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Investors’ Corner
Investors' Corner | 06 March 2009
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By: Lai Wyai Kay
Articles (53) Profile

United Overseas Bank
Price $9.99           Target $12.85

United Overseas Bank’s (UOB) 2008 net profit fell 8.2% y-o-y. The numbers were in line with consensus estimates but 8.4% below our forecasts because of higher than expected provisions. While this is partly a result of weaker asset quality, UOB also took the opportunity to strengthen its loan loss reserves amid the weaker economic environment. Gross NPL crept up to 2% (Sep 08: 1.6%) mainly due to weakness from the manufacturing and general commerce segments. UOB stressed that it is comfortable with its Tier I and CAR at 10.9% and 15.3% respectively and does not foresee the need to raise capital in the next six months. We estimate that Core Equity Tier I is now 9%. BV/ share fell 11% q-o-q to $8.81 in Dec-08 as UOB booked in unrealized losses on its Available-for-Sale securities. We lower our 2009-10E earnings forecasts by 24%-26% after factoring in prospective BV, slower loans growth, lower non-interest income, higher NPLs and rising provisioning charge. Maintain NEUTRAL. – Merrill Lynch (2 Mar)

Indofood Agri Resources
Price $0.51           Target $0.70

We believe that refinancing risk for Indofood Agri Resources (IAR) has diminished as CPO prices have likely bottomed and the rupiah debt market is still liquid. Parent, PT Indofood, also successfully raised US$200m in new debt in Dec-08, demonstrating a strong standing with banks. Although free cash flow in 2009E is minimal, due to capex commitments, short and long-term debt is still backed by sufficient balance sheet liquidity. Initiatives to improve efficiency and reduce costs at London Sumatra are also in place. We raise our target using a higher 7x 2009E P/E multiple, from 5x. This reflects the recent re-rating of the Indonesia market and also diminished funding risk. Valuations are attractive and IAR demonstrates strong growth prospects as undeveloped and immature land-bank is 2x current mature area. Current share price implies a long-term CPO price of US$430/ton, compared to the current price of US$540/ton and long-term floor of US$620/ton (based on biodiesel). Upgrade to BUY. – Goldman Sachs (3 Mar)

Li Heng Chemical Fibre Technologies
Price $0.115           Target $0.31

Although Li Heng Chemical Fibre Technologies (LHCF) has seen a modest recovery in margins and stronger orders in Jan and Feb, management believes it is still too early to call a bottom yet, given the still sluggish global economy. Meanwhile, management is likely to go ahead with the expansion plan of its nylon production capacity (decision is expected by end 1Q09). With the expansion, capex could hit Rmb450m, financed from its IPO proceeds; otherwise it would just need to spend about Rmb100m. Near-term volatility is expected, but we continue to believe in the long-term viability of LHCF, its market leadership position and sound financial standing. Nevertheless, in light of the slightly poorer near to medium-term business outlook, we cut our FY09 estimates by another 18-29%; this in turn lowers our DCF-based fair value. The stock demonstrates long-term potential; value is also emerging as it is trading at just 0.3x FY08 NTA and at a 21% discount to net cash/ share. Maintain BUY. – OCBC Securities (3 Mar)

Neptune Orient Lines
Price $1.14            Target $0.90

Neptune Orient Lines’ (NOL) Jan volumes fell 14% m-o-m, which is the sixth consecutive month of decline, due to continued deterioration in demand on all major trade lanes and the earlier lunar new year in 2009. Average revenue per TEU also fell 9% m-o-m, due to lower bunker fuel cost recovery and declining core freight rates on Asia-Europe and Intra-Asia long-haul routes. Based on data obtained, idle capacity worldwide, as at 2-Mar-09, was up 69% from a month ago. Furthermore, new containerships amounting to 48% of existing capacity is scheduled to enter the market by 2012. Despite the prospect of higher freight rates, we reiterate that profitability is unlikely to return to the industry anytime soon. We expect NOL’s losses to peak in 1H09, followed by a lower quantum of losses in 2H09E as cost-cutting measures take effect and over-supply eases. Our target is based on ~0.4x FY09E PB, a 20% discount to the support PB of ~0.5x found in past down-cycles. Maintain SELL. – Citigroup (3 Mar)

