SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.
1. Petra Foods
We initiate coverage on Petra Foods with a Buy rating and a street-high target price of $4.50 derived from a discounted cash flow model, which represents a 16 per cent upside.
At a time when multinationals are craving to get a foothold in Indonesia's chocolate confectionery market, Petra is showing no signs of relinquishing its dominant 53 per cent market share.
It is also one of the top five players with a 10 per cent market share in the Philippines, after buying Nestle's chocolate business in 2006.
Following the divestment of its upstream cocoa ingredients business, Petra is now an even purer play to rising consumption spending in Asean. With a war chest of US$250 million, we believe the company could be pursuing mergers and acquisitions.
2. United Overseas Bank (UOB)
UOB's competitive strategy has always been to expand with its clients across the region, and UOB Malaysia's is no different.
In a market where it is difficult to compete against local and global banks, UOB Malaysia has found a niche in the SME (commercial banking) space, where the bank's long-standing client relationships continue to drive deal flow and where it still sees growth potential.
Another potential growth area is the cross-selling of cash management and other treasury services to its wholesale banking clients, which would boost the proportion of fee income from 29.1 per cent closer to the group's level of 38.6 per cent.
That said, UOB Malaysia is not without its challenges. Cost-to-income ratio is expected to rise as it invests in infrastructure and moves towards fee-based businesses which typically incur higher staff cost. The growth in its network is limited by branch licences, which are difficult to come by. Funding pressure also remains an issue in Malaysia, especially with its limited ability to collect retail deposits.
Our target price of $23.55 stays intact, but we raise our call from Reduce to Hold on recent share price weakness.
3. OUE Hospitality Trust (OUEHT)
We expect OUEHT to benefit from a seasonally higher hospitality demand in the second half of this year.
A check on the preliminary hotel statistics published by Singapore Tourism Board painted an improved hospitality outlook in July: revenue per available room (RevPAR) grew by 5.4 per cent month-on-month to $223.40, while average occupancy rate increased to 90 per cent from 84.9 per cent in June.
We also note that the number of tourist arrivals from Asia registered a 16.7 per cent month-on-month increase in July. Given that Asia formed about 74 per cent of OUEHT's Mandarin Orchard Singapore customer profile for the first half of the year, we believe that OUEHT is likely to put on a better showing in the second half should the demand be sustained.
On the valuation front, however, we believe OUEHT is fairly priced at current levels. As such, we maintain our Hold rating and $0.85 fair value on OUEHT.