Tat Hong mulls spin-off and listing of China crane rental business

SINGAPORE (Oct 7): Tat Hong Holdings says the company is exploring a possible spin-off of part or all of its tower crane rental business in China.

It intends to do this via a listing on a “reputable stock exchange”.

Tat Hong believes the proposed listing would provide access to additional source of funding to capitalise on growth opportunities for the capital-intensive tower crane rental business in China.

The spin-off would also “increase the overall financial capacity and flexibility of the group to strengthen the growth of its other strategic business units in ASEAN and Australia and unlock shareholder value for the group”, it adds.

Tat Hong closed 1.3% lower at 75.5 cents.

UE E&C shares fall after parent offers to sell

Shares of UE E&C fell as much as 3.5% in early trade today after its parent United Engineers agreed to sell the construction company to a private equity firm at a price below its last closing price.

At 2:53 p.m. Singapore time, the stock traded at $1.23, below the price of $1.25 a share offered last Friday by an investment holding company owned by Southern Capital Group, which intends to delist UE E&C if the takeover goes through.

Malaysia-based Southern Capital’s offer is a 2.3% discount to UE E&C’s last closing price of $1.28.

It is also 2.9% lower than the stock’s volume-weighted average price during the six months before the acquisition was announced.

The proposed takeover of UE E&C comes at a time when construction companies in Singapore are lamenting reduced profit margins as labour costs go up.

For the three months ended June 30, UE E&C’s gross profit margin fell to 19.7% from 25.2% a year earlier.

“This move does not come as a surprise to us and it is in line with United Engineers’ actions of late,” CIMB analyst Tan Xuan said in a note.

“The company has been divesting its non-core property assets. We believe the voluntary offer paves the way for the potential takeover by Thai tycoon Charoen Sirivadhanabhakdi, who is eyeing United Engineers’ property portfolio.”

Despite the current pullback in UE E&C’s shares, selling activity is not rampant as volume is thin.

Immediate support for the share price is seen at its September low of $1.175.

Shares of United Engineers, which owns 68.2% of UE E&C, traded at $2.84, up 0.4%, at 2:53 p.m. Singapore time.

Singapore market needs stronger earnings to make headway, says Maybank Kim Eng

Maybank Kim Eng has cut its end-2014 target for the Straits Times Index to 3,170 from 3,500, using a price-to-earnings multiple of 14 times, versus 15 times previously, to reflect weaker earnings growth.

Earnings for 2Q2014 from bellwether names SIA Engineering, ST Engineering and Wilmar International have been disappointing, and the market will only be “re-rated” if earnings “make a convincing recovery”, the stockbroking house said in a note today.

In terms of valuations, the Singapore market does not look attractive trading at 13.2 times forward earnings against a 10% earnings-per-share (EPS) compounded annual growth rate for FY2015 to FY2016, it said.

EPS for FY2014 are expected to fall 2.1% y-o-y, according to Maybank Kim Eng.

And while the local market may look cheap on a price-to-book basis of less than 1.4 times, this is “justifiable” as its returns on equity are expected to weaken to 10% to 11% for FY2014 to FY2016, from an average of 14.7% during FY2008 to FY2012, it added.

The market may start to pick up from next year, with banks leading the way as interest rates begin to rise.

Maybank Kim Eng has a target of 3,440, based on 14 times projected FY2015 earnings, for the Straits Times Index next year.

DBS Group Holdings is the broking firm’s top pick among banks, given its “much stronger” deposit franchise.

Property stocks could, however, remain in the doldrums as more new homes are completed, increasing residential supply.

“As interest rates rise, the appeal of property investment diminishes.

“Higher interest rates will quickly compress seemingly-high median rental yield spreads, which would coincide with a flood of new homes expected in the next three years.

“This comes on top of 2014’s higher-than-usual supply. It is expected to bump up vacancy, already at its highest in eight years, and weaken property prices and rentals.”

In the oil and gas space, lower oil prices would affect rig builders Keppel Corp and Sembcorp Marine as oil companies rein in spending, it said.

Operators of offshore support vessels, on the other hand, should hold up better than rig builders as an influx of new rigs this year and next should “precipitate a return in demand” for such vessels.

“Furthermore, the industry’s increasing migration to the production stage should benefit OSV owners and operators with the right assets.”

Maybank Kim Eng’s top picks in the oil and gas sector are Nam Cheong, Vard Holdings, Pacific Radiance, PACC Offshore Services Holdings, Ezion Holdings and Mermaid Maritime.

