Oil & Gas Sector: Laggard players positioned to capitalize on secular
growth trends
Summary: As described in our Oil & Gas sector report dated 3 Dec 2007, we
believe that the outlook for the local oil & gas stocks is still bullish.
As we examine the oil & gas value chain, we highlight the oil-related
stocks that will continue to be favoured. Alongside the rig builders such
Keppel Corporation and SembCorp Marine, we would like to draw attention to
vessel operators (eg. tugs, barges and offshore support vessels) such as
ASL Marine Holdings, Ezra Holdings, KS Energy Services (KST), and Swiber
Holdings. Whilst rig builders are the early-stage beneficiaries of the
increased exploration & production activities, which enjoyed high earnings
visibility through unprecedented order books' recognition in 2007, vessel
operators are more likely to benefit from robust demand even after the
cyclical rig demand eases. We also prefer the constellation of oil services
companies and suppliers as burgeoning orders from the shipyards have
ensured earnings visibility and sustained recurring income streams for
these laggard 2nd-tier stockists. These include fabricators of key modules
for offshore drilling & production units such as KST, offshore marine
equipment suppliers such as Beng Kuang Marine and BH Global. (Serene Lim)
For more information on the above, visit www.ocbcresearch.com for detailed
report.
CapitaLand: Why buy Ascott?
Summary: CapitaLand (CapLand) announced yesterday that it intends to launch
a general offer for the remaining shares in The Ascott Group (TAG) that it
does not own. CapLand owns 66.5% of TAG and is offering S$1.73 per TAG
share or a 43% premium to TAG's last traded price of S$1.21. This price is
not cheap as it represents a 145% premium over TAG's book value of 70.6
cents and about 17x TAG's FY07F earnings. The key question is why takeover
offer for TAG. We postulate a few possibilities. One can be seen in the
last results of the two groups. We estimate that CapLand's profit
(excluding exceptional items) at about S$34m and we further estimate that
TAG's contribution was about S$23m, so TAG is an important contributor to
CapLand's organic earnings. TAG's rise in importance to earnings is partly
due to the massive divestment program that CapLand has undertaken over the
past 7 years. Another possibility is that it enables CapLand to use TAG as
a vehicle to park all its residential assets (including recent en-bloc land
bank and residential assets in China). TAG would then eventually divest its
development to Ascott Residence Trust (ART) not dissimilar to the recent
Wilkie Edge transaction between CapLand, TAG and ART. Finally, a third
possibility is that it allows CapLand to rebuild up its recurring income
base to take advantage of the group's tax relief. This tax incentive
enables companies to offset losses in one subsidiary against another,
however, the caveat is that the ownership of the subsidiaries must be 90%
or above and assets must be domestic. As for financing of the estimated
S$929m acquisition, we see no issue as CapLand has about S$3.3bn in cash
(excluding TAG's cash) as of 3Q07. While we are not positive on this
acquisition as we see the takeover valuations as expensive, we retain our
S$6.94 fair value and our HOLD rating on CapLand for now. (Winston Liew)
NEWS HEADLINES
- Paragon shopping centre, owned and managed by Singapore Press Holdings
Limited, will undergo an S$82m facade makeover and addition of commercial
space.
- Design Studio Furniture Manufacturer Ltd has clinched S$52.2m worth of
new orders, including two S$9.4m and S$10.11m contracts with the Burj Dubai
and the Ritz-Carlton Hotel & Service Apartments in Dubai International
Financial Centre respectively.
- Aqua-Terra Supply Co Limited is establishing a rigging and testing &
certification facility on Batam to serve the needs of the increasing number
of oil & gas and marine companies.
- Singapore Exchange's futures and options market experienced a 21% YoY
gain in its 2007 derivatives volume (exceeding 44m contracts), which
represents another record year.
- Singapore Windsor Holdings is investing in two electric furnaces in China
to produce silicon manganese, a key component used to produce steel.
- Macquarie MEAG Prime Real Estate Investment Trust plans to raise as much
as S$150m from a bond sale as it acquires more property assets in Asia.
Please refer to the full report for more information and additional
disclosures.
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