CIMB | MAYBANK KIM ENG |
SIA Engineering Expensive wingman
■ We think there is no pressing need for SIA to divest its stake in SIE as the airline tries to manage its balance sheet. Sale and leaseback could be an alternative avenue. ■ SIA’s expected FY19F net gearing of 26% is still considered the strongest vs. its regional peer average of 220%. ■ We think corporate actions at current valuations of 26x CY18F P/E are not feasible. ■ We lower some revenue growth assumptions and cut our EPS by 3-5% for FY18-20F. Our target price is reduced to S$3.86, still based on DCF valuations (WACC 6.4%). ■ We downgrade SIE from Hold to Reduce and advocate switching into STE given STE’s cheaper valuations and defensive earnings.
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Singapore Banks Tail Risks from O&G Assessing oil-related exposures following recent oil price weakness
The crude oil price has fallen to USD46 per barrel on concerns of a supply glut to levels not seen since OPEC’s output cut in Nov 2016. The worst of O&G NPL worries for Singapore banks have abated, but the risks linger. Singapore banks have not really cut back on their exposures to these sectors. Since DBS/OCBC’s O&G support services NPL ratio is 22-23%, the pace of delinquency should ease, but credit costs may scale higher. Against sanguine economic prospects, asset quality is unlikely to be the focus unless the oil price slips below the USD40 level. Maintain NEUTRAL.
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OCBC | |
Lippo Malls Indo Retail Trust (LMIRT): Still room to go Lippo Malls Indonesia Retail Trust (LMIRT) completed its proposed acquisition of Lippo Plaza Kendari on 21 Jun 2017, with the purchase consideration financed through the issuance of S$120m worth of perpetual securities earlier this month. Given the wider growth opportunities following LMIRT’s greater debt headroom, we increase our terminal growth rate from 1.1% to 2.0%. We find this figure conservative given the long-term demand potential for Indonesian retail with its growing middle class; this stands relative to the ~1.5% terminal growth rates we typically apply to many of our SG-based retail REITs. After taking into account the acquisition as well as issue of perpetual securities, our fair value increases from S$0.435 to S$0.475. We note that LMIRT is currently trading at 7.8% FY17F yield, which remains comfortably above the ~6.6% forward yield average for the S-REITs sector and the ~6.3% average for the retail REITs sub-sector. We maintain BUY on LMIRT with a fair value of S$0.475.
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RHB RESEARCH | |
China Aviation Oil: Strong Organic Growth At Undemanding Valuation |
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