Contracts win by Salcon
Two substantial water and wastewater engineering projects. Boustead recently announced (on 24 March 2008) that it's fully owned subsidiary, Salcon Pte Ltd, had secured two water and waste water engineering projects worth S$32 million.
Contracts awarded by major players speaks volume of Salcon's experience and expertise; more contracts expected. These contracts from Samsung and Toshiba further enhanced Salcon's credibility as one of Asia's leading water and wastewater engineering specialists. While we believe Salcon will win more contracts in the near term (within 6-12 months), we expect most of them to be of smaller sizes, with one or two significant projects of sizeable amount.
Still a BUY; fair value estimate revised down but fundamentals remain strong. Together with the collective S$24 million contracts awarded from the global oil and gas industries announced on 10 March 2008 by its Energy-Related Engineering Division, Boustead's total outstanding order book stands in excess of S$400 million (recognition expected over the period FY08-10). In view of its experience and strong technical expertise, we are confident that Boustead will continue to secure contracts, particularly from its Energy-Related Engineering Division and from Salcon.
Our FCFE valuation yields a fair value of S$2.47 which translates to a FY09 P/E of 13.0x and P/B of 3.1x. We maintain our earnings estimates for the period FY08-10 as our prior assumptions have already factored in potential contracts wins by Boustead (recognisable over the FY09-10 period) as well as rising costs environment. However, our valuation assumptions are tweaked to reflect current volatile market conditions and lower long term growth due to perceived slow down in the global economy. Although with a revised down fair value estimate, we continue to like Boustead in view of its experienced management, strong balance sheet, and net cash position. We reiterate our BUY recommendation on Boustead and would view further significant contracts win as catalyst for potential upgrade in our fair value estimate.
Singapore Exchange: Time for a relook
Summary: Singapore Exchange (SGX) has also been hit by the recent volatility in the market. Its share price has fallen in line with its regional peers, down about 57% from its 52-week high. This is reflective of the generally weak sentiment in the market where trading volume has fallen in Feb and Mar this year. Taking these factors into account, we have imputed the drop in trading activities into our 2H FY08 estimates, and lowered FY08 earnings by 11.7% to S$428.6m and FY09 earnings by 12.4% to S$434.5m. Using lower valuation of 21x (versus 19x for its regional peers and 23x for its global peers), we are lowering our fair value estimate to S$8.20 (previous: $11.20). As SGX's stable revenue (terminal, listing, price information and other fees) is fairly secured, we believe that together with the attractive yield of 4.9% at current price level, the stock is starting to look attractive again, especially for medium to longer term holders as SGX continues to grow its suite of products and services to buoy its long term income. With recent volatile market conditions and on price weakness, SGX is a BUY. (Carmen Lee)
Rickmers Maritime: Key charterer moves into the shipping trust space
Summary: The world's third largest container shipping company CMA CGM SA (CMA) has spun off one of its units in a play that mirrors the shipping trust concept. According to the Wall Street Journal, it will retain a 34% stake in Global Ship Lease (GSL), which would be listed on NYSE. GSL owns 12 container ships with five more under contract from parent CMA, all of which are chartered back to CMA with an average term of 11 years. CMA currently charters six of Rickmers Maritime's (RMT) ten existing vessels – contributing about 60% of the trust's revenue. There is no immediate threat to RMT as CMA is locked in these charters until 2015. However, the future development of their relationship will depend on the extent of CMA's demand for vessels and the privileges it grants GSL (such as rights of first refusal). GSL would likely get first priority in a low-demand scenario. At the same time, RMT is aggressively diversifying its customer base. If its plans for 13 contracted acquisitions are approved at an upcoming EGM, CMA's share of its revenue would decline to about 21% in 2010. Maintain BUY at target price S$1.22. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaLand has granted CapitaCommercial Trust a call option to acquire office building 1 George Street for about S$1.2bn. CapitaLand said it would provide yield protection to the REIT at 4.25% for five years.
- A-REIT announced its property value gained S$483.6m at its annual valuation, an appreciation of about 14%.
- Lippo-Mapletree Indonesia Retail Trust said it will purchase Sun Plaza, a retail mall located in Medan, North Sumatra for S$147.4m.
- According to the BT, Allco REIT intends to reduce its leverage from 43% currently to about 30% over the next 12 months.
- Asia Pacific Breweries has raised the annual capacity of its Vietnam plant by more than 50% at cost of US$1m.
- Tee International has won contracts for electrical installation for the Marina Bay Sands IR worth S$109m.
- Abterra Ltd will buy 49.9% of Shanxi Loudong, a producer of coal and other by-products, for up to S$181m in new Abterra shares.
- Ausgroup has won a new offshore contract worth A$12m, taking its order book above A$190m.
- SP Ausnet has upgraded its earnings forecasts buoyed by higher revenues and a debt refinancing.
Please refer to the full report for more information and additional disclosures.
Rickmers Maritime: Key charterer moves into the shipping trust space
Summary: The world's third largest container shipping company CMA CGM SA (CMA) has spun off one of its units in a play that mirrors the shipping trust concept. According to the Wall Street Journal, it will retain a 34% stake in Global Ship Lease (GSL), which would be listed on NYSE. GSL owns 12 container ships with five more under contract from parent CMA, all of which are chartered back to CMA with an average term of 11 years. CMA currently charters six of Rickmers Maritime's (RMT) ten existing vessels – contributing about 60% of the trust's revenue. There is no immediate threat to RMT as CMA is locked in these charters until 2015. However, the future development of their relationship will depend on the extent of CMA's demand for vessels and the privileges it grants GSL (such as rights of first refusal). GSL would likely get first priority in a low-demand scenario. At the same time, RMT is aggressively diversifying its customer base. If its plans for 13 contracted acquisitions are approved at an upcoming EGM, CMA's share of its revenue would decline to about 21% in 2010. Maintain BUY at target price S$1.22. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaLand has granted CapitaCommercial Trust a call option to acquire office building 1 George Street for about S$1.2bn. CapitaLand said it would provide yield protection to the REIT at 4.25% for five years.
- A-REIT announced its property value gained S$483.6m at its annual valuation, an appreciation of about 14%.
- Lippo-Mapletree Indonesia Retail Trust said it will purchase Sun Plaza, a retail mall located in Medan, North Sumatra for S$147.4m.
- According to the BT, Allco REIT intends to reduce its leverage from 43% currently to about 30% over the next 12 months.
- Asia Pacific Breweries has raised the annual capacity of its Vietnam plant by more than 50% at cost of US$1m.
- Tee International has won contracts for electrical installation for the Marina Bay Sands IR worth S$109m.
- Abterra Ltd will buy 49.9% of Shanxi Loudong, a producer of coal and other by-products, for up to S$181m in new Abterra shares.
- Ausgroup has won a new offshore contract worth A$12m, taking its order book above A$190m.
- SP Ausnet has upgraded its earnings forecasts buoyed by higher revenues and a debt refinancing.
Please refer to the full report for more information and additional disclosures.
Singapore Exchange: Time for a relook
Summary: Singapore Exchange (SGX) has also been hit by the recent volatility in the market. Its share price has fallen in line with its regional peers, down about 57% from its 52-week high. This is reflective of the generally weak sentiment in the market where trading volume has fallen in Feb and Mar this year. Taking these factors into account, we have imputed the drop in trading activities into our 2H FY08 estimates, and lowered FY08 earnings by 11.7% to S$428.6m and FY09 earnings by 12.4% to S$434.5m. Using lower valuation of 21x (versus 19x for its regional peers and 23x for its global peers), we are lowering our fair value estimate to S$8.20 (previous: $11.20). As SGX's stable revenue (terminal, listing, price information and other fees) is fairly secured, we believe that together with the attractive yield of 4.9% at current price level, the stock is starting to look attractive again, especially for medium to longer term holders as SGX continues to grow its suite of products and services to buoy its long term income. With recent volatile market conditions and on price weakness, SGX is a BUY. (Carmen Lee)
Rickmers Maritime: Key charterer moves into the shipping trust space
Summary: The world's third largest container shipping company CMA CGM SA (CMA) has spun off one of its units in a play that mirrors the shipping trust concept. According to the Wall Street Journal, it will retain a 34% stake in Global Ship Lease (GSL), which would be listed on NYSE. GSL owns 12 container ships with five more under contract from parent CMA, all of which are chartered back to CMA with an average term of 11 years. CMA currently charters six of Rickmers Maritime's (RMT) ten existing vessels – contributing about 60% of the trust's revenue. There is no immediate threat to RMT as CMA is locked in these charters until 2015. However, the future development of their relationship will depend on the extent of CMA's demand for vessels and the privileges it grants GSL (such as rights of first refusal). GSL would likely get first priority in a low-demand scenario. At the same time, RMT is aggressively diversifying its customer base. If its plans for 13 contracted acquisitions are approved at an upcoming EGM, CMA's share of its revenue would decline to about 21% in 2010. Maintain BUY at target price S$1.22. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaLand has granted CapitaCommercial Trust a call option to acquire office building 1 George Street for about S$1.2bn. CapitaLand said it would provide yield protection to the REIT at 4.25% for five years.
- A-REIT announced its property value gained S$483.6m at its annual valuation, an appreciation of about 14%.
- Lippo-Mapletree Indonesia Retail Trust said it will purchase Sun Plaza, a retail mall located in Medan, North Sumatra for S$147.4m.
- According to the BT, Allco REIT intends to reduce its leverage from 43% currently to about 30% over the next 12 months.
- Asia Pacific Breweries has raised the annual capacity of its Vietnam plant by more than 50% at cost of US$1m.
- Tee International has won contracts for electrical installation for the Marina Bay Sands IR worth S$109m.
- Abterra Ltd will buy 49.9% of Shanxi Loudong, a producer of coal and other by-products, for up to S$181m in new Abterra shares.
- Ausgroup has won a new offshore contract worth A$12m, taking its order book above A$190m.
- SP Ausnet has upgraded its earnings forecasts buoyed by higher revenues and a debt refinancing.
Please refer to the full report for more information and additional disclosures.
Rickmers Maritime: Key charterer moves into the shipping trust space
Summary: The world's third largest container shipping company CMA CGM SA (CMA) has spun off one of its units in a play that mirrors the shipping trust concept. According to the Wall Street Journal, it will retain a 34% stake in Global Ship Lease (GSL), which would be listed on NYSE. GSL owns 12 container ships with five more under contract from parent CMA, all of which are chartered back to CMA with an average term of 11 years. CMA currently charters six of Rickmers Maritime's (RMT) ten existing vessels – contributing about 60% of the trust's revenue. There is no immediate threat to RMT as CMA is locked in these charters until 2015. However, the future development of their relationship will depend on the extent of CMA's demand for vessels and the privileges it grants GSL (such as rights of first refusal). GSL would likely get first priority in a low-demand scenario. At the same time, RMT is aggressively diversifying its customer base. If its plans for 13 contracted acquisitions are approved at an upcoming EGM, CMA's share of its revenue would decline to about 21% in 2010. Maintain BUY at target price S$1.22. (Meenal Kumar)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- CapitaLand has granted CapitaCommercial Trust a call option to acquire office building 1 George Street for about S$1.2bn. CapitaLand said it would provide yield protection to the REIT at 4.25% for five years.
- A-REIT announced its property value gained S$483.6m at its annual valuation, an appreciation of about 14%.
- Lippo-Mapletree Indonesia Retail Trust said it will purchase Sun Plaza, a retail mall located in Medan, North Sumatra for S$147.4m.
- According to the BT, Allco REIT intends to reduce its leverage from 43% currently to about 30% over the next 12 months.
- Asia Pacific Breweries has raised the annual capacity of its Vietnam plant by more than 50% at cost of US$1m.
- Tee International has won contracts for electrical installation for the Marina Bay Sands IR worth S$109m.
- Abterra Ltd will buy 49.9% of Shanxi Loudong, a producer of coal and other by-products, for up to S$181m in new Abterra shares.
- Ausgroup has won a new offshore contract worth A$12m, taking its order book above A$190m.
- SP Ausnet has upgraded its earnings forecasts buoyed by higher revenues and a debt refinancing.
Please refer to the full report for more information and additional disclosures.
China Hongxing Sports (S$0.49) - Growth after the Olympics
We spoke to management recently regarding its growth strategy
post-Olympics. Hongxing plans to continue its retail
network expansion and A&P to raise brand visibility as it believes that
China's sporting market will continue to
grow, buttressed by other sporting events like the 16th Asian Games in
2010 and rising sports participation. In
addition, Hongxing has secured indicative orders worth Rm1bn during its
March trade fair. We have made no changes to
our earnings estimates and maintain our target price of S$0.86, based
on 16.5x CY09 earnings, or a 20% premium to
average valuations for the sports shoe sector. Reiterate Outperform on
the back of robust industry prospects.
Quick Takes
* Bukit Sembawang Estates (S$8.99) - Airview Towers falls
through
* Factory Output - All clusters contributed to February's
growth
News of the Day
* Rising tide of foreigners snapping up Singapore property
* Tuas Power plans Singapore's first coal-fired plant-paper
* CCT to buy 1 George Street for S$1.165 billion
* Maybank buys Temasek stake in Indonesian bank
* State Bank of India gets Singapore full bank license
* LMIR Trust makes maiden buy
Technical Trading Ideas
* Wheelock Properties (S)
post-Olympics. Hongxing plans to continue its retail
network expansion and A&P to raise brand visibility as it believes that
China's sporting market will continue to
grow, buttressed by other sporting events like the 16th Asian Games in
2010 and rising sports participation. In
addition, Hongxing has secured indicative orders worth Rm1bn during its
March trade fair. We have made no changes to
our earnings estimates and maintain our target price of S$0.86, based
on 16.5x CY09 earnings, or a 20% premium to
average valuations for the sports shoe sector. Reiterate Outperform on
the back of robust industry prospects.
Quick Takes
* Bukit Sembawang Estates (S$8.99) - Airview Towers falls
through
* Factory Output - All clusters contributed to February's
growth
News of the Day
* Rising tide of foreigners snapping up Singapore property
* Tuas Power plans Singapore's first coal-fired plant-paper
* CCT to buy 1 George Street for S$1.165 billion
* Maybank buys Temasek stake in Indonesian bank
* State Bank of India gets Singapore full bank license
* LMIR Trust makes maiden buy
Technical Trading Ideas
* Wheelock Properties (S)
Singapore market – Dragged down by poor US economic number
• Singapore: Singapore market declined following a two day rally. Due to a lack of fresh buying leads, investors chose to lock in profits and wait at the sideline. This is despite the unexpected 10% increase in February factory output. Cues are still heavily dependent on US economic data. FTSE-STI down 4.97 or 0.2% to close at 2,995.22 points. Trading volume was 1.47 billion shares valued at S$1.57 billion and losers outnumbered gainers 370 to 253. Commodities supplier Olam International Ltd suffered a 14.1% lost to S$1.95 after its rating was cut to "sell" from "neutral" by Merrill Lynch.
• Wall Street: US market retreated after pessimistic numbers on February's durable goods orders. The Commerce Department released a 1.7% dip in last month's order for durable goods, which is indicative on business spending and consumer demand. This is its second consecutive shrink. Adding to worries, the Commerce Department also announced that sales of new homes slumped 1.8% in February, which dragged down sales for the fourth straight month to a 13-year low. Dow Jones slipped 109.74 or 0.9% to 12,422.86 points and Nasdaq dropped 16.69 or 0.7% to close at 2,324.36 points. However, crude oil soared US$4.58 to close at US$105.80 per barrel on NYMEX.
• Outlook: The mini-rally that started on Monday and moved the benchmark STI to the 3,000 level is likely to end earlier than our expectation. We have expected the market to rally towards the end of the week on expectation of better Singapore manufacturing number. True, the index for industrial productions has registered another month of double-digit growth, by 10% in February 2008 after growing 12.8% in January (see Chart). However, investors chose to remain at the sidelines pending further development in the US. Thus, the worst-than-expected US durable orders are likely to lead to some profit taking today. The US economy is probably in a recession now. However, the Singapore economy is expected to remain healthy, shown by the latest manufacturing numbers. With the backing of the Singapore economy, buy on weakness will still be the preferred investment strategy.
Company Highlights
SP Ausnet – Upgrades earnings forecasts
• SP Ausnet, a supplier of energy like electricity and gas, has guided an earnings increase for its 2008/09 financial year. Ausnet expects net profit to be about 15% higher than the forecast in its 2007 explanatory memorandum of A$147.5 million.
• Key reasons for the upward revision include the decision on transmission charges by the Australian Engery Regulators and also higher capital expenditure allowances. On top of that, Ausnet will also see reduction in its interest cost due to the refinancing of A$1.55 billion debt and finalisation of new interest rate hedges.
Asia Pacific Breweries Ltd – Invested US$1m to increase beer production in Vietnam
• Asia Pacific Breweries ("APB"), leading brewery group in the Asia Pacific region, has invested some S$1.4 million to increase production capacity at its wholly-owned brewery in Hatay, located outside Hanoi in North Vietnam.
• Hatay Brewery can now produce 460,000 hectolitres of beer, up 50 percent from its initial capacity. The plant brews beer under the labels Tiger, Heineken, Anchor and Bivina.
• APB says Vietnam is a key part of its business in Indochina. The region is now APB's largest profit generator, accounting for 48% of pre-tax profit and 37% of revenue in FY07.
• APB's operations in Indochina comprise five breweries in Vietnam, one in Cambodia and one in Laos, which was officially opened two weeks ago.
• Wall Street: US market retreated after pessimistic numbers on February's durable goods orders. The Commerce Department released a 1.7% dip in last month's order for durable goods, which is indicative on business spending and consumer demand. This is its second consecutive shrink. Adding to worries, the Commerce Department also announced that sales of new homes slumped 1.8% in February, which dragged down sales for the fourth straight month to a 13-year low. Dow Jones slipped 109.74 or 0.9% to 12,422.86 points and Nasdaq dropped 16.69 or 0.7% to close at 2,324.36 points. However, crude oil soared US$4.58 to close at US$105.80 per barrel on NYMEX.
