Stock Picks

Singapore Exchange: NEUTRAL (DMG 27 March)
SGX is very dependent on securities market turnover for its earnings. Securities clearing fees account for 40.8% of 2QFY08 operating revenue.  Our expectations of a 17.9% decline in FY09 net profit is primarily attributed to the y-o-y decline in securities market turnover. Though dividend yield could be an attractive 4-5%, this could be offset by the risk of weaker securities market turnover should the US economic weakness persists. We recommend a BUY below S$5.60. Target price: S$6.60

Singapore Exchange:  BUY  (OCBC 27 Mar)
Singapore Exchange’s share price has fallen in line with its regional peers, down about 57% from its 52-week high. This is reflective of the generally weak sentiment in the market. But as SGX’s stable revenue from terminal, listing, price information and other fees is fairly secured, we believe that together with the attractive yield of 4.9% at current price level, the stock is starting to look attractive again, especially for medium to longer-term holders especially as SGX continues to grow its suite of products and services to buoy its long term income. We are lowering our fair value estimate to S$8.20 (previous: $11.20).

Keppel Corporation Ltd: OUTPERFORM  (CIMB-GK, 6 March)
Keppel FELS has clinched a US$205m contract to build a KFELS B Class jack-up rig for PV Drilling for delivery in 4Q09. The current rig is 7% higher in value than a similar rig awarded by PV Drilling in May 07, also scheduled for delivery in 4Q09. We believe the speedy delivery schedule of 24 months was the key factor for the premium. We believe Keppel has the ability to mobilise resources throughout its yards to optimise operational efficiency for such tight delivery. We are assuming S$5bn of order wins for 2008. Target price of S$13.70, based on sum-of-the-parts valuation.

Synear Food Holdings: TRADING SELL  (CIMB-GK, 6 March)
Taking into account a 21.8% yoy rise in overall average selling prices (ASP), Synear’s 4Q07 sales volume actually plunged 16.8% yoy, more than we initially thought. The disappointment could be blamed on a slower-than expected capacity ramp at its new Chengdu plant and soaring inflation in China. We expect raw material prices to stay high in the near term due to damage caused by China’s recent snow storms. Target price has been lowered to S$0.77 from S$1.14, based on 12 times CY09 P/E.  Risk-reward trade-off would become attractive only at around S$0.58.  Maintained, S$0.645; Target: S$0.77.

ISDN: Buy on Weakness (SIAS Research, 5 March)
Net profit eased 9.1% to S$5.6m, even though revenue rose to a record high of S$102.9m. The decline in net profit was due to the increase in raw material costs and higher admin charges. Hikes in cost were mainly due to human resource set up for joint ventures, which just started to contribute in FY08. We believe the decline in margins was a one off event. Following our previous trading buy call in Dec last year, the stock price has since strengthened to a one year high of 57 cents on 21 Feb 08, despite  the weakness in general market. Target price raised from 59 cents to 63 cents.

China Sunsine Chemical: BUY (SIAS Research, 4 Mar)
The largest producer of specialty chemical rubber accelerators in China, reported a 20.1% growth in earnings to RMB76m riding on a 30.5% climb in revenue to RMB619.5m driven by higher selling volume. Driven by expansion in capacity in FY08 and being a supplier to all the top 10 tyre manufacturers in the world, the company has the ability to expand and deepen its penetration leveraging on its proven quality. Target price at 32 cents.

China Farm Equipment: BUY (DMG, 29 Feb)
China Farm Equipment (CFE) reported a net profit surge of 87.3% to RMB 71.3m, which fell slightly short of our expectations of RMB 76 million. Despite this, its outlook still remains positive because of the increasing demand for agriculture produce within China alone, coupled with the Chinese government’s support for farmers to buy farm equipment with state subsidies.  Further growth will be driven by its core equipment business as well as its recent strategic alliance with Hunan Juzhou Automobile Manufacturing Co, which sells farming trucks to foreign markets. Target price: S$0.73

Wilmar International: BUY (DBS Vickers 29 Feb)
Wilmar reported a net profit of US$580.4m (+168.8% y-o-y) revealed stronger-than-expected sales volume growth on palm and lauric merchandising and processing. This confirms China’s huge appetite for edible oil, despite the jump in consumer prices. Wilmar should be able to grow its volumes and maintain margins going forward given increasing global demand for edible oils. Meanwhile, higher contribution from its plantations should improve overall group margins. Price Target: 12-month S$ 5.90 (Prev S$ 6.05)

