ANALYSTS SAY: Buy, Sell, Hold (8 Sept 2017)

Keppel Telecommunications & Transportation (KPTT SP)

Supercharging Growth Will Lead To Short-term Uncertainties

KTT’s chosen DC development strategy will bring about faster DC development and related benefits, but create greater uncertainty in the short term. Nonetheless, datacentre demand remains strong and KTT, through ADCF, is primed to reap fee income from this trend. The challenging outlook for the logistics business is expected to persist until its transformation is complete. We opt for more conservative assumptions and lower 2017-19 earnings forecasts by 24-32%. Maintain BUY with a revised target price of S$1.90.

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CapitaLand Limited: Increasing its presence in Indonesia

CapitaLand reports that it is investing c.S$300m in Indonesia, SouthEast Asia’s largest economy. The group’s first integrated development in the country, The Stature Jakarta, is on track to complete in 2020 at a total development cost of S$220m. CapitaLand will further expand its Indonesian presence by investing S$74.3m in a 192-unit serviced residence, Ascott Sudiman Jakarta, through The Ascott Ltd. The group reports that it has identified Indonesia as a growth market, which is underpinned by sound fundamentals such as steady economic growth, rapid urbanization, increasing domestic consumption, a young population and a rising affluent middle class, and will continue to explore opportunities for further investments in the country. Maintain BUY on CapitaLand with an unchanged fair value estimate of S$4.13.

Wilmar: Making acquisitions

Wilmar recently announced two acquisitions including a 50% stake in local chocolate and compounds manufacturer, Aalst Chocolate Pte Ltd. Wilmar’s specialty fats division offers a range of products from chocolate fats to culinary fats. With this acquisition, Wilmar is able to expand their offerings to bakery products and confectionery manufacturers and the JV will work on expanding the business portfolio of chocolate ingredients in Asia. No financial details were shared and we do not expect material changes to our estimates for now. The other acquisition was for a 50% stake in Three-A Qinhuandao Food Industries but no material impact on the group’s financial position is expected. We anticipate further developments to be made in line with the group’s focus on key markets such as China. Since the group’s results release, Wilmar’s share price had declined as much as 9% before recovering. We also note that on 21 Aug, substantial shareholder Archer Daniels Midland increased their stake slightly from 24.3% to 24.9%.

We currently have a HOLD and FV estimate of S$3.68 on the stock.