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JUMBO GROUP
Importing Tsui Wah Brand (JUMBO SP, CP SGD0.55, BUY, TP SGD0.70, Consumer) Jumbo has entered into a joint venture with Tsui Wah to set up a HK-style “Cha Chaan Teng” in Singapore. The brand is well-known in HK and China. This will be its first entry into the ASEAN market. The JV will open one outlet in mid-2018, before further expansion. We think this is a long-term positive as it adds another scalable brand into Jumbo’s portfolio and could leverage its established network. However, we trim FY18E EPS by 3% for additional start-up costs. Maintain BUY and TP of SGD0.70.
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ST ENGINEERING
Renaissance Revival (STE SP, CP SGD3.38, U/G to BUY, TP SGD4.15, Industrials)
After three lacklustre years due to tough market conditions and restructuring costs, growth catalysts are falling in place. Aerospace is recovering; recent acquisitions hold growth promise, and the rationalisation at Land Systems and Marine divisions is largely done. The strategy to better integrate the divisions is a positive too. We adjusted FY18/FY19/FY20F profit by-5%/+7%/+14% and our DCF-based TP by 31% (previously based on 18x FY17 EPS) to SGD4.15 from SGD3.17. Upgrade to BUY from HOLD.
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Property Developers
Despite the robust outlook for developers, the sector is still trading at a large discount to NAV and also against historical averages. We note that during property bull-cycles, developers have traded at a premium to their NAV. For example, during the last upcycle in 2010, the forward P/B ratio of the FTSE ST Real Estate Holding and Development Index (FSTREH) reached a peak of 1.13x, while the current forward P/B ratio stands at 0.69, or 0.7 standard deviations (SD) below the 10-year average. We thus see room for further re-rating in the sector, and expect the discount gap to narrow as residential prices continue its upward trajectory.
On the contrary, the S-REITs sector is trading at relatively unattractive valuations, with a forward P/B ratio of 1.04x, or 0.7 SD above its 10-year mean. In conclusion, we believe developers offer a more attractive risk-reward proposition than S-REITs.
We are OVERWEIGHT the Singapore property sector, with a positive bias towards the residential sector. Our preferred picks are City Developments Limited [BUY, FV: S$15.91], UOL Group Limited [BUY, FV: S$10.63] and CapitaLand Limited [BUY, FV: S$4.26].
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Jubilee Industries Holdings Ltd
Turnaround of plastic manufacturer for electronics
■ Jubilee is set to swing back into full-year positive net profit after two years of net losses post-restructuring, based on our estimates.
■ Electronic component distribution (ECD) sales rose 90% yoy in 1HFY3/18, driven by new product line acquisitions and strong demand for memory chips and MLCCs.
■ Plans for fivefold capacity expansion by end-FY19F in mechanical moulding business through both organic and inorganic means.
■ Gross margins are likely to improve moving forward, in our view, as higher-margin mechanical business turns around and expands.
■ Initiate coverage with an Add and target price of S$0.051, based on SOP valuation
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Check out our compilation of Target Prices