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PRICE CHART

MARKET NEWS The FSSTI lost 2.15pt to close at 3,086.64 as the Federal Reserve minutes signalled stimulus cuts will continue and as manufacturing in China shrank. The preliminary February reading of 48.3 for the Chinese purchasing managers’ index from HSBC and Markit Economics came in lower than Jan 14’s 49.5. Bucking the trend, Wilmar gained 1.5% to S$3.36 after the group announced plans to acquire a stake of less than 25% in India’s Shree Renuka Sugars Ltd. The broader market saw 183 gainers and 225 losers, with total trading value at S$0.928b. US markets closed higher on positive corporate newsflow and encouraging manufacturing data. The DJIA added 0.6% to close at 16,133.23 while the S&P 500 index ended 0.6% higher at 1,839.78. The Markit Economics preliminary index of US manufacturing increased to 56.7 in February, surpassing economists’ estimates, while Labor Department figures indicated fewer Americans filed applications for unemployment benefits last week. Facebook closed 2.3% higher as the company stunned Wall Street with a deal to buy messaging service WhatsApp.

W H AT ’ S I N T H E PA C K

Hankore Environment- 1H14 earnings jump on 4 fold surge in EPC revenue

Rex International (REXI SP, 5WH) - Technical BUY with +13.4% potential return

(BIOT SP S$0.145)

The stock continues to bottom out and currently is trending above its....

/BUY/S$0.123/Target:

We expect Hankore to experience exponential growth in the sector, especially so when the company has gotten support from CEI, an entity directly under the state council. On top of the injection of assets, Hankore can tap on CEI’s cheap financing for its expansion plans going forward

Singapore Strategy- Playing The M&A Theme We see M&A as a continuing area of interest. Other than privatisation candidates, companies with accretive acquisitions or monetisation of assets could attract investor interest.

ARA Asset Management- 4Q13: Chugging along. (ARA SP/HOLD/S$1.74Target: S$1.94) Maintain HOLD with a marginally higher target price of S$1.94 (from S$1.92). Our target price is based on a sum-of-theparts (SOTP) methodology, which comprises: a) the DCF- derived enterprise value of ARA's stable feebased earnings stream, assuming 2.0% terminal growth and 7.7% required rate of return, b) strategic stakes in REITs and private funds, and c) net cash. Entry price is at S$1.69.

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Jardine Matheson US$ (JM SP, 5WH) - Technical SELL with +4.6% potential return The stock could have a follow through by trending lower after being resisted by its...

Asian Pay Television Trust (APTT SP, S7OU)- Technical BUY with +7.5% potential return The stock looks poised to continue its rebound after...

Jardine Cycle & Carriage (JCNCSP, C07) - Technical SELL with +4.1% potential return The stock could retrace further after being resisted by its…

KEY INDICES

DJIA S&P 500 FTSE 100 CSI 300 FSSTI HSCEI HSI JCI KLCI KOSPI Nikkei 225 SET TWSE BDI CPO (RM/mt) Nymex Crude(US$/bbl)

Prev Close 16040.6 1828.8 6796.7 2287.44 3086.64 9978.06 22394.08 4598.22 1827.81 1930.57 14449.18 1304.02 8524.62 1160.00 2747.00 103.21

Chg (%) (0.6) (0.7) 0.0 (0.9) (0.1) (0.8) (1.2) 0.1 (0.1) (0.6) (2.1) (1.3) (0.6) 1.2 1.4 (0.1)

YTD (%) (3.2) (1.1) 0.7 (1.8) (2.6) (7.7) (3.9) 7.6 (2.1) (4.0) (11.3) 0.4 (1.0) (49.1) 4.5 4.9

Source: Bloomberg

TOP VOLUME Stock Noble Group Siic Environment Golden Agri-Resources Singapore Telecommunications Hutchison Port Holdings Trust (US$)

Price (S$) 1.025 0.191 0.550

Chg (%) 4.1 0.0 0.0

Vol (‘000) 41,345 34,811 22,071

3.580

0.0

17,182

0.630

0.0

15,717

Price (S$) 1.025 1.710 0.790 3.290 5.430

Chg (%) 4.1 2.7 2.6 2.2 2.1

Vol (‘000) 41,345 12,892 10,199 517 1,924

Price (S$)

