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ASL Marine (BUY; Target Price: S$0.82)

ASL Marine reported a 26.3 per cent increase in revenue to S$117.0 million and a 42.3 per cent rise in net profit to S$8.3 million in 3QFY12 such that FY12 net profit (S$32.3 million) accounted for 99 per cent and 97 per cent of ours and the street’s full year estimates, respectively. Gross profit margin was higher at 15.3 per cent in 4QFY12 vs 14.7 per cent in 4QFY11 and 14.0 per cent in 3QFY12. We note that a provision of S$4.7 million was made against an amount owing from subsidiaries of PT Berlian Laju Tanker after the customer ran into financial difficulties; excluding this would boost PATMI to around S$37 million (up 16 per cent compared to FY11). For the repair and conversion division, the group will focus on securing more conversion and major repair and refurbishment jobs for FSOs, FPSOs and oil rigs (there are currently six older jack-up rigs that are under repair/upgrade in ASL’s yards). The group has also expressed its desire to develop its capabilities in offshore fabrication works. ASL’s shipbuilding orderbook from external customers stood around S$586 million as at 30 June 2012, and 53 per cent of this amount is expected to be recognised in FY13. This means that the group may book shipbuilding revenue of S$312 million in FY13, a 40 per cent increase over FY12. However, FY13 is likely to be a backend-loaded year for the shipbuilding division. Meanwhile, ASL also has an outstanding order book of about S$59 million with respect to long-term ship chartering contracts. The group has seen increased activity in the sale-and-purchase of offshore support vessels, in particular smaller PSVs and larger AHTS vessels. We adjust our estimates with the improved outlook, and our fair value estimate rises from S$0.75 to S$0.82. – OCBC Investment Research


Bumitama Agri (BUY; Target Price: S$1.30)

Bumitama Agri booked 2Q12 profit of Rp191.5 billion, driven by higher CPO prices, but partly offset by a faster increase in costs. The higher costs relate to more third-party FFB purchases, which slightly weighed down margins and OER. 1H12 net profit was Rp380.6 billion, representing 43 per cent of our FY12F – in line with our expectations on an annualised basis. The group expects 2H12 FFB output to account for 57 per cent of the full year amount, while 2H12 cost should also taper off as fertiliser application winds down. Rising maturity of Bumitama’s young tree profile (averaging 5 years) boosted own 2Q12 FFB and CPO output by 23 per cent and 18 per cent YoY, respectively. Sequentially, FFB and CPO output also rose by respectable 12 per cent and 15 per cent, respectively. However, revenue dipped 3 per cent QoQ to Rp828.9 billion, as inventory climbed due to timing differences in shipments. Sales volume eased to 93,700 MT from 103,500 MT in 1Q12, while inventory rose 8,600 MT to 30,000 MT – all of which we understand are presold. With better profitability and proceeds from the IPO, Bumitama’s net debt/equity fell to 26 per cent from 66 per cent. We understand the group managed to secure an additional 6,400 ha of Izin Lokasi land title, originally given to LSM that was acquired in April 2012. YTD, the group has added 7,800 ha of landbank, however we have not assigned any new planting assumptions on these areas, pending further details. The group’s new planting has also reached 5,245 ha as at end June 2012, on target to meet our 13,000 ha FY12 estimate. Seasonally higher 2H12 output and forward hedging should see the group booking 40 per cent higher 2H12 net profit compared to 1H12. Normal production seasonality is expected, as there have not been any severe weather anomalies. Post results we also impute higher third party FFB, given higher contribution YTD. Our FY12F-14F profit is thus trimmed by 1-2 per cent with our target price lowered to S$1.30 from S$1.35. Bumitama is our top sector pick despite expectations of near term moderation in CPO prices. Strong 20 per cent p.a. growth in CPO output over the next 3 years should translate to earnings CAGR of 28 per cent. We believe the counter remains undervalued versus its growth outlook. – DBS Vickers


