Global Container volume return to pre-crisis level. Time to bargain Hunt? Keppel Corp looks good.

ML's Take:

Shipping volume has indeed been climbing now returning to pre-lehman days.

This actually reinforce my view that any market weakness at this moment on fear of a double dip recession in the US and global economy may have been overdone.

I believe that any weakness at this juncture, as in the case today, may be a case of buying on weakness.

Actually going by the chart, some counters are already starting to look attractive noticeably Keppel Corp, which seems to be forming a base with support at S$8.40.

Also watching Capland, SembMarine, Noble for bargain hunting opportunity.

See article below:

Macquarie: “Record-breaking container volumes in May”

Tuesday, 29 June 2010

Excerpts from Macquarie report dated Mon, 28 June… Macquarie Equities Research says: “Record-breaking container volumes in May” Global Container Index reaches new high Macquarie’s Global Container Index, constructed from the aggregation of volumes from almost 200 container ports in 58 countries, suggests that global container volumes reached a record high in May 2010, exceeding the previous peak seen in July 2008 by around 1%. In terms of the YoY growth rate, we estimate that global throughput increased by 19% in April and 18% in May, illustrating that the growth rates seen in 1Q10 have yet to slow. 2Q10 could prove a record quarter… In the April edition of Counting Containers we challenged the perception that restocking benefits had driven container volumes to unsustainable levels during 1Q10, and estimated that global throughput during 2Q10 could increase by around 9% compared with the previous quarter. During April/May this estimate proved accurate, with the average monthly volume +9.4% vs. that seen during 1Q10. If this trend continues into June, we estimate Global throughput growth of +17% YoY for 2Q10, which would be a record high for an individual quarter. …while 3Q10 is likely to scale even greater heights Based on typical seasonal trends, in which 3Q volumes typically exceed those seen in the previous quarter by around 4%, it is likely that 3Q10 will prove to be a record quarter by some distance, with the possibility that our Global Container Index could hit 200 during this period, equal to a YoY increase of 14-15%. Two key reasons suggest to us that volumes will remain strong during this period: (i) our analysis of inventories in Europe and the US suggests the main benefit from re-stocking may be still to come; and (ii) in importing regions such as the US, the ratio of containerised imports-to-end demand remains low for both consumer and industrial goods.

This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broking firm. To contact him, please email: icewolfmike@gmail.com

Is it time to buy BP PLC?

 Is it time to buy BP? Mike Lim

Since the sinking of the Deepwater Horizon rig, which resulted in the worst oil spill disaster in the US, BP PLC share price has crashed to US$27, almost half of its pre-crisis price and a level it has not seen since June 1996.

BP looks Cheap

Hedge fund T2 seems to think so, as it recently revealed that it has taken up new position in BP.  T2managing partners, Tilson and Tongue justify their rationale for their buy in an article on the Barron’s other voices” column, arguing the extraordinary current value of BP based on the followings key fundamentals:
1.        BP is an “extraordinarily” cheap bargain as it is currently only trading at a PE of 5x
2.        BP is still a great company, with the fourth largest revenue and profit of any companies in the world
3.        BP will be able to cover the liabilities derived from the disaster, citing example from similar disasters such as that of 1979 Gulf of Mexico spill which cost Pemex US$100M, and the 1989 case of Exxon Valdex, which eventually cost Exxon approximately US$4 billion to clean up and pay for damages.
In addition, they also noted that any damages and clean up bill that are likely to be footed by Exxon is likely to be spread-out over years, as in the case of Exxon Valdex of which the US supreme court did not make a final ruling on damages until 2008, about 19 years after the Alaskan incidence.
Tilson and Tongue further liken the current BP situation to that of the overall market in March 2009 where “the near term fundamentals are terrible, nobody knows when they will improve and fear-mongers dominate the headlines. But, for investors with courage, conviction and an outlook longer than a few months, we (Tilson and Tongue) think this market overreaction is a wonderful buying opportunity.”
Is BP really cheap?
While it cannot be argued that BP shares is “relatively” cheaper or indeed “very cheap” compared to pre-crisis level, it however, always make sense to look at any steep discount to stock prices relative to its downside risks, and at this moment, it is hard to be convinced that the storm is all over for BP.
a)        Revaluation inevitable
Yes BP is unlikely to be going bankrupt, but taking cue from its bond prices of late, BP’s borrowing cost is expected to spiral upward, especially after it has its long-term credit rating cut by all big 3 rating agencies.
Fitch
AA+ to BBB (6 notches downgrade)

