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Investors’ Corner
Investors' Corner | 12 June 2009
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By: Lai Wyai Kay
Articles (53) Profile

Epure Int’l
Price – $0.49
Target – $0.60

Epure Int’l’s (EI) order books at about Rmb1b at end-08 (07: ~Rmb300m; 9M08: ~Rmb1b). We expect engineering, procurement and construction (EPC) orders to rise further, as management guides for good municipal demand. Thanks to tax credit, 1Q net profit jumped 32% y-o-y to Rmb41m. EI acquired its fourth built-operate-transfer project in May, located in Gansu Province, through forming a 15-85% JV with parent. Total project investment is Rmb129m. Based on a 30% equity portion, EI, relying on internal resources, will have to invest ~Rmb5.85m. FY09-11E EPS forecasts increased 5-6% to reflect lower tax rate and good order books. Target P/E raised to 11x on improved balance sheet and likelihood of rising order books but declining industrial demand. Working capital has improved. As at end-Mar, it had Rmb776m net cash, representing ~30% of mkt cap. Stocks trades at 5.6x 12-mth EV/EBITDA. At our price target, the stock would trade at ~6x FY10E EV/EBITDA, against average of 11x. BUY.
– Citigroup (8 Jun)

Sembcorp Marine
Price – $2.82
Target – $3.80

Efforts by Norsk Tillitsman ASA (Norsk), trustees of the bonds issued by Petromena ASA, to prevent the sale of PetroRig1 have not been successful. Following this, Sembcorp Marine’s (SCM) unit, Jurong Shipyard (JRS) settled its disputes with Norsk and PetroRig1 Pte Ltd, and proceeded with the bidding process put in place, resulting in JRS being paid the balance of the construction costs (about 50% of the contract value), all prolongation costs and all costs and expenses owed. SCM has since announced that it has accepted the bid by Diamond Offshore Drilling Inc. This episode shows that: 1) Well structured contracts would see the rights of the yard protected as the title of the rig remains with the yard till full payments are received. 2) Jurisdiction over such a dispute depends on the counter-party’s country of incorporation and may not be easily transferred to another country. 3) Demand for modern offshore rigs (with secured contracts) are high despite the current credit conditions. BUY.
– Deutsche Bank (8 Jun)

Hong Leong Asia
Price – $1.32
Target – $1.92

Hong Leong Asia’s (HLA) 1Q09 results were excellent, in our view, as HLA’s various units began to benefit from China’s economic stimulus. Outlook has improved and HLA expects 2Q09 to improve over 1Q09. Lower average selling prices and margins should be mitigated by a strong order backlog until mid-FY10. In the Building Materials Unit, precast order book is about 18 months; ready-mixed concrete order book, eight months. Net gearing fell to 7% in 1Q09 from 49% in 4Q08. HLA had a strong cash position of $628m, up from $271m as at end FY08 due to the consolidation of Tasek Corp (a listed Malaysian cement producer) and its large cash pile. Cash generated from operations increased to $316m in 1Q09 from a negative $67m in FY08. There may also be $12m-18m of writebacks in FY09 from provisions made in FY08. Still using sum-of-the-parts valuation, our new target is well-supported by its book value of $1.65 as at 31 Mar 09. Maintain OUTPERFORM.
– CIMB-GK (9 Jun)

Price – $1.66
Target – $2.05

SMRT Corp reported that ridership for Circle Line (CCL) stage 3 was around 30,000-35,000 or a daily ridership of 4285-5000. We forecast an expected daily average ridership of 55,000 in FY10E and CCL stage 3 revenue of $12.7m in FY10E. According to the Land Transport Authority (LTA), construction for CCL tunnels is expected to be completed by Sep-09. LTA expects the remaining 24 stations to be open from next year onwards and that construction is on track. In our forecast, we expect CCL stage 2 and 3 to come online in 2010 and stage 4 & 5 to be completed in 2011. We forecast that CCL will operate at a minimal loss of $4.8m in the first year. The lower staff head count required to operate CCL together with cost synergies could help the company record lower operating losses in the first year of its operation. We expect CCL to record a profit of $0.4m in FY11E and $10.9m in FY12E, underpinned by strong ridership figures and cost synergies from CCL. BUY.
– Deutsche Bank (9 Jun)

Sembcorp Marine  1.300 +0.030 +2.36%   
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
Hong Leong Asia  0.575 -- --   
Business: Diversified industrial conglomerate in China, S'pore & M'sia. [FY18 Turnover] Diesel engines (87.2%), building materials (11.3%), industrial packaging (0.9%), air-con system (0.4%), corporate & others (0.2%).

Insight: May-19, 1Q19 revenue slid 5.6% due to lower revenu... Read More

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