ANALYSTS SAY: Buy, Sell, Hold (12 Apr '18)

SPH REIT (SPHREIT SP)

Acquisition potential priced in

Results in line, HOLD

Our forecasts are unchanged for SPHREIT following in-line 2Q18 results (MKE and Consensus). SPHREIT remains a strong proxy to growth in tourist arrivals and a recovery in prime Orchard Road rents, and we expect its flagship Paragon mall to see catalysts from stronger shopper traffic and tenant sales. However, the shares are fairly valued having appreciated sharply the past year, likely pricing in potential acquisitions, the timing of which remain uncertain. Reiterate HOLD with DDM-based SGD1.00 TP (WACC: 6.9%, LTG: 1.5%). We prefer FCT (FCT SP, BUY, TP SGD2.55) for its suburban footprint and stronger growth profile.

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Offshore and Marine (Overweight)

- 1Q18 preview: better qoq but O&M margin still weak 

We expect the big 3 (KEP, SCI, SMM) to report better qoq earnings for 1Q18F with likely limited major write-downs and provisions. KEP could emerge as the relatively stronger one with above-consensus reported profit with the best balance sheet and ROE. Overall, O&M EBIT margin likely to hover around 1-3% on lacklustre yard utilisation. SMM may still report a slight loss for 1Q18F. SCI's earnings outperformance hinges on land sales in urban development. India may report narrowing loss from higher merchant prices and interest cost savings. Maintain OW on the sector due to improving new order prospects and earnings bottoming out. Prefer KEP in the short term.

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Singapore Press Holdings: Nobody said it was easy

SPH has shown some green shoots with its digital-first strategy, but the turnaround of the group’s media business still appears to be some time away. Indeed, as the popular Coldplay song goes – “nobody said it was easy”. 2QFY18 results were largely within our expectations, with the tapering YoY decline in print advertisement of particular encouragement. The group’s approach to having integrated marketing offerings is indeed a sound approach to arrest the abovementioned decline, but this hinges on, we believe, a meaningful ramp-up in daily average digital circulation. SPH’s property portfolio should tide it through in the meantime, as it accounts for ~60% of the group’s 1HFY18 profit. Following adjustments, we increase our fair value slightly from S$2.51 to S$2.52. Maintain HOLD.