• Outlook: The mini-rally that started on Monday and moved the benchmark STI to the 3,000 level is likely to end earlier than our expectation. We have expected the market to rally towards the end of the week on expectation of better Singapore manufacturing number. True, the index for industrial productions has registered another month of double-digit growth, by 10% in February 2008 after growing 12.8% in January (see Chart). However, investors chose to remain at the sidelines pending further development in the US. Thus, the worst-than-expected US durable orders are likely to lead to some profit taking today. The US economy is probably in a recession now. However, the Singapore economy is expected to remain healthy, shown by the latest manufacturing numbers. With the backing of the Singapore economy, buy on weakness will still be the preferred investment strategy.
Company Highlights
SP Ausnet – Upgrades earnings forecasts
• SP Ausnet, a supplier of energy like electricity and gas, has guided an earnings increase for its 2008/09 financial year. Ausnet expects net profit to be about 15% higher than the forecast in its 2007 explanatory memorandum of A$147.5 million.
• Key reasons for the upward revision include the decision on transmission charges by the Australian Engery Regulators and also higher capital expenditure allowances. On top of that, Ausnet will also see reduction in its interest cost due to the refinancing of A$1.55 billion debt and finalisation of new interest rate hedges.
Asia Pacific Breweries Ltd – Invested US$1m to increase beer production in Vietnam
• Asia Pacific Breweries ("APB"), leading brewery group in the Asia Pacific region, has invested some S$1.4 million to increase production capacity at its wholly-owned brewery in Hatay, located outside Hanoi in North Vietnam.
• Hatay Brewery can now produce 460,000 hectolitres of beer, up 50 percent from its initial capacity. The plant brews beer under the labels Tiger, Heineken, Anchor and Bivina.
• APB says Vietnam is a key part of its business in Indochina. The region is now APB's largest profit generator, accounting for 48% of pre-tax profit and 37% of revenue in FY07.
• APB's operations in Indochina comprise five breweries in Vietnam, one in Cambodia and one in Laos, which was officially opened two weeks ago.
Capitaland: Mixed development in Vietnam could contribute could contribute S$103m in
Capitaland announced its plans to build approximately 1,400 apartments and commercial and retail space on the 6.7-hectare site in District 2 in Ho Chi Minh City (HCMC) in partnership with Thian Du Co Ltd. The total investment capital for the project is estimated at S$690m and will be developed in phases. CapitaLand's equity interest will be 60% and Thian Du holding the remaining 40% stake. Assuming at least a 20% development margin similar to its other projects in Vietnam, the project could potentially contribute more than S$103m in pre tax profits.
Capitaland plans to build high-rise condominium with 28 storeys on the site. The first phase of the project is expected to launch in 2Q09. The move by Capita Land is in line with its expansion and diversification strategy by setting up a strong presence in the Asia's growth cities and benefit from the property upcycle in that region. We have not incorporated the potential S$103m contribution at this point in time as it is small compared to the overall RNAV. We will incorporate it subsequently as we get more details on the project. We are reviewing our target price and recommendation.
Capitaland plans to build high-rise condominium with 28 storeys on the site. The first phase of the project is expected to launch in 2Q09. The move by Capita Land is in line with its expansion and diversification strategy by setting up a strong presence in the Asia's growth cities and benefit from the property upcycle in that region. We have not incorporated the potential S$103m contribution at this point in time as it is small compared to the overall RNAV. We will incorporate it subsequently as we get more details on the project. We are reviewing our target price and recommendation.
HG Metal Manufacturing (S$0.30) - Shortage of steel
We remain positive on HG Metal's near-term prospects as we believe it
will benefit from a combination of rising
steel prices, robust construction and marine and offshore sectors in
Singapore, and a weaker US$. We have kept our
FY08-10 EPS forecasts unchanged for the time being in view of the
volatility of steel prices. However, we believe
there could be upside surprises to our FY08 numbers if steel prices
stay at current levels in 2HFY08. We have rolled
over our target P/E from CY08 to CY09, using 8x instead of 9x to factor
in compressions in the market P/E. However,
our target price remains relatively unchanged at S$0.61. Maintain
Outperform, given the potential upside to our
numbers from any higher-than-expected ASPs.
Quick Takes
* CapitaCommercial Trust (S$2.11) - One George Street on the
cards
* STX Pan Ocean (S$2.86) - 1Q guidance substantially ahead of
expectations
* StarHub (S$3.07) - Wins additional 2G spectrum rights
News of the Day
* US GDP up a feeble 0.6% in Q4
* Private bank RBS Coutts looks to expand in Singapore
* $484m gain in value of A-Reit properties
* KSE bags US$130m charter deal
* Templeton wants 24% more for AsiaPharm
* FCT to buy $480m malls from parent
* Ezra inks US$77.6m worth of charter deals
Technical Trading Ideas
* Celestial NutriFoods
will benefit from a combination of rising
steel prices, robust construction and marine and offshore sectors in
Singapore, and a weaker US$. We have kept our
FY08-10 EPS forecasts unchanged for the time being in view of the
volatility of steel prices. However, we believe
there could be upside surprises to our FY08 numbers if steel prices
stay at current levels in 2HFY08. We have rolled
over our target P/E from CY08 to CY09, using 8x instead of 9x to factor
in compressions in the market P/E. However,
our target price remains relatively unchanged at S$0.61. Maintain
Outperform, given the potential upside to our
numbers from any higher-than-expected ASPs.
Quick Takes
* CapitaCommercial Trust (S$2.11) - One George Street on the
cards
* STX Pan Ocean (S$2.86) - 1Q guidance substantially ahead of
expectations
* StarHub (S$3.07) - Wins additional 2G spectrum rights
News of the Day
* US GDP up a feeble 0.6% in Q4
* Private bank RBS Coutts looks to expand in Singapore
* $484m gain in value of A-Reit properties
* KSE bags US$130m charter deal
* Templeton wants 24% more for AsiaPharm
* FCT to buy $480m malls from parent
* Ezra inks US$77.6m worth of charter deals
Technical Trading Ideas
* Celestial NutriFoods
Singapore market – Continue to track US development
• Singapore: Singapore market closed higher despite fall before mid-day. Investors went on bargain hunting and collected blue chips after earlier fall during the day due to weak US economic data on order for durable goods and low sales of new home. FTSE-STI dropped as much as 1.2% before mid-day, coming back toward the end of trading hours to close 29.98 or 1.0% higher at 3,025.20 points. Trading volume was 1.49 billion shares valued at S$1.63 billion and gainers took lead against decliners 398 to 248. Local bourse operator Singapore Exchange soared S$0.36 or 4.9% to S$7.76.
• Wall Street: US market retreated for the second day on weak financial results posted from technology giant Oracle Corp, and rumours that Lehman Brothers could be the next sub-prime casualty following Bear Stearns. Technology shares suffered ripples of sell-off after Oracle delivered weaker-than-expected quarterly revenue and made cautious statements on its outlook. Providing technology solution to a lot of different sectors in different countries, Oracle's cautious sales outlook could indicate softer business spending in the months to come. Dow Jones dropped 120.40 or 1.0% to 12,302.46 points and tech-heavy Nasdaq fell 43.53 or 1.9% to close at 2,280.83 points. Lehman's share plunged 8.9% to US$38.71. Crude oil up US$1.68 to close at US$107.58 per barrel on NYMEX.
• Outlook: Development in the US will continue to dominate local sentiments. For the pass three weeks, the opening price of STI has track the closing of the Dow without fail. When Dow was closed lower, STI opened down and when Dow closed higher, the STI opened up. No exception is expected for today. With the Dow dropped more than 100 points yesterday, STI is expected to open down. The reasons for investors to track the development in the US instead of focusing on Singapore economy were easy to understand. Singapore is an open economy and its performance will be easily affected by global economies, especially the world largest economy, the US. Investors' memory is still fresh. The most recent US slowdown in 2001 has dragged the Singapore economy down by 2.1% (See Chart). However, the 2001 Singapore recession was partly due to the hollowing out of the manufacturing sectors to cheap producing economies and the Singapore economy underwent restructuring. The Singapore economy has since emerged stronger. We believe it is likely to remain healthy during the current US slowdown or recession, just as it did during the 1982's and 1991's US recessions.
Company Highlights
OKP Holdings Limited – Awarded S$16.86m contract to widen CTE
• OKP Holdings Limited is a leading home-grown infrastructure and civil engineering company in the region, specialising in the construction of airport runways and taxiways, expressways, flyovers, vehicular bridges, urban and arterial roads, secured a S$16.86m contract to widen the stretch of the CTE between Ang Mo Kio Avenue 1 and Ang Mo Kio Avenue 3.
• OKP will be adding a lane in each direction along the 1.5 km stretch. Work is expected to be completed by end-August 2009.
• As at 26 February, the Group's order book based on secured contracts stood at S$209.2m.
KS Energy Services Limited – Secured US$130m time charter contract
• KS Energy Services Limited ("KS Energy"), a leading one-stop energy services provider to the global oil & gas ("O&G") and petrochemical industries, secured a firm 3 years drilling contract in excess of US$130m for the charter hire of a 300-feet drilling jackup rig.
