ANALYSTS SAY: Buy, Sell, Hold (11 Feb '19)

CGS CIMB

SIA Engineering (SIE SP)

3Q FY19 Hit by One-Off Items

Ugly quarter but mainly from one-offs at associates

Reported 3Q19 profit was ugly, down 40% YoY and well below our and consensus expectations, mainly driven by one-off items. The underlying trends are still soft but stabilising. We cut FY19/FY20/FY21 PATMI by 13%/6%/6% and DCF-based TP by 5% to SGD2.85 (unchanged 8% WACC; 2% TGR). Catalysts for growth may take time to materialise, but SIE is trading at a 15% discount (c. -1sd) to its 10Y forward P/E mean, at levels we believe its dominant franchise at Changi Airport is undervalued.

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REIT

More room to run

■ Despite the YTD +7% outperformance, we still expect more room to run for SREITs in the benign interest rate environment ahead.

■ We project stronger DPU growth of 1.3% in 2019F and 2.0% in 2020F with office segment offering the strongest expansion.

■ Our strategy now is to go for laggard with value such as Suntec REIT and keeping our liking for CDREIT. Maintain Overweight.

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First REIT: Mind the (rental) gapFirst

We believe that PT Lippo Karawaci Tbk (LK) could be looking to divest off its remaining 10.6% stake in First REIT (FREIT) for liquidity reasons so as to meet one the conditions by S&P Global in order to stave off a further credit rating downgrade. LK’s loss of ownership over FREIT would have certain ramifications for the REIT, especially in terms of visibility over longer term rental income. In 2017, we believe that Siloam paid LK ~S$12.1m in rent expenses, while FREIT received ~S$91.5m of rental income from LK. Taken together, it would not be unreasonable for LK to cease the above arrangement at the earliest opportunity, potentially requiring FREIT and Siloam to find some way to bridge the gap. With the 18.2% YTD rally, we downgrade FREIT tactically from Hold to SELL on valuation grounds with an unchanged FV of S$0.97.

 First REIT: Mind the (rental) gap

We believe that PT Lippo Karawaci Tbk (LK) could be looking to divest off its remaining 10.6% stake in First REIT (FREIT) for liquidity reasons so as to meet one the conditions by S&P Global in order to stave off a further credit rating downgrade. LK’s loss of ownership over FREIT would have certain ramifications for the REIT, especially in terms of visibility over longer term rental income. In 2017, we believe that Siloam paid LK ~S$12.1m in rent expenses, while FREIT received ~S$91.5m of rental income from LK. Taken together, it would not be unreasonable for LK to cease the above arrangement at the earliest opportunity, potentially requiring FREIT and Siloam to find some way to bridge the gap. With the 18.2% YTD rally, we downgrade FREIT tactically from Hold to SELL on valuation grounds with an unchanged FV of S$0.97.

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