Deutsche Bank lowers S'pore palm stock target prices on back of cuts to CPO price forecasts. Says, "our increasingly bearish outlook for crude oil prices suggests that while biodiesel demand is likely to grow, it may not provide much price-related respite as an abundant CPO inventory may need more discounts to stimulate biofuel demand."
Cuts Wilmar target to $3.60 from $4.00; maintains Buy rating. Cuts Golden Agri target to $0.14 from $0.16; maintains Sell rating. Cuts Indofood Agri target to $0.43 from $0.47; maintains Hold rating. Cuts First Resources target to $0.22 from $0.25; maintains Hold rating.
Saturday, October 25, 2008
Saturday, October 18, 2008
STX PO downgraded on drop in BDI
STX Pan Ocean fell as drop in Baltic Dry Index (BDI), worries over reports that company has defaulted on charter hire contract weigh. CIMB notes Lloyd's List has reported that dry bulk shipper had returned a chartered-in vessel 2 months early, ship owner has launched legal proceedings to recover lost charter income. "This development stocks our deepest fears, the scope of the problem could be massive," says broker; warns charter-in strategy at risk of generating large losses, latest development suggests STX Pan Ocean may have been caught out by falling freight rates, be paying more to rent chartered-in ships that it can get back in chartering them out. Broker downgrades stock to Underperform from Trading Buy, cuts target price to $0.89 from $1.64.
Forward curve doesn't offer any clues to possible rebound in Baltic Dry Index, which down another 6.7% overnight, says Imarex. "One of these days these numbers (forward freight agreements) will show promise - though today is not that day. More reports of falling ore prices and declining demand for steel can be readily found. Until that changes - I don't expect to see the futures shine any uplifting light on the (dry bulk) sector," says analyst in report. On bright side, Imarex says reports of Capesize ships being laid up in port, while obviously reflecting market weakness, are "part of the self-correcting mechanism that shipping markets - and all markets - possess."
Forward curve doesn't offer any clues to possible rebound in Baltic Dry Index, which down another 6.7% overnight, says Imarex. "One of these days these numbers (forward freight agreements) will show promise - though today is not that day. More reports of falling ore prices and declining demand for steel can be readily found. Until that changes - I don't expect to see the futures shine any uplifting light on the (dry bulk) sector," says analyst in report. On bright side, Imarex says reports of Capesize ships being laid up in port, while obviously reflecting market weakness, are "part of the self-correcting mechanism that shipping markets - and all markets - possess."
Nomura upgrades Wilmar and Golden Agri-Resources
Nomura upgrades Wilmar to Strong Buy from Buy, says company's integrated business model means it should have resilient earnings growth despite lower crude palm oil (CPO) prices. Says, "while lower CPO prices hurt its upstream business, the segment accounts for only 20% of total profit;" adds lower palm oil prices actually benefit downstream division. Cuts target price to $3.50 from $4.90 due to lowered sum-of-the-parts valuation to reflect recent de-rating in overall market. But says new, lower target still offers substantial upside, stock trades on undemanding FY09 PE of only 10x, at discount to upstream Malaysian plantation stocks and leading food & beverage stocks in China.
Nomura ups Golden Agri-Resources to Strong Buy from Buy, says plantation firm's above-average production growth should cushion it from lower crude palm oil prices; "we are now undeniably riding a CPO price down cycle, which could last for at least another year." Cuts FY08-10 earnings forecasts 17-37% to reflect reduced CPO price assumptions; cuts target to $0.41 from $0.79. But "Golden Agri's above-average crop output growth of 8-14% per annum, versus the peer average of 4% per annum, should mitigate the earnings downside." Adds stock looks heavily undervalued, trading on PE of only 4x.
Nomura ups Golden Agri-Resources to Strong Buy from Buy, says plantation firm's above-average production growth should cushion it from lower crude palm oil prices; "we are now undeniably riding a CPO price down cycle, which could last for at least another year." Cuts FY08-10 earnings forecasts 17-37% to reflect reduced CPO price assumptions; cuts target to $0.41 from $0.79. But "Golden Agri's above-average crop output growth of 8-14% per annum, versus the peer average of 4% per annum, should mitigate the earnings downside." Adds stock looks heavily undervalued, trading on PE of only 4x.
