Ex-dividend June 2010 price target of $14.
JP Morgan upgrades SIA to ‘overweight’: Safest play on the cyclical recovery
SIA is in its worst earnings cycle in history with a high probability of reporting losses for the next two quarters which explains its underperformance versus the market year-to-date. Although we remain bearish on the near term outlook and the timing and quality of the rebound remains uncertain, we believe that its potential correction in the upcoming results and/or the worsening impact from Influenza A would provide a good opportunity to accumulate in preparation for a cyclical upturn.
For more risk averse investors, SIA is also the “safest” choice in the sector given its well-capitalized balance sheet, strong track record at managing costs during downturns and ability to unlock more value from subsidiaries/associates such as SIE, Tiger Air in the longer term, and M&A forays that could lift market sentiment even though they may not necessarily be value-enhancing.
We have raised our price target to factor in SIA’s improving earnings outlook in the next 12 months. Our ex-div Jun 2010 price target of S$14 is based on 1.2x P/BV, SIA’s average valuation since 2003 when its competitive environment intensified with the entry of low cost carriers and Emirates' increased presence in Singapore. Key risks: 1) WHO issues travel restrictions due to Influenza A, 2) stagflation, 3) making value-destroying investments.
Sinotel installed its wireless solution for Beijing Railway.
Phillip Securities raises Sinotel’s fair value to 27 cents
The PRC government’s continued focus on expanding and improving the telecommunication industry bolsters our confidence in the sector. The previous few contracts secured serves as testimony to the fact that the Group is poised to benefit from this network infrastructure advancement in China’s telecommunication industry.
Our previous target price of S$0.23 has, in the recent weeks, been met and is hovering in that price range. Factoring the still bullish sentiment of China’s telecommunication sector, together with the fact that its peers have recently had a run up in their PE values, we reiterate a BUY having raised our fair value estimate to S$0.27 which is pegged to 3.0x forward FY2009’s earnings. This represents an upside potential of 17.4% from the last done price of S$0.23.
Source: Phillip Securities
Deutsche Bank downgrades Olam to sell: Positives reflected in the price
Good news discounted with share price run-up. Olam has outperformed the STI following its recent placement to Temasek (273m new shares at S$1.60) and the acquisition of SK Foods (US$39m). We believe much of the good news has been discounted after the share price surge. At 23x FY10E PER, 3.3x P/B, and 11.4x EV/EBITDA, Olam is not only trading at a sizeable premium to its peers, but it is expensive versus its own trading history. Sell.
Our target price of S$2.00 is based on the Gordon Growth method and has been raised after factoring in the recent share placement. Assumptions: ROE of 19%, a long-term growth rate of 3% and COE of 10%. Upside risks include better-than-expected volumes in its products, market share gains and new products.
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