We do not expect oil prices to collapse. We reduce our Brent oil price forecasts to US$100/bbl for 2014 and US$85/bbl for 2015. In the Singapore O&M space, we see SCI, Ezion, Pacific Radiance and Triyards to be the most resilient, and Ezra, Vard and Swiber to be the most vulnerable to lower oil prices.
Our top picks are Ezion Holdings, Pacific Radiance, Triyards and SCI. Maintain MARKET WEIGHT on the sector.
■ We spoke to industry experts and local regulators to achieve a better understanding of Sembcorp Industries’ (SCI) upcoming power projects in India, which will form c.30% of its net generation capacity by 2016.
■ Based on our investigations, we estimate that the Indian assets will drive a utilities net profit CAGR of 11% in 2015- 16E. Consequently, consolidated profit growth for SCI should improve to 9% on average in 2015-16E, vs 3% in 2014.
■ Our discussions highlight two key advantages for SCI’s projects:
(1) healthy tariffs due to a high power deficiency in Andhra Pradesh, where the plants are located, and
(2) lower cost of coal imports due to port accessibility.
■ SCI’s valuation appears attractive, with forward PER almost 1 SD below its historical level and trading at a 15-20% discount to peers. We upgrade SCI to Outperform; our PT of SGD 5.8 (from SGD 5.7) implies 15%+ potential upside.
Wilmar announced to the SGX yesterday that it had bought back 1.479m shares at SGD3.00 each. The mandate for the share buybacks was granted on 25 April 2014, authorising it to buy back up to 10% of its issued and paid-up capital, or 639.908m shares. The shares were bought from the open market yesterday.
We assume coverage of the Singapore real estate sector, calling for a switch from office stocks to residential developers. It might appear counter-intuitive, but we believe the best time to buy office and residential stocks is when prices are still falling and expectations of such movements have largely been priced in, and vice versa. We upgrade both CIT and WINGT from Hold to Buy and downgrade CCT from Buy to Hold and SUN from Hold to Sell.
We have also recalibrated our recommendations for the sector, downgrading AREIT, OUEHT and KPLD from Buy to Hold and upgrading CT from Hold to Buy. Our top picks are CapitaLand, City Developments and WingTai Holdings.