• The contract is for the charter of the "KS MedStar-1", a 300-feet cantilever drilling jackup rig. The KS MedStar-1 will serve drilling activities in the Mediterranean Sea for a firm contract period of 3 years plus a renewal option for one year. If the renewal option for one year is exercised, the value of the contract will be increased to US$175.2m.
• Acquired in July 2007, KS Energy expects to take delivery of this rig in March 2008. The funding for the acquisition of the rig will come from a combination of debt financing and internal financial resources.
Best Regards,
Westcomb Research Team
• Wall Street: US market retreated for the second day on weak financial results posted from technology giant Oracle Corp, and rumours that Lehman Brothers could be the next sub-prime casualty following Bear Stearns. Technology shares suffered ripples of sell-off after Oracle delivered weaker-than-expected quarterly revenue and made cautious statements on its outlook. Providing technology solution to a lot of different sectors in different countries, Oracle's cautious sales outlook could indicate softer business spending in the months to come. Dow Jones dropped 120.40 or 1.0% to 12,302.46 points and tech-heavy Nasdaq fell 43.53 or 1.9% to close at 2,280.83 points. Lehman's share plunged 8.9% to US$38.71. Crude oil up US$1.68 to close at US$107.58 per barrel on NYMEX.
• Outlook: Development in the US will continue to dominate local sentiments. For the pass three weeks, the opening price of STI has track the closing of the Dow without fail. When Dow was closed lower, STI opened down and when Dow closed higher, the STI opened up. No exception is expected for today. With the Dow dropped more than 100 points yesterday, STI is expected to open down. The reasons for investors to track the development in the US instead of focusing on Singapore economy were easy to understand. Singapore is an open economy and its performance will be easily affected by global economies, especially the world largest economy, the US. Investors' memory is still fresh. The most recent US slowdown in 2001 has dragged the Singapore economy down by 2.1% (See Chart). However, the 2001 Singapore recession was partly due to the hollowing out of the manufacturing sectors to cheap producing economies and the Singapore economy underwent restructuring. The Singapore economy has since emerged stronger. We believe it is likely to remain healthy during the current US slowdown or recession, just as it did during the 1982's and 1991's US recessions.
Company Highlights
OKP Holdings Limited – Awarded S$16.86m contract to widen CTE
• OKP Holdings Limited is a leading home-grown infrastructure and civil engineering company in the region, specialising in the construction of airport runways and taxiways, expressways, flyovers, vehicular bridges, urban and arterial roads, secured a S$16.86m contract to widen the stretch of the CTE between Ang Mo Kio Avenue 1 and Ang Mo Kio Avenue 3.
• OKP will be adding a lane in each direction along the 1.5 km stretch. Work is expected to be completed by end-August 2009.
• As at 26 February, the Group's order book based on secured contracts stood at S$209.2m.
KS Energy Services Limited – Secured US$130m time charter contract
• KS Energy Services Limited ("KS Energy"), a leading one-stop energy services provider to the global oil & gas ("O&G") and petrochemical industries, secured a firm 3 years drilling contract in excess of US$130m for the charter hire of a 300-feet drilling jackup rig.
• The contract is for the charter of the "KS MedStar-1", a 300-feet cantilever drilling jackup rig. The KS MedStar-1 will serve drilling activities in the Mediterranean Sea for a firm contract period of 3 years plus a renewal option for one year. If the renewal option for one year is exercised, the value of the contract will be increased to US$175.2m.
• Acquired in July 2007, KS Energy expects to take delivery of this rig in March 2008. The funding for the acquisition of the rig will come from a combination of debt financing and internal financial resources.
Best Regards,
Westcomb Research Team
Chartered Semiconductor: Reiterates 1Q08 guidance
Summary: Chartered Semiconductor has expectedly reiterated its 1Q08 guidance, where it expects revenue to grow 2-6% QoQ to US$361-373m, and achieve breakeven (+/- US$5m) at the bottomline (before accretion to preference shareholders). Chartered has also recently announced that it has entered into a deal to acquire a 100% stake in Hitachi Semiconductor Singapore for US$233m. The deal also comes with a manufacturing agreement with existing HNS customer Renesas Technology Corp to provide some US$250-300m worth of future wafer fab services, but Chartered expects the buy to be neutral to its FY08 earnings. Management will be providing more details on the HNS' revenue contribution during its 1Q08 results briefing scheduled on 25 April. As such, we are leaving our numbers largely unchanged. But our fair value eases to S$0.74 (still based on 1.1x FY08F NTA), given a weaker USD assumption. We also see downside risk over the next few months, given the uncertain US economic outlook and softening semicon industry picture. As such, we retain our HOLD rating and will review our numbers more closely after its 1Q08 results. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Electrotech: Penang Plant Visit
Summary: We recently paid a visit to Electrotech Investments Limited (EIL) in Penang. EIL remains confident of expanding its Mechatronics and EMS business in Penang as management expects things to remain status quo i.e. still very business friendly, despite the recent change in state government. EIL runs its Mechatronics operations through Frencken Malaysia, which is not only an important internal support unit to the Frencken Group, but has also started to penetrate the Asian market on its own. As for its EMS business, EIL is in the process of changing its game plan. While EIL will retain Plastics as one of its core operations, it is working to reduce its dependency on its Keypad business. Instead, EIL wants to build up a critical mass of at least MYR100m in its OA (Office Automation) and AU (Automobile) businesses over the next two years to enhance long-term stability. However, this may come at the expense of short-term profit as EIL scales back its Keypad operations and retool some of the equipment for the OA and AU segment. EIL is sitting on a healthy cash hoard of S$44.0m, or S$0.14/share, which is more than adequate to fund its planned S$14m capex. We do not have a rating on the stock. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Pacific Shipping Trust: Changing of the guard
Summary: Pacific Shipping Trust (PST) just announced that it has appointed Alvin Cheng, formerly from APL Logistics, as its CEO with effect from May 1. Incumbent Capt Subhangshu Dutt will return to PST parent Pacific International Lines (PIL) where he had worked for 18 years previously. According to the announcement, Mr Cheng has more than 20 years of working experience in corporate and investment banking and the shipping industries. Capt Dutt has had a long-standing relationship with sponsor PIL, which has aided the development of the trustee-manager and the trust since PST's 2006 IPO. However, the trustee-manager is still 100% owned by PIL, and PIL will continue to deal closely with the trust as a charterer and a key source of future acquisitions. Consequently, we anticipate no far-reaching effects from the move and reiterate our BUY rating and fair value of US$0.55. (Meenal Kumar)
NEWS HEADLINES
- The Al-Futtaim Group has upped its bid for Robinson & Co to S$7 per share from S$6.25 previously.
- The number of new homes sold by developers dropped to just 170 units in February, the lowest since the Urban Redevelopment Authority began releasing monthly sales data in June 2007.
- SIA CEO Chew Choon Seng said that jet fuel prices were likely to stay high in the foreseeable future, but the airline's efforts to upgrade to more fuel-efficient new-generation planes would help mitigate fuel costs.
- Singapore's non-oil domestic exports rose 7.3% YoY in February.
- The Monetary Authority of Singapore told Reuters that Singapore banks' current liquidity positions are sound.
- India's Bharti Airtel, an associate company of SingTel, said it does not expect to make any aggressive tariff cuts to maintain market share, and believes that the growth rate for new subscribers would be sustainable.
- Swiber has been awarded a contract from CUEL Ltd in Thailand that is tenable for five years and estimated to be worth US$50m per year.
- Under a new MOU, Novo Group will supply HG Metal with at least 156,000 tons of steel products per year, about 9% of Novo's reported steel supply.
- Sinopipe has secured a three-year US$15m loan from three banks in Singapore. The interest rate is set at 1.5% a year over and above the 3-month US$ Libor.
For more information on the above, visit www.ocbcresearch.com for detailed report.
Electrotech: Penang Plant Visit
Summary: We recently paid a visit to Electrotech Investments Limited (EIL) in Penang. EIL remains confident of expanding its Mechatronics and EMS business in Penang as management expects things to remain status quo i.e. still very business friendly, despite the recent change in state government. EIL runs its Mechatronics operations through Frencken Malaysia, which is not only an important internal support unit to the Frencken Group, but has also started to penetrate the Asian market on its own. As for its EMS business, EIL is in the process of changing its game plan. While EIL will retain Plastics as one of its core operations, it is working to reduce its dependency on its Keypad business. Instead, EIL wants to build up a critical mass of at least MYR100m in its OA (Office Automation) and AU (Automobile) businesses over the next two years to enhance long-term stability. However, this may come at the expense of short-term profit as EIL scales back its Keypad operations and retool some of the equipment for the OA and AU segment. EIL is sitting on a healthy cash hoard of S$44.0m, or S$0.14/share, which is more than adequate to fund its planned S$14m capex. We do not have a rating on the stock. (Carey Wong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Pacific Shipping Trust: Changing of the guard
Summary: Pacific Shipping Trust (PST) just announced that it has appointed Alvin Cheng, formerly from APL Logistics, as its CEO with effect from May 1. Incumbent Capt Subhangshu Dutt will return to PST parent Pacific International Lines (PIL) where he had worked for 18 years previously. According to the announcement, Mr Cheng has more than 20 years of working experience in corporate and investment banking and the shipping industries. Capt Dutt has had a long-standing relationship with sponsor PIL, which has aided the development of the trustee-manager and the trust since PST's 2006 IPO. However, the trustee-manager is still 100% owned by PIL, and PIL will continue to deal closely with the trust as a charterer and a key source of future acquisitions. Consequently, we anticipate no far-reaching effects from the move and reiterate our BUY rating and fair value of US$0.55. (Meenal Kumar)
NEWS HEADLINES
- The Al-Futtaim Group has upped its bid for Robinson & Co to S$7 per share from S$6.25 previously.
