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Investors’ Corner
Investors' Corner | 08 October 2010
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By: Cassandra Sim
Articles (14) Profile

Keppel Corp
Price – $9.11
Target – $11.05
We are initiating coverage on Keppel Corp as we believe Keppel is set to benefit from the upcoming Offshore Support Vessel (OSV) replacement cycle and green-housing development. Given Keppel’s industry leadership position, O&M operations will likely continue to be the key earnings driver. We estimate the emerging rig replacement cycle, stringent industry regulations, and higher energy demand to drive new-build orders. Historical evidence suggests Keppel’s share price highly correlates to crude-oil price and we expect oil price to rise by another 29% in the next three years on sustainable demand growth. Higher oil prices aside, we expect positive news flows from the Tianjin Eco-City development to catalyze the stock given the potential synergistic impact with the environment solutions business and the strategic influences to the Group’s China endeavours. Our TP of $11.05 translates into 14.7x FY11E PER and we suggest investors buy into Keppel ahead of the strong recovery we anticipate in 1H11. With a 4% prospective yield cushion, the risk-reward profile looks favourable. BUY. – BNP Paribus (04 Oct)

Olam Int’l
Price – $3.31
Target – $1.94
Olam in a statement to SGX stated that it had engaged in preliminary discussions with Louis Dreyfus Commodities on a possible business collaboration. Olam emphasized that discussions are still preliminary and the possible collaboration may or may not proceed. Louis Drefyus is one of the world’s largest agricultural commodities trading houses with presence in cotton, coffee, sugar, grains, rice. Olam believes merger with Louis Drefyus would be the ideal option, as it would provide bigger footprint in Africa, Middle East and Asia. If there is a full fledged merger, Olam controlling shareholders would lose control unless Louis Drefyus will then place out part of its stake to raise capital for growth. At this stage, we believe it is fluid and a potential merger may or may not materialize. We believe the recent sharp increase in the stock price is an opportunity to take profit. The stock is already trading at 87-100% premium to peers with a much weaker balance sheet. SELL. – CLSA (04 Oct)

Singapore Technologies Engrg
Price – $3.39
Target – $4.00
ST Engineering (STE) is one of the world’s leading independent aircraft maintenance, repair and overhaul (MRO) service providers. We believe STE is a less risky way of riding the recovery in air traffic as the growth in air traffic demand will require more flights and lead to more maintenance work and the MRO industry has just begun to recover. We expect STE to gain market share as MRO outsourcing increases as major airlines continue to reduce costs and low-cost carriers expand. We forecast STE’s share will increase to 4% by 2013 from 3.5% currently, and the valuation gap between STE and the major Asian airlines has narrowed since STE’s double-digit underperformance. We believe STE should trade at a significant premium to the airlines, given its superior returns, free cash flow and dividend yield of 4.5%. At our target, the stock would trade at a 2010 PE of 24x and PB of 7.8x – at the higher end of its historical ranges, which we believe is justified given our view that ROE will expand to historical highs of 31.4% in 2011 and 34% by 2012. We initiate at BUY with a 12-month forward DCF-based target price of $4.00. – RBS (04 Oct)

Price – $2.59
Target – $2.62
StarHub (STH) closed on 1 Oct at two year highs, and has been the best performing Singaporean telco since end-2009. Furthermore, its price gain year-to-date has been significantly better than the Straits Times Index over the same period. In part, we view STH’s good recent price performance as reflecting increasing realisation that the English Premier League loss is unlikely to be as punitive to the company’s operational and financial performance as earlier feared. Moreover, the National Broadband Network is likely to be more positive for Starhub as it increases STH’s accessibility to the enterprise market. In addition, the attractive dividend yield is more sustainable than widely perceived. Therefore, despite STH’s relatively strong recent price performance, it remains our preferred Singapore telco and a regional top pick as it still offers the highest yield in the Singapore telecom sector and across the Asian developed markets. BUY. – Deutsche Bank (04 Oct)

Keppel Corp  6.220 -0.03 -0.48%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More
Olam Int'l  1.840 +0.020 +1.10%   
Business: Co is engaged in sourcing, processing, packaging and merchandising agricultural products. [FY18 Turnover] Food staples & packaged foods (47.6%), confectionery & beverage ingredients (23.4%), industrial raw materials, infrastructure & logistics (14.9%), edible nuts & spices (14.1%).

Insight: May-19, 1Q19 revenue rose 16.7% due to increased t... Read More
Singapore Technologies Engineering  3.900 -0.04 -1.02%   
Business: An integrated engineering group providing solutions & services across many sectors. [FY18 Turnover] Aerospace (39.5%), electronics (32%), land systems (19.1%), marine (8.6%), others (0.8%).

Insight: May-19, 1Q19 revenue rose 5.1% to $1.7b attributed... Read More
StarHub  1.320 -0.010 -0.75%   
Business: [FY18 Turnover] Mobile (34.9%), sale of equipment (22.4%), enterprise fixed (21.6%), pay TV (13.2%), broadband (7.9%).

Insight: May-19, 1Q19 total revenue rose 6% to $596.8m attr... Read More

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