OSIM INTERNATIONAL
Broker: CIMB
Call: Sell
Target Price: $1.00
Osim's first-quarter results this year painted an unchanged, gloomy picture for discretionary spending.
Even though the net profit ($7.8 million) was in the same range as the third and fourth quarters of 2015 ($6 million to $9 million/quarter), it was a discouraging figure, and estimates may be cut further ahead.
Overall sales were minus 8 per cent year on year in the first quarter of 2016. Given the prolonged soft market conditions, management plans to be cautious in investing and will further rationalise stores. Osim outlets were reduced from 534 at the end of 2015 to 516 at the end of the first quarter of 2016.
The current $1.39 (ex-dividend) privatisation offer is the best option on the table for investors. Mr Ron Sim will, no doubt, relist his business in future, when profits eventually recover. If he fails to garner 90 per cent of the Osim shares that he does not own, nor reach the 90 per cent ownership mark (and he does not come up with another offer), Osim's share price may suffer an almost 30 per cent downside to a fair trading market price. This is as good as it gets.
SINGAPORE AIRLINES
Broker: DBS Group Research
Call: Buy
Target Price: $13.30
Singapore Airlines will continue to be a beneficiary of the current low oil price environment.
Furthermore, SIA has the potential to pay more dividends as earnings recover and also given that it has over $3 billion net cash on its balance sheet.
SIA Group is projected to consume over 40 million barrels of jet fuel per year and with jet fuel currently at US$50 per barrel versus nearly US$120 per barrel at end-2014, the group will reap substantial benefits from lower fuel costs, especially as the more expensive hedges start to expire.
SIA's net profit is projected to rebound from $368 million in financial year 2015 to $711 million in financial year 2016, and by 37 per cent year on year to $976 million in the next financial year and by 8 per cent to $1.05 billion in 2018.
As SIA's earnings recover, SIA is expected to raise its dividend payout to 50 cents per share in financial year 2017 and 2018. Further upside could come from a return of more cash as special dividends, or even capital reduction, as the group has done in the past.
Competition and pressure on yields could be key risks.
CITIC ENVIROTECH
Broker: OCBC Investment Research
Call: Hold
Target Price: $1.48
Citic Envirotech (CEL) has recently won its first BOT (Build-Operate-Transfer) sludge treatment project in Weifang city, Shandong province in China. The 220 million yuan (S$48 million ) project involves the design, construction and operation of a 700 tonnes/day sludge-treatment plant. When completed by end of the year, it will be the largest sludge-treatment plant in Shandong province and will have a concession period of 30 years.
The management also believes the latest project offers an excellent opportunity for CEL to demonstrate its capability and technologies in the "sludge to resource" and "sludge to energy" segment - a segment that it believes is poised to expand, given the more stringent environmental regulations and favourable policy trend.
While this is an important development for the company, more contract wins are needed before estimates are revised. Maintain hold call.
SUNTEC REIT
Broker: CIMB
Call: Hold
Target Price: $1.67
Suntec Reit has been unwavering against headwinds. Its distributable income for the first quarter of 2016 was in line year on year at $56 million, thanks to higher revenue and net property income from the completion of Suntec City Phase 3 and Suntec City Office.
Capital distribution of $4 million from the sale proceeds of Park Mall notched distributable income (DPU) up by 7.2 per cent year on year. This, plus the redemption of $280 million convertible bonds due in 2018 and the 30 per cent investment in the Park Mall JV ($115 million), means Suntec has an estimated $11 million of sales proceeds left which will be used to ensure steady distributable income.
Committed occupancy for its retail portfolio stood at 98.6 per cent at the end of the first quarter of 2016, while committed occupancy for Suntec's office portfolio stood at 98.3 per cent. For Suntec City, it was 98.7 per cent; however, renewals were likely signed at lower rates.
Headwinds from its deteriorating operating metrics are counterbalanced by its resolution to keep DPU steady.
