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Aviation – Singapore
China’s Reopening Injects New Momentum To The Sector’s Recovery In 2023
The swift reopening of China to international travellers starting from 8 Jan 23 is expected to inject new momentum to the Singapore aviation sector’s recovery, lifting the FY23-24 earnings outlook for respective Singapore aviation plays. We maintain our MARKET WEIGHT rating on the Singapore aviation sector. We recommend BUY on SIA Engineering (New Target: S$2.70) and SATS (New Target: S$3.10), and HOLD
on Singapore Airlines (New Target: S$5.40). SIA Engineering is our top pick.
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Banking – Singapore
Upside From Higher Terminal Interest Rates
The FOMC assessed that inflation for core services (non-housing) would take a longer time to moderate due to high labour content of 55%, elevated job vacancies and growth in wages. Core PCE inflation is expected to recede gradually to 3.5% in 2023, which remains above the Fed’s long-term goal of 2.0%. The Fed has to maintain a restrictive policy for some time. BUY DBS (Target: S$46.95) and OCBC (Target: S$18.32) for 2023 dividend yield of 4.8%. Maintain OVERWEIGHT.
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Gaming – Regional
Realising The Full Potential Of China’s Border Reopening
With most Asian gaming companies having rallied since 3Q22, Macau gaming stocks should consolidate in the near term, but we still foresee moderate upside to the Genting Group’s listcos as Mainland Chinese tourists stream back to Asean countries. Besides this, we expect the Genting listcos to dole out generous final quarter dividends. Maintain OVERWEIGHT on the Asean gaming companies and MARKET WEIGHT on Macau gaming companies.
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Bloomberg reported that Olam Group Ltd ($1.48, unchanged) has picked banks to lead a planned Singapore listing of its agribusiness unit that could raise as much as US$1 billion, people familiar with the matter said. The
company selected Citigroup Inc., DBS Group Holdings Ltd., HSBC Holdings Plc and Morgan Stanley to arrange the planned initial public
offering of Olam Agri Holdings Pte, according to the people. It’s aiming to complete the share sale later this year, the people said, asking not to be identified because the information is private.
The successful monetization of Olam Agri at an equity valuation of US$3.5 billion or S$4.7 billion puts the remaining value of Olam at only S$790 million (total market value of Olam S$5.49 billion). This suggests the remaining stub value (ex-Olam Agri) at only 3x PE, puƫ ng Olam Food Ingredients & Olam International Ltd in the undervaluation range as profi ts from these divisions have ranged between S$250-300 million range. Little wonder that the company has been consistently buying back its shares in the open market with accumulated purchases at 4.868 million share around $1.30-1.40. Olam Group gearing will be reduced from 1.7x to 1.3x post transaction closure. (Assuming the successful IPO of its Agri business, it would highlight the undervaluation of Olam Food
Ingredients & Olam International Ltd).
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Gas Malaysia (GMB MK)
Profitability likely intact
No negative surprises
The unchanged distribution base tariff affirms our expectation of a nonpunitive outcome for the new regulatory period. The distribution portion of GMB’s spread is thus unchanged, meaning overall spreads will continue to be driven by gas prices. Reiterate BUY with an unchanged MYR3.80 DCFbased TP. We expect spreads to remain elevated in 4Q22 and 1Q23 on higher gas prices.
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Petronas Gas (PTG MK)
Seemingly not that bad
A better-than-expected tariff outcome?
PTG’s RP2 tariff outcome appears better relative to our expectation, with higher-than-expected transport tariff offsetting lower Pengerang regas tariff. Regulatory details remained undisclosed at the time of writing.
Maintain HOLD with a higher MYR17.40 TP (+2%) following our initial round of earnings revisions. We prefer Gas Malaysia (GMB MK, BUY, CP: MYR3.25, TP: MYR3.80) among the gas utilities.
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