ANALYSTS SAY: Buy, Sell, Hold (6 June 2017)

Aviation – Singapore

SIAEC’s Share Buybacks Likely To Support Share Price But Industry Faces Macro Headwinds

SIA Engineering’s relative strength is due to its ongoing share buybacks, which we believe will continue until at least year-end as a large number of money stock options are slated to expire in the next 12 months. However, SIAEC trades at a relatively high valuation and the street has not factored in the substantial competition that SIAEC and ST Aerospace face from expanded hangar capacity and alliance in the region. Maintain MARKET WEIGHT.

• SIA Engineering’s (SIAEC) daily share buybacks support stock price. To-date, the company has purchased almost 688,000 shares at about an average of S$3.88. Collectively, SIAEC accounts for about 15% of market volume and we believe this will provide price support to the stock. As at end-FY17, SIAEC had S$602m cash and has a mandate to purchase an additional 3.9m shares, which could increase. We believe SIAEC will continue to repurchase shares as 4.465m (0.4% of outstanding shares) employee stock options at an exercise price of S$3.59 will expire by end-Jun 18. Odds of these options being exercised are high, given that they are in the money.

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CapitaLand Limited: Fine tuning its Chinese asset portfolio

CAPL recently announced that it will acquire, based on an agreed aggregate value of US$56.9m (S$78.8m), two serviced residences assets in Chongqing and Chengdu, China. In Shanghai, the group also reported that it has agreed to buy for RMB2.64b (S$535m) Guozheng Center, a newly completed office development, while divesting Innvo Tower for RMB1.56b (S$316m). The Innov Tower sale is expected to result in net profits of S$85m. We like that the group continues to scale up its serviced residences business segment while actively reconstituting its portfolio and also see the set of transactions of office assets in Shanghai as favorable. The group will realize value from Innov Tower, a relatively stabilized asset, at RMB38.5k psm which will result in a respectable gain while recycling the capital into the newer Guozheng Tower, completed in 4Q16 and located in the strategic Wujiachang district in the northern part of Shanghai, at an attractive valuation of RMB32.7k psm. Maintain BUY with an unchanged fair value estimate of S$4.07.

 RHB

Yoma Strategic

Roadshow Takeaways

We organised a recent investor roadshow with Yoma Strategic following the release of its full year results. The key takeaway was the rapid scaling up of the non-real estate businesses, which now comprise 47% of the group’s topline. Yoma has added a new product line in construction equipment to its auto platform, and plans to open another 10 KFC stores in the current FY. Maintain BUY rating with unchanged SOP-based TP of SGD0.78 (32% upside). Catalysts for the stock price would be a recovering real estate market and further non-core asset divestments.

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