By Carmen Lee
Wed, 25 Feb 2009, 08:13:49 SGT

Market Pulse: SMM, Rotary, UOL, SAR & Food Empire (25 Feb 2009)

FOCUS

Sembcorp Marine Ltd: Strong 78% bottomline growth

Summary: Sembcorp Marine (SMM) reported a record 4Q08 performance with topline growing 12% YoY to S$5.1b while PATMI escalated 78% to S$430m, mainly on the back of expanding operating margins. SMM declared 6 S cents final dividend which disappointed the streets’ and our expectations. As SMM expects order flow to slow significantly in view of the difficult credit environment and the low oil price, it is positioned to support earnings with a stable ship repair base load from its regular/exclusive partnerships. Management also updated that all latter contracts have full financing, reducing chances of payment delays/cancellations. While our overall topline remains largely unchanged, we have tweaked our earnings in view of weaker performance from Cosco. Despite our lowered dividend payout ratio, SMM continues to offer a yield of >6%. We have maintained our 10x FY09F EPS valuation but our fair value drops to S$1.85 (prev: S$2.00). We prefer SMM to Keppel in view of its better operating margins. Maintain BUY. (Kelly Chia)

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

Rotary Engineering: Milestone completion swings 4Q08 positively

Summary: Rotary Engineering (Rotary) reported its FY08 results yesterday where 4Q08’s performance helped boost the year’s earnings with final milestone payments from several projects. For the full year, topline inched ahead 2% to S$520m while PATMI declined 4% to S$50.9m. The muted results were inline with our expectation. Rotary’s final dividend of 2.3 S cents disappointed our expectations of 4 S cents. Rotary continues to maintain its high net cash position to align itself for bids for the large Jubail Refinery project. In the meantime, its current order book of S$445.8m (S$300m to be recognised in 2009) will continue to prop its earnings up. Winning some packages of the Jubail Refinery projects could yield up to S$450m/year in revenue for Rotary. We have not factored in the win as uncertainty is still too high. We have lowered our estimates for FY09 in view of better clarity of its order book recognition and slower order wins. Our fair value of S$0.29 (prev: S$0.34) continues to be pegged at 5x FY09F EPS. Despite mitigating our FY09F dividend assumptions (S$0.02/share) for the company, yields are still attractive at 6.9%. Maintain BUY. (Kelly Chia)

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

UOL Group Ltd: Hit by impairment and fair value loss

Summary: UOL Group reported weak 4Q08 results, dragged down by impairment charge and fair value losses. Revenue grew 33.5% YoY to S$260.3m due to higher contribution from property development and rental income. PATMI plunged into the red in 4Q08, losing S$114.1m, but excluding one-off charges, underlying PATMI would have grown by 14.9% YoY. Fair value of UOL’s investments in UOB and UIC were also written down by S$348.8m in 4Q08 and charged directly to its reserves. The decline in shareholders’ equity resulted in an increase in net gearing ratio from 0.34x (end 3Q08) to 0.4x (end 4Q08). Two mass market launches have been planned for FY09. Our FY09 RNAV is now pegged at S$3.40 per share. We are maintaining a discount at 40% to our valuation of UOL’s investment and development properties and no discount to its investments in listed entities. Our fair value of UOL is now lowered to S$2.59. Maintain BUY. (Foo Sze Ming)

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

Straits Asia Resources: Strong showing in FY08

Summary: Straits Asia Resources Ltd’s (SAR) FY08 results were slightly ahead of our expectations. Revenue accelerated by 133.2% to US$585.2m on strong coal prices and higher production volumes, leading to a 335.6% surge in net profit to US$124.4m. In terms of its 4Q08 performance, revenue grew 147.2% YoY to US$151.8m, while net profit for the quarter soared 316.4% YoY to US$39.7m. Gross profit margin for FY08 ballooned by 16.6ppt to 39.4% on sky-high coal prices, while net profit margin expanded by 9.9ppt to 21.3%. A final tax exempt dividend of 2.18 US cents has been declared, translating to a yield of 4.1%. We will have more updates after the teleconference briefing this evening. For now, we leave our BUY rating intact but place our previous S$1.35 fair value estimate under review pending the teleconference. (Lee Wen Ching)

Food Empire Holdings Ltd: End of growth era?

Summary: Food Empire Holdings Ltd’s (FEH) 4Q08 results came in below expectations. Revenue slipped 21.7% YoY and 23.6% QoQ to US$47.0m, while net profit slumped by 44.9% YoY and 49.8% QoQ to US$3.2m. FY08 net profit margin declined by 1.9ppt to 9.5% as persistent labour and selling expenses eroded revenue growth. Falling demand was the culprit behind the weak revenue in 4Q08. The global economic crisis has crimped demand for FEH’s products, and we expect selling prices and volume to come under further pressure as the emerging economies continue to be plagued with economic issues such as weakening currencies, rising unemployment and bad debts. Nevertheless, FEH’s strong balance sheet should enhance its ability to tackle the anticipated harsh operating environment in FY09. A dividend of 0.35 S cents has been declared. We have cut our earnings estimate and switch our PER-based valuation to 1x FY09F NTA, deriving a fair value estimate of S$0.33. We are downgrading the stock to a HOLD. (Lee Wen Ching)

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

NEWS HEADLINES

- Boutique property group SC Global reported a 46% YoY drop in 4Q08 earnings to S$4.2m despite a 149% jump in revenue to S$28m.

- Yeo Hiap Seng sank deeper into the red for 4Q08 as net loss more than doubled to S$16.7m from S$7.0m in 4Q07.

- China Energy announced a loss of RMB109.3m for 4Q08 compared to a net profit to RMB89.8m in 4Q07, mainly due to a lower average selling price of dimethyl ether and consumption of higher-priced coal and ethanol inventory.

- Otto Marine reported a 54% rise in revenue to S$483m and a 11.9% increase in net profit to S$60m for FY08.

- Thakral Corporation incurred a net loss of S$11.2m in 4Q08 compared to a profit of S$5.3m in 4Q07 despite a 24% YoY rise in revenue to S$91.2m.

- Oceanus Group reported a 191% rise in sales to RMB319m for FY08 while net profit rose 14.3% to RMB193m, partly due to loss on disposal of a farm and a goodwill write-off.

- Del Monte posted a 15.6% YoY rise in sales to US$122.4m for 4Q08 but net profit dropped 17.8% to US$19.2m, partly due to non-recurring items.

- Aztech Systems reported a 3% rise in revenue to S$276.5m although net attributable profit dropped 32.7% to S$12.2m for FY08.