Thursday, January 2, 2014

DBS Vickers Report 3 Jan 14

Today’s Focus
• 2014 Outlook - Earnings growth to accelerate on
external recovery. Focus on global proxies, China
beneficiaries and Oil & Gas plays
Singapore equities will be underpinned by the recovery
momentum in the US, and the anticipated shift out of
recession in the Eurozone. In Asia, China’s GDP slowdown
should also stabilise in 2014. However, optimism will be
capped by the extent of QE tapering and the weak market
sentiment for ASEAN. STI is likely to range trade as sentiment
gyrates between optimism in recovery in developed markets
and uncertainties within ASEAN. We peg a STI range of 2950
to 3350 in the coming months, which coincides quite closely
with 12.33x (-1SD) to 13.9x (Ave) blended FY14/FY15 PE. We
expect the companies under our coverage to enjoy earnings
growth acceleration in 2014. We see earnings (before EI)
jumping 12.8% in 2014F compared with just 0.5% for
2013F.
Key themes for investment are centred around external
recovery and global cyclicals, supported by earnings growth
drivers in the industrial, oil and gas sectors. As QE tapering
progresses, expectations of a steepening yield curve reduces
investors’ appetite for yield stocks. The rotation from yield
sensitive sectors to growth stocks will gain momentum. As
such, we Overweight Banks, Industrials, Oil and Gas,
Consumer Services, Underweight Consumer Goods and
REITS, and Neutral on Property and Telcos.
In terms of stock pick, global proxies, China beneficiaries and
oil and gas plays are key focus. Proxies to global recoveries
are Hutchison Port, Goodpack and Venture. With China’s
outlook stabilising, beneficiaries of China’s reform efforts are
Midas, Global Logistics and Osim. Domestic recovery proxies
are Genting Singapore, Courts and OCBC. Rate of recovery in
the OSV market will drive a re-rating for the sector,
benefitting vessel owners like Pacific Radiance, while Ezion
will continue to thrive on its niche product offerings.
Turnaround plays to watch out for in 2014 are Ezra and Vard;
resolving their execution issues and a sustainable recovery
could see both stocks re-rating. Keppel Corp’s order wins
have surpassed expectations with more potential orders in the
offing, while margins are recovering.
US Indices Last Close Pts Chg % Chg
Dow Jones 􀀙 16,441.4 (135.3) (0.8)
S&P 􀀙 1,832.0 (16.4) (0.9)
NASDAQ 􀀙 4,143.1 (33.5) (0.8)
Regional Indices
ST Index 􀀘 3,174.7 7.2 0.2
ST Small Cap 􀀘 546.0 3.9 0.7
Hang Seng 􀀘 23,340.1 33.7 0.1
HSCEI 􀀙 10,709.3 (106.8) (1.0)
HSCCI 􀀘 4,562.8 9.2 0.2
KLCI 􀀙 1,853.0 (14.0) (0.8)
SET 􀀙 1,230.8 (67.9) (5.2)
JCI 􀀘 4,327.3 53.1 1.2
PCOMP 􀀘 5,984.3 94.4 1.6
KOSPI 􀀙 1,967.2 (44.1) (2.2)
TWSE 􀀘 8,612.5 1.0 0.0
Nikkei 􀀘 16,291.3 112.4 0.7
STI Index Performance
Singapore
1,000
2,000
3,000
4,000
2006 2007 2008 2009 2010 2011 2012 2013
100-Day MA
Index
STI
Total Market cap (US$bn) 575
Total Daily Vol (m shrs) 4,564
12m ST Index High 3,454
12m ST Index Low 3,004
Source: Bloomberg Finance L.P.
Stock Picks – Large Cap
Rec’n Price (S$)
2 Jan
Target Price
(S$)
Hutchison Port Hldgs Trust (US$) Buy 0.675 0.80
Keppel Corp Buy 11.200 12.90
OCBC Buy 10.180 12.40
Yangzijiang Buy 1.190 1.32
Stock Picks – Small /Mid Cap
Rec’n Price (S$)
2 Jan
Target Price
($)
Ezion Holdings Buy 2.260 3.30
China Merchants Buy 0.925 1.20
CSE Global Buy 0.750 1.11
Nam Cheong Buy 0.330 0.42
Source: Bloomberg Finance L.P., DBS Vickers
Singapore
Wired Daily
Page 2
We initiate coverage on Pacific Radiance with BUY rating and
S$1.05 TP. Pacific Radiance is an established offshore support
vessel (OSV) owner/operator with ambitious expansion plans.
The Group will benefit from ongoing recovery in OSV market
and presence through joint ventures, in markets protected by
cabotage laws. We expect the Group to register strong 29%
net profit CAGR over FY12-15 period.
Ezion Holdings is acquiring the entire stake in Teras Conquest
4 Pte Ltd for US$32.5m, to be fully satisfied by the issuance of
18.4m shares at an issue price of S$2.2407 per share. Teras
Conquest 4 is a Singapore-incorporated company, with its sole
asset being a Multi-Purpose Self Propelled Jack-up Rig (the
“Liftboat”) with a six (6) year chartering contract to the Group
which commenced in February 2012.
Soilbuild Construction has been awarded a S$26.8m contract
from Soo Kee Jewellery to construct their new corporate
headquarters. This is the fourth Changi Business Park project
to be awarded to Soilbuild Construction, leveraging on its
extensive experiences across public and private sector projects.
Current order book is $389.5m, expected to be substantially
completed in the next 24 months.
Olam has disposed its entire 50.0% stake in Lansing Olam
Canada for a cash consideration of US$5.4m. The exit from
Canada will allow Olam to concentrate its resources on the
rest of its Grains businesses in line with the Company’s
refreshed strategy.
Noble Group had disposed of its 25% membership interests in
associate company, Thunderbird Power Holdings for
US$10.75m cash. Based on the latest financial statements as
at 30 September 2013, the book value and net tangible assets
value of Noble’s 25% membership interests in Thunderbird is
US$5.2m and US$6.4m respectively.
Prices of mass-market private condos - the mainstay of
Singapore's private housing market - have finally eased for the
first time since the market bottomed out in the second quarter
of 2009 after the global crisis. Prices of landed homes, another
pillar of strength of the residential sector, also registered the
first decline since Q2 2009, according to the latest flash
estimates from URA. URA's overall private housing price index
fell 0.8% q-o-q in Q4 against a 0.4% increase in Q3. The Q4
index is still 1.2% higher than the year-ago period, though
less than the 2.8% rise for 2012.
Resale prices for HDB flats continued their decline in the last
quarter of 2013, a trend which property consultants say is
unlikely to reverse even by the end of this year. They attribute
this to a convergence of measures imposed to cool the market
and a continued supply of new flats. Flash figures released by
the HDB indicated that the resale price index in the fourth
quarter of 2013 was 202.1 (with 1998 being the base year
when the index was 100). This was a fall of 1.3% q-o-q, and
the second consecutive quarter of shrinking prices; the index
dipped 0.9% in Q3 2013, making that the first contraction
since 2009.
US stocks fell to start the year lower for the first time since
2008. A downgrade in Apple Inc. sent technology shares
lower. Data indicated applications for U.S. unemployment
benefits declined last week to the lowest level in a month.
Weekly jobless claims fell by 2k to 339k, lower than consensus
expectations for 344k. Meanwhile, the ISM factory index fell
to 57 in December from November’s reading of 57.3, which
was the highest since April 2011. In Europe, data showed
December factory output in the euro area expanded at the
fastest pace since May 2011 as Italy’s manufacturing beat
estimates and Germany production grew for a 6th month

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