Brokers' Call

UOL GROUP

Broker:DBS Research Group

Call: Buy

Target price: $8.47

UOL Group is an attractive deep-value play, supported by a portfolio of quality commercial properties, hotels and serviced residences located either near or within Singapore's Central Business District.

The portfolio drives 47 per cent to 58 per cent of revenue from its retail, office and hotel segments, which should continue delivering stable cashflows.

While headwinds are predicted in retail and office segments, the location of these properties on the fringes of the business district is expected to offset them.

The well-located hotels and serviced residences in Singapore, Malaysia and Australia provide the real value. Growth will be driven by a projected 19 per cent growth in total rooms under management over financial year 2014 to year 2017.

The downside risk is that if residential sales are slower than projections or if commercial properties and hotel operations are impacted by slower-than-projected growth in rental/room rates.

SIA ENGINEERING

Broker: CIMB

Call: Hold

Target price: $3.80

SIA Engineering posted second-quarter revenue of $266 million. Airframe heavy maintenance was still weak with a lower number of planes requiring heavy checks. But line maintenance was high due to a steady number of flights handled during the July to September period at Changi Airport.

Excluding a $2.2 million foreign exchange gain and a $2.8 million gain from the partial disposal of an associate, earnings before interest and tax inched up to 13.4 per cent from 12.9 per cent in the first quarter of 2016. Staff costs also dropped slightly by 5 per cent year on year to $113 million.

This could have narrowed the operating losses for airframe maintenance, repair and operations.

The firm blamed lower engine visits for the 53 per cent quarter- on-quarter drop in the share of associates' profit to $6.8 million. Lower sales of tools and equipment could have also caused the weakness.

SIA Engineering kept its interim dividend of six cents on the back of cash balances of $406 million. The company may maintain an approximately 90 per cent payout, potentially keeping its dividend per share steady.

CAPITALAND

Broker: Barclay's Bank

Call: Neutral

Target price: $3.52

CapitaLand reported good third-quarter operating profit after tax and minority interests of $163 million on better performance across all segments, especially China, driven by increased home handovers.

These results reflected normalisation of CapitaLand's operational earnings, after a weak first half.

Its pulling out from the Asia Square Tower 1 acquisition shows a renewed discipline in bidding for trophy assets. It also highlights the scarcity of sizeable opportunities for CapitaLand, after it recently restarted its capital recycling strategy.

China malls' net property income fell sequentially, as occupancy weakened further to 93.4 per cent from 93.7 per cent in the previous quarter.

Taking into account the slower growth at China malls and lower profit margins at its China residential projects, the estimated operating profit after tax and minority interest for this year to 2017 is 11 per cent to 12 per cent.

NEPTUNE ORIENT LINES

Broker: DBS Research Group

Call: Hold

Target price: $1

Container shipping company Neptune Orient Lines (NOL) reported higher-than-expected losses of US$96 million (S$136 million) in the third quarter.

Results deteriorated sharply from levels of the second quarter - when the liner division had posted net loss of US$11 million - due to further steep erosion in freight rates.

The peak season, unfortunately, did not translate to peak rates, which dragged NOL's average freight rate in the third quarter down by 20 per cent year on year.

Average fleet growth over the period from this year to 2017 is expected to be about 6.5 per cent a year, while container trade demand will grow by 4 per cent to 5 per cent a year at best. Thus, the oversupply situation looks set to continue into 2017.

NOL is expected to post core losses of close to US$200 million each year for financial years 2015 and 2016.

A version of this article appeared in the print edition of The Straits Times on November 09, 2015, with the headline 'Brokers' Call'. Print Edition | Subscribe