OCBC Report 10 Feb 14

KEY IDEA Sheng Siong Group: Still in steady hands Summary: We understand from a recent meet up with Sheng Siong Group’s (SSG) management that the highly anticipated e-commerce is in its pilot phase. Management prefers to only roll it out on a larger scale when the pilot phase has tangible success. We estimate margin improvements of 0.5ppt to 1ppt as more direct sourcing and higher warehouse utilisation materialise. Its dividend policy of 90% payout ratio that expires in FY14 will be closely watched as it is what makes SSG a yield play. We think possibility of property acquisitions might prompt management to rethink whether they should retain more earnings instead. Due to a change in analyst and assumptions, we maintain BUY but lower our fair value estimate from S$0.78 to S$0.70. This is mainly because of updated higher cost of equity. (Research Team) MORE REPORTS Singapore Airlines: 3QFY14 post-results briefing Summary: We attended the 3QFY14 post-results briefing for Singapore Airlines (SIA) and here are our key takeaways. First, management is optimistic on TATA SIA JV in India being approved by authorities but expects delay to its last guidance of mid-2014. Second, there is uncertainty as to whether the requirement airlines to have a 20 aircraft fleet and five years of domestic operations before being allowed to fly internationally will be lifted. The latter will affect the range of services provided by the JV. Finally, the four grounded freighters in SIA Cargo helped lower unit operating costs by 6.87% YoY and are still looking for buyers. (Research Team) Vard Holdings: Secures contract for arctic AHTS Summary: Vard Holdings Limited (VARD) announced that it has won a contract for the design and construction of one arctic Anchor Handling Tug Supply (AHTS) vessel for BOURBON. BOURBON is a leading OSV operator which operates a fleet of 485 vessels and posted revenues of EUR1.3b (+10.5%) in FY13. In the past, VARD had delivered seven sophisticated vessels to BOURBON. This latest arctic AHTS order is of VARD’s internal design, has a bollard pull of ~270 tons, is arranged for Remote Operating Vehicle (ROV) and has an accommodation capacity for 60 persons. Delivery of this vessel is slated in 1Q16 from one of VARD’s Norway yards. Although the value of the contract was not disclosed, we believe a ballpark range could be NOK650-700m. YTD, VARD has secured ~NOK2.1b of orders, based on our estimates. We maintain our HOLD rating and S$0.84 fair value estimate on the stock (pegged to 8x FY14F EPS). (Wong Teck Ching Andy)

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NEWS HEADLINES - US stocks finished the week with modest gains after a two-day rally helped indexes break a streak of weekly losses. - An end to uncollateralised contra trading, minimum Mainboard share prices and an independent listings committee are among the proposed changes for which MAS and SGX are seeking feedback. - The shipping industry is poised to emerge from its longest downturn in three decades, buoyed by an end to years of overcapacity that have depressed freight rates since 2008. - Despite expectations of more headwinds, developers are unlikely to lower prices, said Savills Singapore. - Genting Singapore has partnered a Chinese property developer, Landing International Development, to build and operate a US$2.2b integrated resort on Jeju island, South Korea. - Otto Marine has announced that it has secured a long-term charter contract worth US$40m. - Global Investments Limited recorded a net profit of S$3m for its 4Q13, down 35% YoY. - Bukit Sembawang Estates has warned that challenging conditions in the residential market are expected to "adversely affect" sales in the year ahead. - Higher management expenses and lower net commission income hit general insurer United Overseas Insurance, which reported profit before tax of S$5.2m for its 4Q13, down 18.3% YoY. - Perennial China Retail Trust announced 4Q13 distributable income of S$10.9m, down 2.5% YoY.