ANALYSTS SAY: Buy, Sell, Hold (5 Mar '19)

OCBC

First Resources Ltd

High inventory a drag on 4Q earnings

■ FR's FY18 core net profit was below expectations due to a net inventory build-up as well as higher-than-expected costs of production in 4Q18.

■ We project higher earnings in FY19, driven by higher CPO prices and output.

■ FR remains our top Singapore palm oil pick for upstream exposure due to its young estates (average age of 11 years) and attractive EV/ha (US$11.9k).

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SG Hospitality: ART is our new top pick!

YTD, all four hospitality REITs under our coverage have posted positive total returns till 4 Mar’s close: CDL Hospitality Trusts (CDLHT) is up 14.4%, OUE Hospitality Trust (OUEHT) is up 10.9%, Ascott Residence Trust (ART) is up 10.1%, and Far East Hospitality Trust (FEHT) is up 9.1%. This compares to total returns of 6.1% from the Straits Times Index over the same period. OUEHT is still trading at a discount to peers, but we believe that it is now more likely that OUEHT will acquire sponsor’s asset Oakwood Premier within the year, based on an updated assessment of how well the asset has stabilized. Given OUEHT’s higher gearing and the unknowns surrounding the potential acquisition, we prefer a more defensive REIT for our top sector pick. Ascott Residence Trust (ART) [BUY; FV: S$1.25] boasts a highly geographically diversified portfolio of high quality assets and given the ongoing macroeconomic uncertainties we look upon this defensive positioning favourably. Post the divestment of Ascott Raffles Place, gearing is expected to drop to 32+%. This translates into a debt headroom of close to S$1b, and offers ART greater flexibility to pursue DPU accretive acquisitions.

China Aviation (Singapore)

Oil Mixed blessing SINGAPORE | OIL AND GAS | 4Q18 RESULTS

 4Q18 revenue and net profit missed our expectations due to lower than expected supply and trading volumes and profits from Pudong.

 Supply and trading margins improved. Total supply and trading volume shrank.

 Pudong underperformed due to lower refuelling volumes and FX losses.

 We adjust our FY19e EPS downward to 10.7 US cents (previously 11.2 US cents) due to the assumption of a decrease in profits from supply and trading business, offsetting the growth of profits from Pudong. Based on an unchanged average forward 12-month PER of 11.5x, we maintain our BUY call with a lower target price of S$1.67.

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Japfa (JAP SP)

2018: Concerns Overblown On African Swine Flu; Valuation Is Compelling

We think the 8% share price correction over the past two days in response to the ASF in Vietnam has been overdone. The financial impact is estimated at 12% of 2018 core PATMI in an outbreak. None of Japfa’s farms have been impacted so far and Japfa could benefit from higher swine prices. The significant dividend hike and recent share buyback are a strong vote of confidence. Valuation has turned more compelling at 7.7x 2019F PE, a 52% discount to peers’. Maintain BUY and target price of S$0.98.

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