Sino-Env : concerns over equity swap
Sino-Environment down 18.1% at $0.385 on strong volume on concerns over possible mark-to-market loss from company's equity swap. China-based firm announced in Jun $149 million convertible bond issue due Jul '13 with 4% coupon, concurrent equity swap with Morgan Stanley at $1.8276/share as hedging tool. Swap will result in loss for company if share price falls during tenure. "This loss will be booked in their P&L statement and impact their accounting profit," says analyst; "on hindsight, a lot of people can question why they went into this, but in this current market condition, I don't think someone of their status can get a loan at 4% without going into all these complicated financing arrangements." Adds share price also hurt by ongoing redemption by funds. 3Q08 results expected in Nov.
Deutsche Bank initiates plantation stocks
Deutsche Bank sets $0.16 target price for Golden Agri.
Deutsche Bank starts First Resources at Hold, sets $0.25 target price. Says company is pure plantation play, has highest leverage to CPO prices among S'pore-listed palm plays. Broker is bearish on CPO prices in near term but says this has been priced in by stock's recent correction. Adds large percentage of company's plantation acreage is moving into prime production over next 3-4 years, should boost output; company's small size, discount to assets may make it takeover candidate.
Deutsche Bank initiates Indofood Agri at Hold, sets $0.47 target price. Broker is positive on plantation company's long-term prospects as is market leader in Indonesia, can leverage on extensive sales distribution network established by controlling shareholder PT Indofood Sukses Makmur. Also says valuations reasonable, but is cautious on stock in near-term due to falling crude palm oil (CPO) prices, expects consensus earnings estimates to be cut. Says, "given that the bulk of its profits are driven by CPO pricing, we expect earnings to dip by 31% in '09 before picking up in '10." Adds, "Indofood has a net debt of 40%, which is not favourable given the current negative sentiment for companies with high gearing."
Deutsche Bank starts First Resources at Hold, sets $0.25 target price. Says company is pure plantation play, has highest leverage to CPO prices among S'pore-listed palm plays. Broker is bearish on CPO prices in near term but says this has been priced in by stock's recent correction. Adds large percentage of company's plantation acreage is moving into prime production over next 3-4 years, should boost output; company's small size, discount to assets may make it takeover candidate.
Deutsche Bank initiates Indofood Agri at Hold, sets $0.47 target price. Broker is positive on plantation company's long-term prospects as is market leader in Indonesia, can leverage on extensive sales distribution network established by controlling shareholder PT Indofood Sukses Makmur. Also says valuations reasonable, but is cautious on stock in near-term due to falling crude palm oil (CPO) prices, expects consensus earnings estimates to be cut. Says, "given that the bulk of its profits are driven by CPO pricing, we expect earnings to dip by 31% in '09 before picking up in '10." Adds, "Indofood has a net debt of 40%, which is not favourable given the current negative sentiment for companies with high gearing."
Straits Asia received credit facility
Straits Asia Resources said Fri that it received a US$300 million financing commitment from Standard Chartered Bank.
The 18-month credit facility will be used to refinance an existing US$230 million bridge loan due in Dec and for future capital requirements, the coal producer said in a statement.
Financial terms of the new facility weren't disclosed.
The 18-month credit facility will be used to refinance an existing US$230 million bridge loan due in Dec and for future capital requirements, the coal producer said in a statement.
Financial terms of the new facility weren't disclosed.
Friday, October 17, 2008
Will rate cuts halt equities slide?
Investor Marc Faber said a series of coordinated interest-rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won't halt a worldwide slide in equities.
"Artificially low interest rates" that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns and Lehman Brothers, according to Faber, who predicted the 1987 stock-market crash.
"The slashing of interest rates will not help very much," Faber, said in an interview in Manila. "They may cushion somewhat the decline but make matters worse."
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets.
The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27%
The decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937. Policy makers are aiming to unfreeze credit markets after the premium on the 3-month London interbank offered rate over the Fed's main rate doubled in 2 weeks to a record.
Policy makers are reducing rates as economies weaken around the world. The International Monetary Fund said the global economy is heading for a recession in '09 and increased its estimate of losses from the financial crisis to US$1.4 t.
The Fed cut its key rate to 1.5%, a level last seen in Sep '04. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.
"Had central banks around the world kept interest rates that encourage saving we won't have these problems today,'' the investor said.