Chg (%)

Vol (‘000)

37.200

(3.3)

249

0.330 0.520 0.215 0.975

(2.9) (2.8) (2.3) (2.0)

9,430 4,475 220 1,470

TOP GAINERS Stock Noble Group Olam International Asian Pay Television Raffles Medical Group Sembcorp Industries

TOP LOSERS Stock Jardine Cycle & Carriage Gallant Venture Thai Beverage Fragrance Group Tianjin Zhong Xin

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Friday, 21 February 2014

W H AT ’ S I N T H E PA C K

Genting Singapore PLC- 4Q13: Downgrade to SELL due to concerns over domestic operations.

Wilmar International2013: Below expectation on lower contributions from non core operations.

(GENS SP/SELL/S$1.40/Target: S$1.27)

(WIL SP/BUY/S$3.36/Target: S$4.20)

Downgrade to SELL with SOTP-based target price of S$1.27 as investor enthusiasm for Japan could have moderated with the latest guidance on timeline, and the lacklustre domestic operations.

Maintain BUY and target price of S$4.20, based on sum-of-the-parts method, implying a blended 13.8x 2014F PE. More updates and outlook after the analyst briefing today.

Neptune Orient Lines- 4Q13: Losses on weaker-thanexpected rates; fleet renewal to further drive efficiency. (NOL SP/BUY/S$1.01/Target: S$1.30) Maintain BUY and reduce target price to S$1.20 from HK$1.30, based on 1.1x PB, which is its mean P/B since 2010. NOL is experiencing a significant fleet renewal and operating efficiency would significantly improve when the renewal finishes in 2015.

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RH Petrogas- Finds success in its offshore exploration drilling with 4mmboe of oil and gas added to its resource base. (RHP SP/BUY/S$0.59/Target: S$1.50) Maintain BUY with target price of S$1.50 based on NPV and risking model. Our valuation is based on the NPV of the company’s current production/nearproduction fields, plus risked estimates of its 2C resources and prospective resources, less net debt adjusted for its committed capex and new funds raised from its recent private placement exercise.

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Friday, 21 February 2014

MONEY TALK

BUY

HANKORE ENVIRONMENT (BIOT SP) 1H14 earnings jump on 4 fold surge in EPC revenue VALUATION

•

Maintain BUY with a higher target price of S$0.145 (+6%), derived by discounting the profits generated from its engineering, procurement and construction (EPC) and wastewater treatment businesses over the period of its concession (WACC: 8.3%). We increase our target price as we input a higher-than-expected EPC contract wins and stronger gross profit margins. However, we have trimmed our FY14 earnings by 16% after taking account the additional deal related expenses and share based payment.

Share Price

S$0.123

Target Price

S$0.145

Upside

+17.9%

COMPANY DESCRIPTION

FINANCIAL HIGHLIGHTS

Hankore Environment Tech Group develops BMS Biological Process Technology to treat waste and wastewater. The group also designs, manufactures and sells systems, machinery, products and accessories used in the treatment of wastewater and waste.

•

GICS sector

•

•

HanKore Environment Technology Group (HanKore) reported a 63% yoy increase in 1H14 net profit to Rmb59.8m driven by a jump in revenue to Rmb332.0m (+126.4%) attributable to a four-fold surge in EPC income to Rmb219.7m and a 22.9% increase in income from water treatment operation activities to Rmb112.3m. Gross profit more than doubled to Rmb138.7m with gross profit margin maintaining at 42.0% due to higher contribution from lower margins construction projects. Administrative expenses increased by 31.1% to Rmb33.9m, mainly caused by an increment in capital market activities, travelling expenses and share-based payment amounting to Rmb6.4m. On the acquisitions of China Everbright International (CEI) water assets by Hankore as announced on 30 Dec 13, management re-iterated that the due diligence and valuation is still ongoing and the deal is likely to be completed only in FY15. After this, Hankore’s water assets will increase to 30 operational WWT projects and 4 reusable water projects and CEI will become a majority shareholder of Hankore. CEI is one of the four state-owned enterprises that operate directly under the state council of China, developing and operating waste-to-energy, alternative energy and environmental water facilities.

