Excerpts from latest analyst reports....

Phillip Securities Research says buy SUNPOWER, record revenue and profits are just ahead

Analyst: Chan Wai Chee

NextInsight readers at a briefing by Sunpower management recently. NextInsight photo.

A sell-side analyst, covering S-chips in today’s situation, can contemplate suicide, or commit suicide if there is no other alternative.

With blue-chips selling cheap, how does one recommend an S-chip - no matter how unlikely a fraud it will be, no matter how strong its fundamentals are, no matter how patient investors have been – to readers who cannot see any line on the horizon? Is it just us or U2?

Prof Guo Hongxin, chairman of Sunpower. NextInsight photo.

Sunpower posted a great set of results for 2Q11.So what?

With markets moving down for 54 months out of the 120 months (2000-2009), we should expect another 2 financial crises (2010-2020) and therefore factor in a 3% discount factor.

With equities losing its ERP, we should factor in an opportunity cost of not investing in a safe SGD bond and holding it to maturity at 2.8%. With the RMB depreciating against the SGD, we should factor in a 1.3% in the discount rate.

With corporate governance of S-chips likely to be at risk, we should factor in another 4.1% discount for a permanent 30% loss. In total, the applicable discount rate is 11.2%.

This discount rate has not factored in the positive-ness of privatisation of good S-chips, like C&O and Sihuan, because there is no hint yet in the market of such a happening here. But if one factors in this possibility (qualitatively), then the suicide option would not be the call.

While most China companies are now experiencing margin problems due to labour cost, Sunpower is managing it very well. When one is almost beyond peers (remember, in our previous report, we highlighted that it believes it is second to Coek Engineering in quality but delivers faster than Coek), one can dictate margin to a substantial extent.

Applying the 11.2% discount to our forecast cash-flows of Sunpower until 2020, we revise down our target price to S$0.375. This equates to a BUY, with an upside of 63%.

Recent story: SUNPOWER: Orderbook is a record RMB1 billion, up 59%

OCBC Investment Research has 'buy' call on United Envirotech

Analyst: Carey Wong

Dr Lin Yucheng, chairman of United Envirotech. NextInsight photo

United Envirotech Ltd (UEL) has invested RMB100m (S$18.9m) to take a 40% stake in Maxrise Envirogroup Ltd - the move will result in UEL holding equity interests of four water treatment plants in Bazhou, Mengzhou and Jiangle cities, China.

Upon completion of the second phase of expansion for the Mengzhou Shengfang municipal wastewater treatment plant at 25k m3/day, the aggregate treatment capacity of the four water treatment plants will reach 170k m3/day.

Recall that UEL had earlier secured a RMB220m (S$42m) BOT project in Dafeng Jiangsu Province, China to build a 50k m3/day wastewater treatment plant; UEL said it intended to fund the project with proceeds from its last share placement and bank financing.

We will be speaking to management to get more details and also a progress report on its proposed issue of US$113.8m convertible bonds to KKR. We have a BUY rating on the stock but may review our S$0.53 fair value.


CIMB says OKP has one of the best financials and balance sheet among peers

Analyst: Gary Ng

OKP is currently expanding the CTE. Photo: Company

The $46.8m contract from the PUB announced by OKP is the group’s number seven contract win this year. This new win effectively takes OKP’s robust order book to a new high of S$433m. Total order wins of S$152m this year already exceed our new contract win assumption for FY11. Maintained BUY and TP of S$0.98.

55% of market cap backed by net cash of S$97m. The financials and balance sheet of OKP remains one of the best, if not the best among peers.

Group’s assets totaled S$152m in 2Q11, implying an NTA of 24.6 Scts/share. We think OKP’s conservatism to beefing up balance sheet provides the importance of liquidity to the group – a condition for assured survival.

If the current market uncertainties prolonged, in the worst case scenario, even when there is no new replenishment of contracts (though very unlikely), OKP’s current S$433m order book can last till FY2014.

Recent story: CHEUNG WOH, OKP, LEADER ENVIRONMENTAL: What analysts now say....

DMG & Partners is neutral on Singapore banks

Lee Seng Choon

DMG has a neutral rating on UOB. NextInsight photo

Business loans remain the star performer. Business loans expanded 2.7% MoM, ahead of consumer loans’ rise of 1.1%. Out of the S$7.5b MoM rise in DBU loans, 75% came from the business segment. Systemic loans expanded 18.3% YTD, with business loans having risen 48.1% and consumer loans up 10.1%.

Whilst business loan was the star performer YTD, we expect slowing business loans going forward, on the back of global uncertainties reducing investments by corporate.

We are NEUTRAL weight the banking sector on the back of continued narrow NIM (for 2011 and 2012). UOB (BUY/TP:S$22.40) remains our top pick within the banking space on the back of its lower risk loan book – 28% of its loans is attributed to lower-risk housing loans, greater than OCBC’s 24% and DBS’ 23%.

We have NEUTRAL recommendations for both DBS and OCBC.

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