MORNING BUZZ 16 March 2015 Market Indicators
11‐Mar
12‐Mar
13‐Mar
Mkt. T/O (S$ mil)
1,209.9
1,014.9
917.0
Stock Advances
147
223
238
Stock Declines
356
264
229
Market Colour
Major Indices DJ Ind Avg
17,635.4
S & P 500
2,040.2
2,066.0
2,053.4
Nasdaq Comp
4,849.9
4,893.3
4,871.8
23,718.0
Hang Seng
STI Index
17,895.2 17,749.3
23,798.0 23,823.2
3,362.77 (‐0.32%)
Source: Bloomberg
Commodities Current % Chge Price from Close
Gold (SPOT) US$ / OZ Oil (NYMEX CWTI|) US$ / bbl Baltic Dry Index
1,156.36
‐0.20%
43.87
‐6.94%
562.00
0.36%
The STI eased 1.2% for the week to close 3363 pts, dragged down by the Jardine group of companies. Noble eased 10% for the week to close at S$0.95 as the street cut estimates and short interest increased. We expect markets to be looking forward to Iceberg's third instalment to remove a key overhang over the company. Outside the STI, Sino Construction saw heavy selling (‐49% for the week;‐89% for the month) as key investors pared their stakes and the company announced a profit warning. This week, look forward to the conclusion of the FOMC meeting on Wednesday that could provide direction on REITs and other yield stocks. Over in the US markets, stocks suffered another bout of selling registering its third straight week of declines. Declines were mostly led by energy stocks which fell 2.8% for the week. Volatility in forex markets saw the US dollar (1.0496 USD/EUR) surge to multi‐year highs against the Euro as concerns that the Fed will raise rates sooner than expected and as the ECB begins its own QE program. Oil futures declined c10% for the week as the International Energy Agency indicated that the oil price recovery was still fragile amid tightening US storage capacity and a rebound in US oil production. We expect more downside risks as market participants take a cautious stance. We initiate Keppel (KEP SP; TP S$8.17) with a Hold and Sembcorp Marine (SMM SP; TP S$2.57) with a Sell. We see more downside risks as they face a sea of problems: Contract cancellations, customers delaying orders and weak order win momentum. We expect this to just be the early phase of the bear cycle in the oil industry as we expect the oversupply of oil to persist well into 2015 and as rig operators cut back on capex. (By Joel NG)
Exchange Rates
Initiating coverage
Keppel Corp (KEP SP; HOLD; TP S$8.17): Page 3
SembCorp Marine (SMM SP; SELL; TP S$2.57): Page 3
Stocks to Watch
USD : SGD 1.3892 / MYR : SGD 0.3777 Source: Bloomberg
Interest Rates 3‐mth Sibor
0.913%
SGS (10 yr)
2.406%
Vard Holdings: Terminates 2 contracts linked to insolvent customers
Lifebrandz: Closing down five F&B operations as it struggles to pay staff
IHH Healthcare: Scraps plan to buy India's Fortis Healthcare's Singapore unit
Serial System: Acquires 100% stake in distributor of printer accessories
KGI Fraser Research Team
KGI Fraser Securities Pte. Ltd.
Hong Wei WONG
Joel NG
Renfred TAY
Yuxuan HE
[email protected]
[email protected]
[email protected]
[email protected]
+65 6231 2850
+65 6231 2630
+65 6231 2557
+65 6231 2389
Please see important disclosures at the end of this publication
MORNING BUZZ
Vard Holdings (VARD SP): Terminates 2 contracts linked to insolvent customers Vard Holdings said two affiliates of a customer E.R. Offshore have filed for insolvency at a local court in Germany. Consequently, it terminated two shipbuilding contracts for one platform supply vessel, or PSV, per affiliate. It has received a 10% instalment for one of the vessels and the group does not expect to repay the prepayment received, and expects to be able to sell the vessels at a price that will cover the expected construction cost less the prepayment received. The impact of the termination and the proposed resale is expected not to have a material effect on the EPS of the group for the financial year ending Dec 31, 2015.