Oct 7: UE, Yongnam, STATS ChipPAC, Youyue, EMAS Offshore

The Straits Times Index (STI) on Monday ended 24.53 points or 0.76% higher to 3,253.24, taking the year-to-date performance to +2.79%. The top active stocks were DBS (+1.10%), SingTel (+0.53%), Genting Sing (+1.37%), Keppel Corp (-0.38%) and CapitaLand (+0.64%). Here are some stocks and factors to watch this Tuesday morning:

United Engineers on Oct 3 said it has agreed to sell its stake in UE E&C Ltd Southern Capital Group Private Limited for $230.2 million in cash. United Engineers is expected to realise a net disposal gain of $59.2 million from the sale. By disposing UE E&C, United Engineers is making itself a more attractive target to potential buyers keen on its property portfolio, say analysts. United Engineers last closed 0.7% higher at $2.83.

Yongnam Holdings’ Malaysian unit has agreed to sell its factory at Nusajaya, Johor, to Axis Real Estate Investment Trust before leasing it back from the REIT. The cash consideration for the transaction is RM153.5 million ($60.1 million). Yongnam closed flat at 19.8 cents.

STATS ChipPAC says the company has been served a writ of summons by ERS Electronic GMBH alleging that it has infringed its patents relating to debonder machines used in wafer level package assembly process. STATS ChipPAC closed 0.8% higher to 60 cents.

Shareholders of Youyue International has voted to pursue a new business in Harbin Promlite Energy Saving Technology Co., a specialist in energy conservation services and sustainable developments, in order to remove itself from the SGX watch-list. Youyue International, formerly known as Youcan Foods International, closed 5% higher at 21 cents.

EMAS Offshore says applications for about 11.5 million offer shares, or 26% more, for the roughly 9 million shares on offer in the public tranche, at the close of its IPO on Oct 2. EMAS Offshore begins trading in Singapore tomorrow.

A$ slide would dent Singapore firms' profits

Battered by fears of slower China growth along with weak commodity prices, the Australian dollar slid dramatically against the Singapore dollar in September to lows not seen in more than five years, the Business Times reported.

Analysts expect one Australian dollar to trade around $1.10 or below in the next year, more than 6 per cent below $1.175 at the beginning of September and about 15% below the highs of $1.30 in the last few years.

Grand Banks Yachts to be removed from SGX Watch-List from Oct 9

Grand Banks Yachts says the company will be removed from the SGX Watch-List with effect from Oct 9.

The maker of luxury yachts had announced its first full-year profit after five consecutive years of losses from 2009.

In FY2014 ended June, Grand Banks Yachts recorded earnings of $1 million, led by strong boat sales in North America and growth in Asia in its fourth quarter.

Revenue increased 14.5% to $40.3 million in FY 2014.

Grand Banks Yachts closed 6.4% higher at 25 cents.

Keppel secures $153 million in contracts from repeat customers

SINGAPORE (Oct 7): Keppel Corp's subsidiary Keppel Offshore & Marine says units Keppel Shipyard and Keppel Nantong Shipyard Co. have won contracts from repeat customers worth a total of $153 million.

Keppel Shipyard’s contract is for the conversion of a Floating Production Storage and Offloading (FPSO) vessel for Armada Cabaca, a subsidiary of Bumi Armada Berhad, while Keppel Nantong’s contract is to construct a submersible barge for Smit Shipping Singapore, a subsidiary of Royal Boskalis Westminster Group.

Keppel Shipyard has started work on the FPSO conversion for Bumi Armada which should be completed in 2Q 2016.

The work scope includes refurbishment and life extension works, upgrading of living quarters to accommodate 100 personnel, installation and integration of an external turret mooring system and topside process modules.

The FPSO will have a storage capacity of 1,700,000 barrels.

Upon completion, the FPSO will be stationed northwest of Luanda, Angola.

Work in China has also started for the barge that Keppel Nantong is building for Smit Shipping.

The new barge, Giant 7, will be the third such unit to be delivered by Keppel to the marine services company.

Giant 7 will join the first two units, Giant 5 and Giant 6, which are still undergoing construction, to be deployed off the Pilbara coast of Western Australia.

Giant 7 should be completed in 2H 2015, while Giant 5 and Giant 6 are on track for completion in end 2014 and early 2015 respectively.

The above contracts are not expected to have any material impact on the net tangible assets and earnings per share of Keppel for the current financial year.

Keppel closed 0.9% lower at $10.31.