Financial News - Update

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2nd May 2011

Produced by: The Royal Bank of Scotland Asia Securities (Singapore) Pte Limited

 

DBS Group Holdings

 

Raising estimates post strong 1Q

 

We raise our FY11-13F earnings by 9.4% and our target price to S$18 after the

group's solid 1Q11 results. In particular, we highlight a continuation of the solid

core revenue trends of the previous quarter, and improved guidance on margins

and expense growth. DBS is our top pick of the Singapore banks we cover.

 

Valuation and risks to target price

DBS Group Holdings (RIC: DBSM.SI, Rec: Buy, CP: S$14.98, TP: S$18.00): Key downside risks to our GGM-based target price: 1) Key to our case is that Sibor rises. If this does not happen, net interest margins and earnings are likely to disappoint. 2) DBS has embarked on a comprehensive restructuring programme. As with all restructuring programmes, the risk is that the plans fail, thereby damaging the bank's franchise; and 3) DBS could make a large acquisition, prompting a right issue, which could be dilutive for existing shareholders and ultimately value destructive.

 

 

 

 

 

 

[Park88]

OCBC

 

3rd May 2011

 

Singapore Post Ltd

 

Prioritising for the future

 

4QFY11 results in line with expectations. Singapore Post

(SingPost) reported a 7.7% rise in revenue to S$565.5m and

a 2.4% drop in net profit to S$161.0m in FY11, such that

results were 0.8% and 3% shy of our estimates, respectively.

However, if we were to exclude one-off items such as the

amortization of deferred gain on intellectual property rights,

and benefits from the Jobs Credit Scheme, underlying net profit

actually rose by 1.2%. Free cash flow (net cash inflow from

operating activities less capex) remained healthy at S$174.6m

in FY11 compared to S$196m and S$155m in FY10 and FY09,

respectively.

 

Maintain HOLD. In line with the group's usual practice, a

final dividend of 2.5 S cents per share has been recommended,

bringing the full year dividend to 6.25 S cents. This translates

to a 5.4% dividend yield based on last closing price. We

continue to like the stock for the stable cash flows and prudent

management, and await more news on the M&A front. Our fair

value estimate increases to S$1.21 (prev. S$1.16) as we roll

forward our DCF valuation (8.11% cost of equity, 2% terminal

growth). However, given limited upside potential, we maintain

our HOLD rating.

[Park88]

 

The Royal Bank of Scotland Asia Securities (Singapore) Pte Limited

 

2nd May 2011

 

 

Noble Group

 

Enter the Koreans

 

Noble Group has just announced that Korea's sovereign wealth fund KIC (Korea Investment Corp) is acquiring slightly over 1% stake in the company from Noble Holdings Ltd, the vehicle of Noble's co-founder Richard Elman. This reinforces our Buy rating on Noble Group, in our view.

 

! KIC acquired 59,283,851 shares in Noble Group from Noble Holdings Ltd, leaving that vehicle of co-founder Richard Elman with 21.34% stake in the Group. At Friday's close of S$2.23, this would value the transaction at S$132.2mn (US$104mn). KIC joins China's sovereign wealth fund CIC who become Noble's largest shareholder when it acquired a 15% stake in Sep 2009.

! In addition, KIC and Noble Group establish a co-operative business and strategic partnership for the purposes of jointly investing in infrastructure assets and supply chain management activities.

! This news is consistent with the policy of a number of sovereign wealth funds to invest and participate in the long term uptrend of global commodities, in our opinion.

! It is more interesting, however, to discern what Noble Group aims to achieve with this transaction. One possibility is investing in supply chain infrastructure in Korea - this would help Noble gains greater market share of the commodity flows towards North Asia, and would at the same time support the Korean government push to develop Busan, already one of the world's largest transshipment container ports. Another possibility is a joint investment in supply chain infrastructure in another country, where KIC might have strong relationships with the local governments, and be interested to share the project risks.

! Note that back in Apr 2011, Noble Group raised US$400mn through equity placement representing roughly 4.8% of the company's enlarged issued and paid up share capital. The official purpose of this fund raising exercise is to use the net proceeds for "general corporate purposes". At the time, there was media speculation that Noble Group was reviewing opportunities in the coal mining sector, especially in Mongolia.