ANALYSTS SAY: Buy, Sell, Hold (17 April 2017)

Singapore Consumer

Loosening purse string

SINGAPORE | CONSUMER | UPDATE

 Retail outlook brighten, expect to turnaround in near term on the back of higher demand and favourable employment condition

 Renewed optimism on a better prospect of Singapore economy will lift consumer sentiment; while growing household net worth encourage consumers to spend

 Indicators showed that: (i) Consumers are spending more on Food & Beverages and dining out more often; (ii) consumer preference shift back to Supermarkets; and (iii) potential recovery in luxury goods

 Earnings to drive share price; waiting for more evidence of economy growth trends and improved profits to catch up with the valuation

 We have an “Overweight” view on Singapore Consumer Sector

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Japfa Ltd

Victim of cyclicality; multiple near-term headwinds

■ Japfa had a stellar FY16 that is unlikely to be repeated this year. The problem is weak selling prices in Japfa’s two largest markets (Indo and Vietnam).

■ Poultry prices in Indo have weakened considerably in 1Q17 (-11% yoy, -14% qoq on average). The situation is bad and broiler prices are now at loss-making levels.

■ In Vietnam, swine prices first started falling in 4Q16 (-c.15%). We were initially expecting a recovery but prices remain depressed. 1Q17 likely sequentially worse.

■ We cut FY17-19F EPS estimates by 36-42% on weaker ASPs and lower margins.

■ Valuations are now too lofty at 11.7x CY17 P/E (+1 s.d. level) given the multiple headwinds. We downgrade Japfa from Add to Reduce.

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KGI FRASER

Japan Foods Holding Ltd

Attractive dividend yield above peers, supported by steady and resilient growth
We initiate coverage on Japan Foods Holding Ltd (Japan Foods) with a BUY recommendation and a target price of S$0.56 based on DCF valuation with a WACC of 8.0%. Japan Foods operates a chain of 50 restaurants in Singapore, mainly specialising in Japanese fare that is being offered under various franchise F&B brands. Its core competitive strength lies in its extensive portfolio of F&B brands and efficient centralisation of food production, allowing the company to expand steadily despite slowdown in the F&B restaurant space. Japan Foods is currently trading at a 21x FY16 P/E that is below peers’ average of 37x, along with an enticing dividend yield of 4.5%. Our target price implies an 18x FY18F P/E, with net cash contributing 16% to our valuation.

Singapore Press Holdings: Media headwinds unabated

SPH announced that 2QFY17 PATMI dipped marginally by 1.2% YoY to S$53.5m while group recurring earnings on an operating level declined 22.2% YoY to S$53.0m, which was partially offset by a S$9.5m bump in investment income from divestment gains. We deem this set of results to be marginally below our expectations and we tweak our FY17 net income forecast down by 6% to S$216.0m to reflect the difficult business conditions the group is facing currently. The management team has been focused on cost management and total costs for the quarter fell 3.8% YoY to S$188.7m despite inflationary pressures. An interim dividend of 6 S-cents per share was declared. Given the uncertain economic outlook and the continuing disruption of the media industry, we expect conditions to remain challenging for the group’s media business ahead. Maintain SELL on the stock on valuation grounds with an unchanged fair value estimate of S$3.41

Soilbuild Business Space Reit

1Q17 results in line - gloomy outlook priced in

 Top-line growth mainly contributed by Bukit Batok Connection

 DPU declined 4.4% to 1.49Scts due to enlarged unit base – Manager started paying fees partially in cash

 Ability to turn 72 Loyang Way a re-rating catalyst

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