a final dividend of S$0.05/share as well as a “special silver jubilee” dividend of S$0.025, versus a final dividend of S$0.04 last year. We have revised our FY15 estimates and introduced FY16 forecasts. We are also improving our valuation peg from 10x to 12.5x (5-year average), which raises our fair value from S$1.87 to S$2.38 (still based on FY15F EPS). However, given the steep run-up, we think that current valuations appear slightly stretched, hence we maintain our SELL rating.
FY14 results below our forecast
Olam posted a weak set of 4QFY14 results, with revenue down 11.4% YoY at S$5757.7m, after volume shipped fell 18.6% to 3498.3k MT. Reported net profit slipped 43.9% to S$31.8m; although Olam notes that operational PATMI was up 1.5% at S$48.5m. However, we note that core earnings of S$31.7m (excluding exceptionals and fair-value gains) was down 7.8%. FY14 revenue fell 6.6% to S$19421.8m, or about 15.7% below our forecast, while reported net profit jumped 67.8% to S$608.5m; though Olam noted that operational PATMI was actually down 6.7% at S$325.4m. We estimate that core earnings would have come in around S$364.1m, but still about 8.4% below our number. Olam declared a final dividend of S$0.05/share as well as a “special silver jubilee” dividend of S$0.025, versus a final of S$0.04 last year.
Still committed to its FY14-16 Strategy Plan
Olam stressed that the fall in volume shipment was intentional and also part of its strategic plan to sharpen its focus on relevant businesses. For FY15, it expects to release ~S$313.1m of cash, generate a P/L gain of S$22.4m, and add S$118.8m to its capital reserves from divestment initiatives already announced but pending completion. It has also slowed its pace of investments, and it expects to spend around S$500m in FY15 on capex, about the same as FY14, although it does not rule out additional spending if there are very good acquisition opportunities.
Still not FCFF positive yet
However, Olam did not quite manage to turn FCFF positive by end FY14 as guided; although it did end with a slight S$28.7m deficit versus –S$355.7m in FY14. We note that FCFE remains a large S$504.6m deficit due to its high interest burden (but Olam is confident of bringing it down somewhat).
Higher S$2.38 FV; run-up overdone
We have revised our FY15 estimates and introduced FY16 forecasts. We are also improving our valuation peg from 10x to 12.5x (5-year average), which raises our fair value from S$1.85 to S$2.38 (still based on FY15F EPS). However, given the steep run-up, we think that current valuations appear slightly stretched, hence we maintain our SELL rating.
Olam posted a weak set of 4QFY14 results, with revenue down 11.4% YoY at S$5757.7m, after volume shipped fell 18.6% to 3498.3k MT. Reported net profit slipped 43.9% to S$31.8m; although Olam notes that operational PATMI was up 1.5% at S$48.5m. However, we note that core earnings of S$31.7m (excluding exceptionals and fair-value gains) was down 7.8%. FY14 revenue fell 6.6% to S$19421.8m, or about 15.7% below our forecast, while reported net profit jumped 67.8% to S$608.5m; though Olam noted that operational PATMI was actually down 6.7% at S$325.4m. We estimate that core earnings would have come in around S$364.1m, but still about 8.4% below our number. Olam declared a final dividend of S$0.05/share as well as a “special silver jubilee” dividend of S$0.025, versus a final of S$0.04 last year.
Still committed to its FY14-16 Strategy Plan
Olam stressed that the fall in volume shipment was intentional and also part of its strategic plan to sharpen its focus on relevant businesses. For FY15, it expects to release ~S$313.1m of cash, generate a P/L gain of S$22.4m, and add S$118.8m to its capital reserves from divestment initiatives already announced but pending completion. It has also slowed its pace of investments, and it expects to spend around S$500m in FY15 on capex, about the same as FY14, although it does not rule out additional spending if there are very good acquisition opportunities.
Still not FCFF positive yet
However, Olam did not quite manage to turn FCFF positive by end FY14 as guided; although it did end with a slight S$28.7m deficit versus –S$355.7m in FY14. We note that FCFE remains a large S$504.6m deficit due to its high interest burden (but Olam is confident of bringing it down somewhat).
Higher S$2.38 FV; run-up overdone
We have revised our FY15 estimates and introduced FY16 forecasts. We are also improving our valuation peg from 10x to 12.5x (5-year average), which raises our fair value from S$1.85 to S$2.38 (still based on FY15F EPS). However, given the steep run-up, we think that current valuations appear slightly stretched, hence we maintain our SELL rating.
