Month: April 2012
STEng – BT
ST Marine bags 534.8m euro Oman navy deal
It will build patrol vessels, provide logistic support
SINGAPORE Technologies Engineering’s (ST Engineering’s) marine arm has secured a contract worth 534.8 million euros (S$880 million) from the Royal Navy of Oman (RNO).
The contract – to design and build four patrol vessels (PVs) and the provision of associated logistic support to the RNO – was awarded to Singapore Technologies Marine (ST Marine) by the Ministry of Defence of the Sultanate of Oman, through a competitive international tender.
In a filing to the Singapore Exchange (SGX) yesterday, ST Engineering said that ST Marine will build four 75-metre PVs, with the project commencing immediately.
The first vessel is expected to be delivered in Q2 2015, and the final vessel in Q3 2016.
Said ST Marine president Ng Sing Chan: ‘We are honoured to be entrusted by the RNO with this project. This is a significant contract to ST Marine and we are confident that we will live up to our reputation as a total naval solutions provider – from design to construction to logistics support and hopefully through life support for our customer’s vessels.’
The contract is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.
Just last week, ST Engineering announced that a 51:49 joint venture company (JVC) between ST Marine and Swedish Kockums AB respectively had been formed.
The two companies have had a long-standing partnership managing several contracts for the Republic of Singapore Navy’s (RSN’s) submarines.
Now a subsidiary of ST Marine, the JVC, known as Fortis Marine Solutions Pte Ltd, was formed with the primary objective of providing a ‘higher level in-country capability, in the refitting and life cycle support services for the submarine fleet of RSN’.
In addition, ST Engineering said last week that its electronics sector had secured new contracts worth about $100 million in the first quarter of this year.
These wins included contracts for rail electronics solutions and satellite communications systems.
ST Engineering shares fell five cents yesterday to close trading at $3.09 per share amid a market retreat in Asian bourses.
SMRT – OCBC
MARKET INACTIVITY AHEAD OF FY12 RESULTS
•FY12 results likely to remain weak
•But weakness has already been priced in
•Attractive entry point for dividend play remains
Mass selling did not materialize
Following our last report on SMRT after its 3Q12 results, market activity on the counter has been somewhat muted. Strong selling pressure as anticipated by more than half of the street failed to materialize with the counter trading tightly range-bound for slightly more than two months. During this period, SMRT has also kept to a lower profile with the announcement of work completion from its Internal Investigation Team as the only major development.
Preview of FY12 results
Ahead of the upcoming earnings release at the end of the month, we continue to stress that SMRT is likely to see an upswing in fuel costs following the run-up in prices as well as the additional train runs commissioned in the face of higher ridership and public pressure. Coupled with higher staff costs related to seasonal merit increments and additional headcount to meet service requirements, we are likely to see the weakest quarterly performance for FY12. In terms of fall-out from the Dec 2011 service disruptions, we do not expect any incremental costs at thus juncture as the more important COI inquiry has yet to be completed.
Margin pressures but dividend play remains
While SMRT’s FY12 results are likely to stay uninspiring, the counter’s attractiveness as a dividend play remains its key selling point, which SMRT’s management has maintained and reiterated its commitment to maintain its dividend payout policy. Although its prospects going forward will be challenging – COI findings, no fare increments, SMRT’s “customer “base is still growing. Ridership levels continue to grow especially with support from the current trend in COE prices while rental and advertising yields are naturally competitive given the high foot traffic locations of their stations. With this backdrop and earnings support and stabilization in SMRT’s price, we continue to call for an attractive entry point for SMRT. Maintain BUY at an unchanged fair value estimate of S$2.04.
SMRT – OCBC
MARKET INACTIVITY AHEAD OF FY12 RESULTS
•FY12 results likely to remain weak
•But weakness has already been priced in
•Attractive entry point for dividend play remains
Mass selling did not materialize
Following our last report on SMRT after its 3Q12 results, market activity on the counter has been somewhat muted. Strong selling pressure as anticipated by more than half of the street failed to materialize with the counter trading tightly range-bound for slightly more than two months. During this period, SMRT has also kept to a lower profile with the announcement of work completion from its Internal Investigation Team as the only major development.