Utilities

Bloomberg ticker:

BIOT SP

Shares issued (m):

4,863.3

Market cap (S$m):

598.2

Market cap (US$m):

472.3

3-mth avg t’over (US$m):

12.5

PRICE CHART HANKORE ENVIRONMENT TECH GRP

(lcy) Hankore Environment Tech Grp/FSSTI Index

0.16

(%) 320

0.14

280

0.12

240

0.10

200

OUR VIEW

0.08

160

•

0.06

120

0.04

80

•

We expect Hankore to experience exponential growth in the sector, especially so when the company has gotten support from CEI, an entity directly under the state council. On top of the injection of assets, Hankore can tap on CEI’s cheap financing for its expansion plans going forward, which will reduce interest expense and boost its IRR for every M&A or greenfield project. According to management, CEI has an untapped loan facility of US$70m from International Finance Corporation at an interest of 2.25% mandated for water-related projects and operations. Management also expects EPC revenue to sustain in FY15 considering the number of projects BOT/ upgrading that will be out for bidding next year. EPC gross margins are also likely to maintain at 27% from the previously forecasted 20% after the successful acquisition of Jiangsu Tongyong Environment in Jun 13.

0.02 1500

40 Volume (m)

1000 500 0 Feb 13

Apr 13

Jun 13

Aug 13

Oct 13

Dec 13

Feb 14

Source: Bloomberg

KEY FINANCIALS Year to 30 Jun (Rmbm)

2012

2013

2014F

2015F

2016F

Net Turnover 245.4 EBITDA 155.9 Net profit (rep./act.) 102.6 Net profit (adj.) 30.2 EPS (fen) 2.3 P/E (x) 28.5 P/B (x) 1.65 Dividend Yield (%) 0.0 Net Margin (%) 12.3 Net debt/(cash) to equity (%) 31.7 Interest cover (x) 4.1 ROE (%) 6.9 Source: Hankore, Bloomberg, UOB Kay Hian

369.1 167.5 99.5 90.5 2.2 28.5 1.48 0.0 24.5 30.7 3.6 6.1

678.8 219.4 132.8 132.8 2.9 20.8 1.50 0.0 19.6 50.6 3.1 7.5

829.2 339.5 236.1 236.1 5.2 11.7 1.33 0.0 28.5 85.6 4.4 12.0

797.6 377.2 260.3 260.3 5.7 10.6 1.18 0.0 32.6 83.7 4.3 11.8

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ANALYST Brandon Ng, CFA +65 6590 6615 [email protected]

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TRADERS’ CORNER

Rex International (REXI SP, 5WH) Technical BUY with +13.4% potential return Last price: S$0.635

Maintain BUY and target price of S$0.72 as per our note on 20 Jan 14. The stock has since returned 5% on closing. It continues to bottom out and is currently trending above its 15- and 40-day EMA which have formed a golden cross. Its MACD indicator has crossed above its centerline and its DI is still positively placed. Protective (trailing) stops could be placed at S$0.58. Our retail research has a fundamental BUY with a target price of S$1.27.

Jardine Matheson US$ (JM SP, 5WH) Technical SELL with +4.6% potential return Last price : US$54.94

SELL with a target price of US$52.40 as the stock could have a follow through by trending lower after being resisted by its declining 200day SMA and has formed a bearish engulfing pattern. Its 20-day SMA has turned down instead. Its MACD indicator looks poised to form a bearish crossover as its Stochastics indicator has formed a bearish crossover and could turn down from its overbought region. Protective stops could be placed at US$56.00.

ANALYST Jeffrey Tan +65 6590 6629 [email protected]

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Friday, 21 February 2014

TRADERS’ CORNER

Asian Pay Television Trust (APTT SP, S7OU)Technical BUY with +7.5% potential return Last price: S$0.79

Maintain BUY and target price of S$0.85 as per our note on 3 Feb 14. The stock has since returned 3.3% on closing and looks poised to continue its rebound as prices could be bottoming with a potential bullish W shape pattern formation. Its 15-day EMA looks poised to form a golden cross with its 40-day EMA and its MACD has crossed above its centerline, along with a positively placed DI with rising ADX. Protective (trailing) stops could be placed at S$0.75.

