OCBC Report 23 Sep 13

Singapore Airlines: Not taking off yet

Summary: We believe optimism over Singapore Airlines’s (SIA) Aug 2013 operating statistics is premature as the slight improvements are likely to be temporary in nature. Passenger demand growth should remain tepid in the coming quarters and the persistence of promotional activities will depress passenger yields. In addition, capacity additions from new routes have continued to outpace passenger growth and jet fuel price increases show little signs of abating, which will put further pressure on the carrier. As for its recent Indian JV announcement, we envision execution difficulties and the lack of adequate airport infrastructure. Maintain our SELL rating in SIA with an unchanged fair value estimate of S$9.50. Investors should take advantage of gains by the stock off recent lows and look to re-enter at price points nearer our valuation. (Lim Siyi)

MORE REPORTS

Hyflux: Time to look for other projects
Summary: Hyflux Ltd has officially launched Singapore’s second and largest reverse osmosis (SWRO) desalination plant on 18 Sep. According to management, the desalination plant is not only a showcase of its membrane technology but also strengthens Hyflux’s international track record in large-scale desalination plants, putting the company in a strong position to provide clean, affordable and sustainable water solutions to meet worldwide demand. During the Tuaspring launch, we also had a short chat with management and it appears that Hyflux is slowing but surely turning its focus back to the MENA region. But until we see the award of a sizable contract from any of the above mentioned markets to replenish its order book, we opt to maintain our HOLD rating and S$1.215 fair value (still based on 20x blended FY13/FY14F EPS). (Carey Wong)


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


NEWS HEADLINES

- US stock markets finished the week higher despite a Friday pullback. How Congress and President Barack Obama deal with the debt ceiling is likely to determine market volatility for the rest of the year.

- YHM Group has secured a contract with a value of up to approximately US$183m over a 3-year period with an additional 2 year extendable option to provide a semi-submersible rig to be used by a Southeast Asian based national oil company to support its oil and gas activities in the Andaman Sea.

- Keppel entered into a sale and purchase agreement with KazStroyService Global Engineering B.V. for the sale of two shares, representing 100% of the issued and paid up capital of Berich Enterprises Limited, at a consideration of US$16.25m per share.

- Rex International’s 41% indirectly owned subsidiary HIREX Petroleum Sdn Bhd., has entered into a Collaboration Agreement with Bass Strait Oil Company Ltd to participate in exploration opportunities in the Gippsland Basin in Australia.