By Carmen Lee
Thu, 15 Apr 2010, 08:27:55 SGT

Market Pulse: Soilbuild, Li Heng & KepCorp (15 Apr 2010)

FOCUS

Soilbuild Group Holdings Limited: Highest bidder for Yishun industrial site

Summary: Soilbuild Group has emerged as the top bidder for the industrial site at Yishun Avenue 6 (Parcel 8). A total of 5 bids were received and the highest bid of S$29.29m (S$76.3 psf on GFA) came from Soilbuild. Another industrial site in Yishun (Parcel 1) that is located opposite to this site, was sold to OKH Management for S$27.2m (S$71.2 psf on GFA) in early April. Based on our assumptions, the breakeven cost for this site could be around S$248 psf. We assumed an average selling price of S$300 psf and this translates to a pre-tax margin of 17.2%. This new project is likely to add another S$10.9m (S$0.06 per share) to our RNAV estimate. Our fair value has now been raised to S$1.81. Despite its share price outperformance, there is still an upside potential of 21.2% to our new fair value. As such, we maintain our BUY rating on Soilbuild. (Foo Sze Ming)

Li Heng: 2010 likely still recovery year

Summary: We recently met with Li Heng Chemical Fibre (LHCF) to get a business update and it revealed that the improved activities in 4Q09 have spilled over into 1Q10; ASPs (Average Selling Prices) have been holding steady or up slightly across its range of nylon yarns. LHCF has just completed its capacity expansion of around 90k tons; management expects to start initial production by May - the expansion should bring its annual design capacity to around 250k tons (based on 70D yarn production), although actual production capacity may be closer to 170k tons. While it appears that the worst is over, LHCF expects 2010 to be more of a recovery year; it adds that gross margin recovery may take some time, but should hold above 15%. In light of the latest developments, we pare our estimates for FY10 revenue and earnings by 6.3% and 24.0% respectively. But we maintain our DCF-based target of S$0.34 and BUY rating as we believe LHCF has laid the groundwork for strong growth in 2011 and beyond. (Carey Wong)

Keppel Corporation: Investing US$50m in a new yard in Brazil

Summary: Keppel Corporation (Keppel) is investing US$50m in a new 7.6ha Brazillian yard which will be acquired from Brazil’s TWB Group. Unlike its current ~40ha yard in Brazil, this newer yard will focus on the construction of offshore support vessels. Keppel will bank on Petrobras’ plans to charter some 147 locally-built OSVs over the next five years, with at least 70% of the work on each newbuild to be carried out in Brazil. The new yard is scheduled to be operational by 2H10, and is estimated to be able to complete an average of eight vessels a year at full capacity. Just to recap, Sembcorp Marine’s new yard in Brazil is expected to be 82.5ha in size and should begin operations by end 2010. The above acquisition is not expected to have any material impact on the NTA and EPS of Keppel in FY10. With a total upside potential of about 11%, we maintain our BUY rating on the stock with a fair value estimate of S$10.20. (Low Pei Han)

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

NEWS HEADLINES

- According to the BT, Sembcorp Industries is getting ready to build a second cogen plant expected to cost around S$1b in Jurong Island.

- Ramba Energy said it is initially planning to secure lower-risk onshore assets which are less costly to explore and develop.

- United Envirotech said it is planning to offer TDRs for listing in Taiwan.

- Friven & Co is taking the Hi-5 brand to China through a newly acquired exclusive license.

- Van der Horst Energy reported net profit of S$1.1m in 9M10 compared to S$8.1m in 9M09 which saw a one-off gain of S$6.8m from the sale of a subsidiary.

- According to Reuters, the London Metal Exchange is investigating the potential for new contracts and tie-ups with Asian exchanges.