Singapore Corporate News - 3 Sep 2007

Cosco, KepCorp, SIA top Merrill's Sept choice list

BLUECHIP counters Cosco Corp, Keppel Corp and Singapore Airlines are Merrill Lynch's most preferred stocks for the month of September.

The investment house says that these stocks have high earnings visibility as well as short-term catalysts - and has recommended them to investors with a short-term time horizon.

At the other end of the spectrum, Chartered Semiconductor Manufacturing, MobileOne and Singapore Petroleum Company are its least preferred stocks.

These two sets of stocks formed the first of Merrill Lynch's monthly list of most and least preferred equity targets for Singapore.

'The six stocks recommended are consistent with our fundamental 12-month outlook, (but) this monthly list is intended for investors with a short-term time horizon,' it says in a research report.

'While we continue to like Singapore's long-term structural growth story, we are mindful of the short-term volatility created by external factors that may take some time to digest,' it adds.

Shipbuilder and bulk carrier Cosco Corp topped its list of short-term plays.

'Cosco's offshore strategy is primed to take off and reap dividends after two years of strategic planning and execution; (its) order book has surged to over S$6 billion in just the past year with more orders likely to follow; (and) we forecast earnings to register a CAGR (compounded annual growth rate) of 42 per cent with strong potential for upside surprises,' Merrill Lynch says.

It has put a price objective of S$5.90 for Cosco, which closed at S$5.05 on Friday.

Merrill Lynch also favours Keppel Corp, which it says has strong fundamentals that have supported a rising return-on-equity trend over the past five years, along with record profits.

It also believes that KepCorp will benefit from the strong outlook for Asian property underpinned by economic growth.

The conglomerate is heavily latched onto the surging offshore cycle, giving it the potential to pad its S$11 billion order book.

Merrill Lynch expects KepCorp to rise to S$16. The stock last traded at S$12.80.

Singapore Airlines rounds up the investment house's recommended trio that investors ought to put money in.

'Expect a big cash return by early October,' it says. 'One in 15 SIA shares will be cancelled in return for S$18.46 in cash.'

SIA's decision to buy into China Eastern Airlines will give the Singapore carrier a foothold in China - a positive development, Merrill Lynch says.

It also points to SIA's potential sale of its 49 per cent stake in Virgin Atlantic and another distribution of cash to shareholders.

Merrill Lynch has set its price objective for SIA at S$22.80. The stock closed at S$19 on Friday.

Meanwhile, Chartered Semiconductor Manufacturing heads the list of Merrill Lynch's least preferred stocks.

The investment house believes that the semiconductor foundry has a high earnings risk due to slow inventory digestion and market share losses at computer processor maker AMD.

Merrill Lynch also expresses worry over Chartered's high depreciation costs and order cancellations - which will hurt profit margins - and the fact that the stock is trading at a premium to its Taiwanese peers.

Chartered shares closed at S$1.08 on Friday.

Telco M1 is also on Merrill Lynch's list of least preferred stocks, with the company continuing to be squeezed by bundled offers from rivals SingTel and StarHub.

Mobile number portability, to be introduced by the second quarter of next year, is also something to watch out for, Merrill Lynch says.

M1's stock closed at S$2.11 last week.

Merrill Lynch's report also warns investors about Singapore Petroleum Company (SPC), with regional refining margins having dropped to US$6 a barrel in recent weeks, from US$13 a barrel in May.

'SPC's share price has still not reflected this,' the report says.

Merrill Lynch also cites the lack of exploration and appraisal drilling this year, and the potential merger and acquisition activity in Australia as factors to watch out for.

SPC shares closed at S$5.90 on Friday.

SIA, Temasek get 24% stake in China Eastern

AFTER a courtship lasting more than a year, Singapore Airlines (SIA) and parent company Temasek Holdings yesterday secured a 'strategic' 24 per cent stake in China's third-largest carrier, China Eastern.

The long-awaited tie-up with the Shanghai-based airline is expected to help SIA establish a vital foothold in a major Chinese aviation hub, and better tap into one of the world's biggest and fastest growing aviation markets.

SIA currently runs 69 direct flights a week between Singapore and China, of which 35 are to Shanghai - making China Eastern the obvious candidate for the 'strategic tie-up'.

The Singapore carrier will pay HK$4.69 billion (S$916.9 million) for a 15.7 per cent stake in China Eastern, while Temasek will pay HK$2.47 billion for a 8.3 per cent stake. The two Singapore companies will gain three seats on the Chinese carrier's expanded 14-seat board.

The deal was approved by the central government last month, and would take another two to three months for other Chinese agencies such as the Commerce Ministry and the General Administration of Civil Aviation of China to grant the formal approvals.

Analysts cautioned against expectations of quick returns, pointing out that China Eastern - the weakest of the country's three major airlines - is just beginning to turn a corner after losing money for the last two years.

The Chinese airline reported a net profit of 58.21 million yuan (S$1.05 million) in the first half of this year, compared with a 1.34 billion yuan loss a year earlier.