Source: OCBC report
OCBC Investment Research upgrades First Ship Least Trust to ‘buy’
Our updated discounted FCFE (free cash flow to equity) value for First Ship Lease Trust (FSLT) is S$0.84 (10% discount rate, prev: S$0.83).
In our view, the balance sheet side of the trust's challenges is mostly resolved (with conditions/pricing still uncertain). The other concern that remains (industry-wide) is counterparty risks.
We ascribe a 10% "industry uncertainty" discount to reach a fair value estimate of S$0.76 (prev: S$0.58). This implies a total return of about 28% (15% upside, 13% yield). We like FSLT because of its 1) new more sustainable business model; and 2) its diversified vessel mix of containers, tankers and dry bulk carriers.
For these reasons, FSLT is now our top pick for the sector. Upgrade to BUY.
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Marco Polo's clients includes a mining and quarry company. Photo: company.
With the addition of 25 new vessels, the two new dry-docks for the ship repair business and the sale of an AHTS vessel, Marco Polo Marine’s (MCM) earnings is projected to accelerate in FY10 by 86% and FY11 by 25%.
The first dry-dock was fully operational since Apr while the second dry-dock is expected to take in vessels in Oct. Earnings will also be supported by steady charter rates and higher margins from ship repair.
We like MPM for its solid ship chartering business with long-term established customers. The fleet expansion and fleet renewal program will drive earnings growth while keeping costs under control.
The ship repair business will be MPM’s wildcard that could spring positive surprises as both dry-docks become fully operational by Oct 09. Current valuations are attractive given MPM’s growth potential. We peg MPM at a CY10 P/E of 8x, in line with larger peers’ target multiples, which translates to a target price of S$0.51.
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DMG maintains ‘buy’ on Keppel Land
KepLand’s 2Q09 PATMI rose 10.4% YoY, helped by strong residential sales. While 1H09 PATMI of S$95.1m accounted for 53.0% of consensus estimates (in line), it formed 40.9% of DMG’s FY09 projections. Nonetheless, we expect 2H09 to account for a higher proportion of FY09F earnings, on the back of recovering property sectors in Singapore and China.
Looking ahead, we expect land acquisitions in Singapore, while its good blend of township and mid-high projects in China should ensure steady profits. Recent rights issue has improved its net gearing to 0.23x, making it the best-capitalized blue-chip developer. We maintain our BUY rating on KepLand with a target price of S$2.98, pegged at parity to base case end-FY10 RNAV.
