Research Reports by OCBC (2015-06-02) - BUY KSH Holdings, HOLD United Envirotech, NOL, Cache Logistics Trust, Ezra Holdings

Market Pulse: KSH, UEL, NOL, Cache Logistics Trust, Ezra

KSH Holdings:

To ride on firm public construction outlook.
KSH reported that PATMI for FY15 (ending Mar 2015) decreased 7.0% to S$41.7m versus S$44.8m in FY14. This was mainly due to reduced contributions from both the construction and development businesses, lower fair value gains on investment assets and higher personnel expenses, but partially offset by higher interest income. We judge these results to be broadly within expectations. Management indicates that the construction sector continues to face headwinds in the form of rising costs and, in addition to private construction projects, the group will maintain a dual focus on tendering for public projects for which demand is anticipated to stay strong due to government infrastructure initiatives. As at end FY15, the group’s construction order book stands at a respectable level of around S$420m. A final cash dividend of 1.50 S-cents was proposed, which brings the total dividend distribution for FY15 to 2.75 S-cents per share. Maintain BUY with an unchanged fair value estimate of S$0.71. (Eli Lee)

United Envirotech:

FY15 core earnings in line.
United Envirotech Ltd (UEL) reported its FY15 results, which came in mostly within our expectations. Revenue jumped 73% to S$349.0m, which exceeded our forecast by about 22%, mainly due to higher-than-expected EPC revenue. While reported NPAT jumped 195% to S$59.3m, we estimate that core earnings (excluding one-off gains and forex) came in around S$42.1m, or about 5% above our forecast. UEL declared a final dividend of S$0.005/share. Going forward, management remains upbeat about its prospects, where it expects to benefit from the stronger government policy support in the water treatment sector and greater need for membrane-based water treatment solutions for the treatment and recycling of water in China. We have adjusted our FY16 estimates up by an average of 30% and this also bumps up our fair value from S$1.70 to S$1.74, still based on 28x FY16F EPS. Maintain HOLD; key risk would be potential share placements to increase the free float (currently around 12.3%). (Carey Wong)

Neptune Orient Lines Limited:

Divestment of logistics business completed Neptune Orient Lines Limited (NOL) announced last Friday the completion of the sale of its logistics business, APL Logistics Ltd (APLL) to Kintetsu World Express (KWE) for an aggregate price of US$1.2b. The final price is still subject to adjustments for the net cash and net working capital of APLL and its subsidiaries as at the completion date. As we previously had already factored in the impact of the divestment of APLL into our model (refer to our most recent full report on NOL dated 15 May), we maintain our HOLD rating on NOL, with an unchanged FV of S$1.15. (Eugene Chua)

Cache Logistics Trust:

Divestment of Kim Heng Warehouse for S$9.7m Cache Logistics Trust (CACHE) announced that it has accepted an offer from JTC Corporation for the surrender of lease at 4 Penjuru Lane Singapore (Kim Heng Warehouse), which is a single-storey warehouse located within the Jurong Industrial Estate with a GFA of 54,000 sq ft. The divestment consideration for CACHE is S$9.7m. This compares favourably to the S$8.9m acquisition price in 2011 and latest valuation of S$9.0m (as at 31 Dec 2014). Kim Heng Warehouse is the smallest asset in CACHE’s portfolio, and contributed just 0.6% of CACHE’s FY14 gross revenue. Sales proceeds will be used to reduce existing debt, fund general and corporate working capital, and/or make distributions to unitholders. We maintain HOLD and fair value estimate of S$1.17 on CACHE. (Wong Teck Ching Andy)

Ezra Holdings:

Proposes rights issue and convertible bonds issue Ezra Holdings has proposed a renounceable rights issue of up to 2.0b new shares at an issue price at a discount of not more than 50% to the theoretical ex-rights price for each rights share, on the basis of up to 200 rights shares for every 100 existing ordinary shares, as at a date and time to be determined by the directors of the company. Ezra has also proposed an issue of fixed rate convertible bonds due 2020 with an aggregate principal amount of up to S$200m, convertible into new shares at a conversion price to be determined. An EGM will be convened to seek shareholders’ approval for both the rights issue and bonds issue. Total estimated net proceeds is about US$289.5m, and the bulk of it will be used to repay S$225m of fixed rate notes due in Sep this year. We maintain our HOLD rating on the stock, but put our fair value estimate of S$0.47 under review. (Low Pei Han)

Source: http://www.ocbcresearch.com/

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