ARA Asset Management (BUY; Target Price: S$1.68)
ARA’s FY11 net profit was up 7 per cent YoY to S$68.2m, in line with expectations. ARA’s FY11 revenue of S$122.8 million was slightly ahead of market and our expectations. Excluding a mark-to-market loss of S$6.1 million on the Suntec REIT acquisition units received by ARA for the acquisition of the one-third stake in Marina Bay Financial Centre, net profit would have climbed 15 per cent YoY to S$73.3 million. FY11 net margins remained healthy at 55.5 per cent. ARA’s AUM (asset under management) grew by about S$3 billion during FY11 to top S$20.2 billion by end-December. Management continues to target AUM growth of S$2 billion pa and could achieve a S$1.5 billion increase in AUM by 1H12 through its REITs’ acquisitions of about S$540 million worth of properties, and the potential listing of a new REIT (China assets) in Hong Kong or Singapore. The listing of a new REIT is critical to the unlocking of value for ADF investors, and would translate into bumper gains for ARA in FY14F. We raise our earnings estimates for FY12F-13F by 3-10 per cent on higher AUM assumptions. – Maybank Kim Eng Research
Ezra Holdings (BUY; Target Price: S$1.51)
After announcing contract wins worth up to US$225 million YTD (for both subsea and marine divisions), Ezra Holdings’ overall order backlog has exceeded a record US$1.6 billion. Industry expert Douglas Westwood is also forecasting higher subsea capital expenditure in the industry in the next few years, with Latin America, Africa and Australasia showing high growth levels. More resources would also be needed to manage the installed infrastructure, with capital spending in this respect estimated to grow 10 per cent annually (repair & maintenance to see greater increase than inspection). This would be driven by aging infrastructure, new wells, and tighter safety standards. Ezra’s stock price has risen by about 55 per cent YTD, making it the fifth best performing stock listed on the SGX so far this year. It is currently trading at about 13x forward P/E (price earnings), which is also its historical average since 2005. Looking ahead, assuming there are no hiccups in the execution of the subsea business, we think AMC will start making positive contributions this year as 50 per cent of the subsea orderbook gets recognised mostly in 2H12. The offshore support business should also be supported by recovering charter rates which are expected to pick up more strongly in 2H12. Along with the recent re-rating of the sector, we increase our peg for the offshore marine and energy business from 13x to 15x, bumping our fair value estimate from S$1.36 to S$1.51. – OCBC Investment Research
SingTel (NEUTRAL; Target Price: S$3.04)
Singtel announced that its wholly- owned subsidiary, Optus Mobile Pty Ltd, has signed an agreement to acquire all the issued shares in Vividwireless Group (VW) Ltd from Network Investments Holdings Pty Ltd for a cash consideration of A$230 million. Vividwireless holds spectrum licenses in the 2.3GHz band and operates two wireless broadband businesses under the brandnames of ‘vividwireless’ and ‘unwired’. The completion of the transaction is subject to various conditions precedent including the reissue of the 2.3GHz spectrum licenses and approvals of the Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board. We view the acquisition positively for Optus given the access to 98MHz under the 2.3Ghz band, a prized asset that will complement the 1800MHz band being used for its upcoming 4G (LTE) mobile rollout. Optus stands to gain immediately from an existing fixed wireless brand in the market and a ready base of customers to migrate, allowing for the up-selling and cross selling of bundled mobile and broadband packages. This should result in longer-term ARPU (average revenue per user) accretion and stickiness. We believe Optus will add value to VW than it would be possible under Seven Network as it is already supplying backhaul infrastructure to VW. The acquisition is well timed ahead of the move into next generation networks (NGN) where competition in the market is expected to intensify. There is strong potential for mobile and wireless broadband in Australia given the estimated broadband penetration of 49 per cent in the country. Also, the vast terrain makes wireless broadband more a more cost effective solution to reach out to certain sections of the market which are not covered by fixed access. – DMG Research
Yangzijiang Shipbuilding (SELL; Target Price: S$1.04)
YZJ announced that they have won US$206 million orders for seven vessels since the start of 2012. The orders are for four 82,000 DWT bulk carriers, two 95,000 DWT bulk carriers and one 47,500 DWT bulk carrier. Management is aiming for US$2.0-2.5 billion new orders in 2012 with 60 per cent from containerships and 40 per cent from orders for dry bulk vessels. We expect containership orders to be driven by conversion of options/LOI for Seaspan and Peter Dohle. YZJ secured US$1.2 billion new orders in 2011 and we estimate that YZJ has a gross orderbook of US$4.9 billion with high margin orders accounting for 50 per cent of the gross orderbook. YZJ will report its FY11 results on February 29. We estimate a 4Q11 net profit of RMB1.03 billion, lifting FY11 net profit to RMB4 billion. We believe 4Q11 results will overshoot street estimate of RMB750 million. However, we think earnings may have peaked in FY11. – DMG Research
