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Shipyard – Singapore Don’t Hold Your Breath On The Oil Price Rally
The recent run-up in valuations for the Shipyard sector was largely driven by bullish sentiment in oil prices and the recent spate of contract wins. However, we expect the run to be short-lived as there are no clear signs of earnings recovering. Singapore shipyards continue to face difficulties securing orders from traditional oil-related product classes, while orders from diversification come with lower profitability. A solid recovery is contingent on a clear earnings recovery. Maintain MARKET WEIGHT.
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SingTel Unsustainable discount for the core and the digital business
20-40% valuation discount versus peers is an opportunity to accumulate. Singtel’s core plus digital business is trading at only 5.6x FY18F EV/EBITDA versus 7x for M1, 9x for StarHub and 7.5x regional telco average. Despite the ~38% rise in the valuation of regional associates over the last three years, the stock has been flattish, due to mounting losses in the digital businesses perhaps. However, with digital advertising arm Amobee achieving an earlier-than-expected EBITDA breakeven in 1Q18, and official guidance for narrower digital losses in FY18F, we expect the valuation discount to disappear.
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Delfi Ltd Nutritional Values Found In Chocolate
We think Delfi’s valuation is now attractive, despite the soft 2Q17 results, since its share price has corrected by 31%. We think the market has factored in the weak consumer purchasing power in 2017 and the higher distribution costs faced by the company at the current share price. We expect Delfi to stage a recovery in FY18, underpinned by improved consumer spending and better cost containment. Upgrade Delfi to BUY (from Neutral) with a DCF-derived TP of SGD1.86 (from SGD2.00, 22% upside).
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