Brokers' Call

OCBC Investment Research sees growth potential for Sats as it beefs up its position through the restructuring of its JV in China.
OCBC Investment Research sees growth potential for Sats as it beefs up its position through the restructuring of its JV in China.ST PHOTO: KEVIN LIM

SATS

Broker: OCBC Investment Research

Call: Hold

Target price: $5.12

Pursuant to its April 17 announcement on the proposed joint investment with Charoen Pokphand Group in Jilin Zhong Xin Cheng Food (Jilin JVCo), Sats announced last week that Singbridge will also participate in the investment in Jilin JVCo through a joint-venture agreement with Sats.

Get The Straits Times
newsletters in your inbox

Jilin JVCo was set up in 2010 to develop and operate a large-scale integrated pig farm with abattoir and feed production facilities in Jilin province, China.

Under this structure, Sats' effective stake in Jilin JVCo will be cut to 21 per cent from 35 per cent. In our view, while Sats' effective stake is reduced, having two strong strategic partners on board is certainly positive over the longer term.

Singbridge is experienced in China investing, and has a project with the Jilin city government to develop a sustainable model food zone tailored for quality and safe food production in China and the region.

Given the huge market size in China and the high demand for safe food distribution, we see positive growth potential for Sats as it strengthens its position through the restructuring of its JV in China.


DAIRY FARM

Broker: RHB Securities Research

Call: Buy

Target price: US$10

According to Dairy Farm's first-quarter interim statement, the health and beauty segment demonstrated better year-on-year sales and operating profit for the quarter.

We expect performance of the segment to continue to pick up for the rest of the year on higher Chinese tourist arrivals in Hong Kong, potential rental reduction in Hong Kong, improved corporate brand penetration and margin improvement after the rationalisation of non-performing Indonesian outlets in 2016.

Ikea leads the home furnishings industry in Hong Kong and Taiwan with three and five outlets, respectively.

Its only outlet in Indonesia is also seeing strong traction and positive same-store sales growth.

Over the last year, Dairy Farm has established e-commerce websites for all three regions and opened three pick-up points.

It is also planning to open two new stores in Hong Kong and Indonesia this year. We believe the increased accessibility would boost sales for its home furnishings division.

This year, Dairy Farm is likely to open two fresh food distribution centres - one in the Philippines and the other in Malaysia.

We believe this would raise fresh food penetration in Dairy Farm's supermarkets and hypermarkets, thereby giving an uplift to margins.

On top of that, the distribution centres would also provide Dairy Farm with a centralised avenue to do more direct sourcing and bulk handling to improve gross margins in the two countries.


ASCENDAS REIT

Brokerage: Maybank Kim Eng

Call: Buy

Target price: $2.90

AReit remains our top industrial sector pick with the best exposure to a sector recovery, in our view. An expected tapering off of new supply this year is expected to benefit its well-entrenched business parks and hi-spec industrial properties.

With debt headroom estimated at 14 to 27 per cent of its market cap, we see distribution per unit upside from potential acquisitions.

AReit commands the best asset mix among the industrial Singapore-listed Reits. We think that net property income contributions from its business parks and hi-spec properties - at 59 per cent of assets under management - will outpace its portfolio growth, given these properties' stronger supply-demand visibility.

We see continued acquisitions from its sponsor's pipeline of more than $1 billion of business and science parks in Singapore following the $420 million Science Park Drive deal completed in February.

A version of this article appeared in the print edition of The Straits Times on June 19, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe