Brokers' Call: SIA Engineering

SIA ENGINEERING

Broker: CIMB

Call: Buy

Target Price: $4.16

SIA Engineering posted a slightly lower revenue of $272 million in the first quarter of financial year 2017. Line maintenance remained strong, supported by a year-on-year growth of 4.2 per cent in flights handled at Changi.

Fleet size dropped to 156 aircraft at the end of the fourth quarter of financial year 2016, from 181 in the same quarter the year before.

Airframe and maintenance could swing back to a minor loss from a $3.3 million profit in the second half of 2016. Associates and joint ventures contributed about 50 per cent of profit before tax. Dividend payout could be as high as 135 per cent, based on historical payouts.


RAFFLES MEDICAL

Broker: Maybank Kim Eng

Call: Buy

Target Price: $1.84

First-half 2016 results for Raffles Medical met 44 per cent of full-year forecast, with revenue increasing 20 per cent year on year in the second quarter. Earnings rose 4.5 per cent year on year.

A stronger second half is expected, supported by rental income from Holland Village Mall, which continues to get encouraging tenancy.

Continued ramp-up of Orchard Medical Centre means a profitable turn is expected within the next two quarters.

Raffles Hospital's extension is on track to be completed by next year and half of the $205 million construction cost has been deployed. For China, the Shanghai hospital is expected to be completed by 2018. Hospital projects in Shenzhen and Beijing are still under discussions.


SINGAPORE EXCHANGE

Broker: CIMB

Call: Sell

Target Price: $7.24

SGX's net profit in financial year 2016 came in at $349 million, flat year on year. Excluding a $6 million impairment charge for its investment in the Bombay Stock Exchange, net profit would have grown 2 per cent year on year.

Operating margin fell to 50 per cent as expenses outpaced revenue growth. Expenses are expected to rise at a slower pace of 3 per cent to 5 per cent year on year in financial year 2017 to around $430 million, with the increase to come from new headcount and technology costs.

CEO Loh Boon Chye highlighted Index Edge as a promising tool to diversify its revenue streams. It is working with financial institutions to provide bespoke index services, with the long-term goal of launching new exchange-traded funds, but it is still early days.

The initial public offerings pipeline could improve in the second half of 2016, but listings could primarily be on the Catalist board.

SGX plans to expand its derivatives suite by launching new forex futures, and remains in an exclusive bid for the Baltic Exchange.


SEMBCORP MARINE

Broker: OCBC Investment Research

Call: Sell

Target Price: $1.13

Sembcorp Marine (SMM) reported a 24.8 per cent year-on-year drop in revenue to $908.5 million and an 89.5 per cent plunge in net profit to $11.5 million in second-quarter 2016. First-half net profit of $66.3 million is 31 per cent of our expectations and 30 per cent of the market's.

While the results fell short of forecasts, we note that earnings were also dragged down by forex losses of $35 million in the quarter.

Given the poor operating environment, the group has declared an interim dividend of 1.5 cents, down from four cents a year ago.

Looking ahead, SMM will likely focus on execution and successful deliveries so as to improve its cash flow and liquidity position.

A version of this article appeared in the print edition of The Straits Times on August 01, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe