Brokers' Call: CAPITALAND

CAPITALAND

Broker: OCBC Investment Research

Call: Buy

Target Price: $4.07

CapitaLand announced that its serviced residence business unit, The Ascott, has recently secured new contracts to manage over 850 units in four cities in Asia.

In addition to Binh Duong in Vietnam and Seoul, the group will manage serviced residences for the first time in Yogyakarta, Indonesia, and Miri, Malaysia.

Ascott continues to show good growth in its portfolio. The group is now the world's largest global serviced residence owner and operator with over 42,000 units in 94 cities across 26 countries, achieving its global target of 40,000 serviced residence units well before end of 2015 as scheduled.

Management plans for Ascott's portfolio to grow to over 80,000 units by 2020 and, to accelerate operational growth.

The group established a 50-50 joint venture with Qatar Investment Authority earlier this year, to set up a US$600 million (S$849.5 million) serviced residence fund, its largest private equity fund to date. CapitaLand aims to launch six new funds with total assets under management of up to $10 billion by 2020.


SEMBCORP MARINE

Broker: Maybank Kim Eng

Call: Sell

Target Price: $2

SembMarine has secured a project worth over US$1 billion (S$1.41 billion) from Maersk Oil North Sea UK to construct a central-processing facility, connecting bridges, wellhead platform and utilities and a living quarters platform in the British sector of the North Sea.

Gas production at this high-profile field is expected to start in 2019, in order to meet 5 per cent of Britain's gas demand in 2020-21.

The contract brings SembMarine's year-to-date orders to at least $2.8 billion, which tops forecasts of $2.2 billion for financial year 2015. Its net orderbook at second quarter was $10.9 billion.

However, the contract value includes equipment content, engineering and procurement components, and subcontracting of detailed engineering work.

This implies that operating margins could be lower than the 10-12 per cent it has been generating.

While investors are likely to welcome the news, it is a one-off win insufficient to ward off deeper concerns over an oversupplied rig market, weak drilling demand and deferred deliveries.


UOB

Broker: CIMB

Call: Sell

Target Price: $18.23

UOB's Greater China strategy is to capture intra-regional flows, riding on tailwinds from yuan internationalisation, the rise in Chinese corporate investment in Asean and demand for property investments abroad.

These trade flows have created demand for cash management and hedging services, which are becoming increasingly important fee-income drivers.

Compared with DBS and OCBC, UOB's Greater China business is small, with Greater China loans at $40 billion. Its China revenue is skewed towards institutions, with a breakdown of 45 per cent from corporates, 35 per cent in small- and medium-sized enterprises and 20 per cent from consumers.

Opportunities ahead could come from wealth management with the removal of the US$50,000 (S$70,800) cap on outbound investments and setting up of operations in Kunming to capture trade flows with Myanmar. UOB's key risk is in pacing expansion with costs and credit quality.

On the asset quality front, the main concern is its exposure to Asean, where non-performing loans have accelerated.


OSIM INTERNATIONAL

Broker: DBS Group Research

Call: Hold

Target Price: $1.61

Osim's business is predominantly in massage chairs, with at least 60 per cent of sales from massage products. But chair sales are on a decline, and this has been the reason for Osim reporting lower sequential headline sales growth for the past 11 quarters.

Further downside is limited with support from Osim's dividend per share of five cents per year.

Businesses of its subsidiaries TWG and GNC are stable but provide little in terms of group earnings. Hence, any growth catalyst rests on chair sales.

Osim has been expanding very quickly in the key markets of Singapore, Malaysia, Hong Kong, China and Taiwan. But sluggish chair sales would keep earnings turnaround at bay.

New chairs will need to be blockbusters in order to reverse the declining revenue trend. Average selling prices for new chairs are also declining, requiring volumes to work harder to attain revenue growth.

Osim will benefit from a topline turnaround and cost recovery. Tepid demand and high operating expense would impede the turnaround.

A version of this article appeared in the print edition of The Straits Times on September 07, 2015, with the headline 'Brokers' Call: CAPITALAND'. Print Edition | Subscribe