ANALYSTS SAY: Buy, Sell, Hold (25 Sept 2017)

Telecommunications – Singapore

TPG Telecom – Overstretched And Forced To Prioritise

The entry of TPG Telecom as the fourth mobile operator in Singapore will be delayed to 2H18. Its financial performance is also likely to worsen in FY19. Given the acute execution risk in Australia, TPG has limited capacity to pursue an overly aggressive and disruptive strategy to gain market share in Singapore. BUY M1 (Target: S$1.98) and Singapore Telecommunications (Target: S$4.53). Yield-oriented investors should also consider NetLink NBN Trust (Target: S$0.93). Maintain OVERWEIGHT.

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Singapore Property

Land Market Springs To Life

Busy month in land market; remain POSITIVE

We see a busy month ahead for Singapore’s land market. Tender for a prime commercial site on Beach Road will close on 28 Sep. Those of another nine enbloc deals will close by 16 Oct. We expect strong bids for the commercial site and see a positive read-through for office REITs and developers with large office exposure. Given the recent flurry of enbloc deals, we expect developers to be more selective. Our thesis that a resurgent enbloc market could ease land-price escalation could be put to the test in the coming month. We remain POSITIVE on the sector, expecting catalysts from a rebound in property prices. UOL and CityDev are our preferred large-cap developers. GuocoLand offers attractive relative value for investors with lower liquidity thresholds. CCT is our top office REIT for upside from its Golden Shoe redevelopment. Risks include a sharp fall in property prices.

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Yangzijiang Shipbuilding: Significant overseas M&A coming up?

After Yangzijiang Shipbuilding’s (YZJ) share placement announcement on 31 Aug 2017, its share price has dropped 13% from a high of S$1.625 on 30 Aug to S$1.41 as of yesterday’s close. The group is financially robust and has significant cash, as such there have been questions on the need to raise funds, unless the group is preparing to undertake significant M&A ahead. Another possible explanation could be that the placement adds to cash at the listed platform level, as a significant portion of cash may be with the subsidiaries in China, while increased scrutiny over capital movements after certain high-profile incidents in China have led to more capital controls. Hence the placement would allow YZJ to undertake more significant overseas acquisitions. Whichever the case, time will tell with regards to the use of proceeds. As for the stock, we believe that a fair amount of new orders expectation has been baked into the share price, as mentioned in our earlier report. We tweak our estimates to account for the placement and adjust our P/B for the shipbuilding segment from 1.3x to 1.2x, in line with the decline in industry average, leading to a fair value estimate of S$1.48. Maintain HOLD.