OCBC Report 17 Jan 14

KEY IDEA United Envirotech: HOLD with higher S$1.00 fair value United Envirotech Ltd (UEL) recently announced that it has secured two more water treatment projects in China, suggesting that the outlook for the wastewater sector in China remains buoyant. We believe that this justifies a higher 15x valuation peg (versus 13x previously). While we are also raising our FY15F earnings forecast by 27% to account for the inclusion of Memstar’s membrane manufacturing business (acquisition looks likely to go through), we note that there will be a huge dilution for existing shareholders; this as UEL will use 200.055m new shares and S$73.354m cash to pay for the deal. Given the limited upside to our new fair value of S$1.00 (versus S$0.83 previously), we maintain our HOLD rating. (Carey Wong) MORE REPORTS Land Transport Sector: Fare increase of 3.2% for buses and trains Singapore’s Public Transport Council (PTC) announced last evening that it has granted an overall fare adjustment of 3.2%, which will come into effect on 6 Apr 2014. Although this is lower than the combined 2012 and 2013 fare caps of 6.6%, but the 3.4% balance will be rolled over to 2015 for consideration of a future fare adjustment. This increase falls within our expectations, as we had highlighted in our Transport Sector Strategy report (dated 21 Nov 2013) that we expected a positive fare adjustment of around 3-3.5%. The PTC estimates that the net increase in revenue for SBS Transit and SMRT are approximately S$28.8m and S$13.2m a year, respectively, after taking into account both public transport operators’ (PTO) contribution to the Public Transport Fund (PTF). We believe this low single-digit fare increase will result in a positive boost to the PTOs’ earnings as the bulk of this net increment (after PTF contribution) will flow down to their profit before tax since their cost base remains similar and ridership is unlikely to be impacted. We keep our estimates intact for now as this fare adjustment exercise came in within our expectations. Our preferred pick in the sector is ComfortDelgro [BUY; FV: S$2.20] over SMRT[HOLD; FV: S$1.30] due to the former’s better growth potential both locally and abroad, and less uncertainties over its opex outlook. (Wong Teck Ching Andy) Yoma Strategic Holdings: Boost from sales of land development rights Yoma reported 3QFY14 PATMI of S$5.2m – up 42% YoY mostly due to a boost from land development rights (LDR) sales and a maiden contribution from their tourism business “Balloons Over Bagan”. Overall, we judge 3QFY14 results to be above expectations as profit recognition from LDRs came in stronger than anticipated. In terms of the top-line, 3QFY14 revenues rose 132.5% YoY to S$30.2m, again boosted by real estate segment sales; we note that only S$14.8m out of a total S$60.6m from units sold in Star City to date has been booked, which points to S$45.9m of progress billings over the next 4 to 6 quarters. Management continues to report a fairly healthy rate of sales conversion - 526 out of 528 units in Buildings A3 and A4 and 474 out of 1,043 units in Zone B has been sold as end of Dec 2013. We would speak with management regarding these results later today and, in the meantime, we put our fair value estimate of S$0.84 and hold rating under review. (Eli Lee)

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NEWS HEADLINES - US stocks ended lower on Thu, snapping a two-day rally, after disappointing results from Best Buy Co. Inc., Citigroup Inc. and Goldman Sachs Group Inc. - Singapore Airlines and Air New Zealand are deepening ties in a partnership that will beef up capacity between the two countries while giving each airline access to specific destinations in the other's network. - Some Singapore businesses are finding out that Iskandar Malaysia, touted as a more cost-effective destination for them, is no longer that cheap. - Public transport fares will rise 3.2% this year and 3.1% next year, with this year's increase raising S$53.5m for public transport operators although S$11.6m of it will go to the Public Transport Fund. - City Developments Ltd wants to accelerate its overseas growth engines and has appointed Grant Kelley, formerly from Apollo Global Management and Colony Capital, as its CEO. - EuroSports Global hit 38 S cents in yesterday's grey market as its S$22.4m IPO wrapped up with a 2.9-time subscription rate, market sources said.