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

Is it time to pick up Keppel Corp, Sembcorp, Ezra? Keppel Land in MSCI today

DBSV maintain our technical views for O&M stocks Keppel Corp, SembCorp Marine and Ezra to find interest. The price of Brent
Crude remained supported around USD69-70pbl. We had highlighted in our Weekly Comments that the preferred entry
levels for the 3 stocks are:
1) Keppel Corp – Buy at $8.30, sell at $9.45
2) SembCorp Marine – Buy at $3.60, sell at $4.15
and 3) Ezra – Buy at $1.63, sell at $2.

We maintain our view for these stocks.

Keppel Corp has fallen to within 10cts, SembCorp Marine within 5cts and Ezra has reached our preferred entry levels.
We believe that they are poised for a rebound. Even Ezion, which we highlighted as having downside risk to $0.55 also reached that level yesterday. Possible catalysts for Keppel Corp and SembCorp Marine ahead are the potential awards of the first 2 deep-water rigs contracts by Petrobas as the award of the 28 rigs building programme has started. This is Phase 1and the tender for these contracts should close by today. Phase 2 in the future could award up to 21 rigs and phase 3, 5 rigs.

Ezra is simply oversold based on 14-day and 8-wk RSI as well as weekly stochastics reading. The stock has also fallen 38% below only fundamental fair value of $2.62 and there is scope for a technical rebound from here.

The MSCI semi annual rebalancing will occur today on the close. For the Singapore market, Keppel Land will be included in the MSCI Singapore index. Stock is likely to rise in the current session.

DBS Research currently has a Buy recommendation for Keppel Land with TP of $4.13.

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

Euro crisis - An Opportunity for picking up stock?

KEVIN'S TAKE on... the impact of the Greek and euro crisis

Written by Kevin Scully

Wednesday, 19 May 2010

The following is a posting by Kevin Scully, executive chairman of NRA Capital, on his blog yesterday, and it is reproduced here with permission. Investors are over-reacting negatively to the EU's US$1 trillion rescue package announced last week !!?? I was asked yesterday during a TV interview about why the market was reacting so negatively to the EU's US$1 trillion rescue package. The VIX initially fell to below 30 after it rocketed to above 40 and is now just trading above the 30 level.   A fall below 30 would signal to me that sentiment is improving.  Key concerns that caused the collapse of the Euro and heightened market volatility were comments from DB that Greece would not be able to repay its debt and could even head for bankruptcy.  I think investors have very short memories about the crisis facing global stock markets in late 2008 into 2009.  The chart below of the Dow shows what happened to the index during the financial crisis in mid 2008.  I have included it here to refresh memories. When the crisis first surfaced - then US Treasury Secretary Paulson announced a rescue plan but as he became a lame duck - new Treasury Secretary Geithner announced his own plan after he took office in early 2009 - but investors were skeptical about the lack of detail. There were then a number of supplementary packages which were the catalyst for that big rally in March 2009. To me this is what is happening in the EU now  - first stop the panic and bring some stability to the market - I think the US$ 1 trillion package does that because it gives money to the countries to finance their debts. This has to be phase 1 - once the markets have been calmed - then we should see supplementary packages meant to address the more important long term structural issues.  From the US experience, it would appear that it would take about six months before the EU and the Euro stabilise.   I will now be watching out for supplemental measures to bolster the US$1 trillion package  Will Greece go bankrupt?Will this be aggravated by the collapse of the Euro?  The chart below shows the collapse of the Euro compared to the US$. It looks like $1.20 is where some support will be found. Ironically a weak Euro is good for Greece because the largest sector in the economy is tourism. Its major trading partners are also EU members. In fact a weak Euro is good for the EU because it would make their exports more competitive. So this could be an unexpected upside surprise for the economy. Notwithstanding that however, the national debt is large so it may take several years for the debt position to improve. The only saving grace now is that its economy is about 0.3% of the world economy. I would be worried if Germany or France has national debt issues because they are significant contributors of Global GDP. On balance, I think the Greek and EU crisis will be resolved and we should see some stability back in the markets by Q3-2010.   The good news is that stock markets such as the Dow or even Singapore are not expensive in PER terms at about 13 to 14 times 2010 earnings. The market weakness has also been aggravated by the significant decline in stock market volumes as many investors remain sidelined awaiting more information about Greece and the EU rescue packages. This has increased the volatility in the indices. Medium to long term investors can bargain hunt  - after all the Singapore Q1-2010 results season showed that many companies reported stronger and better earnings.  Traders will however find it harder because of the low liquidity. ML's take: This crisis will take some time to resolve as kevin has correctly pointed out. Even with the S$1 trillion package, the details are yet to be iron out. This together with the confluence of factors in the US - banking reform and China - interest rate hike will keep sentiment soft at this juncture. Nonetheless, always view any panic selling as buying opportunity. The world has underwent so many crisis before and the lesson is that the brave amid panic shall emerge victorious.