Monday, 1 September 2014
Olam International
UOBKayhian on 1 Sep 2014
FY14F PE (x): 18.9.
FY15F PE (x): 18.3
Olam International (OLAM SP) reported FY14 core net profit of S$325.4m, below
expectation of S$368m. FY14 reported net profit of S$608.5m (vs net profit S$362.6m)
includes an exceptional gain of S$283.1m.
Moderation in sale volume and focus on margin. Management had guided for more
modest growth in sales volume after seeing the contraction in FY13. The slower sales
volume growth is intentional as Olam would like to focus more on products that give
better profit margins, eg it divested its grain operations in Australia and lowered the
grain trading operation in South Africa. For FY13, sales volume declined 6.7% yoy due
to the higher base in FY13 (49.5% growth over FY12) and it has targeted to reduce
sales volume in the lower margin business as per its strategic plan. We are expecting a
marginal 1.8% sale volume growth for FY15 largely driven by the Edible Nuts and
Confectionary divisions.
Maintain HOLD with higher target price of S$2.30 pegged to FY15F PE of 12.7x (1 SD
below 5-years CAGR). Entry price is S$2.10.
FY14F PE (x): 18.9.
FY15F PE (x): 18.3
Olam International (OLAM SP) reported FY14 core net profit of S$325.4m, below
expectation of S$368m. FY14 reported net profit of S$608.5m (vs net profit S$362.6m)
includes an exceptional gain of S$283.1m.
Moderation in sale volume and focus on margin. Management had guided for more
modest growth in sales volume after seeing the contraction in FY13. The slower sales
volume growth is intentional as Olam would like to focus more on products that give
better profit margins, eg it divested its grain operations in Australia and lowered the
grain trading operation in South Africa. For FY13, sales volume declined 6.7% yoy due
to the higher base in FY13 (49.5% growth over FY12) and it has targeted to reduce
sales volume in the lower margin business as per its strategic plan. We are expecting a
marginal 1.8% sale volume growth for FY15 largely driven by the Edible Nuts and
Confectionary divisions.
Maintain HOLD with higher target price of S$2.30 pegged to FY15F PE of 12.7x (1 SD
below 5-years CAGR). Entry price is S$2.10.
Singapore Oil & Gas
UOBKayhian on 1 Sep 2014
FY14F PE (x): n.a.
FY15F PE (x): 25.7
Our investment thesis is premised on four near/mid-term catalysts: a) immediate
upside to its share price once the government approves its transactions in Indonesia
(Block A Aceh PSC and Tanjung Aru PSC), b) significant upside to its 2P reserves
(75mmboe) by end-15, c) production to more than double from 7,800 barrels of oil per
day (bopd) in 2014 to 21,000bopd in 2016, and d) attractive M&A target at current
prices.
Target price of S$1.18 implies 47.5% upside. Our 1-year target price of S$1.18 implies
44.7% upside. Our target price is derived from our NPV valuation where we build
discrete DCF models for all of Kris’ assets (excluding exploration) and adopt three
valuation classes to better categorise the different asset risk profiles: a)
producing/near-producing assets, b) development/pre-development assets, and c)
exploration assets.
FY14F PE (x): n.a.
FY15F PE (x): 25.7
Our investment thesis is premised on four near/mid-term catalysts: a) immediate
upside to its share price once the government approves its transactions in Indonesia
(Block A Aceh PSC and Tanjung Aru PSC), b) significant upside to its 2P reserves
(75mmboe) by end-15, c) production to more than double from 7,800 barrels of oil per
day (bopd) in 2014 to 21,000bopd in 2016, and d) attractive M&A target at current
prices.
Target price of S$1.18 implies 47.5% upside. Our 1-year target price of S$1.18 implies
44.7% upside. Our target price is derived from our NPV valuation where we build
discrete DCF models for all of Kris’ assets (excluding exploration) and adopt three
valuation classes to better categorise the different asset risk profiles: a)
producing/near-producing assets, b) development/pre-development assets, and c)
exploration assets.
Singapore Banks
Kim Eng on 1 Sept 2014
Industry domestic banking unit (DBU) loans grew a slower 10.8% YoY in July, particularly for business loans (+14.1%). Lending for general commerce (+18.8% YoY) and to financial institutions (+23.4%) continued to anchor DBU loans. Property weakness continued to drag down consumer loan growth (+6.0% YoY), to its slowest in seven years. The domestic loan-growth slowdown may manifest itself in Singapore banks’ loan data for 3Q14. However, the impact should be cushioned by stronger loan demand from Greater China, which has been gaining in importance.
