STRATEGY – SINGAPORE Positioning In A Growth-challenged Year
Corporate earnings could recover in 2017 but growth headwinds and external risks remain. Our end-17 FSSTI target is 3,000 and we would position defensively on elevated volatility and an uncertain macro outlook.
• We highlight key issues and investment themes in our 1H17 Singapore Strategy.
• Another growth-challenged year; modest end-17 FSSTI target of 3,000.
Overseas acquisition driving growth
■ ComfortDelGro has announced the acquisition of the remaining 49% stake in its Australian bus business, CDC.
■ The acquisition price of A$186m (S$196m), based on 4.6x 2015 EBITDA, is palatable and should not be a stretch to the group’s balance sheet, in our view.
■ We raise our FY17-18F EPS by 3.9-5% to reflect the positive impact on the group’s net profit from the additional stake in CDC.
■ We maintain our Add call on ComfortDelGro, with a slightly higher target price of S$2.91, based on CY17F DCF (WACC: 7.0%).
Singapore Myanmar Investco: Attractively positioned for strong growth
Singapore Myanmar Investco (SMI) offers prime exposure to Myanmar’s fast-growing consumer and tourism sectors, and we believe the group is attractively positioned to ride on the high-growth trends in consumer spending, international tourism, and infrastructure investment in the rapidly emerging economy. Among its portfolio of businesses, SMI’s crown jewel is its dominance in airport duty-free retail at Yangon International Airport’s new terminal where international flights primarily operate. As passenger volume and spending sees secular growth ahead, we believe SMI’s duty-free business, which enjoys significant operating leverage, will gain compelling profit traction. SMI also holds F&B franchise rights in Myanmar for successful brands such as Coffee Bean, Crystal Jade and Ippudo Ramen. The group is led by a strong management team with emerging market experience, including CEO Mark Bedingham who was previously the regional managing director at LVMH for Asia Pacific and had served on the board of the world’s largest travel retailer DFS. We are positive on SMI’s growth prospects from its current low base, particularly given its understandable business models and attractive positioning in a high-growth economy. Initiate coverage with a BUY rating and fair value estimate of S$0.97.
Strategy – Singapore
Look For Quality Amidst Lacklustre Outlook
The outlook for Singapore’s key macro drivers remains lacklustre as a rising interest rate is expected to sap demand, leading to slower GDP growth. A slowdown in exports could also place downside risks on growth. However, our Top Picks should hold up well against a weak macro environment.
Check out our compilation of Target Prices