Brokers' Call: Singapore Airlines

SINGAPORE AIRLINES

Broker: OCBC Investment Research

Call: Hold

Target Price: $11.56

Changi Airport saw increased activity in July but as confirmed cases of the Zika virus in Singapore rose last week, it raises the question of whether air-travel activity growth can be sustained for the rest of the year.

While symptoms (and consequences) are generally mild (except for some pregnant women), the virus could still be transmitted by those who are infected even if they do not show any symptoms. As a result, the United States and South Korea have joined Australia and Britain, among other countries, to issue travel warnings on Singapore. Malaysia and Indonesia have also stepped up protective measures at airports and border checkpoints.

However, the Singapore Tourism Board said it is premature to consider any impact on the tourism sector.

If the Zika virus continues to pose problems in Singapore over a prolonged period, inbound and outbound traffic will likely be hit. With Singapore Airlines using Singapore as its main hub, business will be impacted by the resulting lower passenger traffic.


CROESUS RETAIL TRUST

Broker: CIMB

Call: Buy

Target Price: 98 Singapore cents

Croesus' net profit interest for the fourth quarter of this year surged 19.4 per cent year on year to 1.44 billion yen (S$18.8 million), thanks largely to new income from acquisitions.

In the financial year, the group purchased four properties worth 17.4 billion yen. Its fourth- quarter distribution income grew 22 per cent year on year to 1 billion yen while distribution per unit improved a more marginal 6.9 per cent to 1.7 Singapore cents after a rights issue and private placement to fund the purchases. Portfolio asset value increased 6.6 per cent on better operating performance, while book net asset value rose a higher 9.1 per cent to $1.01 a unit due to the stronger currency.

Looking ahead, a full 12-month contribution from the four new assets should underpin net profit interest growth for financial year 2017, and an additional 1.2 billion yen is expected annually.

Rental income to be renewed in the next two financial years as well as possible asset enhancements should boost returns in the long run.


PACC OFFSHORE SERVICES HOLDINGS

Broker: OCBC Investment Research

Call: Hold

Target Price: 29 Singapore cents

PACC Offshore Services Holdings (Posh) is one of three leading the race to supply Brazil's Petrobras with an accommodation and maintenance unit to run operations in the Santos Basin.

Petrobras is offering a one-year charter, renewable for another year, for a floatel with capacity to accommodate at least 460 people and ready to enter operations in June next year. This would be perfect for Posh Xanadu after its current contract with Petrobras ends around March next year.

Meanwhile, since Aug 3, the stock has lost about 9 per cent of its value, compared with the Straits Times Index's 1.3 per cent fall over the same period. Given that the stock is now trading at more palatable levels, the rating is upgraded to "hold", but with caution that it remains too early to turn positive on the stock, given that the group does not expect to be profitable for the rest of the financial year amid the challenging environment.

A version of this article appeared in the print edition of The Straits Times on September 05, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe