SHENG SIONG GROUP
Broker: OCBC Investment Research
Target Price: 95 cents
Sheng Siong Group is the preferred pick in the consumer sector, in view of the near-term volatility and longer-term potential repercussions from Brexit.
The stock is recommend for several reasons. It is relatively defensive as a consumer staples company, and with its current earnings solely exposed to Singapore, there should not be material immediate implications.
While Sheng Siong's first store in China is slated to open around the fourth quarter of 2016, significant changes are not expected to its earnings profile in the near term.
The stock still retains stability in its market share and margins, and with an approximately 4 per cent dividend yield, a buy rating is reiterated.
DEL MONTE PACIFIC
Broker: DBS Group Research
Target Price: 37 cents
Del Monte Pacific headlined a net profit of US$19.3 million (S$26 million) and US$51.5 million for the fourth quarter of 2016 and the financial year 2016 respectively. This was a turnaround from losses registered a year ago.
Excluding these, core net profit was US$19.8 million, within expectations. Loss of government and co-pack contract bids led to a 6.7 per cent year-on-year sale drop in the fourth quarter in its US operations. This was offset partially by its Asia-Pacific operations, led by the Philippines.
The group is still issuing perpetual preference shares to deleverage its balance sheet as announced earlier. The issue size is expected to be up to US$360 million, with an initial tranche of up to US$250 million. This will lower the group's gearing 2.4 times in financial year 2017 and 2.1 times the year after. Some sluggishness in margin improvements is expected due to slower sales growth.
The main proposition of our recommendation is the turnaround of profit on the absence of non-recurring expenses and better operational performance. This is also contingent on sales, and in turn consumer sentiment and the broader economy.
ASCOTT RESIDENCE TRUST
Target Price: $1.16
Ascott Residence Trust (ART) provides unique exposure to the corporate long-stay segment through its serviced residences (SR) in key cities across Asia. With increased awareness of the value proposition of SRs, those secular demand trends remain intact.
ART's drive to grow its assets under management has not been accompanied by dividends per unit growth. Its high gearing meant that acquisitions are backed by a mixture of equity and debt, resulting in moderate dividends per unit accretion.
Brexit has also cast uncertainty over ART's properties in the United Kingdom and Europe. Near-term risk is mainly from translation loses on foreign-sourced income in view of the falling pound and the euro.
A flat dividends per unit growth is expected for financial year 2016, as full-year contributions from the acquisitions in the US and Australia are offset by a sluggish Europe and Asean.