Faber, publisher of the Gloom, Boom & Doom report, told investors to sell U.S. stocks a week before 1987's so-called Black Monday crash, according to his Web site, and recommended buying gold at the start of its 6-year rally.
"Artificially low interest rates" that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns and Lehman Brothers, according to Faber, who predicted the 1987 stock-market crash.
"The slashing of interest rates will not help very much," Faber, said in an interview in Manila. "They may cushion somewhat the decline but make matters worse."
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets.
The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27%
The decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937. Policy makers are aiming to unfreeze credit markets after the premium on the 3-month London interbank offered rate over the Fed's main rate doubled in 2 weeks to a record.
Policy makers are reducing rates as economies weaken around the world. The International Monetary Fund said the global economy is heading for a recession in '09 and increased its estimate of losses from the financial crisis to US$1.4 t.
The Fed cut its key rate to 1.5%, a level last seen in Sep '04. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.
"Had central banks around the world kept interest rates that encourage saving we won't have these problems today,'' the investor said.
Faber, publisher of the Gloom, Boom & Doom report, told investors to sell U.S. stocks a week before 1987's so-called Black Monday crash, according to his Web site, and recommended buying gold at the start of its 6-year rally.
Cosco upgraded by Kim Eng but not Deutsche Bank
Even as Kim Eng upgraded Cosco to buy on low valuations of just 2.7X FY09 P/E with $1.95 target price, Deutsche Bank initiates at Sell, sets $0.50 target price. Broker says company faces inevitable exposure to shipbuilding down cycle; "risks are high, with a potential industry overbuild of bulk carriers, difficulty in securing financing, which has contributed to fewer new order wins, a potential shipyard capacity overbuild and steel price volatility." Adds, "year to date new orders have collapsed for Cosco, and we believe they are at the cusp of an unprecedented industry downturn." Says stock still trading at premium to regional peers.
Deutsche Bank also initiates Yangzijiang at Sell, sets $0.21 target price. Broker warns stock very leveraged to shipbuilding supercycle reversal; "industry risks are high and any order cancellations, shipyard failures, decline in vessel prices, or news on inability to secure financing, would be viewed as negative catalysts." Says new orders have fallen sharply, expects weakness to persist, customers may face financing difficulties, execution of contracts remains a worry. Adds shares still trading at premium to other China shipyards.
Deutsche Bank also initiates Yangzijiang at Sell, sets $0.21 target price. Broker warns stock very leveraged to shipbuilding supercycle reversal; "industry risks are high and any order cancellations, shipyard failures, decline in vessel prices, or news on inability to secure financing, would be viewed as negative catalysts." Says new orders have fallen sharply, expects weakness to persist, customers may face financing difficulties, execution of contracts remains a worry. Adds shares still trading at premium to other China shipyards.
Sunday, October 12, 2008
Iceland teeters on the brink of bankruptcy
This volcanic island near the Arctic Circle is on the brink of becoming the first "national bankruptcy" of the global financial meltdown.
Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams.
The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes — their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.
"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.
The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.
"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.
A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.
One of Iceland's biggest companies, retailing investment group Baugur, owns or has stakes in dozens of major European retailers — including enough to make it the largest private company in Britain, where it owns a handful of stores such as the famous toy store Hamley's.
Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups.
Thousands of Britons have accounts with Icesave, the online arm of Landsbanki that regulators said was likely to file for bankruptcy after it stopped permitting customers to withdraw money from their accounts Tuesday.
To try to wrest control of the spiraling situation, the government also loaned US$680 m to Kaupthing to tide it over and said it was negotiating a US$5.4 b loan from Russia to shore up the nation's finances.
The speed of Iceland's downfall in the week since it announced it was nationalizing Glitnir bank, the country's 3rd largest, caught many by surprise despite warnings that it was the "canary in the coal mine" of the global credit squeeze.
Famous for its cod fishing industry, geysers, moonscape and the Blue Lagoon, Iceland was the site of the Cold War showdown in which Bobby Fischer of US defeated Boris Spassky of the Soviet Union in 1972 for the world chess championship. Last year, Iceland won the U.N.'s "best country to live in" poll, with its residents deemed the most contented in the world. No more.