Moody’s
Aa2 to A2 (3 notches downgrade)

S&P‘s
AA- to A (1 notch downgrade)
While, traditionally BP is not heavily reliance on debt financing, this may be changing in view of its rising liability from this episode, which includes the US$20 billion that the US government required it to be placed into escrow account as collateral for the damages.
The recent downgrade is likely to double BP’s borrowing easily and this would definitely have an impact on its bottom line. Hence, realistically speaking, BP’s forward PE can be more than 5x at the current price level.
b)        Weather
Weather is perhaps the least discussed and considered factors by the market at this moment.
Seasonally, June to November is hurricane season in the Gulf of Mexico and this can be expected to cause some havoc to BP’s crisis management plan, with rough sea and heavy winds likely to further widen the spills beyond its current eco-zone.
With the company already struggling to confine the spill during non-hurricane season, their option amid howling wind is even more limited. This is likely to result in further oil losses and possible further escalation of its clean-up bill.
c)        Alternatives
While BP is still a good company for sure (at least for now), the question beget is whether the risk reward is there.
Comparing BP to its French counterpart, Total S.A., which is trading at around US$46.50 with a forward PE ratio of around 7x and a dividend yield of around 6%, BP’s valuation is actually not overwhelmingly convincing. This is especially considering that Total comes without the risk exposure which BP is currently facing.
BP – Downside remains ahead of any upside
While the courageous investors typically get rewarded in such uncertainty, the market has never fail to punish those that consider the upside ahead of the downside risk.
In this case, we feel that too many uncertainties remained for BP and the impetus to buy BP now is not overwhelming and is only worth revisiting if price dipped closer toward the US$20 region.  
Technically Speaking – Looks Oversold

BP price pattern is definitely in a downtrend channel although in the near term, it seems oversold.  Nonetheless, any attempt to rebound is likely to be muted, with price more likely to consolidate around the $26-28 region for now until fresh leads present.



This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broking firm. To contact him, please email: icewolfmike@gmail.com

K-Green Trust starts trading Tuesday. DBS call for $1.20 TP

DBS Research is initiating coverage on K-Green Trust, be listed on Tuesday, 29 Jun, with HOLD and TP of S$1.20.

Its sponsor is Keppel Integrated Engineering, the wholly owned environmental engineering arm of Keppel Corp. KGT’s assets generate stable, long-term cash flows. The initial portfolio consists of two Waste-to-Energy (incineration) plants as well as a water recycling (NEWater) plant in Singapore, with concession terms ranging from 15 - 25 years. Its zero debt balance sheet will enable growth. 

However, growth pipeline is limited at this point. Given the historical trading ranges of peers, our analyst believes KGT could trade between 6-8% target yield, which would imply a share price range of S$0.98 – S$1.30.


This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broking firm. To contact him, please email: icewolfmike@gmail.com

NOL - To continue on its uptrend

NOL - No Carrier to be Under-Utilized

24 Jun 10

Macquarie Note With the global economic recession starting to lift, major shipping companies operating the world's merchant marine fleet have started to show some signs of recovery and growth. NOL’s recent report on its operating performance certainly validates that. The TSA’s statement at the start of the week however, signals for even better times ahead…

“No carrier to be under-utilized and at non-compensatory rates” A.P. Moeller-Maersk A/S and 14 other container-shipping lines including NOL, expect sustained demand on Asia-U.S. routes after rebounding consumer spending spurred a 24 percent traffic rise to U.S. west coast ports last month. “Carriers are now seeing a strong peak-season surge that could last for some months,” Kim Young-Min, head of the Transpacific Stabilization Agreement (TSA) shipping group said in a statement on June 21. He added that “after last year, no carrier is going back to operating vessels underutilized and at non-compensatory rates.” First-quarter container volumes on Asia-U.S. routes jumped about 13 percent from a year earlier to 1.27 million 40-foot boxes, the TSA said. The tally however, is still below 2008 levels. NOL’s sees strong operating performance Meanwhile, NOL published their operating performing during the four weeks ending May 28 2010 on the same day the TSA released their statement above on June 21.  The report showed that average freight rates jumped 19 percent compared to the same period last year – its biggest increase in more than six years. The company also transported 34 percent more cargo. Share price performance On the day of the release of the above-mentioned operating performance (announced on the SGX after market), NOL’s share price had jumped 1.5% to $2.10 on June 21 – its highest since May 14. While the stock has since come off slightly to its last traded share price of $2.02, June remains a good month for NOL with the stock recovering 5% from its sell-off in May. It is still however, trading 12% below its recent high of $2.30 in April.

