Brokers' Call

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CAPITALAND

Broker: DBS Group Research

Call: Buy

Target price: $3.73

Key developments have been undertaken by CapitaLand in Shanghai, Hangzhou and Suzhou at a combined development cost of approximately 25 billion yuan (S$6 billion).

The execution and positioning of the various projects - Raffles City Hangzhou, Raffles City Changning and LuOne in Shanghai and Suzhou City Mall - remain on track and will be key drivers to higher return on equity on completion from 2017 onwards.

Management strategy is to deepen their focus in key Tier 1 and 2 cities in China, which continue to see increasing demand for real estate on the back of faster urbanisation rate and infrastructure developments.

Within China, the group intends to land-bank through mergers and acquisitions or urban renewal projects in order to gain access to prime land. The group also intends to be more capital efficient through shortening project development cycles, optimising cost through group procurement and tapping onshore capital markets.


CHINA MERCHANTS HOLDINGS PACIFIC

Broker: CIMB

Call: Buy

Target price: $1.02

Being the only toll company with exposure to multiple provinces, China Merchants Holdings Pacific (CMHP) can be more selective in choosing its investment targets. This is a key advantage against its provincial peers whose investments are confined within their home provinces.

CMHP also has the flexibility to adopt a longer investment horizon and capitalise on the opportunities when private investors who are under financial stress decide to sell

off their toll investments at bargain prices.

After the acquisitions, the number of toll roads of CMHP's portfolio has increased from five to eight and the average remaining concession period of the portfolio increased from previously 13.6 years to 16 years. CMHP's net gearing is expected to ascend to 68 per cent by the end of the year due to the debt financing related to the above acquisitions.

CMHP should be able to comfortably service its debt between financial years 2016 and 2018.

CMHP has also been receiving strong financial support from its parent company China Merchants Group.


MEMTECH INTERNATIONAL

Broker: OCBC Investment Research

Call: Buy

Target price: $0.158

Its foray into the automotive and consumer electronics industries has borne fruit for Memtech International, which is a precision engineering manufacturer that supplies plastic components in a variety of industries.

Prior to 2013, Memtech mainly served the mobile phone industry through its keypad and touchscreen production. After venturing into the automotive and consumer electronics space in 2013, Memtech has gained significant headway - generating US$94.6 million (S$134 million) in revenue and US$5.9 million in operating profit from these two industries alone in financial year 2014.

Memtech's future growth opportunities look positive with key revenue streams in the pipeline.

The management has mentioned plans from Beats by Dr Dre, Tesla and Continental to expand their portfolio of services with Memtech.


SIA ENGINEERING

Broker: Maybank Kim Eng

Call: Hold

Target price: $3.61

SIA Engineering announced the restructuring of its engine joint ventures with Rolls-Royce and Hong Kong Aircraft Engineering Company (HAESL).

In essence, SIA is divesting its 10 per cent stake in HAESL and a 2 per cent effective stake in Singapore aero engine services for $201.9 million in cash.

It will book a net gain of $186.8 million for financial year 2016.

SIA could also share part of the proceeds with shareholders. Assuming 50 per cent of the proceeds are distributed, it may pay a special dividend per share of 9 cents.

While the stock may react positively to the near-term prospects of a special dividend per share, a slight negative aspect is possible from a more competitive business landscape.

Maintain hold.

A version of this article appeared in the print edition of The Straits Times on November 30, 2015, with the headline 'Brokers' Call'. Print Edition | Subscribe