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Investors’ Corner
Investors' Corner | 05 December 2008
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By: Lai Wyai Kay
Articles (53) Profile

Neptune Orient Lines
Price – $1.00 Target – $1.10

Neptune Orient Lines (NOL) is well managed and focused on profitability and its costcutting initiatives should help mitigate some of the pain in the current down-cycle. While its October volume fell 8.6% m-o-m, blended freight rate was actually at historical highs and still profitable in 3Q08. The China Container Freight Index correlates highly with NOL’s historical blended rates, and the recent divergence is due to its success in implementing fuel surcharges and the contractual nature of its business. Still, we expect a US$94m loss in FY09, and cut FY10 earnings by 64% to US$114m. While the downside is limited, we see no near-term company specific catalyst, although the stock will benefit if global trade demand recovers in 2H09E. Our new target price implies 0.5x forward P/B. This is similar to its 2002 trough but just above the 1998 trough. We think this is justified, as back then, NOL was making a bigger recurring loss of US$254-330m, and had weaker balance sheets. Maintain NEUTRAL. – Credit Suisse (1 Dec)

Parkway Hldgs
Price – $1.29 Target – $1.20

Parkway Hldgs’ (PH) 3Q08 results underscore our cautious view, with EBITDAR for its Singapore hospitals declining 9% y-o-y due to higher operating costs. Consequently, we have lowered our 3-yr revenue CAGR for PH’s Singapore hospitals from 6% to 2%. Its International hospitals should perform better, boosted by World Link Gp acquisition to capture the growing Chinese market. While PH has made strong initiatives to establish itself as a premier medical centre, it is not immune to an economic slowdown; having posted profit declines during past downturns. Funding concerns for its Novena construction is still plausible as its short-term loans were recently refinanced into term loans: it now has $500m and $850m loans due in 2011 and 2013. We cut EPS by 13-24% over 08E-10E and project EPS to post -7% CAGR over 07-10E. Our estimates remain below consensus and our new TP, based on 16x 09E P/E, is pegged towards the lower end of its historical trading band. SELL. – Citigroup (1 Dec)

Tat Hong Hldgs
Price – $0.52 Target – $1.03

Tat Hong Hldgs (THH) has chosen to focus on its crane rental business amid the economic slowdown, with the emphasis on higher tonnage cranes due to its tight supply globally. Where pump-priming government initiatives to combat the slowdown involves infrastructure development, THH, with a fleet of over 600 sales and rental mobile crawler cranes in the 70 – 1000 metric tonne range, stands to benefit. While its debt-to-equity ratio at 2Q08 was up, we are not overly concerned, as cash position remains healthy. Despite the uncertain economic outlook and a weakening A$, we expect the still-robust O&G and infrastructure sectors, underpinned by THH’s geographical footprint to ensure revenue growth for the next 5 FYs, albeit at a slower rate. Gross margin is expected to fall to around 35% with a slight delay in receivables collection. Barring an economic slowdown lasting beyond 2013, THH’s current market price is highly undervalued. Initiate coverage with ACCUMULATE. – AmFraser (1 Dec)

Sembcorp Marine
Price – $1.49 Target – $2.50

Our argument for Sembcorp Marine (SM) is based on the recovery of market sentiment and not earnings. Even if Seadrill’s credit-fueled balance sheet eventually forces the cancellation of the two jackups, 82% of SM’s offshore rig revenue are still supported by confirmed orders for 2009. Other orders are not in jeopardy according to SM as some clients, backed by governments, have strategic interests in oil exploration. Rig utilisation and day rates have remained strong despite declining oil prices, which we believe is still sustainable for producers. This will also raise barriers to entry and lower the demand for alternative energy, making it easier for producers to undertake long-term exploration, to the benefit of SM. From 1997-03, SM traded at 15x 1-year forward earnings. As this is recorded on hindsight, we impute a 20% discount and peg them on 12x FY09E P/E for our target price. Looking beyond near-term volatility, forward dividend yields are attractive at above 10%. Maintain BUY. – BNP Paribas (2 Dec)

Sembcorp Marine  1.260 -0.020 -1.56%   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More

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