Singapore Corporate News - 18 Apr 2008

Straits Resources to split into two units to improve prospects

Straits Resources Ltd said yesterday it will split into two units, separating its coal and other assets to improve growth prospects.

It said that its Singapore-listed Straits Asia Resources unit will hold the coal assets while Straits Resources will hold the other assets. As part of the restructure, Straits Resources will undertake a distribution in-specie of its 51 per cent shareholding of Straits Asia to shareholders, with a potential secondary listing of Straits Asia on the Australian stock exchange.

Straits Resources said in a statement that its coal assets could also potentially be acquired by Straits Asia.

'The current structure does not provide the most efficient means for the pursuit of attractive acquisition opportunities,' Milan Jerkovic, chief executive of Straits Resources, said in the statement.

'We believe the proposed structure will underpin the future growth and outlook for both Straits Resources and Straits Asia.' Straits Resources' restructuring move comes amid soaring coal prices as producers struggle to catch up with strong growth in Asian demand.

Xstrata plc, the world's largest thermal coal exporter, won a 125 per cent price increase in 2008 thermal coal contract to Japanese utility Chubu Electric earlier this month, sealing prices at US$125 a tonne.

Infrastructure constraints at all key coal-exporting nations, including Australia, Indonesia and South Africa, have prompted analysts to forecast coal prices to remain robust until around 2011.

Straits Asia chief executive Richard Ong said the restructure and potential acquisition of certain coal assets owned by its majority shareholder will expand its regional footprint and help in its strategy to becoming a 'global coal vehicle'.

Shares in Straits Asia closed 2.1 per cent higher at S$2.98 yesterday.

OCBC says growth unlikely to match last year's

OCBC Bank chief executive David Conner is 'cautiously optimistic' about the group's prospects for this year, but says its growth is unlikely to match last year's.

Net interest income - from the bank's main business of taking deposits and making loans - is still expected to grow, though at a slower pace than last year.

'We continue to see healthy loan growth. Even with interest movements - interest rates have come down in Singapore - we see our interest margin looking quite strong and healthy. We expect to see some growth on our net interest income line this year,' said Mr Conner.

But he added: 'I don't think we can match what we did last year - it was a very rapid period of growth.'

Mr Conner was responding to a question at the bank's annual shareholders meeting yesterday. A shareholder had asked him for guidance on OCBC's likely performance this year, given the current turmoil in financial markets. The bank does not give specific earnings guidance, but Mr Conner offered general comments on the outlook for the year.

For non-interest income lines of business such as securities brokerage and wealth management sales, 'given the difficulties in the investment markets, it is a little bit more difficult to replicate the results that we had last year', he said.

Overall, he said he had a 'cautiously optimistic view' for the current year.

OCBC's net interest income grew 25 per cent to $2.24 billion last year, while non-interest income - excluding divestment gains - rose 34 per cent to $1.94 billion. Net profit rose 3 per cent to $2.07 billion. The bank is due to report its 2008 first-quarter results on May 7.

Asked by another shareholder if further writedowns in the value of the bank's collateralised debt obligation or CDO holdings are possible, Mr Conner said the bank has already made provisions amounting to 85 per cent of the original value of its investments in CDOs of asset-backed securities (ABS) that had exposure to US sub-prime mortgages.

'There's a remainder of 15 per cent that could be impaired. We don't think that will happen. Having put 85 per cent away, we believe the problem is behind us.'

The bank also holds about $370 million in CDOs comprising pools of corporate debt. 'We intend to hold them to maturity and we don't expect any impairment losses', although the value of the portfolio could fluctuate in the next few quarters due to mark-to- market accounting requirements, he said.

'The majority' of the ABS CDOs held by the bank are still paying interest, he added. About half the ABS CDOs will mature in the next two years, while the rest have longer maturities.

Asked if the bank could eventually write back some of the provisions it had made for the CDO holdings, Mr Conner said: 'There is potential for recovery later, but I don't expect anything this year.'

He was also asked if the rapid expansion of its Indonesian subsidiary Bank NISP was prudent. Bank NISP added 93 branches and offices and 148 ATMs last year alone, taking its network to 352 branches and offices and 494 ATMs at the end of 2007 - triple its network size in 2004 when OCBC first acquired its stake.

Mr Conner replied that Bank NISP's strong focus on consumer banking and lending to small businesses was a very effective one.

'We concluded that if we expanded the network rapidly', expenses would go up in the short term, but 'in the longer run, we would see profits increase dramatically as each of the branches matures', he said. 'The idea was to get Bank NISP on par with the larger national banks in Indonesia so we can compete at that level.'

