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Investors’ Corner
Investors' Corner | 30 January 2008
By:

CHINA ENERGY
PRICE – $1.18
TARGET – $1.68

China Energy (CE) will invest in a 500,000 tpa methanol plant at its existing Shandong site to be completed by FY08. The group is also adjusting its DME planned capacity to 0.9m tpa (FY08) and 3.6m tpa (FY09) that will increase its methanol self-sufficiency from <10% to >50% by 1H09. The estimated CAPEX over FY08/09 is ~US$450m and will be funded via internal cash and external debt. The new plan will result in lower DME sales volume. Nevertheless, we like the new strategy, as it will reduce earnings volatility from methanol price fluctuation. CE will also consider future methanol investments to maintain >50% self-sufficiency. Methanol prices have come off 15% from its peak to US$415/t and projected to decline further in 1Q08 with increased supply. Meanwhile, DME prices are also supported by high LPG prices and strong market demand. Stock is currently trading on 12xFY08E earnings with our DCF-based PO providing >40% upside. Maintain BUY.

– Merrill Lynch (11 Jan)

STRAITS ASIA RESOURCES
PRICE – $2.83
TARGET – $4.20

We believe production will increase by roughly 5x over the next four years on the back of the recently announced acquisitions and approval of the Cagar Alam boundary. These acquisitions increase reserves and resources by approximately 3x to 71m tonnes and 242m tonnes, respectively. We believe that Straits Asia Resources (SAR) is well positioned as an M&A target given its attractive assets and the potential for industry consolidation. We believe SAR is attractively valued at 14.6x 2008E PER, falling to 9.9x in 2009E. SAR has the best production growth and exposure to coal prices in the booming Indonesian coal sector, as reflected in its threeyear (2007–10E) EPS CAGR of 73%. The recent concession acquisitions are governed by less prescriptive regulations. Finally, while we raise our 2008-10E EPS forecasts by 94%, 95%, and 98% respectively as a result of our more bullish coal price forecasts. Reiterate OUTPERFORM.

– Macquarie Research (11 Jan)

BANYAN TREE HLDGS
PRICE – $1.71
TARGET – $2.75

We forecast a core earnings CAGR of 19% for 2007-12 as Banyan Tree Hldgs (BTH) rolls out the deal pipeline it has on hand. It has a pipeline to operate 7,000 room keys and over 1,000 spa treatment rooms by 2010 in five strategic regions: East/South-East Asia, Indian Ocean, the Middle East, Mediterranean, and the Americas. BTH is unlocking the value of its “Banyan Tree” and “Angsana” brands through management contracts. News flow on the deal pipeline should be strong going into 2008, especially from China. We value each business segment independently, using DCF valuation (WACC: 8.6%, terminal growth: 3%), to capture value from BTHʼs global expansion over the next five years. Key catalysts could include earnings delivery and news flow on deals. Initiate with OUTPERFORM.

– CIMB (14 Jan)

EZRA HLDGS
PRICE – $3.12
TARGET – $4.02

Ezra Holdings (Ezra) posted an impressive set of 1Q08 results; revenue grew to $67.2m (+110% YoY) while net profit surged 4014% to $189.2m. Stripping out the one-off items, Ezraʼs recurring net profit increased by 250% to $16m. The proceeds from the disposal of EOC, which is denominated in NOK, are held for payments in the course of building two 27,000 bhp deepwater Multi-Functional Support Vessels. Management noted that the fabrication works clinched from the US$103m fabrication and assembly contract in Oct 2007 at Ezraʼs yard (Saigon Shipyard) in Ho Chi Minh City are currently underway. We expect Ezra to take on more such contracts when the Saigon Shipyard becomes fully operational by mid 2008. We have revised our FY08 and FY09 earnings to recognize the $198m gain from the disposal of EOC, and account for the remaining 48.9% stake in EOC. As such, we expect recurring net earnings to rise 63% in FY08 and 132% in FY09. Maintain BUY.

– OCBC Investment (14 Jan)


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