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

Wilmar - selling due to tax allegation a over reaction?

KEVIN'S TAKE on...Wilmar's share dive, buying opportunity

Written by Kevin Scully

Thursday, 20 May 2010

The following posting by Kevin Scully, executive chairman of NRA Capital, appeared on his blog yesterday and is reproduced here with permission. Visit www.nracapital.com I don’t follow Wilmar shares - at one point in time it had a market cap that was almost the same size as Singapore Telecom.  Wilmar shares declined sharply today by 6% today (at time of writing on 31bn shares and itself contributed to an 11-point decline of the STI Index's fall.  At the centre of the weakness is was alleged tax evasion - the following article in the Jakarta Post gives more details on the case.   Technically we could see the shares fall further to S$4.96 where I see some support - this may provide a buying/trading opportunity as the lost in market cap now is about 5 times the value of the alleged tax evasion.   Wilmar has come out to deny any wrong doing in a statement filed on SGX.  The statement is set-out below: RESPONSE TO RECENT MEDIA REPORTS ON INDONESIAN VALUE ADDED TAX  The Company refers to certain media reports today that certain Indonesian subsidiaries of the Company are under investigation over certain allegations relating to value added tax restitution claimed by those subsidiaries in Indonesia. Those reports had stated that the value added tax restitution claims are questionable and fictitious. Value added tax is typically payable for domestic purchases and restitution of value added tax payments arises out of refunds for exports of palm oil out of Indonesia. Wilmar’s Indonesian subsidiaries are collectively the biggest exporters of Indonesian palm oil. These subsidiaries collectively exported more than US$3 billion worth of palm oil in each of the last 3 financial years, thereby entitling these subsidiaries to claim the 10% value added tax paid on the cost of these sales for each of those years. These subsidiaries have received restitution of varying amounts over the years, which correspond directly with the actual quantum of cost of export sales, consistent with the permissible amounts claimable under Indonesian value added tax laws. The Company’s subsidiaries have fully complied with such value added tax laws and are in full compliance with the procedures relating thereto. The Company is fully confident that its subsidiaries are and have at all times been in full compliance with all relevant Indonesian value added tax laws. The Company categorically denies the allegations that the value added tax restitution claims are questionable and fictitious, and further categorically denies any allegation of collusion with tax officials referred to in those reports which the Company hereby states are completely untrue and unsubstantiated. From the charts - there seems to be some support technically at the S$4.96 level. Fundamentally, let me put the numbers in some context.  First the amount of the alleged tax evasion is US$385mn or about S$535mn.  This looks like a drop in the ocean compared to Wilmar's market capitalisation of S$37.2bn at S$5.82 or 1.4% of its current market cap.  The decline in market cap from yesterday to today, ie a S$0.37 drop has seen Wilmar's market cap fall by S$2.36bn.   In terms of NTA - at S$1.71 per share - the S$535mn of alleged tax evasion would only reduce its NTA by 8.4 cents to S$1.63.... Barring any new information and taking no view on the merits of the alleged tax evasion, the potential decline in the share price to S$4.96 would seem to provide a great buying/trading opportunity.  But a decline in Wilmar shares to S$4.96 from S$5.82 now would shave another 26 points off our STI index.

ML's Take:

Agreed with Kevin that the tax allegation would be a drop in the ocean toward wilmar mkt cap and NTA.

If this is the reason for the drop, it is overdone.

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

keppel Land to be included in MSCI SIngapore Index

 Keppel Land has been added to MSCI Singapore index. Change will take place on May 27.

This counter has recovered from its recent low of $3.46, but seems to fail to breakout from the upper downtrend line.