ComfortDelGro (BUY; Target Price: S$1.85)

We hosted ComfortDelGro (CD) for a post 2Q12 results luncheon. Management shared that despite rising COE prices, it still believes in opportunities for growth in Singapore’s taxi market in the form of cashless transaction volumes and taxi bookings. CD has not increased rental rates for its newest batch of taxis and believes that operating margins of 11-12 per cent still makes it an attractive business to hold on to. On recent steps the government is taking to improve taxi availability, CD shared that about 80 per cent of its taxi fleet runs on two shifts (two drivers sharing rental of one taxi). It believes that its performance on taxi availability standards would likely exceed the rest of the industry that is likely to have less than 50 per cent of fleet running on two shifts. CD notes that although the government will be paying for buses as well as operating expenses under the BSEP, these will be taken onto CD’s books under assets and balanced with a liability to the government. A revenue grant will also be provided to offset against the depreciation of these assets. Though CD will benefit from cost efficiencies from the increased fleet size, the government will charge CD its share of cost on an average cost basis. The recent increase in bus driver wages will also be borne by the government and there will not be anymore wage increase in January 2013. The BSEP is expected to have a neutral impact to CD’s earnings and CD could receive reimbursement through various income streams such as waived depot charges. CD has highlighted China and Australia as possible destinations for overseas expansion opportunities. Management commented that acquisitions should ideally range between S$50-S$100 million but added that even a more sizable transaction in the likes of a few hundred million dollars would be achievable. CD targets investments that can generate an IRR of mid teens over a 10 year period. – OSK-DMG


CSE Global (BUY; Target Price: S$0.90)

Excluding a one-off gain of S$10 million, 2Q12 core profit of S$11.1 million (+1 per cent YoY) was broadly in line with our S$12 million estimate. Core profit was impacted by a forex loss of S$1.3 million in 2Q12 compared to a forex gain of S$2.1 million in 1Q12. The group has loans in US$ and A$ at its subsidiaries. These offer tax advantages, but can also lead to forex exposure which can be expensive to hedge. More importantly, the company issued guidance for FY12F core profit to be similar to FY10, lending credence to our FY12F core profit estimate of S$52 million. Management also disclosed that they are seeing a revival in higher margin offshore projects. This along with the completion of zero-margin legacy projects in FY12F, should result in better margins in FY13F. 2Q12 new order wins of S$115 million (+4 per cent YoY), or 40 per cent of our FY12F estimate of S$500 million. There have been delays in the award of the projects. CSE is bidding for a big telco project (S$70 million plus) in theRepublic of Guinea and a couple of big projects in Australia (S$40-100 million) in the LNG sector. We would remind investors that while CSE secured S$204 million worth of contracts in 3Q11, there is lumpiness in any new order wins. Any weakness in order wins in FY12F is thus more likely to have an impact on FY13F earnings instead. Besides double-digit earnings, CSE offers 6 per cent yield (40 per cent payout of net profit) paid on half yearly basis. We maintain BUY based on 9x FY12F PE and believe that the stock could be re-rated once order wins of S$150 million-S$200 million in a quarter start to come in. – DBS Vickers


ECS Holdings (BUY; Target Price: S$0.52)