Lifebrandz (LFBZ SP): Closing down five F&B operations as it struggles to pay staff Lifebrandz has admitted that the company’s subsidiaries were unable to pay salaries due to its employees for the month of February 2015. It also said completed a strategic review of the businesses of the subsidiaries and have decided to cease their F&B operations located in the Clarke Quay area with immediate effect. In response to a request by Singapore Exchange for more clarity, Lifebrandz said the management of the subsidiaries has met with the Ministry of Manpower to address the complaints lodged by the respective employees. However, there is at present no official outcome from the meeting with MOM, it added.
IHH Healthcare (IHH SP): Scraps plan to buy India's Fortis Healthcare's Singapore unit Malaysia's IHH Healthcare Bhd, has scrapped its proposal to buy Singapore's
Radlink‐Asia for 346.53mil ringgit ($130mil), due to non‐satisfaction of certain
Serial System said it has agreed to acquire a 100% stake in Swift Value Business
KGI Fraser Securities Pte. Ltd.
conditions in the sales and purchase agreement.
Serial System (SERL SP): Acquires 100% stake in distributor of printer accessories from owner Neo Siew Wah. The consideration for the acquisition will the sum total of Swift Value’s NTA of about $3mil as at end Dec, plus a premium of $10mil and 20% share of Net Profit After Tax for the financial years ending Dec for 2015, 2016 and 2017. Serial System will fund the acquisition with internal funds and bank borrowings. However, the completion of the acquisition is conditional upon the satisfaction of several conditions including one which Neo has to refund Serial System the premium paid less the sum total of all dividends it has received from Swift Value, should a partner agreement between the latter and Hewlett‐Packard be terminated by HP before Dec 31, 2017. Source: The Business Times / Bloomberg / Straits Times
2
SECTOR REPORT
Singapore
Shipyards Keppel (KEP SP; SN4.SI); Sembcorp Marine (SMM SP; SCMN.SI)
Upsized problems: too much oil and too many rigs We initiate coverage of the Singapore O&G – Shipyards sector with a UNDERWEIGHT rating. While most O&G yards have eased between 20-50% since mid-14, we find it increasingly difficult for this sector to rally given the oversupply situation that is not likely to improve this year. We initiate the biggest company in Singapore’s O&G space Keppel with HOLD and SembMarine with a SELL recommendation. Figure 1. Brent US$/bbl. Will US$60/bbl be the new normal? 140 120 100 80
Our view of other shipyards varies but generally, we do not think they offer much potential upside in the current environment. We expect a tough year as yards fight for the limited orders and we are likely to see either of the two possible outcomes: lower margins or no order wins. That is on top of the increasing risks of order cancellations with Vard just announcing a contract termination for 2 Platform supply vessels (PSVs) over the weekend after its customer filed for insolvency.
60 40
Source: Bloomberg Stock KEP SMM
Share price (S$) 8.70 2.98
The only saving grace for yards are their decent dividend yields. Ironically, the largest O&G company, Keppel is also paying the highest dividend yield of 5.5%. SembMarine and Yangzijiang are yielding around 4.5%. For investors with a longer time horizon of more than a year, we would recommend buying them at dips.
