SPC: Downgrade to Underperform from Buy; PO S$2 – Merrill Lynch
We reduce our PO on SPC to S$2 from S$10 to reflect our new cautious view on the Asian refining sector and SG Complex margin revisions in 2009/10. Additionally, we sight the company’s accounting complexity and rapidly rising working capital as major risks. Thus, we change our PO basis from DCF to trough cycle valuation applying 2.5x 2009E EV/EBITDA, which is a 50% discount to the sector’s benchmark valuation and implies 2009E P/B of 0.5x.