SGD LDR could rise further
SGD deposits rose just 0.7% MoM or 0.1% YoY in July. Holding cash remains unappealing when interest rates are so depressed. As a result, SGD LDR continued to hover around to 86.5%, a level we are still comfortable with. But with deposit growth expected to remain sluggish, SGD LDR could rise further.
We expect industry loan growth to slow to 9-10% in 2014-15. Housing loans should expand just 4-6%, in tandem with a slowing property market. However, we believe its slack will be picked up by reasonably strong business loan growth of 12-14%. Lending for general commerce could prove to be the wild card.
For exposure, DBS is our top sector pick (BUY, TP SGD23.40). It should be best positioned to take advantage of an eventual rise in interest rates.
- Industry DBU loan growth slowed to 10.8% YoY in July, on slowing business (+14.1%) and housing loan growth (+7.0%).
- SGD deposit growth (+0.7% MoM, +0.1% YoY) remained paltry. SGD LDR improved a tad to 86.5%.
- Remain Neutral on banks. DBS our top sector pick.
Industry domestic banking unit (DBU) loans grew a slower 10.8% YoY in July, particularly for business loans (+14.1%). Lending for general commerce (+18.8% YoY) and to financial institutions (+23.4%) continued to anchor DBU loans. Property weakness continued to drag down consumer loan growth (+6.0% YoY), to its slowest in seven years. The domestic loan-growth slowdown may manifest itself in Singapore banks’ loan data for 3Q14. However, the impact should be cushioned by stronger loan demand from Greater China, which has been gaining in importance.
SGD LDR could rise further
SGD deposits rose just 0.7% MoM or 0.1% YoY in July. Holding cash remains unappealing when interest rates are so depressed. As a result, SGD LDR continued to hover around to 86.5%, a level we are still comfortable with. But with deposit growth expected to remain sluggish, SGD LDR could rise further.
We expect industry loan growth to slow to 9-10% in 2014-15. Housing loans should expand just 4-6%, in tandem with a slowing property market. However, we believe its slack will be picked up by reasonably strong business loan growth of 12-14%. Lending for general commerce could prove to be the wild card.
For exposure, DBS is our top sector pick (BUY, TP SGD23.40). It should be best positioned to take advantage of an eventual rise in interest rates.
Olam International
Kim Eng on 1 Sep 2014
4QFY6/14 earnings were in line with market expectation. Revenue dropped 11.4% YoY on lower sales volume, a change in its business mix and lower commodity prices. EBITDA, after adjusting for biological gains, was flat YoY. Excluding exceptionals, operational profit climbed by 1.5% YoY. Full-year performance benefited from upstream nut plantations, favourable coffee trading conditions, flour milling, packaged foods and sugar refining, attenuated by less favourable trading conditions for rice, grains and cotton. FY6/14 EBITDA grew 8%, excluding biological gains.
HOLD maintained
Olam secured a competitively priced USD2.22b short-term committed unsecured revolving credit facility in 4QFY6/14, which increased its portion of short-term debt. This will be partly used to re-finance its high-cost debt. It also issued SGD400m 5-year notes and USD300m 5.5-year senior notes under its USD5b MTN programme, priced at 4.25/4.5% respectively. We now expect its cost of borrowing to drop to 5.5-5.8% in FY15E-16E (previous forecast 6.5%). We also expect more divestments of non-core businesses for capital recycling and paring down net gearing to 1.6x by FY6/17 from 1.8x. Our FY6/15E-16E EPS has been raised by 9/14% for interest cost savings.
We believe its positives have been priced in as Olam is trading at a 15% premium over peers. Maintain HOLD. Our TP rises to SGD2.52 from SGD2.35 after our EPS adjustments, still at 13x FY6/15E P/E, its 5-year average.
- 4QFY6/14 results in line. Revenue down 11.4% YoY but operational profit up 1.5% YoY.
- Raise EPS by 9-14% for lower gearing and cost of borrowing. Also raise TP to SGD2.52 from SGD2.35 (13x FY15E P/E).
- Trading at 15% premium over peers. Maintain HOLD.