Still, 'we're looking to take a breather' - the Indonesian unit likely won't expand so rapidly this year, he added.

In Singapore, OCBC is one of several banks providing funding for the construction of the two integrated resorts with casinos. The exposure to each project is below $500 million, said Mr Conner in response to another question.

Shareholders approved all the resolutions put to a vote at yesterday's meeting, which was chaired by OCBC chairman Cheong Choong Kong. Two directors - OCBC vice-chairman Michael Wong Pakshong, 76, and Nasruddin bin Bahari, 70 - did not stand for re-election.

Sembcorp Marine unit strikes Brazil yard deal

SEMBCORP Marine unit Jurong Shipyard is set to play a bigger role in the booming Brazil offshore oil and gas market, with the signing of a strategic alliance agreement with Rio de Janeiro-based Mac Laren Shipyard.

The five-year agreement which is mutually renewable upon expiry paves the way for Jurong Shipyard to collaborate with Mac Laren for future offshore oil and gas related projects to be undertaken in Brazil.

The ability to gain more capacity in Brazil is important to winning contracts there because of the country's stringent local content requirements.

Jurong Shipyard will have management lead and majority share for all the projects, with Mac Laren taking a 49 per cent share and providing exclusive use of its existing shipyard facilities at Niteroi in Rio de Janeiro. The alliance agreement involves no payments to either party.

Mac Laren is a mid-size shipyard with a total land area of 408,000 square metres, comprising 128,000 sq m of waterfront land and 280,000 sq m of yard space. It is currently expanding its shipyard facilities with the construction of a new 150-metre drydock. This is scheduled for completion in the third quarter of next year and will be one of the two purpose-built drydocks in Brazil capable of drydocking semi-submersible rigs, including the largest production rigs.

The shipyard is also expanding its structural and piping workshop to 11,860 sq m and increasing its quayside length to 240 metres to accommodate the berthing of VLCC-sized FPSOs.

'The strategic alliance with Mac Laren will enable Jurong Shipyard to be a key player in Brazil's oil and gas construction industry,' said Sembcorp Marine president and chief operating officer Wong Weng Sun.

'Located in the State of Rio de Janeiro, the centre for oil and gas construction activities in Brazil, the shipyard is well positioned to leverage on the abundance of experienced workforce, offshore related materials and equipment suppliers to meet the needs of the booming offshore market in Brazil.'

Mac Laren is a specialist in the offshore oil and gas business, constructing turbo-generator and turbo-compressor modules contracted by EPC main contractors that won the contracts from Petrobras. The shipyard also constructed modules for the P51, P52, P53 and PRA1 projects.

Evergro rebounds into the black with Q1 profit of $0.1m

EVERGRO Properties, a member of Keppel Group, has posted a net profit of $101,000 for the first quarter compared with a loss of $930,000 a year ago.

Turnover for the three months ended March 31 was $9.45 million, up from $629,000 for Q1 2007. This was partly from the sales of homes in Changzhou Fushi of $4.6 million and Tianjin Fushi of $1.4 million. By contrast, there were no property sales for Q1 2007.

In addition, its two golf courses brought in revenue of $2.2 million in Tianjin and $1.2 million in Jiangyin.

Evergro said that sales for its Changzhou project continued but were not as fast as expected. Prices had, however, remained stable in Q1 2008. It also expects sales to pick up in the following quarters.

Gross profit for the quarter was $3 million. This was contributed mainly by golf course operations in Tianjin ($1.8 million) and Jiangyin ($0.7 million), and sales of residential units.

Earnings per share for the quarter was 0.02 of a cent.

For Q1 2008, cash inflows were from proceeds from sales of residential units and golf course operations, as well as borrowings from related companies. Evergro said that it invested in golf course construction and properties held for sale, and paid taxes in China.

The net cash outflow was $2.1 million, leaving a cash and deposit balance of $17.8 million.

Evergro said that the property sector in China softened in the first quarter following credit tightening in the country. 'Traditionally, first quarter property sales have always not been as good as for the other three quarters. However, the first quarter has been different due to some developers' lowering of prices, but the lowering of prices was not an industry-wide phenomenon.'

It was also noted that inflation, especially in building material costs, continues to be a concern.

'Profitability will be affected but the impact is not expected to be significant,' the company said.

Sales in Jiangyin for two blocks of around 150 apartments will be launched in Q2 2008 when the pre-sale licence is obtained. This is phase one of Evergro's mixed development. The two blocks will represent some 28,000 sq m out of a total gross floor area of 305,000 sq m.

Construction of phase two, comprising 150 units of Spanish-style semi-detached houses and terrace houses in Tianjin Evergro, has started and the pre-sale is expected in the third quarter of this year.

