BEAUTY CHINA, cimb maintain OUTPERFORM with target price $0.91($1.29)

CHARTERED SEMI, cl maintain UNDERPERFORM with target price $0.65($0.75)

EZRA, citi maintain BUY with target price $3.44

NOL, ubs maintain NEUTRAL with target price $3.30($3.90)

OLAM, jpm maintain OVERWEIGHT with target price $3.70

SGX, ubs maintain BUY with target price $9.90($11.80)

SEMBCORP MARINE, citi maintain BUY with target price $4.95

UOL, ocbc resume coverage BUY with target price $4.94

WILMAR, gs maintain BUY

BEAUTY CHINA, cimb maintain OUTPERFORM with target price $0.91($1.29)
-Cosmetics/skincare business remains healthy. Our recent discussions
with
management reinforced our belief that Beauty China’s earnings momentum
with
remain healthy for the rest of 2008. We expect same-store sales growth
to
stay at around 5% yoy this year, which is the average for the industry.
At
the end of May 08. there were some 1,630 Colour Zone and 340 Charming
Lady
POS in the PRC.
-Better-than-expected OEM performance neutralised by higher cost
assumptions. The OEM division has done better than expected. Management
expects revenue contributions of around HK$25m this year. Management
estimates that when Beauty China’s plastic-packaging and oil-based
material
costs increase by 1%, its gross margins will dip by 0.18% pt, assuming
no
changes in ASPs. We have reduced our earnings estimates by 1-5% for
FY09-10, after taking into account higher revenue but also higher
operating
expenses and lower gross margins.
-Reiterate Outperform with lowered target price of S$0.91, now based on
8x
CY09 P/E. This is at the lower end of its historical P/E. Our previous
target price was S$1.29, based on 11x CY09 P/E. We have reduced our
target
multiple in view of general sector compressions. Positives remain its
direct exposure to Chinese consumption growth, strong brand positioning
and
a good management track record. The share price has fallen more than
30% in
the last two weeks, we believe due to weak market sentiment. Maintain
Outperform as we believe its longer-term potential as a leading
retailer
and brand owner in China remains intact.

CHARTERED SEMI, cl maintain UNDERPERFORM with target price $0.65($0.75)
-Recent checks suggest that 2H08 is shaping up less than we had
expected at
the beginning of the year. We believe the overall technology industry
is
turning more cautious on 2H08 demand/sell-through with exception of the
PC
industry. We have seen sporadic order reduction taking place suggesting
that customers are pre-empting a potential inventory build up. We are
lowering our 09/10 forecast for Chartered Semi and re-iterate U-PF
recommendation with new target price of S$0.65.
-2H08 shaping up below expectations. Our recent checks suggest that
2H08 is
shaping up to be below expectations with cautious customers adopting a
wait
and see strategy regards to 3Q08 demand. Specifically, handset related
ICs
momentum is weaker than expected as chip makers wait for iPhone to be
launched to reassess demand situation. Chartered Semi generates 36% of
revenue from the communication sector, mostly handset related.
-Head on competition in 2H08. Currently Chartered Semi is the only
merchant
foundry to provide manufacturing service for AMD’s CPU product. TSMC
will
join the line-up in 2H08 as TSMC starts to ramp in volume for AMD. The
two
companies will compete on different process platforms (SOI vs bulk
silicon)
and hence creates the pressure for Chartered to increase its
attractiveness
on an inherently more expensive wafer platform. While this is not new
news,
the actual impact is yet to be seen, especially on pricing front.
-Outperforming peers ?can it last? While Chartered has underperformed
the
Singapore market over the last 3 months, it has held up well against
comparable peers such as SMIC and UMC who are down roughly 20% in the
past
3 months. Given the current environment and performance of its peers,
we
believe Chartered’s share price is in a vulnerable state.
-Maintain U-PF ?lower target price to S$0.65. We are revising lower our
forecast for both 08 and 09 to reflect a less robust environment and to
reflect the data check which suggests weaker-than-usual seasonality
into
2H08. We believe Chartered will continue to operate near breakeven
levels
for both 08 and 09 suggesting that return will continue to be sub-par.
We
lower our target price to S$0.65 from S$0.75 and maintain our U-PF call
on
the stock.

