By Carey Wong
Mon, 17 May 2010, 09:29:05 SGT

Market Pulse: NOL, Li Heng, SIAE, Swiber, Goodpack, KS Energy and Oceanus, (17 May 2010)

FOCUS

Neptune Orient Lines: Returning to profitability this year?

Summary: Neptune Orient Lines (NOL) reported a commendable set of 1Q10 results with revenue growing 36.0% YoY to US$2.1b. Net losses narrowed to US$98.5m vs. US$244.6m a year ago. Container Shipping delivered a 38.6% rebound in revenue, driven by a 46% jump in volume coupled with a 2% improvement in freight rates. Operating profit margin in 1Q10, while still negative, was sharply better both YoY and QoQ thanks to higher freight rates, sustained volumes, and proactive cost rationalisation initiatives. For the first time since the onset of the crisis, management adopted a relatively upbeat stance, saying that it expects to return to profitability for the full year should the current operating environment persist. Such expectations are in line with industry feedback. We have raised our estimates and now project NOL to post a US$27.3m net profit in FY10 vs. our US$139.2m loss forecast previously, and lift our fair value estimate to S$2.35 (from S$1.67). We upgrade NOL to BUY in anticipation of the turnaround in FY10. (Lee Wen Ching)


Li Heng: Decent start to FY10

Summary: Li Heng Chemical Fibre (LHCF) reported a decent set of 1Q10 results. Revenue rose 20.3% YoY to RMB568.3m, or about 7.6% above our forecast, while net profit surged 5.8x to RMB59.6m; if we exclude the impact of forex, core earnings would have still jumped by an impressive 90.0% to RMB58.8m, which was also 35.8% ahead of our estimate. More importantly, we are pleased to see the continued sequential improvement, where revenue added 3.0% and core net profit climbed 49.2% despite the first quarter being the traditionally slower one. 1Q10 results, which made up 20.7% and 22.9% of our full-year revenue and earnings forecasts respectively, suggest that LHCF is firmly on the recovery path. The recent sell-down on the anti-dumping tariffs is likely overdone. Maintain BUY with S$0.34 fair value. (Carey Wong)


SIA Engineering: Favourable business outlook

Summary: SIA Engineering Company (SIAEC) reported a healthy set of 4QFY10 results last Friday. With the upturn in travel demand and increase in flights at Changi Airport, management believes that the business outlook for the group is favourable. In view of the better-than-expected results and positive outlook, we now raise our FY11-12F forecasts by 2.9-4.9% and tweak our dividend assumptions upwards to match our revised earnings projections. Consequently, our SOTP fair value, which uses a blended average of DDM and earnings multiple valuations, is raised to S$3.85 from S$3.66 previously. However, at current price, we believe the stock is fairly priced and that upside is limited. Hence, we maintain our HOLD rating on SIAEC. (Kevin Tan)


Swiber Holdings: Better results; seeking listing for subsea services business

Summary: Swiber Holdings (Swiber) reported a 2.9% YoY fall in revenue to US$84.5m and a 18.1% drop in net profit to US$8m in 1Q10, which was slightly lower than expected. However, we expect better performance in 2H10 as the group executes contracts that it secured in the past half year. We are also encouraged to see that gross profit margin has recovered from 15% in 3Q09 and 0.2% in 4Q09 to last quarter’s 21%. Core net profit was also respectable at about S$7.9m as gains from asset disposals were minimal in 1Q10, unlike previous quarters. In a separate announcement, the group mentioned that it intends to seek a proposed listing of its subsea services business on the Catalist board of the SGX. With margin recovery, a stronger order book and better outlook for offshore field development, we upgrade the stock to BUY with a fair value estimate of S$1.38 (prev. S$1.10), based on 11x blended core FY10/11F earnings. (Low Pei Han)


Goodpack Limited: 3QFY10 results within expectations

Summary: Goodpack Limited reported 3QFY10 revenue of US$30.6m (+26.9% YoY, -5.5% QoQ) and PATMI of US$9.0m (+39.6% YoY, -7.5% QoQ) last Friday. Both topline and bottomline were largely in line with our and the market’s expectations. Management attributed the strong results to continued demand recovery from existing business verticals and penetration into new products and markets. For 9MFY10, we note that revenue clocked US$88.8m (+12.8%), meeting 74.8% of our full-year sales forecast (72.4% of consensus), while PATMI hit US$26.1m (+19.8%), or 75.0% of our earnings estimate (76.4% of consensus). Going forward, the group is maintaining its cautiously optimistic stance, noting that the economic environment in which the group is operating in remains challenging. However, Goodpack added that it is well-positioned to ride on the recovery. We will be speaking to management later to find out more on its business outlook. Until then, we place our S$1.51 fair value and BUY rating under review. (Kevin Tan)


KS Energy: Positive on longer-term outlook

Summary: KS Energy (KSE) reported a 1.4% YoY fall in revenue to S$119.7m but saw a 9.4% increase in operating profit to S$11.8m in 1Q10, accounting for about 23% of our full year estimates. Net profit amounted to S$2.8m compared to S$13.2m in 1Q09, but exceptional gains of about S$9m were booked in 1Q09, excluding which, net profit would have been relatively comparable. As a number of KSE’s assets are currently in between charters, 2Q10 results could be adversely affected. However, the group is “in advanced negotiations” for new charters. We are more positive on the group’s longer-term outlook following its business consolidation. In view of acquisition costs and other expenses, we value KSE based on FY11F earnings which should then be at a normalized level, taking into account potential costs and benefits of the consolidation. However, we assume lower charter rates for the capital equipment business given the still weak jack-up rig market. As such, our fair value estimate eases to S$1.21 (prev S$1.23). Maintain HOLD. (Low Pei Han)


Oceanus Group Ltd: High operating expenses mar sales growth

Summary: Oceanus Group (Oceanus) reported its 1Q10 results over the weekend. Sales improved by 63.8% YoY to RMB106.5m. Gains from fair value changes, which are reported as the group’s key top line contributor, increased marginally by 2.5% YoY to RMB177.3m. However, due to high operational expenses associated with its ongoing expansion, net profit fell 9.7% YoY to RMB97.4m. The group’s 1Q10 earnings have met 21% of our full year estimate. Value of the group’s biological assets expanded to RMB910.6m from RMB831.0m in Dec 09, reflecting its progress in bolstering its abalone population for future sales. We will have more updates after the analyst briefing scheduled for later this week. For now, we maintain our HOLD rating and S$0.365 fair value estimate. (Lee Wen Ching)


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


NEWS HEADLINES

- Greece is considering taking legal action against US investment banks that may have contributed to the country’s debt crisis.

- Singapore’s Finance Minister said it would be sensible for China to allow its currency to rise in order to help beat down inflation.

- Sembcorp Marine has commenced proceedings in the High Court against PPL Holdings and its subsidiary E-Interface Holdings.

- ThaiBev posted a 17.5% YoY drop in net profit to 2.48b baht in 1Q10.

- ComfortDelgro’s net profit inched up by 3.4% YoY to S$54.3m in 1Q10.

- Asia Food and Properties said it intends to start talks to sell its food business to Golden Agri-Resources.

- Hengyang Petrochemical reported a 12% YoY fall in net profit to RMB4.3m in 1Q10.

- Xpress Holdings said its founder Fong Kah Kuen has once again taken over the helm of the company.