OCBC - 07 Nov 2007

Rotary Engineering: A milestone reached

Summary: Rotary Engineering's 3Q07 fell slightly short of our expectations, with turnover down 4.1% QoQ to S$139m. Excluding gain on divestment in 2Q07, net profit fell 26.1% QoQ to S$12.4m. However, Rotary is on track to meet our forecast as the Universal Terminal Project is mechanically completed and will be recognised in 4Q07. This milestone achievement affirms Rotary's capability to deliver higher-value contracts and places Rotary in the league of global EPC companies and in an advantageous position to secure future Middle East projects. A total of S$66.1m worth of contracts had been secured since June 07, bringing total order book to S$516m. We are keeping our forecasts of S$46.7m in FY07 and S$54.5m in FY08, with the view to revise up once it makes more headway in the Middle East. Based on 18x PER FY07/08 blended earnings, we are maintaining our fair value estimate at S$1.60. Maintain BUY. (Serene Lim)

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Banks: Credit woes could signal more CDO charges ahead

Summary: All three local banks have turned in the 3Q report cards and fortunately they contained no major surprises, especially in light of the recent resurgence of credit woes concerns in the US and the change in honchos in several big US banks. Collectively, the three banks posted a 13% YoY increase in net earnings to S$1574m for 3Q07. Several key operations showed strong growth, especially fee-based income with all three banks posting strong double-digit growth. On the CDO front, more allowances were made in 3Q, but we expect more could be in store in 4Q07. With this uncertainty, it could cap the share price performance of the local banks in the weeks ahead. This aside, the outlook remains good, buoyed by healthy regional economic growth and good loan growth numbers in the Singapore banking system due to strong property sales and construction boom. We have lowered our FY07 earnings for DBS and UOB to take into account more CDO provisions in 4Q, but retained our BUY rating and fair value estimates of S$25.40 and S$23.30, respectively. (Carmen Lee) For more information on the above, visit http://www.ocbcresearch.com/ for detailed report.

Genting International: Revised RWS cost in line with our estimate

Summary : Genting International Public Ltd (GIL) reported a poor set of 3Q07 results. Revenue fell 7% QoQ to S$178.9m and PATMI fell into the red by over S$390m. The poor performance was due to the drop in attendance numbers arising from the indoor smoking ban in the UK and to the recognition of goodwill impairment loss of S$455m from its UK Stanley. This impairment was the result of the introduction of higher gaming duties by the UK authority in April 2007. GIL also indicated that its budget for Resort World at Sentosa (RWS) has been raised from S$5.2bn to S$6.0bn. This is in line with our estimate of S$6.3bn. We see no issue of financing RWS as it has already raised about S$3.0bn in equity and we expect the balance to be debt funded. The investment case for GIL has always been its future earnings potential and not its existing assets; specifically its earnings from RWS and on GIL's ability to win more casino concessions. In the UK, it has so far got 5 new casino licences. In ASEAN, gaming liberalisation is likely to lead to more concessions. As for the higher construction costs, we have already factored that in our fair value downward revision to S$0.76 per share in Sept. With over 10% upside potential, we maintain our BUY. (Winston Liew)

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Singapore Telecom: Associates no longer shining

Summary: Singapore Telecommunications Ltd (SingTel) reported a mixed set of 2Q08 results. Revenue came in at S$3.7bn, +3.6% QoQ, with PATMI at S$988m +6.5% QoQ. The key driver to earnings growth was due to a divestment gains worth about S$74.5m as well as lower tax at its associates and at the group level. SingTel's all important associates did poorly with pre-tax contribution falling by 10% QoQ to S$633m. Even though Bharti did well, all others appeared to have suffered from higher costs, forex depreciation, lower revenue or a combination of everything. Nevertheless the underlying profit of S$913m is in line with our estimate. SingTel will hold an analyst briefing later this morning. In the meantime, we will keep our fair value of S$3.32 and our HOLD rating. (Winston Liew) Singapore Shipping Corporation Ltd: Poor set of 2Q08 results Summary: Singapore Shipping Corporation Ltd (SSC) released a poor set of 2Q08 results yesterday. Revenue fell 48.7% YoY from S$6.3m to S$3.2m. This was due to the cessation of the manning service from January 2007 for third party vessels. While net profit grew 53.8% YoY to S$2.8m, it was mainly attributed to non-operating items such as net exchange gain and net change in fair value of FX options over the period. SSC's cash balance had also declined by S$50.4m between Mar and Sep 2007 (a 38.2% decrease), mainly due to the large dividend payout of S$52m in 1H08. As this cash decline translates to about 37% of net assets as at end Sep 2007, it indicates the weakening of SSC's balance sheet and possibly, potential impairment of SSC's ability to continue operating the business in the long term. We would be reviewing our previous HOLD rating and fair value of S$0.42. (Selena Leong) Jadason: Earnings recovery in progress Summary: Jadason Enterprises Ltd is poised to make further progress in its earnings recovery in 4Q07, based on the update from management. As a recap, Jadason recently posted a 31.8% YoY and 48.8% QoQ fall in 3Q07 revenue to S$34.0m, hit by sharp decrease (down 54.0% YoY and 67.9% QoQ) in equipment sales to S$16.7m. However, net profit jumped 34.1% YoY and 41.9% QoQ to S4.5m. Going forward, management expects the earnings recovery to continue, boosted by the still-strong demand for its PCB drilling and PCB mass lamination business, as well as a recovery in its equipment business. Management also reassured us that its forex exposure is only limited to its bank loans denominated in both HK$ and US$; sales and cost of sales are denominated in RMB. However, the biggest worry would be the uncertainty over the award of 3G licenses in China, where further delays could affect the order visibility. At current price, Jadason trades at an inexpensive 5.1x historical PER, as compared to its peers. We do not have a rating on the stock. (Carey Wong)

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NEWS HEADLINES

- SembCorp Industries Ltd posted a 53.7% YoY jump in 3Q07 earnings to S$116.14m and a 36% rise in revenue to S$2.24b, on the back of positive operating performance from its utilities and marine & offshore engineering businesses.

- Chemoil Energy reported a 31.2% YoY gain in 3Q07 revenue to US$1.6b, helped by higher sales volumes in Panama, New York and Houston, as well as higher cargo sales. However, a US$2.5m net loss was incurred, due to losses from derivatives contracts.

- The Hour Glass Limited announced a 130% YoY surge in 1H07 net profit to S$12.3m and a 31% gain in turnover to S$236.8m.

- Hyflux Ltd's upcoming business trust has set an indicative price range of S$0.78-S$0.91 per unit for its Singapore listing, potentially raising S$150.15m. This equates to a yield of 4.9%-5.7%.

- Wing Tai Holdings Limited will sell about 72.2m rights shares (one rights share for every 10 shares) at S$2.05 each, raising about S$148m.

- Shanghai Asia Holdings has proposed to fork out RMB232m to buy out its partners in a Jiangsu-based aluminium rolling mill, which will raise the its stake in the mill to 94.9%.