- The number of new homes sold by developers dropped to just 170 units in February, the lowest since the Urban Redevelopment Authority began releasing monthly sales data in June 2007.
- SIA CEO Chew Choon Seng said that jet fuel prices were likely to stay high in the foreseeable future, but the airline's efforts to upgrade to more fuel-efficient new-generation planes would help mitigate fuel costs.
- Singapore's non-oil domestic exports rose 7.3% YoY in February.
- The Monetary Authority of Singapore told Reuters that Singapore banks' current liquidity positions are sound.
- India's Bharti Airtel, an associate company of SingTel, said it does not expect to make any aggressive tariff cuts to maintain market share, and believes that the growth rate for new subscribers would be sustainable.
- Swiber has been awarded a contract from CUEL Ltd in Thailand that is tenable for five years and estimated to be worth US$50m per year.
- Under a new MOU, Novo Group will supply HG Metal with at least 156,000 tons of steel products per year, about 9% of Novo's reported steel supply.
- Sinopipe has secured a three-year US$15m loan from three banks in Singapore. The interest rate is set at 1.5% a year over and above the 3-month US$ Libor.
What's on the table
Ascott Residence Trust (S$1.26) ? Initiating coverage - In all the
right places
ART is a serviced residence real estate investment trust focusing on
serviced residences and rental housing markets
in Asia. The length of stay at ART's properties is above the industry
average, given ART's target market of business
and leisure travellers, as well as residential tenants. This largely
reduces the earnings fluctuations commonly seen
in the short-stay hospitality sector. ART is poised for growth via
acquisitions and growth in revenue per available
unit (REVPAU) from 2008 to 2010. We expect ART to acquire S$400m of
properties in 2008, to reach a target portfolio
of S$2bn by end-2008. In addition, its REVPAU is expected to increase
by 3-8% across the region from 2008 to 2010.
On this basis, we forecast a DPU CAGR of 9% for 2008-10. We initiate
coverage on Ascott Residence Trust with
Outperform and DDM-derived valuation of S$1.74. We arrive at our target
price of S$1.74 using DDM valuation
(discount rate at 8.4%, terminal growth rate at 3%). This represents a
total return of 45% from a forward yield of
6.5% in FY08 and potential price upside of 38%.
News of the Day
* Fed's emergency moves fail to quell Asian fears
* New home sales slump to 9-month low in Feb
* Al-Futtaim raises offer for Robinson to $7 a share
* Swiber clinches five-year contract worth US$250m
* Jet fuel prices set to stay high: SIA chief
* Bharti does not plan to make steep tariff cuts
* Anwell wins Blu-Ray manufacturing deal in Hong Kong
* Novo, HG Metal in MOU on steel supply
* DBS rolls out deal for social enterprises
Trading Ideas
* Fibrechem Technologies
right places
ART is a serviced residence real estate investment trust focusing on
serviced residences and rental housing markets
in Asia. The length of stay at ART's properties is above the industry
average, given ART's target market of business
and leisure travellers, as well as residential tenants. This largely
reduces the earnings fluctuations commonly seen
in the short-stay hospitality sector. ART is poised for growth via
acquisitions and growth in revenue per available
unit (REVPAU) from 2008 to 2010. We expect ART to acquire S$400m of
properties in 2008, to reach a target portfolio
of S$2bn by end-2008. In addition, its REVPAU is expected to increase
by 3-8% across the region from 2008 to 2010.
On this basis, we forecast a DPU CAGR of 9% for 2008-10. We initiate
coverage on Ascott Residence Trust with
Outperform and DDM-derived valuation of S$1.74. We arrive at our target
price of S$1.74 using DDM valuation
(discount rate at 8.4%, terminal growth rate at 3%). This represents a
total return of 45% from a forward yield of
6.5% in FY08 and potential price upside of 38%.
News of the Day
* Fed's emergency moves fail to quell Asian fears
* New home sales slump to 9-month low in Feb
* Al-Futtaim raises offer for Robinson to $7 a share
* Swiber clinches five-year contract worth US$250m
* Jet fuel prices set to stay high: SIA chief
* Bharti does not plan to make steep tariff cuts
* Anwell wins Blu-Ray manufacturing deal in Hong Kong
* Novo, HG Metal in MOU on steel supply
* DBS rolls out deal for social enterprises
Trading Ideas
* Fibrechem Technologies
Jackspeed Corporation: Aviation certification plans on track
Summary: Jackspeed Corporation's (JS) aviation certification progress for the FAR 145 certification is on track, and management is targeting to obtain the certification within 6 months. We believe this certification should aid in enhancing its technical competency and could translate into better sales. Meanwhile, Thailand is on its way to reaching the 2m automotive units production target, at which Thailand will move up from its current 14th place ranking to become one of the top 10 auto manufacturing countries in the world. Thailand's growing auto assembly facilities and a large export and domestic auto market also present opportunities for Jackspeed's parts/accessories business in Thailand. In view of the still healthy macro environment for Thailand's auto industry and together with Jackspeed's growing technical expertise in the aviation business, we are maintaining our fair value of S$0.26 and reiterate our BUY rating. (Selena Leong)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- J.P. Morgan agreed to buy Bear Stearns for US$2 a share in a stock-swap transaction. The deal values Bear Stearns at just US$236m, while its stock-market value on Friday was about $3.54b.
- CapitaCommercial Trust has issued S$150m of fixed rate notes due in 2010, under the S$1b multi-currency medium-term note program established last year.
- A consortium involving a Midas JV has secured a RMB550.4m contract to supply metro train cars. Midas has a 32.5% stake in the JV.
- Singapore's retail sales rose 7.8% YoY in January, but only 1.5% after adjusting for inflation.
- Centraland said its 2007 net profit fell 9.4% YoY to RMB41m as higher costs offset the 5.6% rise in revenue to RMB292m.
- Beyonics Tech posted a 23.3% YoY drop in 2Q net profit to S$3.9m despite a 27.2% increase in revenue to S$255m.
- Popular Holdings saw higher expenses eat into its 3Q net profit, which fell 8.2% to S$8.9m.
- SNF Corp's net losses widened in FY07 to S$2.95m, up from S$769k in the previous year. The group said it expects its operating environment to remain challenging, citing the weakening USD, volatile oil prices and the uncertainty of the global economy.
- Tri-M Tech, which is on the SGX watchlist, said it has entered into an MOU to fully acquire Kingworld Resources, which is in the oil exploration and production business.
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- J.P. Morgan agreed to buy Bear Stearns for US$2 a share in a stock-swap transaction. The deal values Bear Stearns at just US$236m, while its stock-market value on Friday was about $3.54b.
- CapitaCommercial Trust has issued S$150m of fixed rate notes due in 2010, under the S$1b multi-currency medium-term note program established last year.
- A consortium involving a Midas JV has secured a RMB550.4m contract to supply metro train cars. Midas has a 32.5% stake in the JV.
- Singapore's retail sales rose 7.8% YoY in January, but only 1.5% after adjusting for inflation.
- Centraland said its 2007 net profit fell 9.4% YoY to RMB41m as higher costs offset the 5.6% rise in revenue to RMB292m.
- Beyonics Tech posted a 23.3% YoY drop in 2Q net profit to S$3.9m despite a 27.2% increase in revenue to S$255m.
- Popular Holdings saw higher expenses eat into its 3Q net profit, which fell 8.2% to S$8.9m.
- SNF Corp's net losses widened in FY07 to S$2.95m, up from S$769k in the previous year. The group said it expects its operating environment to remain challenging, citing the weakening USD, volatile oil prices and the uncertainty of the global economy.
- Tri-M Tech, which is on the SGX watchlist, said it has entered into an MOU to fully acquire Kingworld Resources, which is in the oil exploration and production business.
Telecommunications Sector - Robust fundamentals remain underappreciated
We expect Singapore telcos to continue to outperform the STI in view of
an extended period of market risk aversion.
The sector offers robust free cash flows and the three telcos remain
below their targeted capital structures. This
is supportive of attractive yields of 4.5-10%. 2008 growth is expected
to be topline-driven on strong telco service
consumption. Margins are expected to be stable as competition
approaches a new equilibrium. In addition, we believe
concerns over risks from mobile number portability and the
Next-Generation Broadband Network are overdone. Maintain
Overweight with StarHub as our top pick, followed by SingTel and M1.
