ANALYSTS SAY: Buy, Sell, Hold (10 Jan '19)

OCBC

Banks

O&G trouble could be one-off

■ We think that further widespread deterioration of the O&G sector following Coastal Oil’s liquidation is unlikely.

■ In the worst case scenario of incurring full provisions, credit costs could rise by 1-6bp. We believe the NPL implication is not material at 1-6bp.

■ Stay sector Overweight. OCBC is our top pick for continued NIM upside and attractive valuation of 1.1x CY19 P/BV - below long-term mean of 1.4x.

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Ascott Residence Trust: New Year, New Look

Yesterday, Ascott Residence Trust (ART) announced that it has entered into a sale and purchase agreement with an unrelated third party (the “Purchaser”) to divest Ascott Raffles Place Singapore for S$353.3m, which is 64.3% above the independent valuation of S$215.0m as at 31 Dec 2018. On a pro forma basis, FY17 DPU would fall 2.4% from 7.09 S cents (actual) to 6.92 S cents, while FY17 NAV per share would increase 4.8% from S$1.25 (actual) to S$1.31. While we were not surprised by the Ascott Raffles Place divestment per se given ART’s active asset recycling strategy, we were impressed that ART has managed to sell such a substantial asset significantly above its book value. After adjustments, our fair value increases to S$1.18. We continue to like ART’s portfolio of assets with its strong brand recognition and high geographical diversification. Given the increase in fair value, we upgrade ART from Hold to BUY.

Wilmar International (WIL SP)

Upside From Potential China IPO

 Maintain BUY and SGD3.58 TP, 13% upside, with 3% FY19F yield. Wilmar is our Top Pick for exposure to the plantation sector. Given an unexciting year ahead for CPO prices, we believe Wilmar will outperform the sector as its exposure to the downstream space could help to mitigate the lower earnings in the plantation segment. In addition, the potential A-share listing of its China operations could unlock some latent value in the stock through special dividends and a share price rerating.

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Sunpower Group (SPWG SP)

Addressing Concerns Of Unauthorised Share Transfers

Sunpower’s 32% share price correction since its substantial shareholders fell prey to unauthorised share transfers on 17 Oct 18 appears to be overdone. Total exposure is limited to only 3.8% of issued shares; downside is limited as legal actions have been taken against their borrower and Sunpower has started buying back shares in 2019. Core business remains robust and current valuation is attractive at 5.8x 2018F PE. Maintain BUY and SOTP-based target price of S$0.76.

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