Money Talk: Singapore Post, Biosensors, offshore & marine sector

Singapore Post branch. -- PHOTO: SINGAPORE POST LIMITED
Singapore Post branch. -- PHOTO: SINGAPORE POST LIMITED

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Singapore Post (SingPost)

Broker: CIMB

Alibaba plans to invest $312.5 million in SingPost for the purchase of 30 million existing treasury shares and 190 million new ordinary shares at $1.42/share. This gives Alibaba a 10.35 per cent stake in SingPost, making it the second largest shareholder behind SingTel.

The two parties also signed a memorandum of understanding to negotiate a potential joint venture that will create a platform for international e-commerce logistics.

SingPost's strategic partnership with Alibaba opens doors via access to funds for larger-scale mergers and acquisitions (M&As) and the opportunity to leverage on Alibaba's customer base to scale up its regional e-commerce logistics operations.

SingPost is showing steady progress in transforming into a regional e-commerce logistics player, and its collaboration with Alibaba will provide it with fuel to expand more aggressively in the region, with stronger earnings growth potential both organically and via M&As.

Maintain Add with a target price of $1.86.

2. Biosensors International Group (BIG)

Broker: OCBC

BIG's Q4 core net profit dipped 63.7 per cent year-on-year to US$10.8 million, falling short of our below-consensus expectations. Another disappointment came from its decision to not declare any dividends.

Looking ahead, management did not provide any revenue guidance for FY2015 given the weak visibility. Meanwhile, BIG also announced the appointment of a new CEO, and this will take effect from Nov 1.

We pare our FY2015 revenue and forecasts by 8 per cent and 18 per cent, respectively, and introduce our FY2016 projections.

We maintain our Sell rating on BIG given its rich valuations and unexciting near-term outlook.

3. Offshore and marine sector

Broker: OSK-DMG

A rapidly-declining global energy return on investment ratio suggests higher oil prices in the long run. A third of production now takes place offshore, with a tenth in deepwater, making the offshore sector too important to be substantially reduced without a major oil price dislocation.

The jackup rig market is still tight with non-competitive rigs commanding US$110,000 day rates, giving us confidence that the market will be able to absorb the new supply coming in 2014-2015. The offshore support vessel (OSV) market looks increasingly under-supplied with the ratio of OSVs to active rigs falling.

Under these conditions, strategically, we prefer shallow-water market players with high growth and low valuations, offering a free lunch to investors by offering higher expected returns while taking lower risk.

Our top picks are Nam Cheong (Buy, target price $0.52), Ezion (Buy, target price $3.00), MTQ Corp (Buy, target price $2.48), Pacific Radiance (Buy, target price $1.43) and Sembcorp Marine (Buy, target price $5.00). Maintain Overweight on the offshore & marine sector.