Preview of FY12 results
Ahead of the upcoming earnings release at the end of the month, we continue to stress that SMRT is likely to see an upswing in fuel costs following the run-up in prices as well as the additional train runs commissioned in the face of higher ridership and public pressure. Coupled with higher staff costs related to seasonal merit increments and additional headcount to meet service requirements, we are likely to see the weakest quarterly performance for FY12. In terms of fall-out from the Dec 2011 service disruptions, we do not expect any incremental costs at thus juncture as the more important COI inquiry has yet to be completed.
Margin pressures but dividend play remains
While SMRT’s FY12 results are likely to stay uninspiring, the counter’s attractiveness as a dividend play remains its key selling point, which SMRT’s management has maintained and reiterated its commitment to maintain its dividend payout policy. Although its prospects going forward will be challenging – COI findings, no fare increments, SMRT’s “customer “base is still growing. Ridership levels continue to grow especially with support from the current trend in COE prices while rental and advertising yields are naturally competitive given the high foot traffic locations of their stations. With this backdrop and earnings support and stabilization in SMRT’s price, we continue to call for an attractive entry point for SMRT. Maintain BUY at an unchanged fair value estimate of S$2.04.
ComfortDelgro – Lim and Tan
NOTABLE SHARE TRANSACTIONS
• Silchester Int’l, a value-fund manager, sold 21.4 mln shares “over a few different dates”, reducing holding to 123.893 mln shares or 5.92%.
• Silchester has been selling CD shares since Aug ’10, totaling 89.62 mln shares since.
• CD shares have been trading in a broad range of $1.30-1.65 for more than 3 years.
• The public transportation sector merits at best a HOLD recommendation.
Land Transport – Kim Eng
Forging ahead along the bus route
Pair trade opportunity. The heat issuing from the massive MRT disruptions last December has hardly dissipated when commuters are again getting hot under the collar over the sheer deluge of tax dollars being deployed to solve a problem created by operators and who now seem to be benefiting from the government’s intervention. From recent sector events, we believe that ComfortDelgro (Buy, TP $1.85) rather than SMRT (Sell, TP $1.41) will be the overall winner and this presents a unique pair trade opportunity to gain from both a 20% upside to ComfortDelgro (long) and 19% downside to SMRT (short).
Hybrid system the best model. Under Budget 2012, the government will set aside $1.1b under the Bus Services Enhancement Programme (BSEP) to fund a significant expansion of bus capacity in response to rail woes. This is the latest intervention in a long series to improve a public transport system that has proven poor in self-regulation. But even before the latest MRT breakdowns and overcrowding that prompted this move, the government’s hand is already obvious in a number of areas, most notably, control of rail capacity expansion and central planning of bus routes. If indeed the government is needed to continually intervene in private sector matters, why not just take it over wholesale? In our view, the hybrid system is perhaps the best model possible under the circumstances.
ComfortDelgro the clear winner. The BSEP and other initiatives are clearly directed at promoting bus ridership. Putting more buses on the road is a quicker fix compared to adding new rail lines. We believe this move is a boon for ComfortDelgro as the market leader in bus operations. However, an expanded fleet will mean stiff competition for bus captains, and we think that SMRT may get the short end of the stick. There is also the consideration of wage negotiations with labour unions that must be adroitly handled. From a longer-term perspective, one can argue for a consolidation in the public transport market, in which case we think ComfortDelgro would be the preferred operator. But this matter would first require a rethink of the government’s sacred cow policy of having at least two operators in every market.
Buy ComfortDelgro, avoid SMRT. We reiterate our preference for ComfortDelgro over SMRT, and believe that it justifies a higher 16x PER valuation based on recent initiatives to improve bus ridership. Its geographically diverse business also offers greater earnings resiliency and more upside potential versus SMRT’s all-domestic model.