Despite sunny skies Tue after 3 days of unseasonably cold weather, Reykjavik's mood remained grim — cafes were half-empty, real estate agents sat idle, and retailers reported few sales.
Icelanders are also beginning to question how a relative few were able to generate the disproportionate wealth — and associated debt — that Haarde has warned puts the entire country at risk of bankruptcy.
Iceland's reinvention from the poor cousin in Europe to one of the region's wealthiest countries dates to the deregulation of the banking industry and the creation of the domestic stock market in the mid-1990s.
Those free market reforms turned Iceland from a conservative, inward-looking country to one of a new generation of internationally educated young businessmen and women who were determined to give Iceland a modern profile far beyond its fishing base.
Entrepreneurs become its greatest export, as banks and companies marched across Europe and their acquisition wallets were filled by a stock market boom and a well-funded pension system.
Among the purchases were the iconic Hamley's toy store and the West Ham soccer team.
Back home, the average family's wealth soared 45% in half a decade and gross domestic product rose at around 5% a year.
But the whole system was built on a shaky foundation of foreign debt. The country's top 4 banks now hold foreign liabilities in excess of US$100 b, debts that dwarf Iceland's gross domestic product of US$14 b
Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than US$5.25 b racked up by Kaupthing in 5 years to help fund British deals.
Iceland is unique "because the sheer size of its financial sector puts it in a vulnerable situation, and its currency has always been seen as a high risk and high yield," said Venla Sipila, a senior economist at Global Insight in London.
The krona is suffering in part from a withdrawal by a falloff in what are called carry trades — where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country where returns, and often risks, are higher.
After watching the free-fall for several days, the Central Bank of Iceland stepped in Tue to fix the exchange rate of the currency at 175 — a level equal to 131 krona against the euro.
Haarde said he believed the measures had renewed confidence in the system. He also was critical of the lack of an Europe-wide response to the crisis, saying Iceland had been forced to adopt an "every-country-for-itself" mentality.
He acknowledged that Iceland's financial reputation was likely to suffer from both the crisis and the response despite strong fundamentals such as the fishing industry and clean and renewable energy resources.
As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been "victims of external circumstances."
Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.
"I believe it is absolutely wrong to say these banks were reckless," said. "Quite the contrary. They were hugely unlucky."
Home to just 320,000 people on a territory the size of Kentucky, Iceland has formidable international reach because of an outsized banking sector that set out with Viking confidence to conquer swaths of the British economy — from fashion retailers to top soccer teams.
The strategy gave Icelanders one of the world's highest per capita incomes. But now they are watching helplessly as their economy implodes — their currency losing almost half its value, and their heavily exposed banks collapsing under the weight of debts incurred by lending in the boom times.
"Everything is closed. We couldn't sell our stock or take money from the bank," said Johann Sigurdsson as he left a branch of Landsbanki in downtown Reykjavik.
The government had earlier announced it had nationalized the bank under emergency laws enacted to deal with the crisis.
"We have been forced to take decisive action to save the country," Prime Minister Geir H. Haarde said of those sweeping new powers that allow the government to take over companies, limit the authority of boards, and call shareholder meetings.
A full-blown collapse of Iceland's financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.
One of Iceland's biggest companies, retailing investment group Baugur, owns or has stakes in dozens of major European retailers — including enough to make it the largest private company in Britain, where it owns a handful of stores such as the famous toy store Hamley's.
Kaupthing, Iceland's largest bank and one of those whose share trading was suspended last week to stop a huge sell-off, has also invested in European retail groups.
Thousands of Britons have accounts with Icesave, the online arm of Landsbanki that regulators said was likely to file for bankruptcy after it stopped permitting customers to withdraw money from their accounts Tuesday.
To try to wrest control of the spiraling situation, the government also loaned US$680 m to Kaupthing to tide it over and said it was negotiating a US$5.4 b loan from Russia to shore up the nation's finances.
The speed of Iceland's downfall in the week since it announced it was nationalizing Glitnir bank, the country's 3rd largest, caught many by surprise despite warnings that it was the "canary in the coal mine" of the global credit squeeze.
Famous for its cod fishing industry, geysers, moonscape and the Blue Lagoon, Iceland was the site of the Cold War showdown in which Bobby Fischer of US defeated Boris Spassky of the Soviet Union in 1972 for the world chess championship. Last year, Iceland won the U.N.'s "best country to live in" poll, with its residents deemed the most contented in the world. No more.