4QFY6/14 earnings were in line with market expectation. Revenue dropped 11.4% YoY on lower sales volume, a change in its business mix and lower commodity prices. EBITDA, after adjusting for biological gains, was flat YoY. Excluding exceptionals, operational profit climbed by 1.5% YoY. Full-year performance benefited from upstream nut plantations, favourable coffee trading conditions, flour milling, packaged foods and sugar refining, attenuated by less favourable trading conditions for rice, grains and cotton. FY6/14 EBITDA grew 8%, excluding biological gains.
HOLD maintained
Olam secured a competitively priced USD2.22b short-term committed unsecured revolving credit facility in 4QFY6/14, which increased its portion of short-term debt. This will be partly used to re-finance its high-cost debt. It also issued SGD400m 5-year notes and USD300m 5.5-year senior notes under its USD5b MTN programme, priced at 4.25/4.5% respectively. We now expect its cost of borrowing to drop to 5.5-5.8% in FY15E-16E (previous forecast 6.5%). We also expect more divestments of non-core businesses for capital recycling and paring down net gearing to 1.6x by FY6/17 from 1.8x. Our FY6/15E-16E EPS has been raised by 9/14% for interest cost savings.
We believe its positives have been priced in as Olam is trading at a 15% premium over peers. Maintain HOLD. Our TP rises to SGD2.52 from SGD2.35 after our EPS adjustments, still at 13x FY6/15E P/E, its 5-year average.
Friday, 29 August 2014
Silverlake Axis Limited
PHILLIP SECURITIES RESEARCH, Aug 28
SILVERLAKE Axis Limited's (SAL) Q4,14 revenue gained 25 per cent y-o-y, from higher software licensing and maintenance and enhancement services. Full-year revenue increased 26 per cent y-o-y at RM500.7 million (S$198.08 million), above our estimate by 2.8 per cent.
Full-year gross margin was lower y-o-y at 61.3 per cent, due to lower margins from certain projects and drag downs in first and third fiscal quarters.
Quarterly and full-year net profits were higher at 24 per cent y-o-y and 27 per cent y-o-y, respectively. FY14 earnings was at RM248.9 million, above our estimate by 3.7 per cent. Final dividends of 1.2 Singapore cents per share were declared, along with special dividends of 0.6 Singapore cents.
Growth in all segments apart from software project services contributed to strong FY14 revenue gain. The project services segment is guided to pick up on execution of software implementation projects secured for fiscal year 2015. Management also guided for revenue to grow at mid-teens.
The enhancement services segment is set to grow with more enhancement projects expected to come from Malaysia on software upgrades to be GST-compliant, following the Malaysian government's announcement to introduce goods and services tax (GST) from April 2015.
The insurance processing business is also expected to have strong growth, mainly from increase in general insurance and health claims processing activities in Indonesia.
Current project backlog gained to about RM280 million. Special dividends were declared to reward shareholders as a result of strong FY14 performance and high net cash balance.
We remained positive on SAL on the back of favourable trends towards upgrading and modernising of core banking systems and regionalisation of banks in Asean. SAL would benefit from additional recurring maintenance revenue and future enhancement services with every successfully completed software implementation project.
We also see SAL gaining from post-merger integration projects coming from OCBC-Wing Hang merger and possibly, merger between CIMB, RHB and MBSB.
We continue to like Silverlake Axis for its excellent growth potential, solid balance sheet and growing recurring revenue streams. We revised our FY15 forecasts to reflect management's guidance and maintained our "Accumulate" rating with a target price of S$1.320 (implied FY15 forecast PE of 27.0 times)
ACCUMULATE
Hotel Reits
CIMB RESEARCH, Aug 27
WE expect hotel revenue per available room (RevPAR) to gain ground in H2,14 on the back of i) lower supply of new hotel rooms than previously forecast, ii) the recent opening of the Singapore Sports Hub, and iii) stabilisation of the rupiah.
We think hotel Reits are becoming attractive as fundamentals strengthen. Our top pick is OUE Hospitality Trust (TP: S$0.96).
Stronger H2 expected
Although visitor numbers to Singapore have been weak during the first half of the year (-2.8 per cent y-o-y), this can mainly be attributed to the lower Chinese visitor arrivals (-29.8 per cent y-o-y for H1,14). However, we note that Chinese spending rose one per cent in Q1,14 when corresponding arrivals dropped 14 per cent.
Moving into H2, we believe the sector should perform better as the Indonesian rupiah stabilises with the completion of the presidential election. Our expectations are further reaffirmed by Reit managers' recent guidance for stronger occupancy in July and more corporate bookings and activities in August.
