By Carmen Lee
Wed, 11 Feb 2009, 08:42:39 SGT

Market Pulse: O&M Sector, Starhub, SembMarine, Ausgroup & SIA (11 Feb 2009)

FOCUS

Deepwater industry update: Recent news should uplift KEP, SMM, EZRA

Summary: Recent reports that oil majors are continuing their venture into deepwater exploration should bode well for Singapore rig manufacturers, KepCorp and Sembcorp Marine (SMM). Oil majors like Chevron and BP have reportedly been locked into high rig-charter rates during the boom days when oil was at US$140/barrle and contract terminations would mean high cancellation costs of up to US$219m each. Greater clarity on business directions of the oil companies have also helped to abate a previous flurry of rig cancellation/postponement news flow. With the sustained push into deepwater, demand for newer generation of deepwater capable offshore support vessels will also likely remain elevated. In this O&M space, we prefer SMM (FV: S$2.00) and Ezra (FV: S$1.09) in view of undemanding valuations and the purer play on the O&M sector. While KepCorp will benefit from this development, we think its property sector will continue to be a drag on its share price in the medium term. As such, we keep our HOLD rating on KepCorp (FV: S$4.40). (Kelly Chia)

For more information on the above, visit www.ocbcresearch.com for detailed report.

StarHub Ltd: Guides for Stable FY09 Outlook

Summary: StarHub reported its 4Q08 results last night, with revenue down 0.4% YoY at S$536.7m, while net profit fell 10.9% to S$87.5m. For the full year, revenue rose 5.7% to S$2127.6m, or about 0.7% shy of our forecast, and below its growth guidance of 7%, while net profit eased 5.7% to S$311.3m, but still 3.2% ahead of our estimate. StarHub also declared a final dividend of S$0.045/share as promised. Going forward, management expects FY09 operating revenue to grow by low single-digit; it also expects to keep service EBITDA margin at around 31%, and keep its capex within 11% of operating revenue. More importantly, based on its projected profitability and cash flow, StarHub intends to continue to pay S$0.045/cent dividend every quarter, totalling S$0.18 for the full year. But given the still uncertain economy climate, we are just bumping up our FY09 estimates marginally (0.9% to 1.5%), and due to the slightly higher capex, our DCF-based fair value eases slightly from S$2.81 to S$2.78. Nevertheless, we continue to believe that StarHub’s business remains resilient and coupled with an attractive 8.9% dividend yield, we maintain our BUY rating. (Carey Wong)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Sembcorp Marine Ltd: Positive update from PetroMena

Summary: PetroMena updated yesterday that it received a conditional offer of US$540m for one of the three rigs (Petrorig III) being built at Sembcorp Marine’s (SMM) yards. Despite current low oil prices, the higher buy price of the rig (US$540m) versus SMM’s original US$525m contract value gives weight that deepwater activity is still being sustained. This comes as positive news as PetroMena previously had credit issues with its banks to finance the completion of all its three rigs. With this development, SMM’s payment schedule would be more secure for all three rigs with a much lower probability of order cancellation. Our fair value remains at S$2.00, still based on 10x FY09F EPS. Maintain BUY. (Kelly Chia)

AusGroup Ltd: 2Q09 slightly weaker QoQ but real test lies ahead

Summary: AusGroup Ltd (AusGroup) posted A$130.1m in 2Q09 revenue, up 15% YoY and about 0.3% lower QoQ. Net profit came in at almost A$5m, 30.6% lower YoY and 13.9% lower QoQ. The results were slightly weaker on a QoQ basis – gross margin slipped to 11.8% this quarter from 12.8% in 1Q09, while net margin hit 3.8% versus 4.4% achieved a quarter ago. The company said its order book stood at A$168m as at 31 December 2008. As we have discussed in previous reports, the global financial and economic crises is impacting planned capex in both the minerals resources and oil & gas industries. This has already impacted AusGroup’s current order book, and more worryingly, casts a pall on the company’s future earnings. The lack of visibility ahead is our key concern. We will be speaking with management later to gain more guidance on their opinion of the sanctity of the current order book (how much is at high risk for cancellations) as well as their view on securing further orders. For now, we place both our HOLD rating and 17 S cents fair value estimate under review. (Meenal Kumar)

Singapore Airlines Limited: Expecting lacklustre 2009

Summary: Singapore Airlines (SIA) delivered its 3QFY09 results yesterday, with revenue declining 2.6% YoY (-4.9% QoQ) to S$4,164m due to weaker passenger and cargo carriage. While a correction in jet fuel prices had provided some relief to its overall expenditure, the group suffered losses in hedging amounting to S$341m and foreign exchange rate movements which lowered its operating profit by S$144m. Consequently, SIA registered a lower profit of S$337.2m, down 42.8% YoY (+4.1% QoQ) to S$337.2m. For 9MFY09, revenue stands at S$12,675m (+6.8%), meeting 80.1% of consensus revenue forecast, while net profit clocked S$1,019.6m (-33.0%), or 90.0% of consensus estimate. Going forward, the group expects the demand for air transportation to remain weak for most of 2009. As such, it will continue to monitor the patterns of demand and make appropriate adjustments to flight schedules and capacity, while managing its costs tightly. Based on the traded share price of S$10.44, SIA is trading at current and forward consensus PER of 10.88x and 11.93x, respectively. We do not have a rating on the stock. (Kevin Tan)

NEWS HEADLINES

- A unit of SMRT will operate and maintain Dubai’s Palm Monorail for 50m UAE dirhams a year for six years.

- Keppel investment unit k1 Ventures posted a net profit of S$2.05m for 2Q09 compared to S$25.9m in 2Q08. Revenue from continuing operations fell 80% YoY to S$26.3m.

- Goodpack reported a 1.3% YoY drop in net profit to US$8.2m for 2Q09 despite a 13.4% rise in turnover to US$27.7m.

- Metro Holdings reported a 97.5% fall in 3Q09 net profit to S$557k, mainly due to lower fair value of the property division’s portfolio of short-term investments and the absence of an exceptional gain.

- JES International expects to record a loss for 4Q08 due to higher production costs and depreciation of the USD against the yuan. A net profit is expected for FY08.

- Gems TV reported a net loss of US$18.5m for 2Q09 compared to a net profit of US$6.0m in 2Q08, mainly due to the difficult economic environment and changes in accounting estimates.

- Hosen Group has warned of a net loss for FY08 due to one-off expenses from transaction costs from a proposed acquisition and allowance for impairment loss on a loan.

- MFS Technology reported a 41% YoY fall in sales to S$36.4m for 1Q09 and sustained a net loss of S$4.1m compared to a net profit of S$484k in 1Q08.