EZRA, citi maintain BUY with target price $3.44
-Preferred Bidder ?According to Upstream, Ezra’s 49%-associate EOC is
the
surprise frontrunner in the tender to supply a leased FPSO for Premier
Oil’s Chim Sao / Dua project in Vietnam. We would expect competition
with
the other preferred bidder cited by the article (Modec) to be close
?both
FPSOs in contention will be installed with the same Sofec turret
mooring
system, and both will partner with the same oilfield services provider
(PV
Trans). The winner will be announced in July 08.
-Significant Milestone for EOC ?Since emerging as a surprise late-entry
bidder in March 08, EOC gathered much traction in the Vietnam bid
despite
having no experience in operating FPSOs. Winning this bid would raise
EOC’s
profile significantly as a serious FPSO player (its other FPSO will
begin
operations in July 08) and increase its chances of winning more FPSO
contracts, in our view. But financial impact would be negligible
?according
to Upstream.com, EOC has agreed to concede 60% equity in the FPSO to PV
Trans if it is successful.
-Independent Director Resigns ?In an unrelated SGX announcement, Mr.
Teo
Peng Huat has resigned, citing increased work responsibility and
commitment
towards his expanding business outfit in China. Mr. Soon Hong Teck will
take over as Chairman of the Audit Committee, while Dr. Ngo Get Ping
will
take over as Chairman of the Remuneration Committee. Given the smooth
board
succession, overall board decision making should not be affected, in
our
view.
-Reiterate Buy ?A successful bid in Vietnam is a significant re-rating
catalyst for EOC, currently at 4x FY09 PER on the Oslo Bors vs industry
14x. We assign a PER target of 10x to EOC, equivalent to 27% of our
SOTP
valuation for Ezra.

NOL, ubs maintain NEUTRAL with target price $3.30($3.90)
- Rising fuel prices, lower load factors to dampen Q2 result. Neptune
Orient Lines (NOL) will report interim results on 7 Aug. We expect
US$138m
in net profit but believe risks lie to the downside. While operating
data
has shown good freight rate growth, market fuel prices rose 20% QoQ. We
believe Asia-Europe services are suffering from both a moderation in
volume
growth and pressure on freight rates ?we expect these factors to
continue
through H208.
- Reducing earnings to reflect fuel costs, QoQ rate declines in Europe.
We
have reduced our EPS for 2008-10 by 6-8%. We expect Asia-Europe freight
rates to fall in H208 (but remain up YoY). We continue to believe
back-haul
trades and fuel surcharges will support positive margins for most
players
such as NOL but downside risks are increasingly prominent.
- We expect NOL to bid for Hapag-Lloyd. In this report we discuss why
we
expect long term strategic considerations may drive the bid and offer
price
of any NOL bid for HL. We include a scenario analysis of possible
acquisition costs / outcomes. In our view, an acquisition would raise
risks
in the short term particularly in light of a tough operating
environment.
The sale of HL to NOL or another container liner is far from certain in
our
view.
- Valuation: PT S$3.30, implies 1.0x P/BV, 5.5x PE for 2009. We
maintain
our Neutral rating. We have reduced our PT by 15% from S$3.90 (set on
29
Feb 08). We have increased our WACC to 12.2% resulting in a EV/DFMV of
81%
(previously 10% WACC, EV/DFMV 92%). Key risks remain weaker demand,
rising
supply growth and competition for volumes.

