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DBS Group (BUY; Target Price: S$15.40)

DBS Group Holdings is taking over Temasek Holdings’ entire stake (or 67.37 per cent) in PT Bank Danamon Indonesia Tbk (Danamon) for a total consideration of Rp45.2 trillion (or S$6.2 billion). At Rp7,000 per share, this is priced at a premium of 52.2 per cent above Danamon’s closing price on 30 March 2012 or valuing the group at 2.6x book value. Danamon has about 3,000 branches with about 6 million customers. The transaction will be funded by the issuance of 439 million new DBS shares at S$14.07 per share to Temasek, increasing DBS’s issued shares by 18.7 per cent to 2,789 million. As a result of this, Temasek’s stake in DBS will rise from 29.5 per cent to 40.4 per cent. There is also going to be a mandatory tender offer (MTO) for the rest of the Danamon shares, and assuming full acceptance, this will amount to an additional Rp21.2 trillion (S$2.9 billion). This deal is expected to be EPS (earnings per share) and ROE (return on equity) accretive by 2015. Completion is slated for 2H12, integration will commence in 2013 and synergies are expected from 2014 once all the approvals have been secured. Based on 31 December 2011 numbers, the pro-forma NAV (net asset value) is S$12.27 (versus actual of S$11.99), EPS is S$1.21 (S$1.30) and total CAR (capital adequacy ratio) is 14.8 per cent (15.8 per cent). Over the longer run, this is a strategic move to deepen its market presence in Indonesia, which has been one of the key growth economies in the region with its diverse and growing industries. However, for the near term, the acquisition premium and the potential dilution could act as dampeners as execution risks add to uncertainty. – OCBC Investment Research

 

Fraser & Neave (BUY; Target Price: S$7.70)

F&N announced that one of its 100 per cent-owned subsidiary, FCL (China) Pte Ltd, is proposing to privatize its 56.17 per cent owned HK-listed entity, Frasers Property (China) Limited (FPC). The proposed privatisation will be undertaken jointly with Riverbook Group Limited (RGL), a wholly-owned subsidiary of Ascendas Land International Pte Ltd. RGL is also the second largest shareholder of FPC with a 17.16 per cent stake. The main assets of FPC include the 157,610 sq m Vision Shenzhen Business Park and Shanshui Four Seasons in Shanghai with 737,000 sq m earmarked for residential/commercial uses. We believe the rationale for this exercise is that the current traded price does not reflect its value as FPC is trading at 43 per cent discount to its NAV (net asset value). Furthermore, FPC’s trading value is relatively low at less than HK$1 million per day. The privatisation is likely to provide more flexibility for the major shareholders to extract value, in our view. We continue to see value in F&N as it is trading at 24 per cent discount to our RNAV (S$9.02), with the potential to progressively unlock value over the longer term – APB, F&N Berhad, Times Publishing, properties, etc. In the meantime, the group’s earnings will benefit from the strong performance of its brewery unit, stable investment property earnings, coupled with S$1.7 billion in unrecognised property development sales in Singapore. We believe its low landbank and partnership strategy for land tenders will better insulate it from policy risks in this uncertain market. – DBS Vickers

 

Sembcorp Marine (BUY; Target Price: S$6.00)

Upstream reported that Sembcorp Marine’s Jurong Shipyard is set to win an order from Seadrill for a Moss Maritime CS-60MK harsh environment semi-submersible rig. It was also reported that the formal award of the contract could happen this week and the contract value is estimated at US$650 million. We think the story has strong credibility: last week, Seadrill’s North Atlantic Drilling completed a private placement to raise a gross proceed of US$300 million to finance the first yard payment for a semisub rig. According to the article, Seadrill could be offered an option for another unit. If the semisub order is awarded, we estimate that SMM’s YTD 2012 order win will hit S$2.5 billion and net orderbook will rise to S$7.6 billion. As highlighted in our offshore & marine (O&M) sector report on 12 March 2012, we believe the stage is set for an upswing in orders for semisub and we expect both Keppel and SMM to benefit from the positive trend. Our positive view is premised on the high utilisation rates and rising charter rates for drillships and semisubs. – OSK-DMG

 

Swiber Holdings (Not Rated)

Swiber recently bagged an offshore EPCI pipelaying contract in the Gulf of Mexico (GoM) in collaboration with Spanish yard Dragodos. The US$273 million order has allowed Swiber to penetrate the GoM region, which could open up more opportunities in this lucrative market. With the latest contract win, Swiber’s orderbook stands at around a record US$1.2 billion. Going forward, the company should be able to leverage on its execution track record to secure significantly more jobs in the booming offshore market, especially in ASEAN. Its specialisation in jobs of 100-200 metre water depth still has good prospects, without having to make costly investments to enter the deepwater segment. Swiber reckons that its current fleet is large enough to handle the influx of business, and can take on annual revenue of up to US$1.5 billion, versus its FY11 reported revenue of US$655 million. Utilisation of its fleet stands at about 70 per cent, but revenue can be ramped up due to the higher construction content of new orders. This also means that margins are expected to be thinner than from pure services. EPCI gross margins run at about 12- 15 per cent, while services margins are at over 20 per cent. Consensus forecasts indicate that Swiber should grow net earnings by 34 per cent in FY12, through its record orderbook. With the stock price up 24 per cent YTD, it may gain further traction on more wins, as we understand that the company is bidding for some US$3 billion worth of new contracts. However, further fundraising and its gearing may be an overhang, especially since it recently raised some US$50 million via 101.1 million new shares. – Maybank Kim Eng Research

 

Venture Corp (BUY; Target Price: S$9.41)

Recent industry data have provided optimism that conditions in the technology and manufacturing sector may have bottomed out. Singapore’s electronics exports increased at an encouraging 3.9 per cent YoY for the combined months of January and February this year. The electronics PMI also expanded for a second consecutive month in Feb, registering a reading of 51. Similarly, China’s manufacturing PMI grew to 53.1 in March, exceeding market expectations and registering its highest reading since March 2011. Nevertheless, we believe that downside risks still exist in the global economy. While Venture Corp (VMS) acknowledges the ongoing macroeconomic uncertainties, it sounded more upbeat about its prospects for FY12 during our recent management meeting. This is underpinned by new product launches and better traction from several key customers. We expect its earnings momentum to pick up progressively after the seasonally weak first quarter. Hence FY12 is likely to be a back-end loaded year for VMS. The group’s healthy balance sheet (net cash of S$309.1 million as at 31 December 2011) would also increase its resilience to weather the volatile business environment. Looking ahead, we believe that VMS is well-positioned to acquire new customers and gain market share from competitors as it continues its strategic focus on moving up the technological value chain. We fine tune our assumptions following a change of analyst coverage, and ascribe a higher valuation peg of 15x (previously 12.5x) to VMS’s FY12F EPS (earnings per share), representing a slight premium to its 5-year average forward PER (price earnings ratio). This is supported by improving prospects of the group, coupled with growing market risk appetite. – OCBC Investment Research