Money Talk: Keppel Corp, UOL Group, Yongnam

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. Keppel Corp

Broker: Maybank Kim Eng

Keppel's Q1 net profit of $338.7 million came in largely within our expectations, meeting 21 per cent of our full-year estimate. The offshore & marine (O&M) segment remains the largest net profit contributor at 78 per cent, posting 11 per cent growth year-on-year. All other segments, however, marked a decline, albeit due to one-offs a year ago.

On new contract wins, management remains optimistic and we expect it will meet our full-year projection of $6.2 billion. Keppel has already secured $1.9b of new orders in 1Q14, achieving 31 per cent of our full-year forecast. Its net orderbook is also at a new record high of $14.4 billion, with deliveries extending through to 2019.

Keppel's proactive approach to developing its "Near Market, Near Customer" strategy via inroads into Mexico and China, as well as product innovations, should help it stay ahead of competition in the offshore space. We keep our estimates and sum of the parts-based target price of $12.48 unchanged. Reiterate Buy.

2. UOL Group

Broker: OCBC

On Wednesday evening, a consortium comprising UOL Venture Investments and Kheng Leong put in the top bid of $463.1 million in the government land sales tender for a residential land parcel at Prince Charles Crescent (Parcel B).

UOL's top bid translates to a price of $821 per sq ft of gross floor area, and we forecast breakeven and selling prices for this project at $1,350 psf and $1,600 psf, respectively. These estimates are fairly in line with prices at nearby Alex Residences and Echelon, and the selling price yields a reasonable margin of 16 per cent.

We note that UOL's top bid of $821 psf GFA is 15 per cent lower than that for the neighboring site awarded in Sep-12 and reflects falling land prices given a weakening housing outlook. Pending the award of the site, our fair value estimate remains unchanged at $6.95. Maintain Buy.

3. Yongnam Holdings

Broker: OSK-DMG

We initiate coverage on Yongnam with Buy and a revalued net asset value (RNAV)-based target price of $0.29 (with a 20 per cent upside).

Yongnam is in a sweet spot, being a strong proxy to the infrastructure boom, a potential steel construction boom and the wave of a productivity drive in Singapore. As a market leader in the structural steelwork space in Singapore, Yongnam is poised to benefit from a strong wave of incoming infrastructure projects (estimated at $31 billion to $38 billion in 2014), a trend of steel construction displacing reinforced concrete, and a new wave of national productivity drive that favours construction materials such as prefabricated steel.

Although its share price has taken a beating due to its earnings underperformance in FY13, we expect an operational recovery from the second half of FY2014 with improved margins. Its orderbook is at a healthy $340 million (94 per cent of FY2013 revenue). We believe the market has overpriced the execution risks relating to Yongnam's projects, as we think it would be unlikely for the company to incur annual losses in FY2014 and FY2015.

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