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CSE Global (HOLD; Target Price: S$0.80)

Last week, CSE Global announced that it has accepted an offer from Hitachi Ltd for all its 59,789,000 shares (30.94 per cent stake) in Malaysia-listed financial solutions provider eBworx Berhad. This follows a voluntary general offer from Hitachi’s bankers, in March 12, to acquire all the outstanding ordinary shares for a cash offer of M$0.90 (15.7x historical PER (price earnings ratio)). If Hitachi’s acquisition of eBworx goes according to plan, CSE would receive about S$21.5 million in cash in exchange for its stake in eBworx. The proposed transaction is not expected to have any material impact on CSE’s consolidated net tangible assets per share or earnings per share for FY12. eBworx is a consulting and technology solutions firm specialising in the Asian financial services industry. Its products include credit management (Loans Origination, and Collection & Recovery), delivery channel (Cash Management, Internet Banking, Branch Delivery) and Trade Finance solutions. Today, the operations of CSE and eBworx are very different. CSE provides system integration work for the energy, infrastructure and healthcare sectors. Its jobs are mainly engineering-focused and working capital intensive, but the underlying technology is stable. By contrast, eBworx provides mainly consulting and software solutions to the financial services industry. Although its work is less capital intensive, eBworx requires ongoing R&D due frequent changes in the financial services industry (i.e. Basel III). As we believe that there are little synergies between the two companies, the sale should help CSE unlock shareholder value and redeploy cash to its core businesses. – OCBC Investment Research

 

First Resources (BUY; Target Price: S$2.15)

For January-February 2012, FR recorded a 24 per cent increase in FFB production, against our 9 per cent FFB (fresh fruit bunch) production growth estimate for 2012. Still we think it is too early to change our 2012 FFB assumption, although these are early signs of outperformance. FR does not seem to share the view of tree stress kicking in for 2012, at least not for Indonesia. FR’s fractionation plant was running near full capacity in 1Q2012, enjoying high downstream margins resulting from the export tax differentials between CPO and processed palm oil of 8-10 per cent for each tonne of palm oil. The high utilisation rate came at the expense of its biodiesel plant, which lay idle. Demand for palm biodiesel typically kicks in during the summer months in Europe. FR is on track to complete its refining and fractionation capacity expansion to 850,000 tonnes/year by 1Q2013. Its expansion plan stems from (i) its strong expected 3-year forward FFB CAGR of 9 per cent to 2.5 million tonnes of FFB by 2014, and (ii) the present high downstream processing margins. In 2011, FR posted a fat EBITDA margin of US$189/tonne although over time, this should normalise to around US$70/tonne. The deterioration of South American crop prospects over the last month has further tightened global supplies of soybeans, prompting us to revise our CPO ASP forecasts upward. We raise 2012-14 net profit forecasts by 10-15 per cent to reflect our higher CPO ASP estimate of RM3,150/tonne (2012; +12.5 per cent) and RM3,000/tonne (2013-14; +7.1 per cent) from RM2,800/tonne (2012-14) previously. – Maybank Kim Eng Research

 

Keppel Corp (BUY; Target Price: S$12.34)

Keppel has secured FPSO upgrading projects worth S$170 million in total from its long-term partners SBM Offshore N.V. (SBM Offshore) and Bumi Armada Berhad (Bumi Armada). The first project is from SBM Offshore to refurbish and upgrade an existing FPSO vessel, FPSO Xikomba. Work on this FPSO unit is expected to be completed by 3Q2013. Leased by Eni Angola S.p.A (eni) for 12 years for the development of Block 15/06, offshore Angola. The second project is to modify and upgrade Bumi Armada’s FPSO Armada Claire. This includes refurbishment and life extension works as well as installation and integration of topside modules. Work is expected to commence in 3Q2012, and completed in 4Q2013. Upon completion, FPSO Armada Claire will be deployed in the Balnaves Field, north-west Australia. YTD order wins of S$1.03 billion, including the LOI for Floatel’s semi-submersible. The latest wins bring Keppel’s YTD wins to S$1 billion, forming 17 per cent of our full year assumption of S$6 billion. – DBS Vickers