ML's take:

Believe this counter still have some upside to go, after the consolidation over the past 3 days. $2.0 looks like support with $2.12/13 the key resistance to break.

Fundamentally, I think the container shortage for the US route should be rectify within 2 to 3 months as more idle ships come on stream. Hence shippers are certainly playing up the hype in recent days, amid the renewal of US route contract, giving shipping counters the much needed lift.

Hence, very much a short term to mid term play. Not for long term holding.



This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broking firm. To contact him, please email: icewolfmike@gmail.com

NOL - Benefit from strong economic number from US

From Macquarie note:

The stream of positive economic data flowing from the U.S this week would have benefitted most stocks worldwide, but more noteworthy, was the boost it gave seafarers across Asia yesterday. Asia’s largest container shipper Neptune Orient Lines – which draws 57% of its sales from America – jumped 5% yesterday…

Asian seafarers boosted by improving U.S data
Yesterday, seafarers across Asia saw strong gains on speculation that faster than expected increases in trade volume will boost profit.

In Korea, Hanjin Shipping Co., the country’s largest shipping line led gains among Asian seafarers with its 11% spike. Here in Singapore, Neptune Orient Lines (NOL) advanced 5.1% to $2.05 – its highest in a month. The stock is above the $2 mark for the first time since May 18. 

Earnings of carriers to rise on improving U.S demand?
The seafarer rally yesterday came on the back of an improving U.S economy where manufacturing was shown to be leading the U.S economic rebound on Tuesday night. Last night, U.S Industrial Production in May rose 1.2%, more than the expected 0.9%. 

The recovering U.S economy as well as a rebound in trade has triggered a container squeeze as orders for new units plunged during last year’s global recession, causing the worldwide box fleet to shrink 4 percent last year, according to San Francisco-based Textainer Group Holdings Ltd., the world’s largest container-lessor.
Separately, Washington-based National Retail Federation has said that container imports at U.S. ports may rise as much as 15 percent each month through October because of higher consumer spending 

A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. are among carriers levying peak-season surcharges on trans-Pacific trade this year as increasing consumer spending fuels demand. (Bloomberg)

NOL received 57% of sales from the U.S, based on its latest earnings report.

ML's Take:
Technically the counter may have been overbought after the good run over the past few days and looks to take a breather for now. 

Any weakness ahead looks like good buying opportunity with support seen at $1.94-5 region. If the breakout sustain, expect $2.12 to be regained.

This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com

Noble Group- Enter into Palm Oil with new acquisition

This morning, Noble Group announced that it bought a stake in an Indonesian company that will provide the former its first foray into the palm oil sector. Noble’s announcement comes on the back of recovering NYMEX crude and palm oil prices…

Gaining access into crude palm oil sector through acquisition
The Hong Kong-based commodities supplier backed by China’s sovereign wealth fund CIC, said it bought a stake in PT Henrison Inti Persada to gain access to the palm oil market. 

Noble acquired a 51 percent share in the company that “intends to develop” 32,500 hectares of land for palm oil production in Indonesia’s West Papua province, Noble said in a statement to the Singapore stock exchange this morning, without stating the value of the deal.

The transaction is Noble’s first project in the palm oil industry and allows the commodities supplier “to expand and increase its investments in this area in the future.” 

According to Chairman Richard Elman, “this move into palm oil plantations will complement our global agriculture and energy businesses. Our operating experience in Indonesia should prove to be an asset in helping us manage this and future projects.” He added that “with increasing convergence between agriculture and energy, this investment is a clean fit for the Group’s diversified portfolio.” 

Macquarie Research Equities has an Outperform rating on Noble Group with a 12-month target price of $2.50.

Crude palm oil sees best gain in three weeks

Noble’s announcement comes on the back of recovering crude oil as well as palm oil prices. August crude palm oil futures yesterday rose for the first time in six days amid concern the Argentine supply of soybeans and soybean oil may be affected by a port strike. It added 1% to 2,410 ringgit a ton on the Malaysia Derivatives Exchange, snapping a five-day drop of 3.6 percent and also rebounding from a 12-month low of 2,386 recorded on Friday. The gain was the most since May 20. 