StarHub offers outstanding ARPU growth
potential with a robust yield of 10% while SingTel offers subscriber
share growth with a yield of 4.5%. M1 lacks
catalysts but offers a yield of 8%.
Quick Takes
* Global Equity Technicals - Building up to a "selling climax"
News of the Day
* Fed Cuts Discount Rate to 3.25%; Announces New Lending
Facility
* Convertible bond issues jump as stocks retreat
* HK houses going for HK$300m
* Stocks slide hits market for IPOs
* CCT MTN issues $150m fixed rate notes due 2010
Trading Ideas
* STI Weekly Outlook
an extended period of market risk aversion.
The sector offers robust free cash flows and the three telcos remain
below their targeted capital structures. This
is supportive of attractive yields of 4.5-10%. 2008 growth is expected
to be topline-driven on strong telco service
consumption. Margins are expected to be stable as competition
approaches a new equilibrium. In addition, we believe
concerns over risks from mobile number portability and the
Next-Generation Broadband Network are overdone. Maintain
Overweight with StarHub as our top pick, followed by SingTel and M1.
StarHub offers outstanding ARPU growth
potential with a robust yield of 10% while SingTel offers subscriber
share growth with a yield of 4.5%. M1 lacks
catalysts but offers a yield of 8%.
Quick Takes
* Global Equity Technicals - Building up to a "selling climax"
News of the Day
* Fed Cuts Discount Rate to 3.25%; Announces New Lending
Facility
* Convertible bond issues jump as stocks retreat
* HK houses going for HK$300m
* Stocks slide hits market for IPOs
* CCT MTN issues $150m fixed rate notes due 2010
Trading Ideas
* STI Weekly Outlook
JPMorgan Chase & Co. agreed to buy Bear Stearns Cos
March 16 (Bloomberg) -- JPMorgan Chase & Co. agreed to buy
Bear Stearns Cos. for about $270 million after a run on the
company ended 85 years of independence for Wall Street's fifth-
largest securities firm and prompted a bailout by the Federal
Reserve.
The deal values New York-based Bear Stearns, with 14,000
employees, at $2 a share, compared with $30 at the close on
March 14. The central bank will provide financing for the
transaction, including support for as much as $30 billion of
Bear Stearns's ``less-liquid assets,'' the two companies said in
a statement today.
JPMorgan Chief Executive Officer Jamie Dimon had the upper
hand in negotiations after coming to the smaller firm's rescue
last week with a cash infusion engineered by the Federal Reserve
Bank of New York. Bear Stearns's CEO, Alan Schwartz, faced the
prospect of bankruptcy as clients pulled $17 billion in two days
last week and creditors stopped renewing loans.
``JPMorgan Chase stands behind Bear Stearns,'' Dimon said
in the statement. ``Bear Stearns's clients and counterparties
should feel secure that JPMorgan is guaranteeing Bear Stearns's
counterparty risk. We welcome their clients, counterparties and
employees to our firm, and we are glad to be their partner.''
Bear Stearns's sale to JPMorgan caps an eight-month slide
in the company's fortunes that began last July with the collapse
of two of its hedge funds. Those failures sparked a wider market
concern that called into doubt the value of any asset linked to
the mortgage market, Bear Stearns's biggest business.
Market Deterioration
Without a resolution this weekend, the situation would
probably have continued to deteriorate when markets resumed
trading tomorrow, according to analysts and investors including
Cambiar Investors LLC's Brian Barish.
``The past week has been an incredibly difficult time,''
Schwartz said in the statement. ``This transaction represents
the best outcome for all of our constituencies based upon the
current circumstances.''
The Fed's rescue attempt last week failed to avert a crisis
of confidence among Bear Stearns's customers and shareholders,
who drove the stock down a record 47 percent after the cash
infusion was announced.
Bear Stearns's profit exceeded $2 billion in 2006, yet the
price JPMorgan is paying is about one quarter the value of the
securities firm's headquarters building in midtown Manhattan.
The 1.2 million-square-foot, 45-story structure built in 2001 is
worth about $1.2 billion, based on the average $1,000 per-
square-foot that comparable office space in the city is
currently fetching.
Counterparty Risk
``If you're buying equity for free and the liabilities are
pretty well capped, it sounds like it's good for JPMorgan
shareholders,'' said Ben Wallace, who helps manage $800 million,
including shares of JPMorgan, at Grimes & Co. in Westborough,
Massachusetts. ``The thing that everybody's been worried about
has been the counterparty risk and if this gives people more
confidence, that will be good for the markets.''
Bear Stearns's prime brokerage unit, which provides loans
and processes trades for hedge funds, generated $1.2 billion in
revenue last year. That business is probably the only piece left
of the company with value after the mortgage market collapsed
last year, analysts have said.
The prime brokerage was the third-largest behind Goldman
Sachs Group Inc. and Morgan Stanley as of April 2007, according
to Sanford C. Bernstein & Co. About a sixth of the firm's income
came from packaging and trading mortgage bonds, a market that
has been almost completely frozen since July.
`A Lot of Value'
``As bad as things are at Bear Stearns, this is still a
franchise with a lot of value, particularly the prime brokerage
business, which is what JPMorgan is after,'' said William
Fitzpatrick, who helps manage $1.6 billion at Optique Capital
Management, including JPMorgan shares. ``That's the crown jewel,
and that would fit into JPMorgan's business extremely well.''
Dimon's New York-based firm has suffered fewer losses than
rivals during the credit-market contraction, which has prompted
$195 billion of writedowns and losses by Wall Streets biggest
banks and securities firms.
JPMorgan, the third-largest U.S. bank by assets, has posted
$3.7 billion in writedowns, a fraction of the $22.4 billion
reported by New York-based Citigroup Inc., the biggest U.S.
bank.
Crisis of Confidence
``It'll be perceived as a positive for the markets,'' said
E. William Stone, who oversees $77 billion as chief investment
strategist at PNC Wealth Management in Philadelphia. ``It puts a
floor under all the financials. The longer-term thesis is that
the Fed won't let good companies fail based on lack of liquidity
and a crisis of confidence.''
Treasury Secretary Henry Paulson defended the Fed's bailout
today, saying policy makers will do whatever is needed to
prevent disruptions in financial markets from hurting the
economy. Paulson said he was involved with the discussions on
Bear Stearns's future this weekend, without elaborating.
``There's always a decision to be made to say what's best
for the stability of the marketplace, the orderliness of the
marketplace,'' Paulson said. ``I think we made the right
decision.''
Bear Stearns, founded in 1923, survived the Great
Depression and first sold shares to the public in 1985.
Schwartz, an executive with more than 30 years of experience at
Bear Stearns, was the hand-picked choice of his predecessor,
James ``Jimmy'' Cayne, 74, who remains non-executive chairman of
the firm.
Bridge Game
Cayne stepped down after reporting an $854 million fourth-
quarter loss, the first in the company's history. He was at a
bridge tournament in Detroit last week as the firm faced
speculation about its cash position. Cayne came under fire last
July for playing golf and bridge while the hedge funds
collapsed.
On a conference call with analysts and investors after the
bailout announcement on March 14, Schwartz said the company's
book value was ``fundamentally'' unchanged. Clients continued to
withdraw funds, he said. The book value was about $80 a share at
the end of November.
When Bear Stearns invited potential buyers for detailed
presentations by department chiefs yesterday, only JPMorgan and
private equity firm J.C. Flowers & Co. showed up, according to
people familiar with the talks.
Other Buyers
Other potential buyers, such as Royal Bank of Scotland
Group Plc and HSBC Holdings Plc, which had expressed interest in
the past, didn't send representatives. Hundreds of Bear Stearns
employees went to work yesterday to help with the sale process
and the presentations.
Bear Stearns has offices in cities including London, Tokyo,
Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo,
according to its Web site.
Joseph Lewis, the second-largest shareholder in Bear
Stearns Cos., wasn't planning to reduce his stake, a person
close to him said March 11. Lewis, a 71-year-old billionaire,
has put in more than $1 billion into the firm since September,
paying as much as $150 for a share.
JPMorgan's participation in the bailout follows a long
tradition at the bank of stepping in to rescue financial markets
from crisis, according to Charles Geisst, the author of ``100
Years on Wall Street.''
The bank has also profited from others' crises. JPMorgan
got at least $725 million of revenue for taking on half the
energy trades from collapsed hedge fund Amaranth Advisors LLC in
2006.
Bear Stearns Cos. for about $270 million after a run on the
company ended 85 years of independence for Wall Street's fifth-
largest securities firm and prompted a bailout by the Federal
Reserve.
The deal values New York-based Bear Stearns, with 14,000
employees, at $2 a share, compared with $30 at the close on
March 14. The central bank will provide financing for the
transaction, including support for as much as $30 billion of
Bear Stearns's ``less-liquid assets,'' the two companies said in
a statement today.
JPMorgan Chief Executive Officer Jamie Dimon had the upper
hand in negotiations after coming to the smaller firm's rescue
last week with a cash infusion engineered by the Federal Reserve
Bank of New York. Bear Stearns's CEO, Alan Schwartz, faced the
prospect of bankruptcy as clients pulled $17 billion in two days
last week and creditors stopped renewing loans.