WesTech Electronics Ltd: BUY (OCBC Research 29 Feb)
WesTech Electronics racked up a good set of FY07 results, with revenue jumping 24.2% y-o-y to S$410.0m, buoyed by a surge in contribution from its display technology business unit. Management has indicated that it would be more or less affected by the sub-prime issue and a possible US-led slowdown. Segmentally, the components business should experience double-digit growth, while the systems unit would grow at single-digits. The display business should continue to grow at decent double-digit rates, though not as high as the past couple of years. China would remain its focus, especially with the upcoming Beijing Olympics, which could likely be the first Olympics to be broadcast in HD format. Fair value of S$0.38 (previously S$0.40)

Jishan Holdings Ltd: HOLD (OCBC Research 29 Feb)
Jishan Holdings Ltd turned in a profit of RMB3.9 million in FY07 from a loss of RMB2.2m in FY06, clearly reflecting the reduction in cost of sales and expenses. Macro risks that exist include the continued appreciation of the RMB against the US dollar as well as the potential slow down in US demand for imported goods. This could result in lower export sales and margins compression in the domestic market due to a potential oversupply of textiles. Fair value of S$0.06 (S$0.08 previously).

Beng Kuang Marine:  BUY (SIAS Research, 28 Feb)
Revenue for FY07 climbed 36% to S$95.7m while earnings surged 77% to S$6.75m. The improved performance was driven from all three divisions (i.e. Corrosion Prevention, Supply and Distribution as well as Infrastructure & Engineering) and an exceptional gain of S$2.8m from reducing its stake in a subsidiary. The completion of Batam’s yard in 2H08 will increase the capacity and secure more large-scale projects in oil & gas and marine sectors. Target price of 28.5 cents.

Noble Group: BUY (Merrill Lynch, 28 Feb)
Noble’s FY07 earnings of US$258m were above expectation. Full year net profit grew 92% to US$285m way ahead of our estimates. Revenue increased 71% because of greater demand for commodities resulting in higher tonnage and prices. The group has a very balanced gross profit contribution from all segments: agriculture, energy, MMO and logistics.- each contributed about US$200-250m to group gross profit. We have increased our FY08-09 earnings estimates by 15%-18% on the back of the strong 2007 results. We are optimistic about Noble's growth prospects and believe the company can successfully execute its integrated supply chain strategy. Price target $3.10.

Orchard Parade Holdings: BUY (Kim Eng, 28 Feb)
OPH’s portfolio of hotel rooms and serviced apartments saw an overall improvement of EBIT margins from 48% to 56%. Further improvement is expected with Singapore moving closer to the tourist arrivals target of 17 million visitors by 2015, and upcoming attractions and events like the F1 race and integrated resorts. Property development profits from projects like The Floridian will also be key earning drivers in the next few years.  Stock is undervalued. Price target $3.10 based on 10% discount to RNAV.

Armstrong Industrial: BUY (Kim Eng, 28 Feb)
Full-year results exceeded all expectations with all major business segments except office automation showing strong growth. Total sales was up 76% y-o-y. Expect momentum to remain strong especially for its HDD (hard disk drive), automotive and rubber segments. Fair value at $0.58.

King’s Safetywear: BUY (OCBC Research, 21 Feb)
KSW has reported a strong set of results for 2H07,  with topline growing 13% YoY to S$50.4m while net profit grew 32% to S$3.7m.  The  good  bottomline  was  attributed to ASP increases and strong sales  momentum  in all markets along with a turnaround to profitability in EU  operations. Although Asia forms the backbone of KSW’s growth engine, we expect  that  the  EU and Middle East region to give the extra boost in its earnings. Fair valueS$0.39. 

Soilbuild: Maintain Buy (SIAS Research ,18 Feb)
Net profit rose 7-fold to S$52.4m from S$7.1m on the back of strong performance from sales of residential projects. After stripping off net investment properties revaluation gains of S$35.6m, net profit for FY07 came in at S$16.8m. FY07 revenue was 6% lower at S$105.5m. Price target S$1.60 based on 30% discount to RNAV

Xpress Holding: BUY (SIAS Research, 15 Feb)
At 11 cents, the share is trading at 10.7x PER based upon FY09 earnings forecast. This gives us a price earning growth ratio (PEGR) of around 1.07x. In view of its future potential in China and Vietnam we are pricing it based on 15x FY09 earnings forecast which translate to a fair value of 15.5 cents. We have not taken into consideration any potential acquisition in China and Vietnam which might trigger a re-rating.