Ezion Holdings: Results slightly ahead of forecast; re-iterate BUY (DMG)

(BUY, S$0.67, TP S$1.07)

Strong jump in core earnings; re-iterate BUY. 2Q11 core net earnings of US$12.2m (+6% QoQ +85% YoY) lifted 1H11 core net profit to US$23.7m (+96% YoY), and accounted for 52% of our FY11F estimate and 55% of consensus. Reported 1H11 net profit of US$34.7m included US$11m one-off gain from divestment of one liftboat. The strong results reaffirmed our positive view on the stock. Management plans to raise new capital by issuing perpetual capital securities and we believe this is done in anticipation of a new sizeable project. We keep our FY11-12F EPS estimates unchanged pending further details on the capital raising. We see scope for an upward revision in FY12F EPS. Our TP is unchanged at S$1.07 based on 12x blended FY11/12 P/E. Re-iterate BUY.

Higher utilisation of logistics fleet boosted earnings. The stronger earnings came on the

back of higher utilisation of its offshore logistics fleet. Utilisation level in 1H11 was ~85% compared to average utilisation level of ~75% level in FY10. Two liftboats were deployed in 2Q11 (one in 2Q10; two in 1Q11) and this is in-line with expectation. Ezion took delivery of its third liftboat in end Jun 2011 and we expect new contribution from 3Q11 onwards. The new liftboat is being deployed in South East Asia and Africa on a three plus two years contract.

Raising capital from SGD denominated perpetual capital securities. Ezion is raising new capital to prepare the company for potential projects in Australia but has not decided on the amount to be raised. We understand that the structure of the capital raising is somewhat similar to perpetual preference shares but the option to redeem the shares lies with the company. We have not factored in any impact of the capital raising at this juncture given the lack of details on the terms and deployment of the capital. In our view, the announcement of the capital raising exercise could mean that Ezion is close to winning a sizeable job.

CWT: No surprises (DMG)

(BUY, S$1.26, TP S$1.73)

CWT's 2Q11 core earnings were in line with our expectations, making up 24.8% of our FY11

estimates. 2Q11 core earnings were up 32% YoY mainly due to higher contribution from Contract Logistics. We remain positive over CWT’s long term prospects with its continued business development initiatives, which include the development of a new warehouse. In addition, contributions from MRI Trading AG’s (MRI) would kick in from Jul 11. We are maintaining our earnings forecasts and reiterating our BUY recommendation with a TP of S$1.73, based on 20.8x FY11 earnings (a 20% discount to global peers’ 7-year historical average).

Core earnings within expectations. CWT’s 2Q11 core earnings was up 32% YoY, coming in at

S$8.7m, attributable to higher contributions from Contract Logistics. 2Q11 revenue leapt 25.8% YoY to S$229.9m, on the back of an increase in business activities on the whole, particularly from coal trading, Commodity Logistics and Integrated Logistics services.

Growing its asset base with new warehouses. CWT Hub 3 has obtained TOP in Apr 11 and is currently 85% occupied, with the remaining space fully committed. Meanwhile, the 330k sqf Pandan Logistics Hub is on track for completion in 4Q11. In addition, CWT is building a 725k sqf CWT Cold Hub 2 to be completed by Jan 2013. With a strong pipeline of warehouses being built and completed progressively, it is likely that CWT would continue to perform more asset divestments to REITs moving ahead, which may allow shareholders to continue to enjoy special dividends.

Focusing on integrating MRI Trading AG. Following the completion of a 73.81% stake in base metal non-ferrous concentrates physical trading group MRI in July, management is focusing their efforts on maximising MRI’s earnings potential, as well as to realise synergies arising from the integration of trading and logistics supply chain management activities. We believe this acquisition is a quantum leap for CWT, enabling it to achieve its goal to be a niche player in commodity logistics globally. In our forecasts, we have assumed S$1b of revenue contribution from MRI in FY11.

CapitaLand: Well positioned for deployment (DMG)

(BUY, S$2.80, TP S$3.52)

Resume coverage with BUY. We believe for CapitaLand with its asset recycling business model as an integrated developer with its multi-geographical, multi-segment exposure with two additional channels of growth in Ascott and CMA. We resume coverage of CapitaLand at BUY, with a target price of S$3.52 based on 20% discount to RNAV.

Not exceptionally, 2Q11 boosted by exceptionals. CapitaLand’s 2Q11 were in line with expectations, with 2Q11 revenue at S$740m (+25.0%YoY) while net profit is at S$399m (+17.4%YoY) driven by development project contributions including The Interlace, The Wharf Residence, Urban Resort Condominium in Singapore and completed China project, Riverside Ville, as well as partly higher fee-based income (+18% YoY) to S$29.1m on growth in AUM to S$31.7bn (+20% YoY).

Net income for 2Q11 was boosted by net revaluation gains of S$228m which includes fair value gains from its various REIT vehicles and China funds. Ex-reval/impairments, PATMI grew +26.6% YoY to S$171.3m for 2Q11. However we note this figures are again boosted by including S$125m from sale of residential site in Shanghai/Blife units and sale of New Minzhong Leyuan Mall.

1H11 deployment focused in Singapore. We believe the market’s focus for CapitaLand likely revolve around its capital deployment and speed of asset turn. The OODL transaction is already bearing fruit, with S$1bn of the S$3.1bn investment realised. Post OODL acquisition, CapitaLand has actively committed c.S$5bn capital in 1H11 either direct or through its listed entities, with an evident focus on deployment in Singapore. CapitaLand is well positioned for investment opportunities in the near term especially in China if deterioriating credit conditions persist, with S$6bn cash hoard and ample debt headroom at net gearing of 0.23.