Money Talk: Sembcorp Industries, Fraser & Neave, RH Petrogas

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. Sembcorp Industries (SCI)

Broker: Maybank Kim Eng

SCI's Q2 net profit of $179 m (up 8.3 per cent year-on-year, down 3.1 per cent quarter-on-quarter) lifted first-half net profit by 6 per cent year-on-year to $363.9 million. This formed about 45 per cent of our and consensus FY2014 forecasts.

We expect a stronger second half with maiden contributions from its new Banyan cogen plant (started in July) and the recognition of more rig-building contracts by Marine. SCI declared an interim dividend for the first time, of five cents.

Domestic power operations remained suppressed by low spark spreads, which fell 30 per cent year-on-year, due to intense competition. Overseas operations mitigated the weakness. While management believes that spark spreads have stabilised, it said there could be further price pressure from 2015.

SCI intends to focus on its overseas projects to offset the domestic market pressure. Over 3,000MW of new power capacity and 1.7m cubic metres a day of new water capacity should come onstream in 2014-16.

Our forecasts are largely intact. Maintain Hold with our target price trimmed to $5.03 from $5.11.

2. Fraser & Neave

Broker: CIMB

Net profit for the first nine months of the current financial year beat expectations as sales and margins were higher than expected. The deviation was due to 1) better-than-expected sales and margins from the beer business, 2) lower input costs and 3) strong performance of Dairies Malaysia.

Third-quarter net profit met 35.5 per cent of our full-year estimates and 22 per cent of consensus. Net profit for the first nine months formed 94 per cent of our FY2014 forecast.

We lift our FY2014-2016 core earnings per share by 22 per cent to 28 per cent due to strong beer earnings, and raise our target price to $3.33 for the same reason.

We upgrade to Add from Reduce due to earnings improvements. Potential catalysts are 1) good news on the arbitration situation, 2) synergies with ThaiBev kicking in and 3) corporate restructuring to turn F&N into a non-alcoholic listing company of the Charoen empire.

3. RH Petrogas

Broker: OSK-DMG

RH Petrogas' Q2 results were healthy with about 4,300 boe per day of production and EBITDAX (earnings before interest, tax, depreciation, amortisation and exploration expenses) of US$8.2 million (up 43 per cent quarter-on-quarter, up 6 per cent year-on-year).

We believe the Fuyu-1 approval has been delayed by the corruption trials in China, and expect the final stamp after its conclusion.

Meanwhile, the stock looks undervalued relative to its peers considering its 71 per cent oil assets. As RH Petrogas' share price has retraced 21 per cent from its recent high and now offers 61 per cent upside, we add the stock to our top alpha list.

Maintain Buy, with a revised $1.21 target price (from $1.23).