1 July 2013|

Small Cap Weekly

billion&below
my2cts

Myanmar awarded telco licences last Thursday. Check out the winners and losers. (Pg 2)

Model Portfolio

Source: google.com

Portfolio performance: +0.2% WoW, +10.5% YTD Best performer: Cambridge Industrial (+5.1%) Worst performer: Lian Beng (-1.9%) Changes to portfolio: Nil (Pg 3)

Reports Recap Li vs Lee the Epic Telco Fight. Seemy2cts.

Past weeks key reports: Nam Cheong, S-REIT Sector, XMH (Pg 4)

Analysts Diaries

A peek at whats keeping our analysts busy over the next few weeks. (Pg 5)

#1 Small Cap Research #1 Most Improved #2 Most Independent

Terence Wong, CFA| +65 62323896|

terence.wong@sg.oskgroup.com

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billion&below
1-Jul-13

my2cts

Singtel, Yoma losing out in Myanmar? No big deal. Theres lots of buzz revolving around Myanmar telco licences which were dished out last Thursday. Many investors were disappointed that our SGX-listed companies telco giant SingTel (NEUTRAL, TP SGD3.70) and Myanmar property play Yoma (Unrated) did not snag the deal. This was probably one of the more exciting contracts being awarded in recent years, considering the fact that Myanmar is one of the least penetrated markets in the world. Only 9% of the 60m people own a mobile phone. The expansion plans are going to be very aggressive, with the Myanmar government stipulating that the penetration rate should hit 75% by 2015 for voice services, the level that neighbours Laos (85%) and Cambodia (70%) are at now. I am not too concerned about this loss for SingTel. Back in year 2000, at the height of the telco/3G craze, SingTel lost its bid for HK Telecommunications to HK-listed Pacific Century Cyberworks (PCCW). SingTels then-CEO Lee Hsien Yang was ridiculed for losing out to Richard Li, son of Asias richest man Li Kashing. Over time, it was evident that HKTel was overpriced, and SingTel was vindicated for not making an excessive bid for the grand old dame of Hong Kong. For this Myanmar deal, our regional head of telco research Jeffrey Tan thinks that the economics of the market would render ROIs meaningless for a very long time with the substantial capex required just to get coverage up in this frontier market (at least USD4bn). The spending propensity is also low with ARPU likely to come in below USD5/mth, making it excruciatingly difficult to stimulate revenue let alone start to even monetise the network. Essentially, it would be dilutive for SingTel and add to the earnings and regulatory risks already being faced by some of its other investments. Not having to spend on Myanmar would also mean more bandwidth to manage its capital for potential special dividends in the near future. A potential beneficiary of the Myanmar telco licence award. While SingTel and Yoma may have lost out, there is at least one SGX-listed company that will benefit Nera Telecommunications (BUY, TP SGD0.79). The systems integrator is a supplier to the two telcos which snagged the Myanmar licence Norway-based Telenor and Qatar-based Ooredoo. As mentioned, there are some very lofty targets set by the government. In order to make full use of the 15-year licence, Ooredoo has indicated an even more aggressive plan, doling out USD15bn to reach 90% of Myanmars population within two years. In order to cover such a vast area in a short time frame, we expect these telco operators to soon open up project tenders to equipment and system integrating vendors as well as to use radio transmission technology in the process. Given NeraTels established track record and expertise in the field, we believe that the group has a high chance of winning the tenders. Furthermore, the fact that the Myanmar government is in favour of building an advanced network infrastructure in the country also bodes well for NeraTel as the group is currently partnering with Juniper in delivering cutting-edge software defined network solutions. All in all, we believe that long standing vendors like NeraTel will likely benefit in this lucrative market. The group has already been deploying payment terminals in the country and we expect them to formally set up a telco company in bidding for the contracts.

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billion&below
1-Jul-13

Model Portfolio

It was a real roller-coaster last week, with my Model Portfolio falling as much as 3%, but managed to claw itself back to marginal gain of 0.2%. It was a little weaker than the STIs +0.8%, but better than FSTS -0.8% WoW. Cambridge Industrial made quite a comeback (+5% WoW), in line with the rest of the REITs.

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billion&below
1-Jul-13

Reports Recap
Nam Cheong (BUY, TP SGD0.35) Lee Yue Jer (yuejer.lee@sg.oskgroup.com) Jason Saw (jason.saw@ sg.oskgroup.com)
Nam Cheong is the largest offshore support vessel builder in the Eastern Hemisphere, with a 10% global market share. It specialises in building smallmid AHTS, PSVs and accommodation barges and also operates a fleet of standby vessels.

24 June

Reason for report: Update Key points: We found from our analysis that street estimates of Nam Cheong (NCL) are too low. Our FY13F PATMI forecast of MYR181m is 10% above the average estimate, which is predicated on gross margin narrowing to 18.65%. The twin effects of a higher-margin vessel mix and the recent charter of NCLs 12,000bhp AHTS at an estimated 50% gross margin should arrest any margin slide. Valuation/Recommendation: We expect consensus upgrades following the companys 2QFY13F results, and reiterate our BUY call.

Singapore REITs (NEUTRAL) Pang Ti Wee (tiwee.pang@sg.oskgroup.com )

26 June

Reason for report: Update Key points: The Singapore REIT (SREIT) market has remained volatile as concerns over US monetary policies continue to spook the market. Over the last one and half months, the FSTREI has corrected by c.16.8% from its peak while the longterm yield curve has spiked up steeply. We expect bond yields to stabilise at this level while remaining prudent on the SREIT market due to the potential of rising debt costs. Valuation/Recommendation: Despite paring down our TPs, we maintain our NEUTRAL rating on the SREIT sector. In the short term, some REITS such as AREIT (currently trading at 6.7% FY13 forecasted yield) may experience some rebound from the recent sell off as we believe that Treasury bond yields will settle at around 2.5%.

XMH Holdings (NEUTRAL, TP SGD0.44) Lee Yue Jer (yuejer.lee@sg.oskgroup.com) Jason Saw (jason.saw@ sg.oskgroup.com)
XMH is an engine, propulsion and powergenerating solutions provider in the marine and industrial sectors. It enjoys exclusive distributorships for multiple brands in numerous territories.

28 June

Reason for report: Results Key points: XMHs FY13 results were in line with forecasts, beating our estimates by just 2%. Looking ahead, organic growth may come from India and Vietnam while the bulk of earnings growth should emanate from an acquisition we expect to materialise within two months. Valuation/Recommendation: After a sizzling 160% share price run-up since we initiated coverage on 28 Nov 2012, we think the growth has largely been priced in, and hence downgrade the stock to NEUTRAL, with a higher TP of SGD0.44.

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billion&below
1-Jul-13

Analysts Diaries
Event Roadshows Company Eu Yan Sang (KL) Ezion (Tokyo) Date 2-3 Jul 4-5 Jul

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DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of the day before 1 July 2013, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 1 July 2013, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: Analyst Company a) Nil b) Nil DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)
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