SIIC ENVIRONMENT, NEPTUNE ORIENT LINES: What analysts now say

Excerpts from analysts' reports

UOB Kay Hian on Neptune Orient Lines' potential sale or IPO of its logistics business

Analyst: Lawrence Li

BUY Price/Tgt: S$0.98/1.17 Mkt Cap: S$2.59b Daily Vol: S$1.71m 1-Yr Hi/Lo: S$1.175/0.93

What's New

apl_inboundlogistics8.14 APL Logistics is a unit of NOL. Photo: Inbound Logistics.Reuters reports that NOL is plannig the sale of its logistic business for a consideration of around US$750m to US$900m based on 10 to 12 times 2013 EBITDA. However buyers only want to pay around US$600m, the source said.

Regarding this report, NOL announced that they do consider many measures to improve their business performance including the consideration of a potential sale and the initial public listing of its logistic business. But these are still in the very preliminary stage.

Our View:

Consideration of US$750m to US$900m is fair comparing to COSCO's disposal of logistic business. China COSCO sold its logistic business in 2013 based on 11 PE. Hence the consideration of US$750m to US$900m estimated by the news is fair in terms of PE valuation.

Results will be improved on one-off gain but negative in the long term. NOL has posted loss for several years and still posted loss of US$54m in 2Q14. It is reasonable for NOL to consider selling the logistic units for a one-off gain in 2014 or 2015. However, the logistic business is a profitable unit for NOL, which booked net profit of US$68.9m in 2013 and US$32m core EBIT in 1H14, comparing to the US$76.2m net loss in 2013 and US$80m core EBIT in 1H14. Therefore the selling of a profitable unit is negative for the company's long term performance. Its valuation multiple may be reduced after selling the logistic unit.

Credit Suisse initiates coverage of SIIC Environment with Outperform rating

Analyst: Trina Chen

siic_creditsuisse8.14

Source: Company data, Thomson Reuters, Credit Suisse estimates.We initiate coverage on SIIC with an OUTPERFORM rating and a target price (TP) of S$0.260. We view SIIC as an emerging consolidator in China’s water sector, with strong, potentially the strongest, growth profile.

As a local government SOE, with on-the-ground networks through its regional platforms, access to capital and a management team with a solid track record and focus on growth, SIIC has the right ingredients to capture the sector’s growth and M&A opportunities.

On an ex-construction income basis, the stock is at par with BEW (Beijing Enterprise Water) on 2014E (30x), yet becomes more attractive as operations ramp-up (2016-17E P/E is 10-16x, or a 25-40% discount to BEW).

Recent story: Kim Eng Says 'Buy' SIIC ENVIRONMENT; YONGMAO Net Profit Up 168%

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0.950

0.129

China Aviation Oil (S)