Mkt Cap (S$ m) 15,806 6,217
TP (S$)
Rec
8.17 2.57
HOLD SELL
12-Mth FTSE Oil (Blue) vs FSSTI
Source: Bloomberg
Joel NG
[email protected] +65 6236 2630
We expect orders to go below 10 year average. Our estimates put order wins for Keppel and SembMarine below their 10 year order win average of S$5.8bn/yr and S$4bn/yr (ex Sete Brasil orders). We arrived at our estimates based on capex cuts announced by oil majors and NOCs and give a 10-20% discount to the 10 year average wins of the rig builders. Estimated 2mbbl/day oil oversupply in 2015. Faced with rising U.S. supply and OPEC’s refusal to cut production, the estimated oversupply (estimates range from 0.5mb/d to 2mb/d based on various sources) of 2mbbl/day is expected to put a cap on any substantial price increase in 2015. US Shale oil production is expected to continue, even as land rig numbers drop due to increased productivity per rig, as per IEA’s assessment. Impending oversupply if old rigs are not taken out. Given the record number of jackups and floaters coming into the market in the next two years, there could be a potential oversupply in the market. It is estimated that there are around 240 jackups and 125 floaters older than 30 years old and will be in need of replacement. However, if operators decide to keep these older vessels, we could be looking at a massive oversupply situation this year. For example in a worst case scenario that older jackups are not retired, we could potentially be looking at an oversupply of close to 170 jackups (20% of current fleet). Currently, only about half of newbuild floaters (drillships and semis) and a meagre 12% of newbuild jackups are contracted out.
Please see important disclosures at the end of this publication
MORNING BUZZ
Apendix 1: Corporate Action
Dividends Results Period Ann Date
Book Close
24‐Feb‐15 FY14 SGD 0.021300
18‐Mar‐15
20‐Ma r‐15
27‐Ma r‐15 SGD
0.930
2.3
Da i ry Fa rm Int'l Hl dgs
5‐Ma r‐15 FY14 USD 0.165000
18‐Mar‐15
20‐Ma r‐15
13‐Ma y‐15 USD
9.560
1.7
Hongkong La nd Hl dgs
5‐Ma r‐15 FY14 USD 0.130000
18‐Mar‐15
20‐Ma r‐15
13‐Ma y‐15 USD
7.710
1.7
Ja rdi ne Ma thes on Hl dgs
5‐Ma r‐15 FY14 USD 1.070000
18‐Mar‐15
20‐Ma r‐15
13‐Ma y‐15 USD 62.120
1.7
Ja rdi ne Stra tegi c Hl dgs
5‐Ma r‐15 FY14 USD 0.190000
18‐Mar‐15
20‐Ma r‐15
13‐Ma y‐15 USD 34.320
0.6
Ma nda ri n Ori enta l Int'l
6‐Ma r‐15 FY14 USD 0.050000
18‐Mar‐15
20‐Ma r‐15
13‐Ma y‐15 USD
1.670
3.0
M1
19‐Ja n‐15 FY14 SGD 0.119000
17‐Apr‐15
21‐Apr‐15
30‐Apr‐15 SGD
3.820
3.1
Grea t Ea s tern Hl dgs
6‐Feb‐15 FY14 SGD 0.400000
21‐Apr‐15
23‐Apr‐15
7‐Ma y‐15 SGD 25.010
1.6
Grea t Ea s tern Hl dgs ‐ Speci a l
6‐Feb‐15 FY14 SGD 0.050000
21‐Apr‐15
23‐Apr‐15
7‐Ma y‐15 SGD 25.010
0.2
Keppel Corp
23‐Ja n‐15 FY14 SGD 0.360000
22‐Apr‐15
24‐Apr‐15
6‐Ma y‐15 SGD
8.700
4.1
Keppel Tel ecoms & Tpt
20‐Ja n‐15 FY14 SGD 0.035000
22‐Apr‐15
24‐Apr‐15
5‐Ma y‐15 SGD
1.805
1.9
Keppel Tel ecoms & Tpt ‐ Speci a l
20‐Ja n‐15 FY14 SGD 0.115000
22‐Apr‐15
24‐Apr‐15
5‐Ma y‐15 SGD
1.805
6.4
Sembcorp Indus tri es
17‐Feb‐15 FY14 SGD 0.110000
23‐Apr‐15
27‐Apr‐15
18‐Ma y‐15 SGD
4.220
2.6
Ex‐Date
Book Close
31‐Mar‐15
2‐Apr‐15
As i an Pa y Tel evi s i on Trus t
DPS
Payable
Share Price Yield (%) 13‐Mar‐15
Ex‐Date
Company
Rights & Bonus Issues Company
Rights Issue
Chi na Fi s hery Group
4 Rts Sha res @ S$0.173 ea ch Rts s ha re for every 5 exi s ti ng s ha res hel d
Rights Trading Period From
To
8‐Apr‐15
16‐Apr‐15
Source: SGX Annoucement
Buyout Company
Offer Price
Remarks
Closing Date
Offeror
Keppel Land *
SGD 4.38
Ca s h
5.30 p.m. on 26 Ma r 2015
Keppel Corporati on Ltd
Popul a r Hl dgs
SGD 0.32
Ca s h
5.30 p.m. on 18 Ma r 2015
Gra nd Apex Hol di ngs Pte. Ltd.