Jardine Cycle (JCNCSP, C07)

&

Carriage

Technical SELL with +4.1% potential return Last price: S$37.20

SELL with a target price of S$35.65 as the stock could retrace further after being resisted by its declining 200-day EMA and may retrace towards its 50-day EMA. Its MACD histogram has turned down and its Stochastics indicator could be forming a bearish crossover. Protective stops could be placed at S$38.00.

ANALYST Jeffrey Tan +65 6590 6629 [email protected]

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Friday, 21 February 2014

CORPORATE NEWS

Aspial Corp: 4Q13 net profit down by half.

Aspial Corporation’s net profit for 4Q13 fell 51% yoy to S$9.33m as turnover fell 13% yoy to S$117.2m. (Source: The Business Times)

BBR: 2013 net profit up 68% yoy to S$21.8m.

BBR recognised higher revenue from construction and engineering projects as net profit rose 68% yoy to S$21.8m for 2013. (Source: The Business Times)

Bonvests: Profit surges to S$56.2m on stronger revenue and revaluation gains. Bonvests Holdings' net profit more than doubled to S$56.23m in 2013 from 2012’s S$24.6m on the back of stronger revenue and revaluation gains on its investment properties. (Source: The Business Times)

Chip Eng Seng: 4Q13 net profit falls. Chip Eng Seng's 4Q13 net profit fell 11.7% yoy to S$34.6m due to lower profits from its construction and property development divisions. (Source: The Business Times)

EMS Energy: Back in the black with S$3.8m profit. EMS Energy returned to the black in 2013, thanks to higher revenue, improved gross margin, a disposal gain and the absence of goodwill impairment. (Source: The Business Times)

Hyflux: Net profit falls 28% yoy to S$44m.

Hyflux posted a 28% yoy drop in net profit to S$44m for 2013 on the back of an 18% yoy drop in revenue. (Source: The Business Times)

Serial System: 4Q13 net profit up 63% yoy to US$3.1m. Serial System 4Q13 net profit grew 63% yoy to US$3.1m, mainly due to the growth of major product lines and more new customers. (Source: The Business Times)

Sheng Siong: Sees challenges as it posts higher 4Q13 profit. Sheng Siong guided for a challenging year ahead as cost pressure mounts even as it raised its bottom line by 16.7% yoy to S$9.3m in 4Q13. (Source: The Business Times)

Transpac: Net profit of S$42.7m for 2013. Transpac Industrial Holdings, which recently unveiled an operations revamp, posted net profit of S$42.7m for 2013, up from S$6.6m a year ago. (Source: The Business Times)

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FROM THE REGIONAL MORNING NOTES...

Singapore Strategy- Playing The M&A Theme We see rising investor interest in the M&A theme. The most recent development was the surge in Biosensors’ (unrated) share price after a Bloomberg article (dated 18 Feb 14) that suggests a potential privatisation of Biosensors by Citic Private Equity Funds. This note highlights our take on stocks, which could see M&A interest. M&A action continues. After more than 30 M&As in 2013, this trend continues into 2014. So far this year, there have been three new cash offers and voluntary de-listings in Singapore (Boardroom, China Powerplus and Communication Design). Accretive acquisition. In the acquisition space, we think CapitaCommercial Trust (CCT), Frasers Centrepoint (FCT) and Halcyon could benefit from accretive acquisitions and availability of financing. CCT’s and FCT’s low net gearing of 29% and 30% respectively means that these two groups have an ample warchest for acquisition. As for Halcyon, we believe the group is a beneficiary of accretive acquisition opportunities in mid-stream rubber processing.

ARA Asset Management- 4Q13: Chugging along. (ARA SP/HOLD/S$1.74Target: S$1.94) FY14F PE (x): 17.5 FY15F PE (x): 13.2 Results in line with expectations. ARA reported a 25% rise in PATMI to S$22.1m due to fees from the acquisition of Kingswood Ginza by Fortune REIT and higher REIT management fees from REIT AEIs and revaluation gains. 2013 net profit of S$81.4m excluding mark-to-market (MTM) losses on REIT revaluations is in line with expectations at 104% of our forecast. Maintain HOLD with a marginally higher target price of S$1.94 (from S$1.92). Our target price is based on a sum-of-the-parts (SOTP) methodology, which comprises: a) the DCF- derived enterprise value of ARA's stable fee-based earnings stream, assuming 2.0% terminal growth and 7.7% required rate of return, b) strategic stakes in REITs and private funds, and c) net cash. Entry price is at S$1.69.