Singapore Press Hldgs
Price $2.60           Target $3.23
Since Dec-08, consensus FY09E EPS for Singapore Press Hldgs (SPH) has been cut by 17% and is now 4% above our forecast. In light of the weak domestic economy, earnings risk remains on the downside. With the sharper decline in recruitment ad volume, the drop in overall classified ad volumes accelerated from 17% to 20% in 2Q09. For 1H09, total classified pages fell 19% y-o-y. This compares against our forecast of a 10% decline in classified ad revenues in FY09E. Following recent underperformance, SPH’s stock is now trading at a 16% P/E premium to the Singapore market or below the 10-year average of 28%. However, adjusting for the residential property development’s profit from Sky@eleven, which boosted SPH’s earnings for FY07A-FY10E, the stock’s P/E premium would be more demanding at 39%. The stock has potential upside of 24% to our sum-of-the parts derived target versus the market’s expected upside of 27% (MSCI Singapore). Maintain NEUTRAL. – Credit Suisse (3 Mar)

Wilmar Int’l
Price $2.88           Target $3.60

Wilmar Int’l (WI) continues to be cautiously positive on prospects for the next two quarters, with CPO prices believed to be range-bound in the short term. There continues to be huge concerns that WI’s strong profitability is a result of speculative gains in the commodity market. But it pointed out that speculative gains in FY08 were less than 10% of group profits. Capex in FY09 is estimated at US$850m for the expansion of its current businesses. It has a gross cash pile of US$2.9b and is on a lookout for M&A activities, but time is still needed for distressed assets to be up for sale in the market. We have revised WI’s FY09 and FY10 earnings forecasts up by 7% and 4% respectively. Profit has shown strong growth during boom times and resilience in challenging times. To be prudent, we have assumed that FY09E profit per tonne does not match FY08 record figures. This puts FY09E P/Es at 11x, which is still below the big cap plantation stocks listed in Malaysia. Maintain OUTPERFORM. – Credit Suisse (3 Mar)

Yongnam Hldgs
Price $0.09           Target $0.12

Yongnam Hldgs (Yongnam) was awarded its second contract at the Marina Coastal Expressway (MCE), valued at $53m. The first contract awarded in Dec-08, at $185.5m, is its single largest to date. Given the lack of large scale civil engineering expertise in Singapore, we believe Yongnam may yet enjoy another contract coming its way. The MCE project has six packages, and as all have already been dished out to the main contractors, it will be a matter of time before specialist sub-contractors are called in. As at 31 Dec 08, Yongnam’s outstanding order book stood at $504m; we estimate it to be around $510m by Mar-09. We raise our net profit forecasts for FY09-11 by between 4.1% to 16% to account for the new order book assumptions. However, we are still conservatively forecasting revenue and profit decline for FY10-11 given that certain large contracts have not yet been awarded. We base Yongnam’s target price on an unchanged 0.8x CY09 P/BV, in line with peers’ target. Maintain OUTPERFORM. – CIMB-GK (3 Mar)

China Sky Chemical Fibre
Price $0.13           Target $0.13

The last major concern of investors is the accuracy of its cash pile. China Sky Chemical Fibre (CSCF) currently has net cash of Rmb816m, or $0.22/ share, with four Chinese banks. It expects to incur capex of Rmb350m this year to complete the expansion of its facility for super-resilient nylon and to shift Qingdao Zhongda to its new premises. These commitments were made in 2007 but further expansion can be withheld indefinitely after this round. This means that 2010 capex could be very low, once 2009 spending is over. Technically, there is still a healthy cash pool but management wants to keep sufficient funds as a precautionary measure. Our target is revised down, based on a 40% discount to net cash, to reflect the doubt on cash: we no longer rely on P/E valuations. The stock is not expensive, by any means, but poor operating outlook for the nylon industry and lack of dividends means that CSCF will command little trust with its net cash values until it starts to pay dividends again. Maintain NEUTRAL.– CIMB-GK (4 Mar)

United Overseas Bank  26.840 +0.04 +0.15%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More
Singapore Press Hldgs  2.250 -0.02 -0.88%   
Business: Co is S'pore's main newspaper & magazines publisher that also has investment in properties. [FY18 Turnover] Media (66.7%), property (24.7%), others (8.6%).

Insight: Apr-19, 1H19 operating revenue fell 3% to $477.6m ... Read More
Indofood Agri Resources  0.295 -- --   
Business: Diversified agri-business mfg & retailing cooking oil, with oil palm, rubber & sugar plantation in Indonesia. [FY18 Turnover] Edible oil & fats (75.4%), plantations (24.6%).

Insight: Apr-19, 1Q19 revenue rose 5.3% due to higher sales... Read More
Wilmar Int'l  3.950 +0.01 +0.25%   
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: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More
China Sky Chemical Fibre  -- -- --   
Business: Mfr of high-end quality nylon in PRC.

Insight: Nov-15, Co's wholly-owned subsidiary, Qingdao Zhon... Read More

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