SUNNINGDALE TECH

Broker: CIMB

Call: Buy

Target Price: $1.49

Sunningdale Tech, an experienced player in the precision plastic injection moulding and mould making industry, gets 80 per cent of its revenue from 30 customers, while the top 10 customers account for 50 per cent of revenue.

In financial year 2014, the firm completed the acquisition of First Engineering, propelling it close to the ranks of the top 10 plastic injection moulders in North America, enlarging its global footprint to 18 manufacturing locations in nine countries.

But the group could itself pique private equity's unsolicited interest, given its current revenue size, its global footprint and fragmented shareholding.

Although our base case forecasts assume an unchanged 13.5 per cent gross profit margin over financial years 2016 to 2018, the company could surprise on the upside, as economies of scale and better manufacturing presence lead to margin expansion. This would improve return on equity and could just be the catalysts for a re-rating.

VARD HOLDINGS

Broker: OCBC Investment Research

Call: Hold

Target Price: 20 cents

Since May last year, the stock price of Vard Holdings has lost about 65 per cent of its value, compared with the 37 per cent drop in the FTSE Oil and Gas Index, and the 25 per cent fall in the FTSE Maritime Index.

The year 2015 was the group's first year of loss after the 2008 financial crisis, which is not surprising given that Vard is facing the dual challenge of a severe cyclical downturn in its core offshore support vessel market, and having to manage its troubled Brazil operations.

At the end of financial year 2015, Vard's order book amounted to Norwegian Kroner (NOK) 10.23 billion (S$1.7 billion), down from NOK 14.01 billion at the end of the third quarter of that year. For 2016, the group has guided revenue of between NOK 8 and 9 billion.

Vard has increased its focus on obtaining orders from other sectors like fisheries and aquaculture. Cost reduction and efficiency improvement programmes are being intensified to enhance the group's competitiveness in core and new markets.

KEPPEL CORP

Broker: Maybank Kim Eng

Call: Sell

Target Price: $4.42

Keppel's recent surge from its $4.71 low was driven purely by oil price sentiments. This is unsustainable as rig building fundamentals have not improved and earnings per share is likely to be subjected to further consensus downgrades in the financial year 2016.

The world's biggest rig owner, Transocean, delayed delivery dates of five jackups from Keppel from 2018 to 2020. It also said rig day rates will not rise until 2019.

Historically, Keppel's share price correlates with the price of oil. Past oil rallies brought about fresh rig orders and clear visibility for rig builders to deliver earnings per share growth.

But an oil price rebound to a US$40-US$50 per barrel level this time round is unlikely to be sufficient to generate confidence for new rig orders. The industry also has to deal with a rig supply glut. The estimated earnings per share for financial year 2016 to 2017 is cut by 6 per cent to 7 per cent.