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Stocks In Focus SG (October PMI, Cosco Corp, Kreuz Hldgs) – 06/11/13
October PMI Suggests A Stronger Year-End Growth
October’s purchasing managers’ index (PMI) reading rose to 51.2, up from 50.5 in September, beating a Bloomberg median estimate of seven forecasts of 51. A reading above 50 points implies expansion while one under 50 signifies contraction. The stronger PMI signals a stronger-than-expected growth in manufacturing activity, bolstered by further expansion in new orders, new export orders as well as higher output. Latest PMIs from around the world have shown manufacturing expansion, hinting at an export recovery. The drop in inventories indicates that Singapore’s producers could be shipping out their products or writing the excess goods off. If, however, the country’s export performance goes on diverging from industrial production, it may suggest that its producers are foregoing profit margins to clinch orders.
Significance: As we enter the final stretch of the year, export demand could be hampered by fiscal uncertainty in the US as well as the strengthening of the Singapore dollar. A recent business expectations survey of manufacturers conducted by the Economic Development Board uncovered a pessimistic outlook for the next six months.
Cosco 3Q13 Earnings Down 84.1%
Cosco Corporation (Singapore) has reported earnings for the quarter ended 30 September 2013 at $4.2 million, an 84.1 percent dip as compared to last year. This was mainly attributed to higher inventory write-downs and provisions for expected losses recognised on construction contracts. Subsequently, gross profit in 3Q13 also reduced 36.4 percent to $73.2 million. However, revenue increased 5.6 percent year-on-year and came in at $989.4 million as a result of higher revenue contribution from Cosco’s shipyard operations. Turnover from shipyard operations was up slightly by 5.7 percent as revenue growth from marine engineering segment was adequate to offset the lower revenue contribution from the company’s ship building and ship repair segments.
Significance: Cosco expects its performance to remain rocky in the near term as it faces a legal suit on a contract amounting to US$110 million due to a delay in ship delivery as well as other challenges such as excess capacity in the shipping industry and a weak global economic climate.
SEA9 Seeks To Acquire Kreuz
SEA9, a subsidiary of The Headland Private Equity Fund 6, a pan-Asian private equity fund advised by Headland Capital Partners (formerly known as HSBC Private Equity (Asia)), has proposed a scheme to take over Kreuz Holdings, a provider of a wide range of subsea related services in the oil and gas industry. The proposal will involve acquiring all ordinary shares in Kreuz at a cash consideration of $0.80 per share, which values Kreuz at $445.6 million. The consideration also represents a price-to-net tangible assets ratio of 1.8 times as of Kreuz’s unaudited net tangible assets per share of US$0.361 as of 30 September 2013. The transaction is expected to allow Kreuz to continue developing and executing upon new growth initiatives, such as investing in new vessels to support its existing business. The strategic alliance would also allow Kreuz to leverage on Headland’s expertise to seek financing and execute upon its growth initiatives.
Significance: The cash consideration translates to a premium 3.3 percent above its last trading price of $0.765 on 4 November 2013 prior to the acquisition announcement.
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