Del Monte Pacific
2Q17: Industry contraction in the US
■ 1H17 core net profit was below expectations at 22% of our FY4/17 forecast due to sales decline in the US and higher-than-expected interest expense.
■ DMFI contributed 2Q17 net profit of US$8.5m excluding one-off expenses.
■ DMPL generated net profit of US$12.5m in 2Q17.
■ Preference share issuance has been postponed again to 1QCY17.
■ Maintain Hold with lower TP of S$0.36.
Asia Enterprises Holding Limited Net-net stock that is too cheap to ignore
Turnover expected to remain soft due to lower volume, in spite of higher ASP Management shared that the recovery of steel prices has been due to higher cost of the two main raw materials – iron ore and coking coal. Data from Bloomberg (overleaf) show that the cost of iron ore had increased by c.35% during 2016; and the cost of coking coal had increased by c.186% in the same period.
SG Residential Sector: Severe dip in home prices unlikely
In 2017, we forecast for private residential prices to dip 3% - 7% and private residential rents to fall 5%-10%. We see significant scope for curb reversals going forward, particularly if housing prices accelerate to the downside or if the economic outlook deteriorates rapidly from here. In addition, the economic backdrop appears fairly benign for domestic home prices; we forecast Singapore GDP growth at 1.3% and 1.5% in 2016 and 2017, respectively, and note that the unemployment rate remains at a low 2.1% as at end 3Q16. That said, a physical oversupply situation is likely to persist in 2017, which will impact rental levels and vacancy rates. Rising interest rates, together with the impact of falling rentals, will likely pressure the rental carry for investment home owners and result in incremental selling in the secondary market. We maintain a NEUTRAL rating on the sector, and prefer large-cap developers with diversified business models across geographies and subasset classes, healthy balance sheets, and share prices that trade at a significant discount to their long-term fundamental valuations. Our top picks are CapitaLand [BUY, FV: S$3.68], City Developments [BUY, FV: S$9.89] and GLP [BUY, FV: S$2.37].
Fraser & Neave (FNN SP, BUY, TP: SGD2.43)
Looking to raise its stake in Vinamilk
F&N announced earlier this week that its two wholly owned subsidiaries, F&N Dairy Investments and F&NBev Manufacturing, have participated in the competitive bid process to each acquire 39.2 million Vinamilk shares or 2.7% in the issued share capital of Vinamilk from the Vietnamese Government. The sale process will end on December 21, 2016.
Looking for a Trump card
Expect US recovery, higher inflation, interest rate normalisation, and higher USD in 2017
Asia, especially emerging ASEAN are ill-placed in this environment of rising US bond yields and weak currencies; Indonesia is downgraded to Neutral for this reason
Focus on beneficiaries of US recovery, global infrastructure spending, Asia/US valuation laggards, strong USD and ASEAN domestic demand for outperformance
Upgrade Singapore to Overweight and Taiwan to Neutral to capture the global cyclical uplift. India is downgraded to Underweight on domestic growth concerns
Key risks to our view are geopolitical rather than economic
Check out our compilation of Target Prices