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Neptune Orient Lines (HOLD; Target Price: S$1.35)

Neptune Orient Lines (NOL) reported a 6 per cent YoY increase in container shipping volumes for the six weeks from 19 November 2011 to 30 December 2011. This was helped by the burgeoning intra-Asia traffic growth. However, the average revenue per forty-foot equivalent unit (FEU) fell by 14 per cent YoY to about US$2,265/FEU, reflecting persistent industry challenges, in particular on the long-haul routes. On a full-year basis, NOL’s container shipping volumes rose by 7 per cent while average revenue per FEU was down by 10 per cent, largely in line with our assumption. In view of the stubbornly high bunker prices, we trim our FY11 net loss forecast by a slight 2 per cent to US$291.5 million. In any case, we think the weak results should not come as a major negative surprise to the market.

By and large, shipping stocks have outperformed the general markets since the beginning of the year. Buoyant shipping volumes ahead of the Chinese New Year (CNY) factory closures in Asia have filled ships to bursting. Some container lines have even reported load factors in excess of 100 per cent, thus allowing carriers to push ahead with a coordinated rate increase. The recent positive macroeconomic data from the US and China could support a more sustainable rate recovery in 2H12 coupled with further capacity rationalisation. We believe a better buying opportunity should arise later when rates are widely expected to decline post the seasonally slow CNY period. – Kim Eng Research


Noble Group (HOLD; Target Price: S$1.46)

Noble Group (Noble) unveiled its new CEO – Mr Yusuf Alireza – who will start his appointment on April 16. Alireza, formerly of Goldman Sachs, has been one of the fore-runners for the post and the appointment does not come as a total surprise. In any case, Noble’s share price has already staged a remarkable recovery since the start of the year, rising some 27 per cent YTD, and was again up 3.2 per cent on Monday ahead of this latest development. The stock price recovery could well be buoyed by the rapid improvement in market sentiment, especially after reassuring data points from both the US and China, despite the still-uncertain debt crisis in Europe. We note that increased liquidity in the market is probably another key reason behind the recent market rally. Furthermore, investors also naturally gyrate towards high-beta stocks like commodity plays to maximise any market movements. While the market appears to be anticipating a rather strong recovery, the global economy is by no means out of the woods yet. As such, any adverse news could still bring about a hefty pullback. Nevertheless, in line with the improved sentiment, we are raising our FY12 earnings estimate by 23 per cent, mainly due to higher margin assumptions. We would be buyers closer to S$1.30. – OCBC Investment Research


Sembcorp Marine (BUY; Target Price: S$5.58)

Sembcorp Marine (SMM) has announced that its Brazilian shipyard has secured a contract worth approximately US$792.5 million from Séte Brasil for the design and construction of a drillship. The announcement confirms what industry newspapers have been reporting in the past two weeks. The drillship is scheduled for delivery by 2Q15, and will be built in tandem with the development of SMM’s US$550 million Estaleiro Jurong Aracruz. The relatively high pricing compared with previous international drillship orders at around US$600 million reflects both the higher specifications of this unit, as well as the buffer it will offer against higher construction costs in Brazil to satisfy local content requirements. SMM will announce its FY11 earnings on 23 February 2012. We expect the group to cap off the year with another solid quarter on execution of its ongoing orderbook, and EBIT margins to be maintained at a healthy 17-18 per cent. Our FY11 net profit forecast stands at S$733.7 million, which is ahead of consensus estimate of S$711 million. For FY12, we expect to see sustained contributions from orders secured in FY10 and FY11. However, margins may see a decline due to the transition to lower-priced contracts. Given that the bulk of the earnings from the drillship contract will materialise only in FY14 and FY15, there is little change to our near-term forecasts. SMM’s order backlog currently stands at around US$5.1 billion and we estimate another US$4 billion worth of new orders to be secured for FY12 (excluding Petrobras). As we are still confident that Singapore’s rig builders will be beneficiaries of Petrobras’s capex, we ascribe a higher 15x multiple to SMM’s FY12 earnings to factor in its improved prospects. – Kim Eng Research


Singapore Airlines (BUY; Target Price: S$12.47)

Management continues to hold a grim outlook, citing persistent weakness in forward bookings as corporates cut their business travel budgets in view of global economic uncertainties and the protracted eurozone debt crisis. Demand from Europe remains weak, with demand for cargo transport remaining anaemic despite the seasonally stronger traditional peak. Management said the strong demand spurred by the Christmas delivery rush failed to materialise, but added that it is seeing pockets of recovery on cargo out of Europe as PMIs are bottoming globally. SIA’s passenger YoY yields remained flat as the higher fuel surcharge was offset by the weaker Singapore dollar. Despite the intensifying competition from low cost carriers and other aggressive full service carriers, notably from the Middle East, it would appear that SIA’s strategy is to sustain yield at the risk of lowering its load factor. This was what it did during the recent global financial crisis when other carriers were aggressively cutting fares. This strategy is crucial for the premium full service carrier as SIA enjoys a reputation as one of the top luxury airlines in the industry, and would find it difficult to raise fares once it has lowered them. As such, we are reaffirming our expectation of flat yields for FY12 and FY13. Management reiterated that there are no major concerns with the recent discovery of cracks on SIA’s A380s. It said newly manufactured aircraft typically encounter some problems, emphasising that the A380s have the least problems among other new aircraft. It attributed the current concerns over the cracks to today’s fast moving information age where negative news is exaggerated. – DMG Research


Valuetronics Holdings (BUY; Target Price: S$0.31)

Valuetronics Holdings Limited (VHL) reported 3QFY12 earnings which exceeded our expectations. Revenue rose 17.7 per cent YoY to HK$617.2 million, while net profit was flat at HK$31.5 million. Adjusting for forex and one-off items, we estimate we estimate that core net profit for 3QFY12 would instead have declined 13.8 per cent YoY and increased 24.1 per cent QoQ, but still higher than our expectations. This was driven by strong revenue contribution from its largest OEM (original equipment manufacturer) customer, which more than buffered the slowdown in demand from some of its other major OEM customers and ODM segment. Looking ahead, management remains cautious on the uncertain macroeconomic landscape and rising cost pressures. But we expect strong contribution from its largest customer to continue, and believe that VHL can cope with rising cost pressures via constant efforts to improve its production efficiencies. We finetune our assumptions and derive a higher fair value estimate of S$0.31 (previously S$0.29) after rolling forward our valuation to 5x FY13F EPS (earnings per share). – OCBC Investment Research