ECS Holdings reported a 24.2 per cent YoY decline in its 2Q12 PATMI (net profit) to S$8.1 million on the back of a 3.0 per cent fall in revenue to S$823.6 million. Excluding forex and other exceptional items, we estimate that core earnings would have decreased 23.1 per cent YoY to S$7.4 million. This set of results was below our expectations. For 1H12, revenue increased 2.0 per cent to S$1,725.2 million, forming 44.3 per cent of our FY12 forecast. Core earnings slipped 29.8 per cent to S$14.1 million, or 40.3 per cent of our full-year estimate. ECS’s gross margin declined 0.6 ppt YoY to 4.5 per cent in 2Q12, although this was an improvement vis-à-vis the 4.0 per cent registered in 1Q12. The YoY decline can be attributed to intense competition in the ICT industry and a change in sales mix as there was higher revenue contribution from lower-margin media tablets and phone devices within its Distribution segment. ECS saw healthy revenue growth from products from Apple Inc, Oracle, ASUS and Lenovo in 2Q12. We believe that these major IT vendors would continue to be a key growth driver for ECS moving forward, given new product launches and the anticipated rollout of Microsoft’s new Windows 8 operating system in October this year. Management is also seeking opportunities in mobility/social media and big data and would also focus on its higher-margin business such as enterprise servers, software and networking products and professional IT services. Continued efforts would also be made to strengthen its working capital management. The group’s cash conversion cycle improved from 44 days in 2Q11 to 39 days in 2Q12. While we continue to expect a sequential improvement in its 2H12 results, we pare our FY12/13F revenue and core PATMI forecasts by 7.1/8.9 per cent and 13.8/14.9 per cent respectively, given the still uncertain global economic backdrop. – OCBC Investment Research


KS Energy (HOLD; Target Price: S$0.83)

KS Energy (KSE) reported a 23.4 per cent fall in revenue to S$151.6 million and a net profit of S$692,000 in 2Q12 vs. a net loss of S$5.5 million in 2Q11. Revenue was within our expectations, accounting for 22.3 per cent of our full year estimates. 1H12 revenue and gross profit accounted for 50.3 per cent and 50.7 per cent of our full year estimates, respectively. Net profit was also within our expectations. 2Q12 marks the group’s first quarterly net profit after nine consecutive quarters of net losses, and results were also not boosted by any significant one-off gains, unlike 1Q12. Revenue from the distribution business, which accounted for 71.1 per cent of total revenue, saw a 26.3 per cent QoQ increase in revenue in the last quarter, while the drilling division rose 11.8 per cent. We understand that all of the group’s core assets are currently on hire and it is unlikely that any of them will be coming off-hire for the rest of this year. Recall that the group’s convertible bonds have an option by bondholders who may redeem the bonds in March 2013. Management is currently “working on various options to meet this funding requirement” should the redemption option be exercised. KSE has proven adept at raising funds from investors and partners such as Itochu of Japan, Dubai-based Dutco and private equity fund Actis. Hence we would not be surprised if there is news of further tie-ups in the near future.Business in the distribution is improving, and coupled with smooth execution in the drilling division, the group may break even in FY12F. However, we are conservatively forecasting a single-digit net loss of S$3.5 million for now, which is a significant improvement from FY11’s S$78.8 million net loss. Rolling over our valuation to 1.1x blended FY12/13F NTA, our fair value estimate slips slightly from S$0.85 to S$0.83. – OCBC Investment Research


Midas Holdings (BUY; Target Price: S$0.41)

In line with its earlier profit guidance, Midas Holdings reported a dismal set of 2Q12 results, with net profit plunging 97.5 per cent YoY to RMB1.6 million. Revenue for the quarter was RMB219.8m, representing a 30.0 per cent YoY decline. The fall in net profit was attributed to higher operating expenses and finance costs, as well as a RMB14.1 million share of loss from its associated company, Nanjing SR Puzhen Rail Transport (NPRT). For 1H12, revenue dipped 26.2 per cent to RMB450.2 million, or 46.0 per cent of our FY12 forecast; net profit slumped 86.3 per cent to RMB16.9m, forming just 14.8 per cent and 13.9 per cent of ours and the street’s full-year estimates, respectively. Another disappointment came from a cut in interim dividend to 0.25 S-cents/share (1H11: 0.5 S-cents/share). Current orderbook for Midas stands at RMB600 million, while that of NPRT is RMB8 billion. We slash our FY12 and FY13 PATMI projections by 60.2 per cent and 14.9 per cent, respectively. We now value Midas based on 0.8x FY13F P/B, given that FY12 appears to be a non-event for Midas and there is a lack of earnings visibility in the near term. But we are upgrading Midas from Hold to BUY with a new fair value estimate of S$0.41 (previously S$0.30). We position our buy rating on the premise of an expected recovery in its orders win momentum and the likelihood of a resumption of high-speed railway (HSR) passenger train car contracts by MOR in the near future, which would provide a catalyst for Midas’ share price. – OCBC Investment Research