OLAM, jpm maintain OVERWEIGHT with target price $3.70
-Implied value of growth is relatively low. Compared to the historic
premium to its ex-growth value, Olam’s implied value of growth at 30%
of
market cap is relatively cheap. This continues to support the
justification
for its high PER valuation. At our Dec-08 DCF-based PT of M$3.70 the
implied value of growth would be at 55% still well below its peak at
70%.
Risk to our PT is failure by management to continue executing more than
25%
EPS growth ayear.
- Earnings momentum still positive. The market could be wary of
earnings
risk creeping in to explain Olam’s relatively low implied value of
growth.
However, we believe earnings momentum continues to be strong helped by
the
additional kicker of M&A transactions. The latest strategic 20% stake
in
PureCircle together with Wilmar, could lead to a further 8% upgrade to
FY09
EPS if consensus estimates on PureCircle prove correct. This does not
include additional income that Olam could gain from cultivating stevia
leave plantations for offtake by PureCircle.
-Valuation argument to Li & Fung still relevant. With a similar supply
chain business model in the garment industry, Olam PER valuations
continue
to trade in the same range as Li & Fung. Both are 1-standard deviation
below their 12-mth forward PER average of 25x and 24x respectively.
Although Olam is trading at a high PER premium to its direct comps,
Bunge
and ADM that average 12-13x, this is justified by execution of
consistently
high growth and high ROE generation.

SGX, ubs maintain BUY with target price $9.90($11.80)
- Bearish sentiments affecting volume. The average daily securities
turnover value fell 24% in June compared to the average of the first
five
months. We believe the bearish sentiments could continue for some time
and
as a result we lower our FY09 and FY10 daily turnover assumption by 17%
and
23%, respectively. We lower our FY2008 EPS forecast from S$0.36 to
S$0.32,
and our FY2010 forecast from S$0.45 to S$0.37.
- Derivate business remains robust. While securities turnover is down,
the
derivative volume remains robust with the first half up 48% YoY. We
believe
the increased turnover is because of the volatility in the market and
also
because of the increased presence of hedge funds in Singapore. While we
expect the bearish sentiments to affect the derivatives market, it is
expected to be more resilient¡ªwe estimate only a 5% decline in FY09.
- Why it is still a Buy. Despite our lowered earnings forecasts, we
think
SGX remains attractive as we anticipate growth in the medium term as it
is
well placed to benefit from the favourable Asian demographics and from
Singapore’s position as a service centre for SE Asia. We estimate the
current price assumes no growth, which we think is too pessimistic.
- Valuation: new price target of S$9.90. The stock is trading at 19.3x
2009E earnings (calendarised), in line with its historical mean. Our
new
price target of S$9.90 (previously S$11.80), based on our DCF
valuation,
suggests a potential 48% upside.

SEMBCORP MARINE, citi maintain BUY with target price $4.95
-Semi-sub option exercised ?According to SMM and Upstream news reports,
Atwood Oceanics has conditionally exercised an option with SMM to build
a
semi-sub rig, subject to satisfying certain conditions by 30 July. This
will potentially be Atwood’s second newbuilding contract with SMM ?the
first was secured in Jan 08, worth US$280m (other equipment costs worth
US$310m).
-Customer background ?Atwood is one of the smallest US offshore
drillers,
with a fleet of 8 drilling rigs in operation including 4 semi-subs. As
at
31 Mar 08, Atwood has net cash of US$49m and has secured a US$300m
revolving loan facility maturing in 2012. A semi-sub and jack-up are
under
construction.
-Strong order momentum ?Latest order confirms our thesis that rig order
momentum has yet to peak, especially for deepwater segment. Current
statistics appear much more favorable than the last cycle: 1) Globally
only
<20 yards have some rig-building capability compared to c.80 in the
1970s,
putting pressure on yard capacity and equipment supply; 2) Current
global
orderbook of new rigs is less than in the last cycle.
-Reiterate Buy ?We believe SMM’s FY08 total new orders may exceed our
forecast of S$4.2bn. Assuming Atwood’s repeat order is similar in value
to
the Jan 08 contract, total new orders YTD would reach S$3.7bn. We also
do
not discount SMM’s asset-light strategy in Brazil through its
partnership
with Mac Laren yard, which qualifies SMM to bid for newbuild rig
contracts
for Petrobras tenders. SMM is a high beta play on the O&M sector and
share
price tends to have a higher sensitivity to new order announcements
than
KEP.