``JPMorgan Chase stands behind Bear Stearns,'' Dimon said
in the statement. ``Bear Stearns's clients and counterparties
should feel secure that JPMorgan is guaranteeing Bear Stearns's
counterparty risk. We welcome their clients, counterparties and
employees to our firm, and we are glad to be their partner.''
Bear Stearns's sale to JPMorgan caps an eight-month slide
in the company's fortunes that began last July with the collapse
of two of its hedge funds. Those failures sparked a wider market
concern that called into doubt the value of any asset linked to
the mortgage market, Bear Stearns's biggest business.
Market Deterioration
Without a resolution this weekend, the situation would
probably have continued to deteriorate when markets resumed
trading tomorrow, according to analysts and investors including
Cambiar Investors LLC's Brian Barish.
``The past week has been an incredibly difficult time,''
Schwartz said in the statement. ``This transaction represents
the best outcome for all of our constituencies based upon the
current circumstances.''
The Fed's rescue attempt last week failed to avert a crisis
of confidence among Bear Stearns's customers and shareholders,
who drove the stock down a record 47 percent after the cash
infusion was announced.
Bear Stearns's profit exceeded $2 billion in 2006, yet the
price JPMorgan is paying is about one quarter the value of the
securities firm's headquarters building in midtown Manhattan.
The 1.2 million-square-foot, 45-story structure built in 2001 is
worth about $1.2 billion, based on the average $1,000 per-
square-foot that comparable office space in the city is
currently fetching.
Counterparty Risk
``If you're buying equity for free and the liabilities are
pretty well capped, it sounds like it's good for JPMorgan
shareholders,'' said Ben Wallace, who helps manage $800 million,
including shares of JPMorgan, at Grimes & Co. in Westborough,
Massachusetts. ``The thing that everybody's been worried about
has been the counterparty risk and if this gives people more
confidence, that will be good for the markets.''
Bear Stearns's prime brokerage unit, which provides loans
and processes trades for hedge funds, generated $1.2 billion in
revenue last year. That business is probably the only piece left
of the company with value after the mortgage market collapsed
last year, analysts have said.
The prime brokerage was the third-largest behind Goldman
Sachs Group Inc. and Morgan Stanley as of April 2007, according
to Sanford C. Bernstein & Co. About a sixth of the firm's income
came from packaging and trading mortgage bonds, a market that
has been almost completely frozen since July.
`A Lot of Value'
``As bad as things are at Bear Stearns, this is still a
franchise with a lot of value, particularly the prime brokerage
business, which is what JPMorgan is after,'' said William
Fitzpatrick, who helps manage $1.6 billion at Optique Capital
Management, including JPMorgan shares. ``That's the crown jewel,
and that would fit into JPMorgan's business extremely well.''
Dimon's New York-based firm has suffered fewer losses than
rivals during the credit-market contraction, which has prompted
$195 billion of writedowns and losses by Wall Streets biggest
banks and securities firms.
JPMorgan, the third-largest U.S. bank by assets, has posted
$3.7 billion in writedowns, a fraction of the $22.4 billion
reported by New York-based Citigroup Inc., the biggest U.S.
bank.
Crisis of Confidence
``It'll be perceived as a positive for the markets,'' said
E. William Stone, who oversees $77 billion as chief investment
strategist at PNC Wealth Management in Philadelphia. ``It puts a
floor under all the financials. The longer-term thesis is that
the Fed won't let good companies fail based on lack of liquidity
and a crisis of confidence.''
Treasury Secretary Henry Paulson defended the Fed's bailout
today, saying policy makers will do whatever is needed to
prevent disruptions in financial markets from hurting the
economy. Paulson said he was involved with the discussions on
Bear Stearns's future this weekend, without elaborating.
``There's always a decision to be made to say what's best
for the stability of the marketplace, the orderliness of the
marketplace,'' Paulson said. ``I think we made the right
decision.''
Bear Stearns, founded in 1923, survived the Great
Depression and first sold shares to the public in 1985.
Schwartz, an executive with more than 30 years of experience at
Bear Stearns, was the hand-picked choice of his predecessor,
James ``Jimmy'' Cayne, 74, who remains non-executive chairman of
the firm.
Bridge Game
Cayne stepped down after reporting an $854 million fourth-
quarter loss, the first in the company's history. He was at a
bridge tournament in Detroit last week as the firm faced
speculation about its cash position. Cayne came under fire last
July for playing golf and bridge while the hedge funds
collapsed.
On a conference call with analysts and investors after the
bailout announcement on March 14, Schwartz said the company's
book value was ``fundamentally'' unchanged. Clients continued to
withdraw funds, he said. The book value was about $80 a share at
the end of November.
When Bear Stearns invited potential buyers for detailed
presentations by department chiefs yesterday, only JPMorgan and
private equity firm J.C. Flowers & Co. showed up, according to
people familiar with the talks.
Other Buyers
Other potential buyers, such as Royal Bank of Scotland
Group Plc and HSBC Holdings Plc, which had expressed interest in
the past, didn't send representatives. Hundreds of Bear Stearns
employees went to work yesterday to help with the sale process
and the presentations.
Bear Stearns has offices in cities including London, Tokyo,
Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo,
according to its Web site.
Joseph Lewis, the second-largest shareholder in Bear
Stearns Cos., wasn't planning to reduce his stake, a person
close to him said March 11. Lewis, a 71-year-old billionaire,
has put in more than $1 billion into the firm since September,
paying as much as $150 for a share.
JPMorgan's participation in the bailout follows a long
tradition at the bank of stepping in to rescue financial markets
from crisis, according to Charles Geisst, the author of ``100
Years on Wall Street.''
The bank has also profited from others' crises. JPMorgan
got at least $725 million of revenue for taking on half the
energy trades from collapsed hedge fund Amaranth Advisors LLC in
2006.
REITs Defensive amidst turbulent times
Since 2H07, credit concerns and a US-led slowdown have cast a pall over the
market, both globally and domestically. To tide over this period, we
suggest investors take a look at the S-REIT counters, given their earnings
visibility, attractive yields and prospect of positive rental reversions.
With the 10-year SGS bond currently offering an all-time low of 2.08% and
S-REITs trading at a decent average yield of 6.4%, we believe that
investors should begin to place emphasis on the sector. Our key
recommendations are Suntec REIT, Frasers Centrepoint Trust and Cambridge
Industrial Trust.
market, both globally and domestically. To tide over this period, we
suggest investors take a look at the S-REIT counters, given their earnings
visibility, attractive yields and prospect of positive rental reversions.
With the 10-year SGS bond currently offering an all-time low of 2.08% and
S-REITs trading at a decent average yield of 6.4%, we believe that
investors should begin to place emphasis on the sector. Our key
recommendations are Suntec REIT, Frasers Centrepoint Trust and Cambridge
Industrial Trust.
HONG KONG (Standard & Poor''s) March 17, 2008
Standard & Poor''s Ratings
Services today lowered its ratings on 14 tranches of two Asia-Pacific cash
flow CDO of ABS transactions; Raffles Place II Funding Ltd. and Singa
Funding Ltd. (see list).
The total issuance amount of the 14 downgraded tranches is approximately US$2 billion.
All lowered tranche ratings were on CreditWatch with negative implications
prior to today''s rating actions. The actions on the CDO ratings were taken
as a result of credit deterioration in the underlying CDO portfolios, which
consist primarily of residential mortgage-backed securities (RMBS) backed
by U.S. mortgages and of tranches from other CDO transactions.
Today''s CDO downgrades reflect a number of factors, including credit
deterioration and recent negative rating actions on U.S. subprime RMBS
securities (see "S&P Takes Action On 6,389 U.S. Subprime RMBS Ratings And
1,953 CDO Ratings," published Jan. 30, 2008, on RatingsDirect). They also
reflect changes that Standard & Poor''s has made to the recovery rate and
correlation assumptions it uses to assess U.S. RMBS held within CDO
collateral pools (see "Correlation And Recovery Assumptions Revised For
CDOs Of ABS Backed By RMBS," published Feb. 4, 2008, on RatingsDirect).
Standard & Poor''s will continue to monitor the CDO transactions it rates
and take rating actions when appropriate. Additionally, Standard & Poor''s
will continue to review its current criteria assumptions in light of the
recent performance of RMBS assets and CDOs. For information on Standard &
Poor''s residential mortgage-related rating actions on U.S. CDO
transactions, please visit RatingsDirect at www.ratingsdirect.com or
www.spviews.com, which is Standard & Poor''s special website for subprime
related issues. Transaction Class Rating to From Raffles Place II Funding
Ltd. A-1M CCC AAA/Watch Neg Raffles Place II Funding Ltd. A-1Q CCC
AAA/Watch Neg Raffles Place II Funding Ltd. A-2 CCC- AAA/Watch Neg Raffles
Place II Funding Ltd. A-3 CC AAA/Watch Neg Raffles Place II Funding Ltd.
