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MARKET PULSE: Oil&Gas, Midas, United Envirotech, Tee Int'l (9 Jan 2013) | | | | | |
MARKET PULSE: Oil&Gas, Midas, United Envirotech, Tee Int'l
9 Jan 2013
KEY IDEA
Oil and Gas sector: Strong start, but be selective
Summary: Since our Oil and Gas strategy report (“Always a vital resource”, 3 Dec 2012) highlighted our belief that the O&G sector would see good
investor interest in early 2013, the FTSE Oil and Gas index has appreciated by 5.9% vs the STI’s 4.6% gain over the same period. Stocks in this
sector, generally have higher betas, saw a strong start to the year with renewed optimism in the broader market. Under our sector coverage
comprising 15 O&G stocks, Ezion has delivered the best performance since then with a 26% price appreciation. Investor interest recently has centred
on the small-mid cap space, of which our preferred picks are Ezion Holdings [BUY, FV: S$2.05] and Nam Cheong Ltd [BUY, FV: S$0.30]. We also like the
rigbuilders for their clear earnings visibility and favourable industry outlook: Keppel Corp [BUY, FV: S$12.49], Sembcorp Marine [BUY: FV: S$5.84].
Maintain OVERWEIGHT. (Low Pei Han, Chia Jiunyang)
MORE REPORTS
Midas Holdings: Proxy play to China’s infrastructure-led growth
Summary: We view Midas Holdings (Midas) as a proxy play to the economic recovery story of China in 2013, which would be driven in part by rising
urbanisation and railway investments. The latter could amount to CNY600-650b, according to media reports. We believe that China’s Ministry of
Railways could resume high-speed passenger train car contract tenders in 1Q13. We expect this to translate into order wins for Midas from its
customers in 1H13, with deliveries possibly happening from 2H13. Despite Midas’ recent share price surge, we believe that more upside potential
exists. This is premised on the improved optimism of the industry recovery prospects, which has led to a sector re-rating. Coupled with a more
“risk-on” approach adopted by the market, we raise our fair value estimate on Midas from S$0.50 to S$0.60 as we ascribe a higher FY13F P/B peg of
1.2x (previously 1x). Maintain BUY. (Wong Teck Ching Andy)
United Envirotech: Placement to KKR
Summary: United Envirotech (UEL) intends to place out 98.5m new shares, or 11.04% of the enlarged issued share capital of the company, to KKR China
Water Investment Holdings at S$0.50 each for a cash consideration of S$49.3m. The issue price represents a discount of 2.7% to the average weighted
price of S$0.514 traded on 7 Jan; it is a premium of 8.5% to the average closing price for the 30 trading days prior to 8 Jan. Upon completion of
the deal, KKR will have a direct interest of 45.2% on a fully diluted basis (assuming full conversion of US$113.8m of convertible bonds). UEL
intends to use 90% of the net proceeds for the acquisition or construction of water treatment plants and the rest for general working capital.
Separately, UEL intends to purchase a 13.2% stake in Memstar Technology Ltd (MTL) for a total consideration of S$35m from two major shareholders,
which UEL intends to fund using internal funds or bank borrowings (and the issue of new shares). UEL believes the move will strengthen the strategic
relationship between them, given that MTL is the key supplier of the company’s membranes, and also leverage on MTL’s membrane technology. We will be
speaking with management to get more insights. For now, we have a BUY on UEL with S$0.67 fair value. (Carey Wong)
TEE International: Disappointing 2Q FY2013 results
Summary: TEE International’s 2Q FY2013 results were below our expectations, with net profit falling 32.9% YoY to S$2.5m (taking 1H FY2013 net profit
to S$5.3m, just 24% of our full year forecast), due mainly to a sharp drop in associates’ contributions. Revenue rose 13.5% to S$44.0m, in line with
our revenue forecast for the full year. TEE declared an interim cash dividend of 0.65 S cent/share, higher than the 0.6 S cent dividend it paid a
year ago. Despite the disappointing results, its main engineering segment orderbook remains strong at S$183.0m, while its real estate segment has
contracted sales of S$51.9m for ongoing residential development projects in Singapore. We will be speaking to TEE executives later today to discuss
the company’s latest results and outlook. Until then, we place our Hold rating and fair value estimate of S$0.34 under review. (Conrad Tan)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- US stocks fell for a second day on Tue as investors braced for the start of the quarterly earnings season following last week's rally after a deal
was reached to avoid the fiscal cliff. The Dow slid 0.4% to 13,328.85, the S&P 500 index fell 0.3% to 1,457.15 and the Nasdaq ended 0.2% lower at
3,091.81.
- Singapore property developers may face additional development charges if private roof terraces and enclosed spaces are included in the gross floor
area of a property under new URA guidelines, real estate consultants say.
- Construction firm Logistics Holdings aims to raise some S$6m in an IPO for a Catalist listing, with a placement of 42m shares at 23 S cents each.
- Singapore Shipping Corp is buying MYP Ltd's businesses in agency and terminal operations, and strategic projects and logistics, for S$15m.
- Asia Power Corp has agreed to pay S$25m to acquire a 12.5% stake in a Chinese property developer based in Hainan.
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