In addition, our sensitivity study on tourism arrivals (based on data since 2004) pointed that even if Chinese visitor arrivals do not rebound in H2, visitor arrivals in H2,14 should still grow by about 2.8 per cent versus H1,14.
This, coupled with the recent opening of the Singapore Sports Hub and lower supply of new hotel rooms (1,622 versus previous forecast of 3,234) in FY14 bodes well for a recovery in the hotel space here.
Valuations still attractive
Meanwhile, the sector's valuations have fallen to dividend yields of 7.1 per cent for FY14 and 7.3 per cent for FY15 and 1.0 times P/BV versus CDL Hospitality Trusts' trading range of 5-6 per cent yield and 1.4 times P/BV in 2010/11.
CDL-HT is currently trading at a yield spread of 5.1 per cent versus its historical average of 3.6 per cent. Should RevPAR stabilise, getting back to the average is not far-fetched.
Risks are on demand
The risk in taking a bullish view is that if visitor arrivals remain weaker than expected, the sector's RevPAR could encounter another speed bump and valuations may fall back to the current lower bands.
CDL Hospitality Trusts: CDL-HT is expected to benefit from a recovery in corporate spending as the global economy recovers. Additional contributions from the Maldives are also expected in 2014.
Far East Hospitality Trust: FY14 RevPAR is expected to be flat as potential upside from sturdier corporate spending is likely to be offset by strong competition, the result of a high supply of hotel rooms. FEHT is trading in line with the sector average, offering 6.8 per cent FY14-15 dividend yields at 1.0 times P/BV.
OUE Hospitality Trusts: OUE-HT is our top pick among the hospitality Reits on the back of its stable outlook, high proportion of income secured under fixed rates and room for RevPAR growth from AEI at MOS.
Sector: OVERWEIGHT
IHH Healthcare
UOBKayhian on 29 Aug 2014
FY14F PE (x): 52.6
FY15F PE (x): 40.7
Results in line. IHH Healthcare (IHH) reported strong performance at its existing
hospitals and the continuous ramp-up of new hospitals. Parkway Pantai, Acibadem and
IMU Health reported 2Q14 revenue growth of 12% yoy each on a constant currency
basis, and EBITDA growth of 18%, 13% and 17% respectively. 1H14 revenue and net
profit represent 47-48% of our full-year forecasts.
Valuations lofty; downgrade to SELL. We have a higher target price of S$1.60 after we
adjusted for a higher peer-average EV/EBITDA multiple. Nonetheless, we think
valuations are rich with the stock currently trading at a 2015F PE of 41x vs the peer
average of 25x. Within the Singapore-listed healthcare space, we prefer Raffles
Medical and QT Vascular for those with a more aggressive risk appetite.
FY14F PE (x): 52.6
FY15F PE (x): 40.7
Results in line. IHH Healthcare (IHH) reported strong performance at its existing
hospitals and the continuous ramp-up of new hospitals. Parkway Pantai, Acibadem and
IMU Health reported 2Q14 revenue growth of 12% yoy each on a constant currency
basis, and EBITDA growth of 18%, 13% and 17% respectively. 1H14 revenue and net
profit represent 47-48% of our full-year forecasts.
Valuations lofty; downgrade to SELL. We have a higher target price of S$1.60 after we
adjusted for a higher peer-average EV/EBITDA multiple. Nonetheless, we think
valuations are rich with the stock currently trading at a 2015F PE of 41x vs the peer
average of 25x. Within the Singapore-listed healthcare space, we prefer Raffles
Medical and QT Vascular for those with a more aggressive risk appetite.
Wing Tai Holdings
UOBkayhian on 29 Aug 2014
FY15F PE (x): 9.8
FY16F PE (x): 9.3
Results above expectations. Wing Tai reported 4QFY14 net profit of S$153.8m, down
47% yoy, bringing FY14 net profit to S$276.3m (-53% yoy). Core net profit of S$204m
excluding fair-value gains (S$52.1m) and effect of a change in accounting policy
(S$20.9m) was above expectations. The strong contribution from development
properties was underpinned by earnings recognised from Foresque Residences, Le
Nouvel Ardmore, L’VIV, Helios Residences in Singapore as well as Verticas
Residences in Malaysia and The Lakeview in China.
