DBS Report

Today’s Focus
􀂃 ST Engineering - More room to flex its muscles; maintain
BUY and S$4.30 target price
􀂃 Pacific Radiance - Wins US$100m long-term charter
contract; maintain BUY, target price S$1.20
􀂃 OCBC Bank - Acquires Wing Hang Bank at HK$125 per
share or 1.77x P/BV
ST Engineering (STE) has been generating close to 30% return
on equity (ROE) while being in >S$500m net cash position.
After reducing payout ratio, STE can now focus on improving
medium-term growth prospects. Over time, STE has been
generating a larger share of profits from its US operations,
where dividends are subject to 30% withholding tax. This is the
main reason STE reduced dividend payout from 90% to 80%;
it does not reflect weaker Group operating performance.
Indeed, cash generation has been impressive and has registered
strong earnings execution and order wins lately. Stock remains
undervalued; maintain BUY rating and S$4.30 target price.
There is re-rating potential as the Group delivers on its growth
promise, going forward.
Pacific Radiance has secured a charter contract worth up to
US$100m for its latest Maintenance Work Vessel (MWV),
which is the first of the 14 new vessels scheduled to enter its
fleet in FY14. The contract with an international oil major is for
a term of up to 7 years, including extensions, and will be
deployed to provide maintenance services for a project in SE
Asia starting from 2Q14. The implied daily charter rate for the
contract works out to be about US$39,000 per day, which is
higher than our existing assumption of US$30,000 per day, and
signals the strength of the offshore accommodation and
inspection, repair, maintenance market in Asia. Our utilisation
assumptions for the accommodation work boat/ maintenance
work vessel segment is also conservative at 60% in FY14/15,
and thus, this contract demonstrates that Pacific Radiance can
still execute better than our forecasts. Maintain BUY with
target price of S$1.20.
OCBC Bank announced today that it has made a pre
conditional voluntary general offer to acquire the entire issued
share capital of Wing Hang Bank (WHB), which is listed on the
Hong Kong Stock Exchange, at an offer price of HK$125 per
WHB share, or a total of HK$38,428m (approximately
US Indices Last Close Pts Chg % Chg
Dow Jones 􀀘 16,457.7 134.6 0.8
S&P 􀀘 1,872.3 14.7 0.8
NASDAQ 􀀘 4,199.0 43.2 1.0
Regional Indices
ST Index 􀀘 3,188.6 16.4 0.5
ST Small Cap 􀀙 544.0 (0.0) (0.0)
Hang Seng 􀀘 22,151.1 85.5 0.4
HSCEI 􀀘 10,075.1 73.3 0.7
HSCCI 􀀘 4,161.2 28.2 0.7
KLCI 􀀙 1,849.2 (1.5) (0.1)
SET 􀀘 1,376.3 7.4 0.5
JCI 􀀘 4,768.3 45.2 1.0
PCOMP 􀀘 6,428.7 69.1 1.1
KOSPI 􀀘 1,985.6 4.6 0.2
TWSE 􀀘 8,849.3 74.6 0.9
Nikkei 􀀘 14,827.8 131.8 0.9
STI Index Performance
Singapore
1,000
2,000
3,000
4,000
2006 2007 2008 2009 2010 2011 2012 2013 2014
100-Day MA
Index
STI
Total Market cap (US$bn) 588
Total Daily Vol (m shrs) 2,343
12m ST Index High 3,454
12m ST Index Low 2,960
Source: Bloomberg Finance L.P.
Stock Picks – Large Cap
Rec’n Price (S$)
31 Mar
Target Price
(S$)
ComfortDelgro Buy 1.985 2.19
Global Logistic Properties Buy 2.650 3.31
Keppel Corp Buy 10.890 12.60
Stock Picks – Small Cap
Rec’n Price (S$)
31 Mar
Target Price
(S$)
Ezion Holdings Buy 2.160 3.26
Goodpack Buy 2.140 2.60
China Merchants Buy 0.960 1.32
Pacific Radiance Ltd Buy 1.055 1.20
Nam Cheong Buy 0.335 0.46
Centurion Corporation Buy 0.710 0.86
Singapore
Wired Daily
Page 2
S$6,234m) in cash. At HK$125 in cash for each WHB share,
the price works out to a premium of approximately 1.6% to
the last closing price, and a premium of approximately
67.3% to the 90-day average price. The proposed
acquisition value is approximately 1.77 times WHB’s
consolidated net book value as at 31 December 2013.
Global Logistic Properties has leased 21,000 sqm to Sagawa
Global Logistics, one of the largest third-party logistics (3PL)
providers in Japan, at GLP Hiroshima. This lease agreement
marks the first collaboration between GLP and the
customer.
LionGold Corp proposes to raise capital by issuing 37.3m
shares at an issue price of S$0.1340 each, to raise gross
proceeds of approximately S$5m. In addition, the Company
proposes to issue unsecured redeemable convertible bonds
due 2017, in the principal amount of S$15m (the “Tranche
1 Bonds”) and S$20m (the “Tranche 2 Bonds”). The total
net proceeds from the proposed offerings of approximately
S$39.7m will be used for gold mining operations and for
working capital purposes.
Charisma Energy Services has secured a contract with a
value of US$180m over a 15 year period to lease eleven sets
of hydro-electric power generation equipment for power
supply to a national utility board in South Asia. The
Company expects the lease to commence in 2Q2014. The
Group also announced the termination of a contract
(announced in Sep 13) to provide a rig to support a
Southeast Asian based national oil company in the
Andaman Sea, due to delays in the commencement of the
project.
Bank lending in Singapore in February grew at a slower clip
for the third straight month, with the loan business
involving two key industries - construction and finance -
registering particular weakness. Domestic banking unit
(DBU) loans stood at $584 bn in February, up 0.4% from
January. This was weaker than the 1.4% month-on-month
growth posted in January. On a year-on-year basis, loan
growth stood at 14.6%, which is also poorer than the
16.5% growth seen in January - and is the slowest gain
since November 2010. On a month-on-month basis,
business loans in February grew 0.5% to $358 bn. This is a
much smaller expansion compared with the 2.1% growth in
January. Loans to the building and construction segment -
which is the largest component of all business loans -
contracted in February over the month for the first time
since January 2011. Loans to financial institutions - the next
largest loan segment after construction - gained 0.6% to
$80.9 bn in February over the month. This is a marked
weakness from the 5.8% growth over the month in
January. As for consumer loans, the month-on-month
growth was 0.3% to $226 bn. This is a touch lower than
the 0.4% growth in January.
U.S. stocks rallied after FED Chair Janet Yellen signalled
continued monetary support and tensions appeared to ease
in Ukraine. Biotechnology and small-cap stocks rebounded.
Yellen said ‘‘considerable slack’’ in the labour market is
evidence that the central bank’s unprecedented
accommodation will still be needed for “some time” to put
Americans back to work. The comments are more dovish
than her earlier words on March 19, when she said that the
central bank’s monthly bond purchases could end this fall
and benchmark interest rates may rise about 6 months later.
Fed Bank of Chicago President Charles Evans said March 28
that the central bank will probably increase interest rates in
the second half of 2015. On the data front, the March
Chicago PMI came in worse than expected at 55.9
(consensus 59.8). Meanwhile, Russia and the U.S. agree on
the need for a diplomatic solution to tensions over Ukraine,
this according to the Russian Foreign Minister.
Johnson & Johnson accepted the US$4bil offer from Carlyle
Group LP made in January to acquire the Ortho Unit, its only
diagnostics division. AT&T Inc. has approved a plan to
repurchase 300 million shares, or about 6% of its
outstanding stock