By Carmen Lee
Mon, 10 May 2010, 08:39:48 SGT

Market Pulse: SembMarine, DBS, UOB, Rotary, Avi-Tech & Telco (10 May 2010)

FOCUS

Sembcorp Marine: 1Q10 results within expectations

Summary: Sembcorp Marine (SMM) reported almost flat revenue of S$1.36b but saw a 23.8% YoY rise in net profit to S$148.8m in 1Q10, accounting for about 24% of both of our full year estimates. Gross profit was up 30.9% YoY, mainly due to higher margins from rig building and offshore and conversion projects. Ship repair revenue, however, continued to trend lower. The group is confident of sustaining its margins. Efficiency gains aside, the resumption of profit recognition on a few rigs should support margins going forward. Sembcorp Marine remains well-placed to secure new orders as the industry recovers. Its SMOE subsidiary also enables it to secure field development projects. We have tweaked our earnings estimates to account for higher margins, and as a result our fair value estimate rises to S$4.75 (prev. S$4.58), based on 15x blended FY10/11F earnings. Maintain BUY. (Low Pei Han)

DBS: Still a BUY

Summary: DBS Group Holdings posted 1QFY10 earnings of S$532m, up 23% YoY and 8% QoQ. Net Interest Income was flat YoY and down 5% QoQ to S$1066m, while Non-Interest Income improved, up 10% YoY and 45% QoQ, to S$647m. This led to total income of S$1713m, up 3% YoY and 9% QoQ. Loans grew 3% from the previous quarter, and management attributed this to both corporate loans and housing loans. Allowances fell 19% YoY and 8% QoQ to S$355m. Net interest margins fell 9bp from the previous quarter and 6bp from 1Q09 to 1.93%. The group has declared a 1Q dividend of 14 cents per share. We are retaining our BUY rating and fair value estimate of S$16.60. (Carmen Lee)

UOB: Raising fair value to S$19.40

Summary: UOB Group posted 1Q net earnings of S$700m, +71.2% YoY or +34% QoQ. Stripping off the one-time gain of S$82m from the divestment of UOB Life Assurance Limited, the YoY increase was 51.1%. Net Interest Income was flat QoQ and down 5% to S$900m, while Non-Interest Income jumped 72% QoQ and 39% YoY to S$602m. Net interest margin fell 3 bps QoQ or 16 bps YoY to 2.25% in 1Q10. Total impairment charges stood at S$108m, down 71.3% YoY, but up 44% QoQ. We are maintaining our HOLD rating on UOB, but raising our fair value estimates from S$18.20 to S$19.40. We prefer to be buyers at S$18.20 or lower. (Carmen Lee)

Rotary Engineering: Good 1Q10 performance buoyed by SATORP

Summary: Rotary Engineering (Rotary) kicked off FY10 on a strong footing. 1Q10 revenue grew 36.3% YoY to S$179.7m thanks to contributions from SATORP, gross profit accelerated 32.1% YoY to S$32.1m, and net profit soared 218.4% YoY to S$13.8m. Gross profit margin declined 0.5ppt YoY to 17.9% in 1Q10 as the group delivered low-margin contracts which were secured during the credit crunch. Nevertheless, effective cost control lifted core net profit margin by 2.0ppt to 7.9%. The group’s order book remains healthy at S$1.1b (vs. S$1.3b in 4Q09) and it remains active in bidding for more projects in Asia and the Middle East. We maintain our BUY rating and raise our fair value estimate to S$1.53 (from S$1.44) as we rollover our valuations to blended FY10/11F. (Lee Wen Ching)

Avi-Tech Electronics: More affirmative outlook

Summary: Avi-Tech Electronics reported 3QFY10 revenue of S$7.4m, up 38.2% YoY (+9.4% QoQ). Net profit came in at S$1.0m, up 81.2% YoY (+0.4% QoQ), and is in line with our earnings estimate. It is seeing traction in customer orders within the Board Manufacturing and Burn-In Services segments, and management believes that it is likely that the healthy sales momentum may continue into 4Q. While its ES segment has been weak, Avi-Tech said that it has received more customers’ enquiries which are likely to yield results in FY11. We raise FY10 revenue forecast by 4.8% to factor in the better-than-expected sales momentum but ease our earnings by 6.1% as we lower our margins on soft ES performance expected in 4Q. Our fair value remains at S$0.24, pegged at 1.2x FY11F NTA. We see current market weakness as favourable entry point into Avi-Tech. Maintain BUY. (Kevin Tan)

Telecom Sector: 2010 World Cup Broadcast Rights Secured

Summary: Both SingTel and StarHub have managed to secured the broadcast rights for the month-long 2010 World Cup event in South Africa. SingTel will broadcast all 64 matches on its mio TV and mobile, with complimentary viewing on the Internet. Likewise, StarHub will also broadcast all the matches live across all three of its platforms – cable TV, Internet and mobile. The two telcos did not reveal how much they paid for the rights, but we believe that it is probably several times higher than the US$5m that StarHub reportedly paid for the 2006 World Cup event. Looking at the current packages, which cost from a minimum of S$66 (before 31 May) and S$88 thereafter, we note these are around four times more expensive than the packages of S$15 and S$25 that StarHub charged in 2006. We also note that the packages are higher than our back-of-the-envelope calculation of around S$40. A reason for the higher pricing could be due to the likely smaller advertising revenue given that it is already so close to the start. While the news is generally positive for viewers, we do not expect it to give any boost to both telcos’ bottom lines; instead, we may see a sharp increase in content costs in 3Q10 without a correspondingly sharp increase in Pay TV revenue. (Carey Wong)

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

NEWS HEADLINES

- European Union Finance Ministers is preparing a package worth at least US$645b to prevent Greece’s debt crisis from escalating into a sovereign-debt crisis.

- According to the BT, Prudential is expected to announce today a last-minute deal with the UK’s FSA that will rescue its US$21b rights issue and resuscitate its takeover of AIA.

- More confident US employers stepped up job creation in April, expanding payrolls by 290k, the most in four years.

- Japan’s central bank said it will inject more than US$20b in liquidity to calm markets.

- United Engineers reported net profit of S$28.2m in 1Q10 compared to S$8.5m in 1Q09.

- BBR Holdings (S) Ltd has won a second contract worth S$139.6m from the URA.

- Darco Water Technologies has recently clinched 15 industrial turnkey projects worth about S$10m.

- Rokko Holdings aims to place up to 20m shares at S$0.15 each.