| CGS CIMB |
CGS CIMB |
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Singapore Airlines MTM losses and Covid-19 to hit balance sheet
■ SIA’s share price has gone below its sustainable long-term valuation, in our view, even after taking into account the damage wrought by Covid-19. ■ After taking into account MTM losses on its fuel hedges, we cut our target price to S$8, still based on P/BV of 0.86x (1 s.d. below average since 2011). ■ We reiterate Hold, as the spread of Covid-19 to the US and Europe may hurt SIA’s long-haul routes, and SIA’s share price may still fall in the short term.
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Starhub Raising bets on fixed enterprise via Strateq
■ StarHub will buy an 88.3% stake in Strateq (IT solutions provider) for S$82m to help it further expand into the fast-growing fixed enterprise business. ■ We expect the deal to be slightly earnings-accretive (equivalent to 1.2% of our FY20F net profit), with StarHub’s dividend-paying capacity intact. ■ Reiterate Add, with an unchanged DCF-based target price of S$1.80.
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| PHILLIP SECURITIES | DBS VICKERS |
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Singapore Strategy A fall worse than SARS
SINGAPORE | STRATEGY SNIPPET Since the first reported case of Covid-19 in China on 31Dec19, STI has fallen 16.8%. Considering the time elapsed, the decline was swifter and worse than the -15.5% during the SARS outbreak in 2002/03 (Figure 2). To juxtapose, the most severe sell-offs during the Global and Asian Financial Crisis resulted in a 62% decline in STI from peak-to-trough. While it is impossible to ascertain the peak of the spread of Covid-19, some positives for the STI include record low interest rates and valuations, government stimulus globally and the dramatic reduction and containment of new Covid-19 cases in China (Figure 3). We remain Overweight on the banking, telecommunications and electronics sectors.
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StarHub (STH SP): BUY Profitable acquisition in a growing sector
• StarHub acquires ~88% stake in Strateq for ~S$82m to strengthen its enterprise digital services capabilities • Acquisition price translates to a reasonable 20x Price to Earnings Ratio (PER) • Intention is to cross-sell Strateq products to Singapore while supporting its overseas expansion • BUY with unchanged TP of S$1.72 for its over> 6% yield and possible upside to consensus FY20F earnings.
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Check out our compilation of Target Prices
