ANALYSTS SAY: Buy, Sell, Hold (2 Sept)

CGS CIMB

ST Engineering
Laying down the tracks

■ STE clinched a S$1.4bn rail contract for the Kaohsiung Yellow MRT Line, the largest rail contract in STE’s operating history. Order book rose to S$23.6bn.
■ Market could be penalising STE (-8% MTD) for the below-expectations 1H22 core profit, rising interest rates concerns, and Oshkosh bid loss, in our view.
■ STE trades at 17x FY23F P/E, below its 7-year average of 21x, and 4.2% yield. Catalysts: defence contracts from Middle East and margin recovery.

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SingTel
Clearer focus on improving ROIC

■ Singtel hosted its annual Investor Day on 31 Aug, after a two-year hiatus.
■ Aims to raise ROIC to high-single digits in the mid-term. Positive momentum seen in the core business. Big scale up for NCS & RDC in the next 3-5 years.
■ Reiterate Add and TP of S$3.20 for Singtel, our top Singapore telco pick. 

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CGS CIMB

Singapore Strategy
Inclusion of Emperador into STI

■ Effective 19 Sep, ComfortDelgro (CD) will be replaced by secondary listing Emperador (EM), the largest liquor company in Philippines, in the STI.
■ EM’s sizeable market cap of S$8.3bn (as of the close of 22 Aug) made it rank top 20th by market cap, meeting one of the many STI inclusion rules.
■ CD’s share price could weaken on exclusion. Look for opportunity to buy as it trades at 6% dividend yield and is a SG top pick for improving rail ridership and taxi earnings.

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Japfa Ltd
Recovery in ASPs could bode well

■ Rising feed costs have impeded JAP’s recovery since 3Q21 when Covid-19 hit key operating markets such as Indonesia and Vietnam.
■ However, we see improving ASPs across key proteins, such as poultry and swine, supporting normalised profitability across all business segments.
■ We reiterate our Add call with an unchanged SOP TP of S$0.81 as we see improved profitability as ASPs recover and raw material prices peak.

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REITs – Singapore
S-REITs Bi-Weekly Updates (16-31 Aug 22)

S-REITs declined 4.3% as the Fed maintained a hawkish stance during the Jackson Hole Economic Symposium. Outlook is also clouded by a protracted Russia-Ukraine War. S-REITs are resilient due to their stable cash flows. Investors are likely to turn their attention to S-REITs when economic growth and inflation start to moderate. Our bottom-up and diversified BUY picks are FCT (Target: S$2.74), LREIT (Target: S$0.83), MINT (Target: S$3.36) and MLT (Target: S$2.08). Maintain OVERWEIGHT.

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Civmec Ltd (CVL SP)
Steady delivery

2H22 profit exceeds expectations; keep BUY
Civmec’s 2H22 net profit jumped 42.8 YoY to AUD28.2m, beating our and street expectations. Excluding the write-back of AUD1.3m for the previous impairment/revaluation losses, FY22 core earnings of AUD49.5m came in at 105% of MIBG/consensus’ full-year estimates. The group declared a final DPS of AUD0.02, bringing total payout to AUD0.03 (+50% YoY). We raise our FY23-25E EPS by 1-2% on the back of a stronger net margin assumption.

That said, we keep our 12-month TP at SGD1.00 (still based on 10x FY23E P/E) given the depreciating AUD against SGD. BUY.

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