ANALYSTS SAY: Buy, Sell, Hold (30 Jan '18)

SIA Engineering (SIE SP)

Improving Engine MRO To Be Earnings And Re-rating Catalyst. Upgrade To BUY.

According to industry authority Aviation Week, engine shop visits in the Asia Pacific region will accelerate in 2018. SIAEC has the capability to perform checks for most of these engine types and this should boost engine MRO earnings from a six-year low. Consequently, we raise our FY18-19 net profit forecasts by 1.1% and 7.2% and target price by 14%. At our target price, the stock would trade at an ex-cash PE of 24.9x and 21.2x FY18-19 core earnings respectively. Upgrade to BUY with a new target price of S$4.00.

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Starhill Global REIT: Improvement expected

Starhill Global REIT (SGREIT) reported another challenging set of results although this was in-line with our expectations. 2QFY18 DPU came in lower by 7.1% YoY to 1.17 S cents due to lower NPI and higher withholding taxes for its Malaysia and Australia properties. However, we expect 2HFY18 to be better for SGREIT as compared to 1HFY18 due to the commencement of its Singapore office leases which were committed in 2QFY18 and contribution from its China property. Another positive development was the announcement that global apparel retailer UNIQLO would be opening its first Perth flagship store in mid-2018 at SGREIT’s Plaza Arcade property. In terms of balance sheet, SGREIT’s gearing was stable at 35.3%, as at 31 Dec 2017, leaving SGREIT with a debt headroom of ~S$259m before reaching a gearing level of 40%. We are keeping our forecasts and S$0.77 fair value estimate unchanged given this in-line set of results. Maintain HOLD.

Industrial REITs

Size really matters!

• A giant awakes in the industrial mid-cap space

• Short the acquirer, long the acquired? Not this time

• Size matters as the combined entity could see further re-rating on “liquidity“ premium

A giant awakes in the industrial space.

The proposed merger of ESR-REIT (ESR) and Viva Industrial Trust (VIVA) puts the M&A spotlight back into the mid-cap industrial REITs, which have been struggling to grow meaningfully through acquisitions. We remain excited about prospects of the combined entity (ESR-VIVA) as we see both sets of unitholders able to benefit and ride together with a potentially fourth largest industrial REIT (S$1.7bn mkt cap, S$3.1bn AUM) in Singapore, backed by a reputable sponsor in E-shang Redwood, which offers a sizeable pipeline of acquisition prospects and deal flow.

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Avi-Tech Electronics

Outperformance To Continue

We remain positive on Avi-Tech’s outlook, as it should benefit from increased demand for electronics in the automotive sector, as well as the Internet of Things (IoT). With net cash of SGD32.4m, we think there is a high possibility that it may acquire a yield-accretive target in the near term. With the recent share price correction, valuations appear very attractive, especially when compared to its listed Malaysian peers. It also offers an attractive FY18F dividend yield of 4.6%. As such, we maintain our BUY call, with an unchanged DCF-based TP of SGD0.59 (16% upside).

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RHB

Singapore

December’s Decline Still Caps a Strong Year For IPI

Singapore’s IPI declined 3.9% YoY in Dec 2017, deteriorating from its +5.6% reading the month before, undermined by a sharp slowdown in semiconductor production and a collapse in pharmaceutical output. Despite the late collapse, 2017 was a good year for the manufacturing sector, as the Industrial Production Index (IPI) rose 10.1% for the full-year, accelerating from +3.7% in 2016. Excluding biomedical manufacturing, the figure rises to 15.3% in 2017, up from +1.3% the year before.

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