Evergro's stock closed unchanged at 23.5 cents yesterday.

ST Aero gets FAA certification for aircraft conversion

JUSTIFYING major client Fedex's confidence in its abilities, Singapore Technologies Engineering's aerospace arm yesterday announced it has received approval from the US Federal Aviation Administration (FAA) for its Supplemental Type Certificate (STC) on the Boeing 757-200SF passenger-to-freighter (PTF) conversion.

This STC, which is basically like a blueprint for major redesign work in aircraft, features ST Aerospace's engineering design for converting the 757-200 aircraft from a passenger-carrying configuration to a cargo aircraft. The STC is developed in-house by the group using original manufacturer licensed data. ST Aerospace's STC is the only 757-200 PTF STC based on Boeing's data.

The FAA approval demonstrates ST Aerospace's engineering design capabilities that complement its maintenance, repair and overhaul (MRO) capabilities. Logistics giant Fedex put its faith in ST Aerospace's in-house capabilities to carry out the aircraft conversion by placing a US$470 million order in January last year to convert 87 Boeing 757-200 passenger aircraft to freighters.

ST Aerospace can now use the STC, which was achieved in a relatively short 11 months from induction to approval, through its MRO companies around the world. Four aircraft have been inducted and work is ongoing on them at the group's facilities in Mobile, Alabama and Seletar. They are expected to be delivered by the end of the year.

'The approval of this STC is an important milestone in the execution of the 757-200 contract,' said ST Aerospace president Tay Kok Khiang.

Unisteel a buyout target, says analyst

SINGAPORE disk drive component-maker Unisteel Technology, which said this week it is reviewing options to boost shareholder value, has told analysts that it is a buyout target, one analyst said. Unisteel was queried by the Singapore Exchange after its share price jumped 20 per cent on Tuesday, forcing the firm to say that it was reviewing options to enhance shareholder value.

The company declined to comment on possible takeovers when contacted by Reuters, saying it was still in the preliminary stages of a review. But an analyst, who covers the stock and declined to be named, said Unisteel had told analysts that unnamed buyers, including private equity firms, had expressed interest in buying the firm.

The analyst and a trader said the unnamed buyers were likely to pay S$1.80-S$2.00 per share, which is at least a 14 per cent premium over Unisteel's last traded price of S$1.57 a share yesterday, valuing the firm at about S$800 million. Unisteel's shares fell 5.4 per cent yesterday.

A second analyst said Unisteel was an attractive target for private equity firms because of its low share price and relatively strong financial position. Unisteel trades at 11 times forward price-earnings and offers shareholders a dividend yield of around 5.4 per cent, according to Reuters data.

Technology sector peers Map Technology and Broadway Industrial trade at a P/E of 6.8 times and 4.5 times respectively. 'Unisteel has a good return-on-equity ratio and is in a healthy net cash position. This firm is also a market leader in its sector. After much consolidation in the tech industry for the past two years, you don't see a better target than Unisteel,' said the second analyst, who also declined to be identified.

Unisteel's return on equity is around 31 per cent, according to Reuters data. It had net cash of S$43.3 million at the end of 2007, according to its 2007 financial statement. Private equity firms have bought several smaller Singapore tech companies in recent years to take advantage of relatively low valuations in a market where investors were more focused on banks and property firms.

Nera profit up 10.3% in Q1 to $2.7m

NERA Telecommunications Ltd has reported a first-quarter net profit of $2.66 million, an increase of 10.3 per cent from $2.4 million a year ago. Turnover increased 7.2 per cent, from $36.4 million to $39 million. This was attributed to higher turnover from the telecommunications business with higher sales of microwave radio equipment, but offset by lower sales from the satellite business area.

KSH wins $127m Sentosa Cove project

KSH Holdings, a construction and property development as well as management group, said it has won a $126.8 million contract from Lippo Marina Collection Pte Ltd. The contract is for the construction of Lippo's luxury condominium development, Marina Collection, at Sentosa Cove. With this additional project, KSH's order book now exceeds $770 million.

MSC optimistic about commodity project

THE Straits Trading Company said its Malaysian listed unit, Malaysia Smelting Corporation Bhd (MSC), has entered into a framework agreement with Philco Resources Limited, LG International Corp and Korea Resources Corp to buy a 30 per cent stake in the Rapu Rapu copper, gold, zinc and silver project for about US$18.9 million. The project, 350 km south of Manila, was suspended in early 2008 due to high levels of debt and inter-company loans. MSC believes the project can be profitable if the debts can be restructured and sufficient funds are made available for its recommencement.