Compiled by Melissa Tan, The Business Times
SEMBCORP MARINE | HOLD
TARGET PRICE: $1.61
APRIL 6 CLOSE: $1.855
UOB Kay Hian, April 6
Transocean is rumoured to be acquiring the West Rigel. The West Rigel is a US$568 million (S$796m) harsh environment semi-submersible ordered by North Atlantic Drilling (NADL) in 2012.
It is held by Sembcorp Marine (SMM) and NADL in a 77:23 joint venture as part of a standstill agreement in end-2015. Materialisation of the deal will be a huge boon to SMM as it removes a risky, sizeable order from its balance sheet.
Furthermore, it removes any future complications that may arise should JV partner NADL get impacted by Seadrill entering Chapter 11.
A transaction will free up capital locked up in the project, allowing SMM to deleverage its balance sheet. This alone is the more crucial point in the current environment as weak earnings are likely to be a facet of the business for the next few years.
SPACKMAN ENTERTAINMENT GROUP | BUY
TARGET PRICE: $0.27
APRIL 6 CLOSE: $0.173
RHB, April 6
Spackman Entertainment Group (SEG) has acquired Frame Pictures - a leading Korean movie equipment business that recorded a FY16 NPAT of US$0.8 million - for S$1.12 million and 0.497 million shares of Spackman Media Group (SMG). We believe this acquisition is positive and would be earnings-accretive for SEG.
Frame Pictures would also provide it with a more recurring business stream on top of its movie production business.
We expect SEG to bounce back into strong profitability in FY17. Our TP is now slightly lower, at $0.27, mainly due to the dilution stemming from new shares issued. Our TP, premised on 18x FY17F P/E, is corroborated by a DCF valuation.
SOUTH-EAST ASIA AGRIBUSINESS | NEUTRAL
CIMB, April 6
On Tuesday, the European Parliament voted to implement tough new palm oil resolutions, which, if enforced, would see its elimination from use in biofuels and enforce stricter regulations on production and certification throughout the EU.
We are negative on this development as this could potentially lower future EU demand for palm oil.
EU is the second-largest importer and consumer of palm oil, after India. Last year, EU imported and consumed around 7 million tonnes of palm oil.
This represents around 16 per cent of global palm oil imports and 11 per cent of consumption.
We are keeping our average CPO price forecast of RM2,600 (S$821) per tonne for 2017 as there is no certainty that the new palm oil measures will be implemented.
We expect the key producers of palm oil (Malaysia and Indonesia) to lobby against the proposed new palm oil resolutions.
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