 

Sembcorp Marine (BUY; Target Price: S$5.85)

SMM secured a jack up rig contract from QDI Jack up orders worth US$218.5 million. SMM’s subsidiary, PPL Shipyard has secured a US$218.5 million contract to build a jack-up rig from Gulf Drilling International Ltd (Q.S.C.) (GDI), one of the largest Middle East drilling companies. Scheduled for delivery in 1Q 2013, the new rig will be built based on PPL Shipyard’s Pacific Class 400 series, an established proprietary, high-specification design that are capable of operating in water depths of 400 feet and drilling to depths of 35,000 feet. This jack up is again on fast track delivery in 9 months, from PPL Shipyard, implying high margins of more than 15 per cent up to 20 per cent, given that this is a proprietary design and pricing is near the peak of US$230 million. As earnings will be recognised in 2013, this will provide some upside to 2013 earnings. The price is marginally higher than another fast track project secured by PPL yard in February 2012, for delivery in November 2012 for Safin Gulf at US$213 million. The new contract will lift SMM’s YTD order wins to S$2.7 billion, forming 45 per cent of our full year expectation of S$6 billion, way ahead of its peers. – DBS Vickers

 

United Envirotech (BUY; Target Price: S$0.50)

United Envirotech Limited (UEL) has recently entered into a sales and purchase agreement to acquire an 80 per cent stake in Fujian Liyang Envirogroup Co and Shaxian Lanfang Water Co for RMB116 million. The move will allow UEL to own and operate two municipal waste-water treatment plants in Fuqing and Shaxian City, with a combined capacity of 150,000 m3/day; it is also its first investment in Fujian Province. And with the completion of Phase 2 construction of Shaxian Waste-water Treatment Plant, the total capacity will increase to 180,000 m3/day.  Separately, UEL had earlier entered into a sales and purchase agreement to acquire a water supply plant and a waste-water treatment plant serving the textile companies located in industrial parks in Changyi City, Shandong Province. UEL will set up a 70 per cent-owned JV with the current plant owners. UEL will invest a total of RMB165 million, and like the Fujian deal, UEL will fund it using 60 per cent project financing and 40 per cent from the proceeds raised from the KKR convertible bond issue. Based on our estimations, the four plants could bring in combined revenue of RMB26 million/quarter, with EBITDA margins likely between 65 per cent and 70 per cent. But according to management, any revenue contribution would only come in once the transfers are done, which should take place within the next three months. Hence we only expect the impact to be felt from the next FY. As such, we are keeping our FY12 estimates unchanged; instead, we bump up our FY13 revenue forecast by 8.6 per cent and earnings by 8.8 per cent. – OCBC Investment Research

 

Yoma Strategic Holdings (Not Rated)

Developments in Myanmar have been very positive in recent weeks, most notably, the by-elections that saw democracy icon Aung San Suu Kyi leading her party, the National League for Democracy (NLD), to a landslide victory. The US has since announced selected lifting of trade sanctions against the country and the market has responded positively, with Yoma’s share price surging to a new high of S$0.60. On its part, the company has undergone restructuring, with its China real estate holdings now focused solely on the retail mall component of its Grand Central Project. It has also announced the purchase of a 70 per cent interest in Star City LDRs, which is located within 6 miles of downtown Yangon. There are encouraging signs that Yoma is actively building up its exposure to Myanmar’s real estate sector through the Star City project, which will give the company a development pipeline for the next 6-8 years. The decision to keep its retail mall holdings in Dalian, China, prevents Yoma from billing itself as a pure Myanmar play, and this may prove to be an unnecessary distraction. The mall suffered losses of S$800,000 for the April-September 2011 period and more losses are anticipated in the near future. – Maybank Kim Eng Research