Thursday, May 29, 2014

OCBC Report 29 May 14

KEY IDEA

Singapore Post: Alibaba takes a stake

Following a trading halt yesterday morning, SingPost announced that Alibaba Investment Ltd will be investing S$312.5m in SingPost via a placement at S$1.42/share, following which Alibaba will hold 10.35% of SingPost upon completion. Both companies will also set up a JV in the business of international e-commerce logistics. From SingPost’s point of view, this move will allow it to benefit from Alibaba’s expertise in e-commerce and business volumes, thereby obtaining a scale effect and bringing down cost per unit of good handled, though it is hard to quantify the near term impact given the lack of details so far. We assume a higher terminal growth rate in our FCFE valuation (2.5% vs 2% previously), but after taking into account the dilutive effect of the placement, our fair value estimate drops from S$1.42 to S$1.38. Maintain HOLD, though we note that sentiment on the stock may be strong in the near term due to factors such as the “Alibaba effect”. (Low Pei Han)


MORE REPORTS


Goodpack Ltd: KKR’s offer at S$2.50

Goodpack announced the proposed acquisition by an affiliate of KKR via a scheme of arrangement at S$2.50 cash/share. This will require: 1) the approval by a majority of Goodpack shareholders who are holding at least 75% in value of Goodpack shares held by those present and voting, and 2) sanction by the High Court of Singapore. If this all-or-nothing deal succeeds, KKR will delist Goodpack. Though the offer is only at a 6.8% premium to the last closing price before this announcement, we note that the run up since March has largely priced in a privatisation. Given the above and that our fair value estimate of S$2.61 is just 4.4% higher than KKR’s offer price, we recommend shareholders to accept the offer. (Yap Kim Leng)


Biosensors International Group: Another weak showing; new CEO appointed

Biosensors International Group’s (BIG) 4QFY14 core PATMI dipped 63.7% YoY to US$10.8m, falling short of our below-consensus expectations. Another disappointment came from its decision to not declare any dividends. Looking ahead, management did not provide any revenue guidance for FY15 given the weak visibility. Meanwhile, BIG also announced the appointment of a new CEO, and this will take effect from 1 Nov 2014. We pare our FY15 revenue and PATMI forecasts by 8.0% and 18.0%, respectively, and introduce our FY16 projections. We also switch our valuation methodology from FCFE to PER given the uncertainty over BIG’s future licensing agreements with Terumo. Applying a target peg of 20x (in-line with its peers’ forward average) to our revised FY15 forecasts, we derive a new fair value estimate of S$0.85 (previously S$0.77). However, we maintain our SELL rating on BIG given its rich valuations and unexciting near-term outlook.  (Wong Teck Ching Andy)

For more information on the above, visit
www.ocbcresearch.comfor the detailed report.


NEWS HEADLINES


- Wall Street stocks finished lower following mixed earnings reports as investors looked ahead to major US economic data releases on Thu.

- Valuetronics Holdings raked in full-year earnings of HK$147.9m (S$24m) as business in its industrial and commercial segment grew and a change in product sales mix improved margins.


- Boosted by fair-value gains on investment properties, Metro Holdings posted 4QFY14 net profit of S$43.8m, almost three times that of S$14.9m in 4QFY13.


- Global Yellow Pages swung into the black with a net profit of S$5.13m in FY14, from its loss of S$124.27m in FY13.


- CCM Group has revised terms to issue 12 rights shares at 0.3 S-cents each for every existing share, instead of eight rights shares at 0.5 S-cents each announced previously.


- Property consultants predict that the government will further trim land supply for private housing development for the second half of this year.

- Keppel Corp's senior executive director Teo Soon Hoe will step down after almost 40 years with the multi-business group.

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