Maintain BUY and target price of S$2.50, pegged at a 30% discount to our higher
RNAV of S$3.57/share (from S$3.33) as we roll forward valuation. The discount has
increased to 30% (from 25%) to factor in the even weak home buying and retail
sentiment and the risk of extension charges. We believe the negatives are more than
priced in.
FY15F PE (x): 9.8
FY16F PE (x): 9.3
Results above expectations. Wing Tai reported 4QFY14 net profit of S$153.8m, down
47% yoy, bringing FY14 net profit to S$276.3m (-53% yoy). Core net profit of S$204m
excluding fair-value gains (S$52.1m) and effect of a change in accounting policy
(S$20.9m) was above expectations. The strong contribution from development
properties was underpinned by earnings recognised from Foresque Residences, Le
Nouvel Ardmore, L’VIV, Helios Residences in Singapore as well as Verticas
Residences in Malaysia and The Lakeview in China.
Maintain BUY and target price of S$2.50, pegged at a 30% discount to our higher
RNAV of S$3.57/share (from S$3.33) as we roll forward valuation. The discount has
increased to 30% (from 25%) to factor in the even weak home buying and retail
sentiment and the risk of extension charges. We believe the negatives are more than
priced in.
ECS Holdings
OCBC on 29 Aug 2014
According to IDC, the server market is experiencing the start of an infrastructure refresh cycle as systems that were deployed shortly after the financial crisis are retired and replaced, which is expected to continue into 2015. The top five server vendors holding more than 75% of total worldwide server market share are also vendors of ECS. Since turning its focus from distribution to enterprise segment last year, we believe ECS is poised to capture the growth arising from growing demand for servers alongside with its vendors. Furthermore, with the expected strong pipeline of new Apple products, we believe ECS will see growth. Hence, we revised our FY14 and FY15 PATMI forecast upwards by 2% and 7%, respectively. As we expect the growth to be more significant in 2015, we rolled forward our valuations to 6x FY15F EPS to derive an increased new fair value estimate of S$0.68 (prev. S$0.61), supported by a decent FY14F dividend yield of 3.7%. Upgrade from Hold to BUY.
The right move to focus on enterprise segment
IDC reported server market revenue and shipments increased 2.5% YoY in 2Q14 to US$12.6b and 1.2% to 2.2m units, respectively. The server market is experiencing the start of an infrastructure refresh cycle as systems that were deployed shortly after the financial crisis are retired and replaced, which is expected to continue into 2015. The top five server vendors including HP and IBM are also ECS Holdings’ (ECS) vendors, and make up ~77% of total worldwide server market share in 2Q14. HP led the market for x86 servers and blade servers’ demand which saw revenue growth of 7.8% and 7.0% YoY in 2Q14, respectively. Since turning its focus from distribution to enterprise segment last year, we believe ECS is poised to capture the growth arising from growing demand for servers alongside with its vendors.
Growth from new Apple products’ launches
Apple remains one of ECS’ key products in its distribution segment, especially in China, contributing more than 10% of ECS’ total revenue. With iPhone 6 likely to be unveiled on 9-Sep-14, sales are expected to commence late Sep-14. Apple forecasted its 4QFY14 revenue to see a 3%-7% YoY increase. We believe the demand for the new iPhones will continue into at least 1H15. Furthermore, we think that the thinner and lighter new MacBook, as well as its new 12.9-inch iPad are likely to be released in 1H15. Given the expected strong pipeline of new Apple products, we think ECS will see growth, especially from distribution segment in China. However, we believe this growth is likely to be partially offset by the decline in PCs and printers distribution business.
FV revised upwards to S$0.68; upgrade to BUY
We believe the technology sector outlook is likely to benefit ECS capturing growth alongside with its vendors. Hence, we revised our FY14 and FY15 PATMI forecast upwards by 2% and 7%, respectively, with an unchanged segmental gross margin assumption. As we expect the growth to be more significant in 2015, we rolled forward our valuations to 6x FY15F EPS to derive an increased new fair value estimate of S$0.68 (prev. S$0.61), supported by a decent FY14F dividend yield of 3.7%. Upgrade from Hold to BUY.
IDC reported server market revenue and shipments increased 2.5% YoY in 2Q14 to US$12.6b and 1.2% to 2.2m units, respectively. The server market is experiencing the start of an infrastructure refresh cycle as systems that were deployed shortly after the financial crisis are retired and replaced, which is expected to continue into 2015. The top five server vendors including HP and IBM are also ECS Holdings’ (ECS) vendors, and make up ~77% of total worldwide server market share in 2Q14. HP led the market for x86 servers and blade servers’ demand which saw revenue growth of 7.8% and 7.0% YoY in 2Q14, respectively. Since turning its focus from distribution to enterprise segment last year, we believe ECS is poised to capture the growth arising from growing demand for servers alongside with its vendors.
