By Carmen Lee
Thu, 6 May 2010, 08:28:05 SGT

Market Pulse: Oil & Gas, Hyflux & SATS (6 Apr 2010)

FOCUS

Oil and gas sector: Oil price still in a comfortable range

Summary: After reaching a high of about US$86/bbl in early April this year, oil prices have trended slightly lower to about US$82/bbl. Renewed worries in the Eurozone region fueled increasing market skepticism on the effectiveness of the Greek bailout, and heightened fears of a contagion sparked risk aversion. Oil price momentum has likely peaked, and our view that oil prices will trade within the US$70-90/bbl range for most of 2010 remains intact. The global recovery story still holds (barring a fallout in the Eurozone). Though there seems to be limited upside for oil prices now, forwards are still pricing in higher expected prices. The current range is a comfortable level for most oil companies to continue with capital expenditures, which should benefit upstream oil and gas related stocks. We maintain our Overweight rating on the sector, given solid long term fundamentals. Our picks in the sector are Keppel Corp [BUY, FV: S$11.22] and Sembcorp Marine [BUY, fair value under review, results out Friday]. (Low Pei Han)

Hyflux Ltd: Seasonally Softer 1Q10

Summary: Hyflux Ltd posted its 1Q10 results last night. Revenue grew 14.9% YoY to S$101.3m, aided by continual EPC revenue recognition from the world’s largest seawater RO (reverse osmosis) desalination plant in Magtaa, Algeria. And thanks to better cost control, net profit jumped 24.6% to S$6.4m. But sequentially, revenue and earnings slipped 42.3% and 75.3% respectively but it comes as no surprise as 1Q is typically the softer quarter. Going forward, Hyflux remains confident of its prospects and will be focusing on projects in Singapore, China and MENA (Middle East North Africa). Order book remains around the same level as of end-Dec; it will give a mid-Jun update. Although 1Q10 revenue and earnings only met 15.7% and 7.3% of our full-year estimates respectively, we note that it was also the case last year (1Q09 only met 16.8% and 6.8% then); hence we are leaving our FY10 estimates unchanged. Maintain BUY with S$4.19 fair value. (Carey Wong)

SATS Limited: On board flight to recovery

Summary: SATS Limited’s 4QFY10 results were consistent with our expectations. Higher aviation business volumes were recorded across all operations during the quarter, reflecting the recovery of the aviation industry and the Singapore economy. While revenue at SFI declined 7.1% in FY10 due to lower food distribution revenue from its Singapore operations, discontinuation of operations at Cresset in UK and the weaker pound, cost management and synergies from integration helped to lift its pre-tax profit and earnings by 72.4% and 92.9%, respectively. Going forward, SATS expects to see improvements in activity level in FY11 as airlines gradually reinstate their capacities on the back of increased flights and cargo throughput. In Singapore, it is also expecting to benefit from the opening of the two integrated resorts and iconic events such as the Youth Olympic Games and F1 Singapore Grand Prix. As the results and outlook are in line with our view, we are holding our FY11F revenue intact for now. Our DCF-based fair value remains at S$3.27, implying a 17.6% upside potential. Maintain BUY. (Kevin Tan)

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

NEWS HEADLINES

- According to the BT, Prudential’s May 11 listing on the SGX could be postponed following a regulatory snag over its rights issue.

- Monthly turnover on the SGX rose 18% YoY to 41.1b units traded in April.

- Creative Technology reported net loss of US$20.77m in 3Q10 compared to net loss of US$47.6m in 3Q09.

- Renewable Energy Asia Group has secured a concession to develop a Green Energy Park in Zhenglanqi, Inner Mongolia.

- A unit of OKP Holdings has won two tenders worth S$34.3m from the LTA.

- A unit of Hoe Leong has entered into a conditional sales and purchase agreement to acquire a stake in the Semua Group, which does tanker chartering.

- Wilmar has entered into a framework cooperation agreement with 3A to invest and explore the possibility of setting up equity JV enterprises in China.