Xyec Hol di ngs Co., Ltd
SGD 0.30
Ca s h
5.30 p.m. on 20 Ma r 2015
Ma mezou Hol di ngs Co., Ltd.
Source: SGX Annoucement
Keppel Land: A Base Offer Price of SGD 4.38 in cash for each Offer Share. A higher Offer Price of SGD 4.60 in cash, if KCL is able to reach the Compulsory Acquisition Threshold.
KGI Fraser Securities Pte. Ltd.
MORNING BUZZ
Apendix 2: Financial Calendar
Monday
Tuesday
Wednesday
16‐Mar
17‐Mar
Thursday 18‐Mar
SG: Prices of Private Residential Units Sold by Developers
Friday 19‐Mar
*Q4: TPV Technology
23‐Mar
24‐Mar
25‐Mar
20‐Mar *Q4: Lung Kee Bermuda
26‐Mar
27‐Mar
SG (Feb 2015): Index of Industrial Production
SG (Feb 2015): CPI
30‐Mar Q2: Second Chance Properties
1‐Apr‐15
31‐Mar
2‐Apr
3‐Apr
Q4: China Sky Chemical
Good Friday 6‐Apr
7‐Apr
8‐Apr
9‐Apr
10‐Apr
15‐Apr
16‐Apr
17‐Apr
*Q2: EMAS Offshore
13‐Apr
14‐Apr SG: 1Q15 Advance GDP Estimates (Not later than 14 Apr)
* Tentative Source: Company; Bloomberg
KGI Fraser Securities Pte. Ltd.
SG: Prices of Private Residential Units Sold by Developers
MORNING BUZZ
Disclaimer This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice
or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. You should independently evaluate particular investments and consult an independent financial adviser before dealing in any securities mentioned in this report. This report is confidential. This report may not be published, circulated, reproduced or distributed and/or redistributed in whole or in part by any recipient of this report to any other person without the prior written consent of KGI Fraser. This report is not intended for distribution and/or redistribution, publication to or use by any person in any jurisdiction outside Singapore or any other jurisdiction as KGI Fraser may determine in its absolute discretion, where the distribution, publication or use of this report would be contrary to applicable law or would subject KGI Fraser and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by KGI Fraser to be reliable. However, KGI Fraser makes no representation as to the accuracy or completeness of such sources or the Information and KGI Fraser accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. KGI Fraser and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of KGI Fraser and its connected persons are subject to change without notice. KGI Fraser reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) KGI Fraser, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance‐related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) KGI Fraser, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; and (3) the officers, employees and representatives of KGI Fraser may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”.) However, as of the date of this report, neither KGI Fraser nor its representative(s) who produced this report (each a “research analyst”), has any proprietary position or material interest in, and KGI Fraser does not make any market in, the securities which are recommended in this report. Each research analyst of KGI Fraser who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of KGI Fraser or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including KGI Fraser’s total revenues, a portion of which are generated from KGI Fraser’s business of dealing in securities. Copyright 2015. KGI Fraser Securities Pte. Ltd. All rights reserved.
KGI Fraser Securities Pte. Ltd.
