CITY DEVELOPMENTS

Broker: CIMB

Call: Buy

Target price: $12.54

City Developments (CDL) and Hong Realty, the private real estate arm of the Hong Leong Group, have won the Amber Park en bloc tender. The tender was keenly contested, attracting eight submissions.

The price of $906.7 million works out to be $1,515 per square foot (psf) per plot ratio. CDL will take 80 per cent of the project while Hong Realty will take the remaining 20 per cent.

At this price level, this will be the largest freehold collective sale by dollar value in Singapore to date.

CDL and Hong Realty plan to redevelop the land parcel into a luxurious development comprising approximately 800 condo units.

Amber Park sits on a 213,675 sq ft piece of land with a potential gross floor area of 598,290 sq ft. Located along the Amber Road enclave in the East Coast area, the site is close to the beach, notable schools and shopping amenities as well as being highly accessible to the upcoming Tanjong Katong MRT station and highways.

This transaction would enable CDL to replenish its Singapore land inventory. Based on the land price, we estimate breakeven cost to be about $2,000-$2,100psf. This compares with transacted prices of developments within the vicinity of $1,600-$2,200psf over the past few months.

Assuming an estimated selling price of $2,200psf, we estimate this project could add five cents to CDL's revalued net asset value.

SEMBCORP MARINE

Broker: DBS Group Research

Call: Buy

Target price: $2.30

Sembcorp Marine announced that it has terminated contracts with Integradora de Servicios Petroleros Oro Negro, SAPI de CV and its subsidiary Oro Negro Vastus (collectively "Oro Negro") for the construction of three jack-up rigs.

These high-specification rigs were priced at approximately US$211 million (S$287.6 million) each in 2012/2013.

Based on accounting practices, Sembcorp Marine will most likely reverse the revenue previously recognised following the contract terminations.

The likelihood of further profit reversals resulting from the cancellations is low, as provisions made for these units in the fourth quarter of 2015 should suffice for now.

Coupled with the 20 per cent down payment that will be forfeited, there is a substantial buffer of 30 per cent discount to the contract value.

An increase in rig transactions in the global oil and gas industry over the past six months - with new entrants, North Drilling and Borr Drilling, looking for distressed assets - coupled with firm oil prices add to the optimism and could speed up the process of rig sales.

This will unlock cash flow for the shipyards.