Money Talk: ST Engineering, OUE, Wilmar International

Mr Tan Pheng Hock, president and chief executive officer (CEO) of ST Engineering. -- ST FILE PHOTO: ARTHUR LEE CH
Mr Tan Pheng Hock, president and chief executive officer (CEO) of ST Engineering. -- ST FILE PHOTO: ARTHUR LEE CH

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 Technologies Engineering (ST Engg)

Broker: OSK-DMG

In line with expectations, ST Engg reported Q1 results with $137.2 million net profit on the back of $1.55 billion revenue.

Marine growth was the most outstanding of all divisions, growing 27 per cent year-on-year to $323 million, largely due to the recognition of the Oman Navy contracts. Aerospace was the second growth sector, growing 5 per cent year-on-year to $501 million while the other two sectors shrunk.

Q1 results was hit by recognition timing issues in Electronics and Land System business. We expect these segments to pick up as this will be a back-end loaded year.

Most importantly, ST Engg's order book continued to be at a new record high, hitting $13.4 billion. Maintain Buy with target price unchanged at $4.66.

2. Overseas Union Enterprise (OUE)

Broker: OCBC

OUE reported Q1 net profit of $945.6 million, which is up more than 100 per cent year-on-year due to fair value gains from Lippo Plaza ($114.8 million) and Mandarin Orchard Singapore and Mandarin Gallery ($986.4 million), offset by an allowance for foreseeable loss of $105 million from Twin Peaks.

Adjusting for the impact of these one-time items, we estimate core Q1 net profit at $6.5 million which is broadly within expectations.

In terms of the topline, 1Q14 revenues increased 1.5 per cent to $106.9 million; this was mainly due to new contributions of the Lippo Plaza property and the US Bank tower, offset by a $9.1 million dip in property development income.

Maintain Buy. Our fair value estimate is adjusted to $2.87, from $3.32 previously, after incorporating into our model the new structure of the group after its listing of OUE Commercial Reit.

3. Wilmar International

Broker: CIMB

At its Q1 results briefing, Wilmar revealed that soybean crush margins have improved but remain in negative territory. It is more optimistic on its refining margin prospects in Q2 due to improved palm oil supplies.

The group also guided for higher palm oil production driven by better yields, but sugar milling operations may be impacted by lower sugar prices. Overall, we expect Q2's earnings to improve quarter-on-quarter.

We maintain our target price of $3.47 and Hold rating. The stock remains cheap but this is offset by the challenging operating conditions faced in some key divisions.

The stock lacks short-term catalysts due to the challenging conditions the company faces in some of its markets. But we see limited downside from the current price level as it is trading close to its book value, and we remain positive on the long-term prospects of the group.