Despite sunny skies Tue after 3 days of unseasonably cold weather, Reykjavik's mood remained grim — cafes were half-empty, real estate agents sat idle, and retailers reported few sales.
Icelanders are also beginning to question how a relative few were able to generate the disproportionate wealth — and associated debt — that Haarde has warned puts the entire country at risk of bankruptcy.
Iceland's reinvention from the poor cousin in Europe to one of the region's wealthiest countries dates to the deregulation of the banking industry and the creation of the domestic stock market in the mid-1990s.
Those free market reforms turned Iceland from a conservative, inward-looking country to one of a new generation of internationally educated young businessmen and women who were determined to give Iceland a modern profile far beyond its fishing base.
Entrepreneurs become its greatest export, as banks and companies marched across Europe and their acquisition wallets were filled by a stock market boom and a well-funded pension system.
Among the purchases were the iconic Hamley's toy store and the West Ham soccer team.
Back home, the average family's wealth soared 45% in half a decade and gross domestic product rose at around 5% a year.
But the whole system was built on a shaky foundation of foreign debt. The country's top 4 banks now hold foreign liabilities in excess of US$100 b, debts that dwarf Iceland's gross domestic product of US$14 b
Those external liabilities mean the private sector has had great difficulty financing its debts, such as the more than US$5.25 b racked up by Kaupthing in 5 years to help fund British deals.
Iceland is unique "because the sheer size of its financial sector puts it in a vulnerable situation, and its currency has always been seen as a high risk and high yield," said Venla Sipila, a senior economist at Global Insight in London.
The krona is suffering in part from a withdrawal by a falloff in what are called carry trades — where investors borrow cheaply in a country with low rates, such as Japan, and invest in a country where returns, and often risks, are higher.
After watching the free-fall for several days, the Central Bank of Iceland stepped in Tue to fix the exchange rate of the currency at 175 — a level equal to 131 krona against the euro.
Haarde said he believed the measures had renewed confidence in the system. He also was critical of the lack of an Europe-wide response to the crisis, saying Iceland had been forced to adopt an "every-country-for-itself" mentality.
He acknowledged that Iceland's financial reputation was likely to suffer from both the crisis and the response despite strong fundamentals such as the fishing industry and clean and renewable energy resources.
As regular Icelanders begin to blame the government and market regulators, Haarde said the banks had been "victims of external circumstances."
Richard Portes of the London Business School agreed, noting the banks were well-capitalized and had not bought any of the toxic debt that has brought down banks elsewhere.
"I believe it is absolutely wrong to say these banks were reckless," said. "Quite the contrary. They were hugely unlucky."
Thursday, October 9, 2008
Why Hyflux plunged?
Some traders attribute Hyflux's pullback to note from KE calling for Trading Sell with downside target of $2.02, while others say concerns about Hyflux Water Trust not being able to secure funds to buy 9 of its China-based water treatment plants may be weighing on stock. Hyflux granted trust first right of refusal in Jun to acquire plants, valued at $180 m, saying move in line with strategy to monetize assets. Proposed divestment subject to shareholders' approval but no update provided since then.
DBS Vickers downgrades Hyflux Water Trust to Hold from Buy, citing concerns about getting funds for future acquisitions. Says trust may not end up buying initial portfolio of 9 China-based water treatment assets from sponsor Hyflux given tougher credit conditions; "there is considerable uncertainty in the timing and quantum of the acquisition-driven growth story for HWT." Cuts target price to $0.53 from $0.90, lowers FY08-09 DPU forecasts by 3%, 13% respectively. Adds recent resignation of CFO Grace Goh - touted as instrumental in raising trust's investment profile - may further compound situation.
DBS Vickers downgrades Hyflux Water Trust to Hold from Buy, citing concerns about getting funds for future acquisitions. Says trust may not end up buying initial portfolio of 9 China-based water treatment assets from sponsor Hyflux given tougher credit conditions; "there is considerable uncertainty in the timing and quantum of the acquisition-driven growth story for HWT." Cuts target price to $0.53 from $0.90, lowers FY08-09 DPU forecasts by 3%, 13% respectively. Adds recent resignation of CFO Grace Goh - touted as instrumental in raising trust's investment profile - may further compound situation.
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