Genting Singapore PLC- 4Q13: Downgrade to SELL due to concerns over domestic operations. (GENS SP/SELL/S$1.40/Target: S$1.27) FY14F PE (x): 24.4 FY15F PE (x): 26.7 Adjusted EBITDA was below expectations. Genting Singapore (GENS) reported 4Q13 revenue of S$692.9m (-11% qoq, -13%yoy) and EBITDA of S$250.3m (-28% qoq, -32% yoy). This brings 2013 EBITDA to S$1,158.2m, accounting for 93% of our full-year forecast, and 91% of consensus forecast. Downgrade to SELL with SOTP-based target price of S$1.27 as investor enthusiasm for Japan could have moderated with the latest guidance on timeline, and the lacklustre domestic operations. On top of 12x 2014F EBITDA, we have incorporated a 10 sen ‘Japan option value’ into our target price, based on 30% success rate. Due to our longdated view on Japan, we suggest investors to capitalise on any share price strength stemming from the liberalisation newsflow.

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FROM THE REGIONAL MORNING NOTES...

Neptune Orient Lines- 4Q13: Losses on weaker-thanexpected rates; fleet renewal to further drive efficiency. (NOL SP/BUY/S$1.01/Target: S$1.30) FY14F PE (x): 20.8 FY15F PE (x): 8.0 Net loss in 4Q14; below consensus. Revenue declined 7% yoy each in 4Q13 and 2013 to US$2.3b and US$8.8b respectively, dragged by lower freight rates. Net loss widened by 51% yoy to US$137.2m in 4Q13. Full-year loss narrowed by 82% yoy to US$76m, below consensus of a US$22m loss. 2013 core EBIT was up 9% to a loss of US$167m. Maintain BUY and reduce target price to S$1.20 from HK$1.30, based on 1.1x PB, which is its mean P/B since 2010. NOL is experiencing a significant fleet renewal and operating efficiency would significantly improve when the renewal finishes in 2015.

Wilmar International- 2013: Below expectation on lower contributions from non core operations. (WIL SP/BUY/S$3.36/Target: S$4.20) FY14F PE (x): 11.0 FY15F PE (x): 9.8 Wilmar reported core net profit of US$353m (-12% yoy, -9.7% qoq) in 4Q13 and US$1,303m (+11.7% yoy) in 2013. For 4Q13, the lower qoq core net profit was due to lower sugar contribution as the bulk of the sugarcanes were harvested and milled in 3Q13. Maintain BUY and target price of S$4.20, based on sum-of-the-parts method, implying a blended 13.8x 2014F PE. More updates and outlook after the analyst briefing today.

RH Petrogas- Finds success in its offshore exploration drilling with 4mmboe of oil and gas added to its resource base. (RHP SP/BUY/S$0.59/Target: S$1.50) FY14F PE (x): 48.8 FY15F PE (x): 23.3 Finds success in its offshore drilling. RH Petrogas (RHP) announced yesterday that it has completed testing its Koi-2 appraisal well in the Salawati Kepala Burung Production Sharing Contract (Island PSC). Recall that the well successfully reached its total vertical depth of 1,428 meters on 30 Dec 13 and drill stem tests were conducted following log analysis. Post-drill evaluation confirms that the Koi structure holds an estimated 4mmboe (net to RHP). Maintain BUY with target price of S$1.50 based on NPV and risking model. Our valuation is based on the NPV of the company’s current production/near-production fields, plus risked estimates of its 2C resources and prospective resources, less net debt adjusted for its committed capex and new funds raised from its recent private placement exercise.

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Disclosures As of 21 February 2014, the analyst and his/her immediate family do not hold positions in the respective securities recommended in this report. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc (“UOBKHUS”) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal In transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. http://research.uobkayhian.com MCI (P) 122/03/2013 RCB Regn. No. 198700235E

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