OCBC Report 2 Jun 14

KEY IDEA Oil and Gas: Going to where the customers are We looked at individual capex guidance figures by various companies and found that while international oil companies (IOCs) are reining in their capex plans, national oil companies (NOCs) in general are still keen to sustain their spending. With increasing protectionism, companies that are able to operate in foreign markets by satisfying local content requirements should be in a better position to grow over the longer term. As such, we favour companies with good market positioning and strong balance sheets – KEP’s [BUY, FV: S$12.25] “Near market, near customer” strategy puts it in good stead to secure more orders, while Nam Cheong’s [BUY, FV:S$0.445] significant exposure to the Malaysian market and established relationships with its customers positions it well to obtain more orders too. Pacific Radiance [NOT RATED], which has considerable exposure to the Indonesian market, has also posted results that were above the street’s expectations since its IPO last year. Meanwhile, we also favour companies operating in niched areas with a positive outlook such as Ezion Holdings [BUY, FV: S$2.70]. (Low Pei Han, Andy Wong) MORE REPORTS United Envirotech: Disappointing end to FY14 United Envirotech Ltd (UEL) posted a disappointing end to FY14. Revenue of S$202.3m, up 9.3%, was about 3.8% above our forecast; the boost came mainly from the increase in treatment business from S$40.6m to S$62.6m. However, net profit fell 31.9% to S$20.1m, and only met 58.2% of our FY14 estimate. According to management, the main drag came from higher finance costs from the MTN bond of S$100m and additional bank borrowings; the weaker RMB against the USD also resulted in a forex loss of S$1.4m versus a gain of S$2.1m in FY13. UEL declared a final dividend of 0.3 S cent versus 0.5 S cent a year ago. While management has maintained a pretty positive outlook for FY15, we place our Buy rating and S$1.36 fair value under review, pending further discussion with management. (Carey Wong)

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NEWS HEADLINES - The S&P 500 Index rose 0.2% to close at 1,923.57 on Fri, 31 May 2014. - China’s official PMI reading of 50.8 for the month of May was its third monthly consecutive increase and also a five-month high. - TriTech Group announced a net loss of S$8.7m in FY14, versus a net loss of S$3.6m in FY13, despite a 9.3% increase in revenue to S$55.7m. - According to an interview with The Business Times, Kim Heng Offshore & Marine’s CEO said it is exploring M&A opportunities to expand its business. - Global Tech (Holdings) reported that its net loss for 1H14 widened slightly by 0.9% to HK$8.2m as revenue slipped 18.0% to HK$47.7m. - Swiber announced that it has clinched an EPIC contract for subsea development work in Latin America worth US$80m.