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Conglomerate 3Q18 happenings and results preview
■ We expect qoq declines in 3Q18 earnings for Singapore conglomerates/ O&M names, except for STE (stronger marine and electronics). ■ The lacklustre 2018 order win YTD could be partially made up by slight improvement in margins among the yards. Balance sheet remains a focus. ■ Maintain OW on the sector. Stronger-than-expected acquisition-fuelled growth could be a key catalyst. Prefer STE for 3Q18 results.
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Singapore Market: Corporate actions heating up
Corporate actions have been picking up in the Singapore market and key owners and shareholders are active via share buyback or corporate actions. With recent offers for both Wheelock Properties and M1, interest has also spilled over to other companies in the same two sectors. We believe that the recent correction in the Singapore market has thrown up good price levels for key shareholders to strengthen their stakes in their companies. The Singapore market is currently trading at close to 1.1x book for the STI companies, and this ratio is lower for small-mid cap and property companies. While it is difficult to name the next takeover or privatization candidate, several indicators are useful to assess and identify potential candidates. We expect corporate actions to be concentrated around the undervalued small-mid cap companies with low trading liquidity. Meantime, the big cap companies are also offering value for longer term investors and our picks include DBS, UOB, CapitaLand, UOL and SingTel. |
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Dairy Farm Slow Route To Recovery; Prefer Sheng Siong
Maintain NEUTRAL, TP of USD9.60, 5% upside. Recently, a post on Facebook suggested there could be a number of Giant store closures, or changes in Singapore. While the post was not made by Dairy Farm, we believe the move is in line with management’s guidance to close or relocate underperforming stores. As such, we do not expect to see a strong recovery in its food division in 2H, as the growth of the supermarket industry in Hong Kong and ASEAN remains subdued, and the group is still reviewing its store portfolio. Our top sector pick is Sheng Siong (SSG SP, BUY, TP: SGD1.30).
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CSE Global ♦ We re-initiate with a BUY; our fair value of S$0.57 is based on a blended 12.5x FY2019F P/E and 2.1x 2019F P/B. CSE’s valuation is currently attractive on undemanding earnings multiple of 15/12/10x 2018/19/20F core EPS. ♦ Positive company outlook on 22-26% EPS growth in next 3 years from better industry prospects and from synergies with its new major shareholder. We expect downside risks to be mitigated by its above-industry 5.8% dividend yield. |
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