UOL, ocbc resume coverage BUY with target price $4.94
-S$1.1b of unrecognized revenue from existing projects. Development
projects launched in the last two years should provide good earnings
visibility for UOL until FY10. Majority of these units were fully taken
up
and we estimate total revenue of S$1.3b from UOL’s existing development
projects. Of this, S$1.1b have yet to be recognized and the bulk will
only
be recognized in FY08 and FY09.
-Future launches in mass-mid market segments. Having launched the
Nassim
Park Residences, its remaining land banks fall in the mid and mass
property
market segments, which are less prone to price corrections going
forward.
With a substantial pipeline of projects currently under development, we
see
no rush for UOL to launch new projects in the near future, especially
with
soaring construction costs. With UOL’s strong balance sheet and
cashflow
from the current projects coming in over the next few years, any delay
in
launches is unlikely to have a significant impact on its liquidity and
debt
servicing position.
-Potential value to be unlocked. UOL’s holdings in UOB and UIC shares
offer
the potential for the unlocking of value for shareholders. UOL’s stakes
in
UOB and UIC are currently valued at S$1,187.9m or S$1.49 per UOL share
(as
at 4th July 2008) and make up 45.1% of UOL’s current market cap.
However,
we believe that any move to unlock this value will only occur over the
mid
to long term as we see little liquidity needs for UOL, with its low
gearing
and cashflow from development properties in the next 2 years. In
addition,
with further weakness in the property market expected, developers such
as
UOL are likely to stay conservative with acquisitions and thus we do
not
foresee capital requirement for acquisitions over the near term.
-Resume coverage with BUY. We resume coverage with a BUY rating and
fair
value of S$4.94. This is based on the market values of UOL’s holdings
in
listed entities (UOB, UIC and Hotel Plaza) and the RNAV of its
development
projects and investment properties, which we ascribe a discount of 30%
to
take into account the weakening property market. We like UOL for its
low
gearing, diversified revenue stream, high margin of safety for its
RNAV,
low land bank exposure to the high end luxury segment and the potential
to
unlock value. Key risks to our valuation include weakness in the
property
market and de-rating of UOB, UIC and Hotel Plaza.

WILMAR, gs maintain BUY
-Wilmar announced a 50:50 JV with Olam International (Not Covered) to
acquire a 20% stake in PureCircle Limited (Not Covered), for a total
consideration of US$106.2mn, implying a 5% premium to PureCircle’s
closing
share price of GBP2.0 on June 30, 2008. Bloomberg consensus estimates
PureCircle’s 2008E/2009E net profit at US$24mn/US$132mn, which implies
2008E/2009E P/E of 29X/5X for the acquisition.
-PureCircle recently listed on the London AIM (Dec 07) and is a leading
producer of a natural, zero-calorie, high-intensity sweetener from the
stevia plant called Reb-A, and this may replace artificial sweeteners
which
currently dominate the US$1 bn p.a. high intensity sweetener (HIS)
market.
Currently, the company sources the stevia leaves from farmers in China
and
refines the extract in Malaysia.
-PureCircle is already profitable (US$4.6mn net profit in 2007) and
management plans to grow sales aggressively from 90 tons in 2007 to
10,000
tons p.a. by 2012 (current capacity is 1000 tons p.a.). According to
PureCircle, Reb-A production costs range between US$80-100/kg (60-70%
is
the cost of the stevia leaf) and they target to sustain gross margins
of
50-60%. Wilmar and Olam (through the JV) will partner PureCircle to
help
achieve this growth by developing and managing new stevia plantations
in
China and Africa (with the related processing facilities) and
supporting
sales and distribution of the product.
-Implications. Based on 2009E Bloomberg consensus net profit, the
acquisition is earnings accretive and we believe that Wilmar can also
leverage on its plantations, agri-processing and distribution expertise
to
create additional value at PureCircle. However, the impact to Wilmar’s
earnings is not significant in the near term and we are not changing
our
forecasts and target price at this time. We maintain our Buy rating.

Last 5 posts by Raymond Teo

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