Swiber Holdings (HOLD; Target Price: S$0.66)

Swiber Holdings reported a 27.1 per cent YoY rise in revenue to US$229.6 million and a 103.9 per cent increase in net profit to US$15.1 million in 2Q12, boosted by one-off gains such as disposals, fair value changes in financial derivatives and forex gains of about US$10 million. 1H12 revenue and core net profit accounted for about 55 per cent and 57 per cent of our full year estimate, largely within our expectations. Gross profit margin fell slightly from 14.7 per cent in 2Q11 to 14.2 per cent in 2Q12. The group is also seeing traction from its associates and JVs which contributed US$4.1 million in the quarter vs US$2.5 million in 1Q12 and a loss in 2Q11. The group has been active in the bond market in the past few months, issuing a total of S$320 million worth of bonds since June. This is not surprising as S$170 million of bonds will mature by end October this year, in addition to US$100 million of convertible loan notes that may be redeemed on October 16. As the conversion price of S$0.84 is more than 35 per cent above the current price, the convertible notes are likely to be redeemed. We estimate that the group has tapped S$690 million out of its S$700 million MTN programme, but there should be room for more debt issuance after repayment of S$170 million worth of bonds by end October. Meanwhile, current borrowings stood at US$373.0 million with a cash balance of US$129.2 million as at 30 June 2012. As of August 2012, the group’s orderbook stood at about US$1.6 billion and is expected to contribute to results over the next two years. Looking ahead, the group is still bidding for more projects in the pipeline given the positive industry outlook. We have fine-tuned our estimates and our fair value estimate has now increased to S$0.66 (prev. S$0.63). – OCBC Investment Research


Wilmar International (HOLD; Target Price: S$2.90)

Wilmar International Limited (WIL) reported a very disappointing set of 2Q12 results. Although revenue grew by 4.3 per cent YoY to US$11,019.7 million, driven by volume growth in its Palm & Laurics, Consumer Products and Sugar, reported net profit fell by a staggering 70.2 per cent YoY to US$117.1 million. WIL cites losses in Oilseeds & Grains and lower profits from Plantations & Palm Oil Mill; Sugar also posted higher losses while associates recorded lower contributions. Excluding non-operating items, core net profit declined 55 per cent YoY to US$172.3 million. For 1H12, revenue rose 6.9 per cent to US$21,490.7 million, meeting 42 per cent of our FY12 forecast, while core net profit fell 52 per cent to US$378.0 million, or 22 per cent of our full-year forecast. WIL has declared an interim dividend of S$0.02/share, versus S$0.03 in 1H11. Management expects the near-term operating environment to remain “challenging” in China, due to excess capacity in oilseeds crushing. In addition, WIL also sees adverse impact from the weakening RMB against the USD; and it has taken steps to hedge its naturally long RMB position and also reduce any potential forex exposure. Meanwhile, its Consumer Products business could also see margin squeeze due to rising input prices (especially from soy beans), while ability to raise selling prices may need approval from the Chinese government. Management maintains that its long-term prospects remain positive, citing its sound business model. WIL adds it is well-positioned to capture growth in demand for agricultural commodities, especially in Asia and Africa. However, to reflect the dismal 1H12 performance and still-tough operating environment, we pare our FY12 earnings forecast by 30 per cent (FY13 by 23 per cent). Based on a more conservative 12.5x blended FY12/FY13F EPS, versus 13.5x FY12F EPS previously, our fair value drops to S$2.90 (from S$3.87 previously). Maintain HOLD as stock is already more than two standard deviations below its 3-year average P/B. – OCBC Investment Research