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Straits Times 3,200.28 +17.36 +0.55%
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Investors’ Corner
Investors' Corner | 20 June 2008
Related stocks:
F34
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STX Pan Ocean Co
Price – $2.73 Target – $2.32

Since our 22 May downgrade of the dry bulk shipping sector, share prices have sunk by 30% for STX Pan Ocean, reflecting leverage to a 14% decline in the Baltic Dry Index (BDI). The BDI is likely to retreat further as iron ore destocking at Chinese ports reduces new shipments and miners take active steps to lessen port congestion and demurrage charges. China’s potential shutdown of steel production in July/August during the Beijing Olympics could be another source of weakness for freight rates. Share prices have already fallen below our previous targets and we think further downside is likely if the BDI extends its fall. We expect freight rates to bottom in July or August, which will be an excellent re-entry point. Once the iron ore inventories in China are digested and the Olympics is over, demand for commodities should return with a vengeance and rates should rally sharply from September. Maintain TRADING SELL. – CIMB-GK (16 Jun)

Sino-Environment Technology Group
Price – $1.35 Target – $1.94

Sino-Environment announced that it has concluded four volatile organic compound (VOC) projects, worth more than Rmb100m. We estimate that the toluene recovery device for ZhongTai Chemical (Xinjiang) is worth more than Rmb50m, while the other three projects are worth about Rmb15m each. This suggests yoy and qoq increases in ASPs, from Rmb6.5m in FY07 and Rmb12.8m in 1Q08. We understand that the ZhongTai Chemical (Xinjiang) large-scale project is likely to be built on site, and will not take up Sino-Environment’s plant space. As such, we believe there is room for more VOC project wins in 2H08, and have raised our FY08 VOC revenue estimate from Rmb420m to Rmb500m. Our EPS upgrade reflects higher order-book assumptions for FY08 and higher ASP assumptions for FY09-10, from Rmb6m/device to Rmb10m/device. Upgrade to OUTPERFORM. – CIMB-GK (16 Jun)

Swiber Hldgs
Price – $2.58 Target – $3.49

The Equatorial Drilling Barge and Mr Olivera’s offshore drilling team enable Swiber to offer time charter services to clients for deepwater drilling projects, which is an alternative drilling option to semisubmersible rig in the more benign waters. Our scenario analysis has shown a possible EBIT margin of about 63%, and a payback period of about 3.6 years. While the Equatorial Drilling Barge is being constructed in the expected 2008/09 periods, Swiber’s drilling team will also be contributing to the group’s profits. Indeed, Swiber has already secured in last November a maiden offshore drilling contract with NuCoastal (Thailand). As Swiber intends to deploy the Equatorial Drilling Barge for deepwater exploration works by 1Q 2010; we expect the award of construction contract for this drilling barge to be announced before end 3Q08. Maintain BUY. – DBS Vickers (16 Jun)

Wilmar Int’l
Price – $4.64 Target – $5.90

We are positive on Wilmar because of its exposure to China’s fastgrowing basic food market. In our view, Wilmar’s strong market position in soybean crushing (20-25% market share) and Southeast Asia palm oil merchandising (40% market share) justifies its above-sector PE multiple. We think the processing/merchandising margins could weaken in 2Q08-4Q08 following an exceptionally strong 1Q08. Although there is increased regulatory risk, we think Wilmar’s significant market share and scale allows it to manage the risk well. The USDA estimated China’s import of soybeans, soybean oil and palm oil to increase 18%, 25% and 13%, respectively in 2008. With a strong market share in oilseed crushing and edible oils merchandising, Wilmar should benefit. Our price target is based on a SOTP valuation, using DCF analysis, assuming a WACC of 8.5% and long-term growth of 5% for the merchandising, processing and consumer business, and a WACC of 8.5%, long-term growth of 4% and a long term CPO ASP of US$900/t for plantations. Upgrade to BUY. – UBS Investment (16 Jun)

Wilmar Int'l  3.300 +0.04 +1.23%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: Feb-19, FY18 revenue inched up 2.1% to US$44.5b dr... Read More


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