 $3.58 will be a better entry point in my opinion, with a stop at 3.47 or breakdown from lower uptrend line (which is currently around 3.47 anyway).



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

Insider buying amid last week weakness - Raffles Education, China Animal, Osim

Written by The NextInsight Team

Monday, 10 May 2010

Buyer No. of shares bought Dates Stock price (start Monday May 3) Stock price (Friday end) CHINA ANIMAL HEALTHCARE FMR LLC 2.203 m May 4 31 c 28 c RAFFLES EDUCATION Company share buyback 24 m May 5- 7 37 c 36.5 c John Teo (director) 300,000 May 6 OSIM INT’L Company share buyback 3.5 m May 3, 5, 6 85 c 80.5 c LEEDEN Steven Tham (CEO) 612,000 May 6 34.5c 35 c HOTUNG INVESTMENT Company share buyback 1.55 m May 4, 7 13 US c 12 US c AS THE MARKET turned down last week because of the Greek crisis, a number of companies bought back shares. So did management or substantial shareholder in some cases. They are reflected in the two tables we have compiled on this page, although the compilation is not exhaustive. Perhaps because of the buying, which probably reflected the goodunderlying business fundamentals, these companies’ stock prices were well supported in the past week. More companies and company directors can be expected to buy shares if the market weakness persists. They could do so when they come out of a blackout period once their Q1 results are announced. The SGX Listing Rules state that a listed issuer and its officers "should not deal in the listed issuer’s securities during the period commencing two weeks before the announcement of the company financial statements for each of the first three quarters of its financial year and one month before the announcement of the company's full year financial statements (if required to announce quarterly financial statements), or one month before the announcement of the company's half year and full year financial statements (if not required to announce quarterly financial statements)". For Q1, a number of companies have reported a strong recovery in their profits, and last week was as good an opportunity as any for the company or directors or substantial shareholders to buy shares in a weak market. For example: * China Animal Healthcare: After buying 2.2 m shares last week, fund manager FMR LLC now owns 6% of this company, or 93,571,000 shares. The company has just reported net earnings rising 46.3% in Q1 to RMB36.6 million. Adding to the good news, after not declaring a dividend for FY09, it surprised with a RMB0.02 dividend for Q1. * Hotung Investment: The 1.55 m shares bought back last week amounted to about  S$270,000, which is not terribly significant. But it is noteworthy that the company has been an aggressive buyer prior to that - ie, after announcing sterling Q1 results. Q1 net profit was NTD78.5 m compared to a mere NTD 8.9 m in Q1 of 2009, or a 779% jump. Since announcing the result, it has bought back 13.5 m shares. In 2009, it was truly aggressive: It purchased 19.9 m shares in the open market and 97.5 m off-market. And it cancelled all the shares purchased, in total representing 9.59% of the company’s issued share capital. Shareholders can only welcome such a move.    Buyer No. of shares bought Dates Stock price (Monday start) Stock price (Friday end) MEIBAN GROUP Company share buyback 1.116 m May 5,6 30 c 29 c DEL MONTE Company sharebuyback 3 m May 6 37.5 c 37 c Lee Pineapple Company (substantial shareholder) 21.026 m May 3, 4 CITY DEVELOPMENTS Aberdeen Asset Management 1.119 m May 4 $10.68 $10.46 CHANGTIAN PLASTIC Andrew Barron Worden  (substantial shareholder) 378,000 (direct interest); 7.033 m (deemed) May 5 25 c 22.5 c * Changtian Plastic: Its 4Q09 revenue was up 144.2% to RMB253.2 million while its net profit jumped 191.5% to RMB66.1 million. As at end-2009, it had cash and bank balances of RMB461.7 million (S$96 million) versus a market capitalization of  about S$150 m based on the recent stock price of 22.5 cents. Seeing value in the stock, Andrew Barron Worden has been accumulating, and now owns 56.5 million shares (in direct and deemed interests). That's a hefty 8.56% of the share capital of Changtian. (It's an S-chip, in case you didn't know) Update: Changtian has just announced that its Q1 net profit jumped 385.8% to RMB55.4 million. Likely due to seasonal fluctuation, this is lower than the RMB66.1m achieved in Q4 of last year. Group revenue in Q1 tripled to RMB229.2 million.

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