A-4 CC A+/Watch Neg Raffles Place II Funding Ltd. B CC BBB/Watch Neg
Raffles Place II Funding Ltd. C1 CC BBB-/Watch Neg Raffles Place II Funding
Ltd. C2 CC BB/Watch Neg Singa Funding Ltd. A-1M CCC AAA/Watch Neg Singa
Funding Ltd. A-1Q CCC AAA/Watch Neg Singa Funding Ltd. A-2 CCC- AAA/Watch
Neg Singa Funding Ltd. A-3 CC AA-/Watch Neg Singa Funding Ltd. A-4 CC
A-/Watch Neg Singa Funding Ltd. B CC BBB-/Watch Neg
Ratings are statements of opinion, not statements of fact or
recommendations to buy, hold, or sell any securities. Standard & Poor''s
(Australia) Pty. Ltd. does not hold an Australian financial services
license under the Corporations Act 2001. Any rating and the information
contained in any research report published by Standard & Poor''s is of a
general nature. It has been prepared without taking into account any
recipient''s
Services today lowered its ratings on 14 tranches of two Asia-Pacific cash
flow CDO of ABS transactions; Raffles Place II Funding Ltd. and Singa
Funding Ltd. (see list).
The total issuance amount of the 14 downgraded tranches is approximately US$2 billion.
All lowered tranche ratings were on CreditWatch with negative implications
prior to today''s rating actions. The actions on the CDO ratings were taken
as a result of credit deterioration in the underlying CDO portfolios, which
consist primarily of residential mortgage-backed securities (RMBS) backed
by U.S. mortgages and of tranches from other CDO transactions.
Today''s CDO downgrades reflect a number of factors, including credit
deterioration and recent negative rating actions on U.S. subprime RMBS
securities (see "S&P Takes Action On 6,389 U.S. Subprime RMBS Ratings And
1,953 CDO Ratings," published Jan. 30, 2008, on RatingsDirect). They also
reflect changes that Standard & Poor''s has made to the recovery rate and
correlation assumptions it uses to assess U.S. RMBS held within CDO
collateral pools (see "Correlation And Recovery Assumptions Revised For
CDOs Of ABS Backed By RMBS," published Feb. 4, 2008, on RatingsDirect).
Standard & Poor''s will continue to monitor the CDO transactions it rates
and take rating actions when appropriate. Additionally, Standard & Poor''s
will continue to review its current criteria assumptions in light of the
recent performance of RMBS assets and CDOs. For information on Standard &
Poor''s residential mortgage-related rating actions on U.S. CDO
transactions, please visit RatingsDirect at www.ratingsdirect.com or
www.spviews.com, which is Standard & Poor''s special website for subprime
related issues. Transaction Class Rating to From Raffles Place II Funding
Ltd. A-1M CCC AAA/Watch Neg Raffles Place II Funding Ltd. A-1Q CCC
AAA/Watch Neg Raffles Place II Funding Ltd. A-2 CCC- AAA/Watch Neg Raffles
Place II Funding Ltd. A-3 CC AAA/Watch Neg Raffles Place II Funding Ltd.
A-4 CC A+/Watch Neg Raffles Place II Funding Ltd. B CC BBB/Watch Neg
Raffles Place II Funding Ltd. C1 CC BBB-/Watch Neg Raffles Place II Funding
Ltd. C2 CC BB/Watch Neg Singa Funding Ltd. A-1M CCC AAA/Watch Neg Singa
Funding Ltd. A-1Q CCC AAA/Watch Neg Singa Funding Ltd. A-2 CCC- AAA/Watch
Neg Singa Funding Ltd. A-3 CC AA-/Watch Neg Singa Funding Ltd. A-4 CC
A-/Watch Neg Singa Funding Ltd. B CC BBB-/Watch Neg
Ratings are statements of opinion, not statements of fact or
recommendations to buy, hold, or sell any securities. Standard & Poor''s
(Australia) Pty. Ltd. does not hold an Australian financial services
license under the Corporations Act 2001. Any rating and the information
contained in any research report published by Standard & Poor''s is of a
general nature. It has been prepared without taking into account any
recipient''s
Miyoshi Precision: Overall HDD outlook still positive
Summary: We met up with Miyoshi Precision Limited (MPL) recently for an update and was told that its HDD business outlook remains modestly positive, still buoyed by good order flows from major customers Hitachi GST (HGST) and Fujitsu. HGST further expects Asia to feature prominently in its 2008 road map but MPL is not going to enjoy the full benefit of HGST's ramp up, given the delay in its new China factory. Separately, further weakness in the USD could result in lower reported SGD sales figures as well a lower gross margin as 40% of its COGS have USD exposure. Due to the weak USD trend and delay in its China plant, we have pared our FY08 estimates for revenue by 4.9% and earnings by 18.6%. We have also reduced our valuation from 9x FY08F to 8x to reflect a more cautious market outlook. Together, this eases our fair value from S$0.325 to S$0.265. However, we remain upbeat about MPL's prospects in the HDD industry and hence keep our BUY rating. (
Koda - Rolling along the Fairway
Summary: We attended the annual International Furniture Fair Singapore 2008 at Expo this week, where international furniture wholesalers including Koda Ltd (Koda) showcased their products to global furniture buyers. Besides Singapore, Koda's road show extends to Malaysia, Vietnam and China. Management revealed that it received strong orders during the Furniture Fair this year, and in particular, its subsidiary Rossano saw a doubling of orders from last year. By pricing its products at a discount to Koda's, Rossano has been able to complement Koda's product range and has captured a new target market. Koda's key edge over its peers lies in the virtue of its low cost production base in Vietnam, where labour, rental and operating costs are cheaper than those in China. We are retaining our estimates for now, pending clarity on size of orders clinched from Koda's ongoing series of furniture fairs. Our rating remains a BUY, with a fair value estimate of S$1.01
Koda - Rolling along the Fairway
Summary: We attended the annual International Furniture Fair Singapore 2008 at Expo this week, where international furniture wholesalers including Koda Ltd (Koda) showcased their products to global furniture buyers. Besides Singapore, Koda's road show extends to Malaysia, Vietnam and China. Management revealed that it received strong orders during the Furniture Fair this year, and in particular, its subsidiary Rossano saw a doubling of orders from last year. By pricing its products at a discount to Koda's, Rossano has been able to complement Koda's product range and has captured a new target market. Koda's key edge over its peers lies in the virtue of its low cost production base in Vietnam, where labour, rental and operating costs are cheaper than those in China. We are retaining our estimates for now, pending clarity on size of orders clinched from Koda's ongoing series of furniture fairs. Our rating remains a BUY, with a fair value estimate of S$1.01
USD/JPY's decline may accelerate below 100
* USD/JPY has declined to around 100
* Although we maintain our USD/JPY target at 98 end-March, risks are
that
USD/JPY could slip well beyond 98
* EUR/JPY and Japanese exporters are the key
* Intervention is still unlikely
* Although we maintain our USD/JPY target at 98 end-March, risks are
that
USD/JPY could slip well beyond 98
* EUR/JPY and Japanese exporters are the key
* Intervention is still unlikely
First Resources; BUY (Upgrade from Hold) S$0.95; Bloomberg: FR SP
Uncertainties removed
Price Target : 12-month S$ 2.00 (Prev S$1.55)
By: Singapore Research Team +65 6533 9688
Story: First Resources has lodged an announcement with SGX today regarding
Indonesian news media reports on a press conference held by the Indonesian
Corruption Eradiation Commission (KPK) last night. In the press conference,
KPK was reported to have announced that the financial penalty of
approximately US$38.2 million to Mr. Martias in a separate corruption case,
had been fully paid; and that KPK would withdraw its intention to auction
off 19 properties (three of which belonging to First Resources) that it had
deemed to be belonging to or related to Martias.
Point: In a conference call today, Mr. Ciliandra Fangiono, First Resources
CEO, stated that there was no financial assistance given to Mr. Martias in
regards to the settlement and that as far as the Supreme Court judgment and
penalties go, "all the boxes have been ticked". An official announcement of
the KPK is expected to be published in Indonesian newspapers by tomorrow.
Relevance: Given this announcement, we believe uncertainties on the stock
have been removed. We have therefore upgraded our recommendation on the
stock to Buy from Hold and reinstated our target price to S$2.00 from
S$1.55.
Price Target : 12-month S$ 2.00 (Prev S$1.55)
By: Singapore Research Team +65 6533 9688
Story: First Resources has lodged an announcement with SGX today regarding
Indonesian news media reports on a press conference held by the Indonesian
Corruption Eradiation Commission (KPK) last night. In the press conference,
KPK was reported to have announced that the financial penalty of
approximately US$38.2 million to Mr. Martias in a separate corruption case,
had been fully paid; and that KPK would withdraw its intention to auction
off 19 properties (three of which belonging to First Resources) that it had
deemed to be belonging to or related to Martias.
Point: In a conference call today, Mr. Ciliandra Fangiono, First Resources
CEO, stated that there was no financial assistance given to Mr. Martias in
regards to the settlement and that as far as the Supreme Court judgment and
penalties go, "all the boxes have been ticked". An official announcement of
the KPK is expected to be published in Indonesian newspapers by tomorrow.
Relevance: Given this announcement, we believe uncertainties on the stock
have been removed. We have therefore upgraded our recommendation on the
stock to Buy from Hold and reinstated our target price to S$2.00 from
S$1.55.
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