Growth from new Apple products’ launches
Apple remains one of ECS’ key products in its distribution segment, especially in China, contributing more than 10% of ECS’ total revenue. With iPhone 6 likely to be unveiled on 9-Sep-14, sales are expected to commence late Sep-14. Apple forecasted its 4QFY14 revenue to see a 3%-7% YoY increase. We believe the demand for the new iPhones will continue into at least 1H15. Furthermore, we think that the thinner and lighter new MacBook, as well as its new 12.9-inch iPad are likely to be released in 1H15. Given the expected strong pipeline of new Apple products, we think ECS will see growth, especially from distribution segment in China. However, we believe this growth is likely to be partially offset by the decline in PCs and printers distribution business.
FV revised upwards to S$0.68; upgrade to BUY
We believe the technology sector outlook is likely to benefit ECS capturing growth alongside with its vendors. Hence, we revised our FY14 and FY15 PATMI forecast upwards by 2% and 7%, respectively, with an unchanged segmental gross margin assumption. As we expect the growth to be more significant in 2015, we rolled forward our valuations to 6x FY15F EPS to derive an increased new fair value estimate of S$0.68 (prev. S$0.61), supported by a decent FY14F dividend yield of 3.7%. Upgrade from Hold to BUY.
Thursday, 28 August 2014
ARA Asset Management
DBS Group Research, Equity, Aug 26
THE Business Times reported on Tuesday that the Straits Trading Building, currently owned by Straits Trading Company (STC), may be sold to an overseas party in Asia for about S$450 million, implying S$2,800 per square foot of NLA (net lettable area).
This is understood to be a benchmark pricing for an office block in recent years. The price is understood to imply an exit yield of 3 per cent. The property, which was completed in 2009 and has a NLA of 159,000 sq ft, is currently 100 per cent occupied and anchored by Rajah & Tann, one of Singapore leading law firms and the headquarters of STC.
Will Suntec Reit buy? Earlier in May, we had mooted the possibility that STC could sell the asset to Suntec Reit, given STC's tie-up with ARA, which is also the manager of Suntec Reit.
We see synergies to Suntec Reit's portfolio, given its strategic location within Singapore central business district, which is its core investment strategy.
However, the property's reported selling price of S$450 million is significantly higher than its S$400 million valuation as at Dec 31, 2013. A 3 per cent cap will mean that the deal is likely to be only marginally accretive to Suntec Reit, assuming 100 per cent debt funding which will lift gearing up to about 40 per cent (after computing for future capex for its Australia investments); we believe this is not sustainable in the long term.
ARA AM aims to extract maximum value for its investors.
Although the Straits Trading Building is widely anticipated to be acquired by Suntec Reit, a sale to a third party while having a negative impact on the value of ARA's total AUM, would not be a worse case scenario.
This further reaffirms the group's focus on extracting maximum value from assets under its management, versus simply retaining them for the purpose of generating management fees.
For Suntec Reit, given the high capital value of its office assets in Singapore, we believe that near-term acquisitions will remain limited. However, future earnings will continue to be driven by the completion of asset enhancement works at Suntec City Mall in the near term, as well as the completion of the 177-190 Pacific Highway office development in Sydney in 2016; the Reit had acquired this for S$413 million in November 2013.
We maintain our recommendations for
ARA: BUY (TP: S$2.00)
Neptune Orient Lines
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS, Aug 27
WE have raised our rating from Underperform to Outperform for Neptune Orient Lines (NOL) as we observe the liner shipping sector displaying the same characteristics as it did in the last four months of 2012, during which time sector stock prices rallied 14 per cent.
- We see port congestion in major ports (especially for large vessels) and potential box shortages constraining supply, combining with demand that is surprisingly on the upside, as being conducive to rate increases ahead of expectations.
- We have lifted our earnings estimates for NOL from a loss of S$12 million to NPAT (net profit after tax) of S$15 million in 2014 and lift our estimate for 2015 38 per cent to S$105 million on better volume and rate expectations in Q314 and their flow through to the following year.
- We have also lifted our target price for NOL from S$0.90 to S$1.15 as a consequence of the earnings improvement, but also because we think both asset values are rising and multiples are likely to expand. Our new TP is based on a target P/B of 1.1 times.
