ANALYSTS SAY: Buy, Sell, Hold (20 June '18)

OCBC

CITIC Envirotech (CEL SP)

Minimal Trade War Impact Amid Rosy Outlook

With Trump announcing new tariff measures on China, China’s swift counter looks like the beginning of a trade war. While Chinese export-oriented firms may suffer, CEL is a different story with its defensive environmental business and government contracts with new order wins pushing to Rmb2.7b ytd. Its share buyback is a vote of confidence as its low PE and high dividend yield make it an attractive play on China’s war on pollution. Maintain BUY and target price of S$1.06.

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Embracing a digital future

Singtel’s core markets (Australia and Singapore) continue to face competitive pressures in the consumer segment with the impending entry of TPG as the fourth telco in both markets. For Singapore, Singtel will continue to differentiate itself by: 1) investing to maintain superior network quality, 2) ensuring better customer experience, 3) offering higher value services, and 4) offering innovative offerings such as handset leasing plans. Singtel is also digitalizing its operations to lower costs and improve customer experience. For Optus in Australia, it will continue to focus on four key pillars: 1) lead in customer experience, 2) lead in mobile networks, 3) differentiate with premium content offering (e.g. EPL, National Geographic, etc.), and 4) improve business productivity. Over the longer-term, Management targets to keep traditional carriage revenues flat over five years as voice-to-data migration continues, but aims to grow digital and enterprise revenues as a proportion of consolidated revenues from 24% in FY18 to 50% by FY23. Maintain BUY on Singtel with unchanged FV of S$4.10, as we continue to like its diversified earnings base and growing exposure into the digital and enterprise segments.

China Aviation Oil

Streamlining its associate portfolio

■ China Aviation Oil (CAO) announced the intention to dispose of its entire 39% equity interest in China Aviation Oil Xinyuan Petrochemicals Co Ltd (Xinyuan).

■ Xinyuan is a minor contributor to CAO’s share of associates profit; hence sale will have negligible impact on CAO’s profitability, in our view.

■ Maintain Add and TP, based on 12.5x CY19F P/E (c.20% discount to peer average).

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Silverlake Axis

Riding On Banks’ Spending Recovery

Maintain BUY and SGD0.65 TP, 25% upside.

Silverlake’s poor FY17-18 financial performances have been on regional banks cutting/pulling back on major IT spending over the last two years. However, we understand these banks are now open to large IT capex again, with some needing to upgrade core banking systems. This trend is justified by Silverlake’s contract wins over the last few months and orderbook at near record highs. Hence, we think earnings will surge strongly over the next two years, especially in FY19, and maintain our call on this counter.

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