In the meanwhile, NYMEX crude oil prices also saw a bounce back above the US$75 mark. It rallied 1.8% overnight to close at US$75.12. It continued to advance 0.1% to US$75.18 as of 8.53 a.m Singapore time. 

Crude palm oil prices tend to correlate with crude oil prices.

ML's Take:

Technically, counter seems to be attempting a breakout. However, resistance seen at 1.86 for now.




This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com

Hyflux - upgrade to buy by DBS

DBS has just upgraded this counter to a buy:

Shares of Hyflux have fallen 20% m-o-m and currently trade at –1SD of 17x FY10 earnings, which is seen as an attractive entry level. Near term catalysts for the stock are potential contract win from Singapore’s 2nd desalination plant, new wins from MENA and China as well as the conclusion of the SGD1-1.4 bil Libyan contracts in H2 that provides visibility up to 201.

Hyflux is unaffected by developments in Europe and US and has little exposure in China.

Our research analyst upgrades the stock to Buy from Hold TO: $3.50 DBS

ML's take:

technically looks like a breakout this morning to me. Target is $3.20 with a stop at $2.80.


This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com

Olam - New acquisition New growth

Olam - MRE Targets 25% Upside

In a SGX announcement yesterday, commodity supplier Olam proposed an acquisition for US$250m. Prior to the announcement and broad market sell-down on Monday, Olam had been on a three-day winning streak, climbing 11%. Following the announcement, Olam rose 1.2% yesterday to emerge as the third leading index mover for the day. However, a further analysis by Macquarie Research Equities reveals further potential upside to the stock price…

Chunky acquisition from Conagra Foods Yesterday, Olam proposed to acquire Conagra's Gilroy Foods & Flavors dehydrates and vegetable products business for US$250m. Olam will also enter into a long-term supply agreement to cater to Conagra Food's requirements.Analysing the impact of acquisition Macquarie Research Equities (MRE) provided their view on the proposed acquisition in a note published yesterday: Bulking up in dehydrates. Gilroy's product portfolio includes onions, garlic, capsicum and vegetables dehydrates as well as a proprietary onion seed program. Its plants are spread across six locations in the US. This transaction adds further bulk to Olam's dehydrates business and is amongst the largest that Olam has entered into in this space (the rest of its transactions in this space have been far less than US$100m). Synergies with its existing units. Olam already operates SK Foods (US tomatoes processing), DeFrancesco (US onions) and Key Foods (Chinese garlic). Olam expects that its combination of dehydrates units will generate annual revenue of US$300-350m i.e. ~5% of its annual revenue base. The US dehydrates market at near US$750m annually offers further room for Olam to grow. Margins to be enhanced. Olam's expects EBITDA margins for its dehydrates processing unit to be 14-15%, a few folds higher than the margins it sees for its supply chain business. This is in line with the expectation that investments into processing assets will have higher margins (and help compensate for the lower levels of leverage that can be deployed for these transactions). Earnings accretion, financing structure. While there was no disclosure on the earnings (nor revenue) for Gilroy - Olam states that this transaction will be earnings accretive from the first year of consolidation. This deal will be financed via internal accruals and debt. Contributions from acquisitions is the key catalyst. Olam has made significant acquisitions in the past three years, with nearly US$1b (incl Gilroy) invested in various ventures and acquisitions. MRE believes sustained growth in contributions from its various acquisitions will be the next key catalyst that will help rerate the stock. MRE reiterates rating and target price on Olam Contributions from acquisitions, together with an ability to access long-term capital and execute on attractive M&A deals, leads MRE to reiterate their Outperform rating on the stock. MRE’s 12-month target price of S$3.10 implies a 25x PER to reflect an expected growth rate of 20% per annum (ex one-time gains) over the next three years. ML's take: Olam continues on its acquisition trail..rain or shine and I think that is generally a good sign of a company that is clear on its direction and strategy of being the world leading integrated soft commodity player. while there will always be integration and execution risks on all M&A, I believe Olam's track record speaks for itself. Although this current acquisition may not have a significant impact in the short run, if you look at all its acquisitions in the past 3 years, Olam has made significant investment that is likely to bear fruits in the future. I never have doubt that Olam is another bluechip in the making....and I think Temasek also agrees on this.

 
This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broking firm. To contact him, please email: icewolfmike@gmail.com