Capacity drives rates, rates drive stock prices, and we see capacity coming down at the same time as demand is rising, laying the foundations for a very firm Q3 peak season.
Demand growth averaged 7 per cent in Q214 among the liner companies we cover and had risen robustly in figures to June (EU box volumes +7 per cent YTD, US imports up 2 per cent, Asian exports +6 per cent). The factors driving demand (employment, housing starts and inventory levels) look set to maintain demand growth momentum in H214.
While vessel deliveries continue apace, congestion levels, especially in ports handling large vessels, have exceeded these. Congestion in some of Asia's feeder ports is also playing to this theme. Meanwhile, operators are identifying box shortages as another potential supply-side constraint.
Combined with better demand, we see a robust Q3 peak in both volume and rate terms, with earnings expected to exceed Q312, given the effects of large vessel and alliance efficiencies together with lower bunker prices.
Liner stocks gained 14 per cent from early September 2012 to end-December 2012 and we feel that they are well placed to repeat that gain as 2014 closes.
NOL's earnings are expected to hit consistently positive territory starting from Q314, as improved Transpacific spot rates benefit it, as will increases in some of its short sea markets.
As a large proportion of its rates are contract-based, NOL's earnings lift is not expected until next year when Transpacific rates re-set, but meanwhile, we anticipate that it will trade back to the 1.1 times P/B levels that characterised Q3/Q412, and which remain still at a discount to the company's post GFC mean of 1.2 times.
When marked to market, desk-top valuations show NOL at a slight premium to the market value of its assets. However, the youth of its fleet and its logistics business' potential value (as much as US$1.1 billion) suggest that this is really a discount.
OUTPERFORM
Silverlake Axis
Kim Eng on 28 Aug 2014
Management painted a rosy outlook in today’s analysts’ briefing. A potential merger of CIMB, RHB and MBSB should present opportunities. Outstanding orders of MYR280m will be delivered over the next 15 months. Management believes mid-teens revenue or PATMI annual growth is achievable over the next five years.
4QFY6/14’s robust PATMI was fuelled by software licencing sales (+42%). We see this as a positive indicator of recurring maintenance work.
Maintain BUY and TP of SGD1.40
We adjust our EPS by -2%/+3%/+3% for FY6/15E-17E, for a moderation in near-term expectations to reflect its latest guidance. The impending CIMB-RHB-MBSB merger implies medium-term earnings will improve on a higher workload for the combined entity.
We maintain our DCF-based TP of SGD1.40 (WACC 9.3%, TG 3%). With its entrenched market position, SAL should benefit from rising IT spending in the Asia-Pac’s banking market. Ongoing upgrading of ageing core banking systems should continue to drive sales of its flagship product. In particular, we expect SAL to participate in projects related to OCBC’s recent acquisition of Wing Hang Bank.
- Mid-teens revenue or PATMI growth pa guided for next five years. Order book of MYR280m offers visibility for next 15 months. Maintain BUY and DCF-based TP of SGD1.40 (WACC 9.3%).
- Opportunities from Malaysian bank mergers and OCBC’s recent acquisition of Wing Hang Bank.
- Strong finish to FY6/14. Core EPS beat by 12% on higher-than-expected sales. FY15E-17E EPS refined by -2% to +3%.
Management painted a rosy outlook in today’s analysts’ briefing. A potential merger of CIMB, RHB and MBSB should present opportunities. Outstanding orders of MYR280m will be delivered over the next 15 months. Management believes mid-teens revenue or PATMI annual growth is achievable over the next five years.
4QFY6/14’s robust PATMI was fuelled by software licencing sales (+42%). We see this as a positive indicator of recurring maintenance work.
Maintain BUY and TP of SGD1.40
We adjust our EPS by -2%/+3%/+3% for FY6/15E-17E, for a moderation in near-term expectations to reflect its latest guidance. The impending CIMB-RHB-MBSB merger implies medium-term earnings will improve on a higher workload for the combined entity.
We maintain our DCF-based TP of SGD1.40 (WACC 9.3%, TG 3%). With its entrenched market position, SAL should benefit from rising IT spending in the Asia-Pac’s banking market. Ongoing upgrading of ageing core banking systems should continue to drive sales of its flagship product. In particular, we expect SAL to participate in projects related to OCBC’s recent acquisition of Wing Hang Bank.
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