Excerpts from analysts' report
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SELL Petra , as we cut earnings by 25%, and reduced our target price to S$2.40, implying downside of 20%. Petra is facing the double whammy of weak consumer demand in Indonesia affecting top-line while its margins are suffering from the declining rupiah, as its cost is in US$. SMRT (Fully Valued, TP S$1.27) could see further downside in earnings arising from higher maintenance cost which will more than offset benefits of the low oil prices. The recent rail disruption incident will depress sentiments and lower earnings visibility for the stock. Silverlake( Fully Valued), may see selling pressure as valuations are still lofty at 21x FY15 earnings while growth may slow due to its heavy exposure to Asean, in particular Malaysia banks.
China Merchant (BUY; TP: S$1.45). We expect the group’s toll revenue and earnings to continue growing steadily as traffic increases along with China’s economic growth. The recently completed Jiurui Expressway acquisition and proposed acquisition of three toll roads in Guangxi Zhuang Autonomous Region should propel the Group’s top and bottom lines in the medium to long term. We project CMHP’s core earnings to grow by over 50% from HK$675m in 2014 to HK$1,043m by 2017F, driven by contribution from these acquisitions. The group’s firm cash flow should support a 7- Sct DPS, which gives an attractive dividend yield of about 5.8%. Strong parental support is evident in the recent rights issue, with the potential for dual listing in Hong Kong as an additional catalyst.
ST Engineering (BUY; TP: S$3.80). ST Engineering is a proxy to recovery in US and Europe, as about 24% of total sales is derived from the US. A stronger US dollar is beneficial to STE's earnings. Orderbook inched up to S$12.4bn at end- 2Q15 from S$12.2bn as of end-1Q15 and covers close to two years of revenue and secures visibility, going forward.
Though 2Q15 headline numbers were unexciting as the slowdown in commercial vehicle business continued to bite but we expect a better 2H15. Share price decline of 16% from recent highs in April 2015 provides a good entry point for the stock. Higher interim dividend of 5Scts (FY14: 4Scts) shows confidence in management’s ability to deliver steady performance. Dividend yield of 4.5% at current prices looks attractive.
SembCorp Industries (BUY; TP: S$4.10). Share price has corrected >20% since end-April following disappointing 1Q15 results and uninspiring outlook guidance. 2Q15 was decent. While the Singapore power business remains under pressure, we could expect the ramp-up in India power plants to drive sequential improvement. Valuation is undemanding at 9.4x, generating dividend yield of 4.0%.
SIA (BUY; TP: S$12.70). We expect fuel cost savings for SIA to be more substantial from 2H FY15 onwards, which should drive better earnings recovery. We project SIA’s earnings to nearly double to S$616m in FY16. Earnings risk is on the upside if jet fuel stays below US$90/bbl for a sustained period. Our S$12.70 target price is based on 1.1x FY16 P/BV, which is its historical mean and reflects SIA’s improved earnings outlook. With net cash of c.S$3.40 per share, we see its current valuation of 0.9x FY16 P/BV as an attractive entry level for investors.
