Brokers' Call

JUMBO GROUP

Broker: Maybank Kim Eng

Call: Buy

Target Price: 78 Singapore cents

Jumbo group's core earnings per share for the 2016 financial year jumped 18 per cent year on year.

A higher-than-expected dividend per share of 1.7 cents beat forecasts. A record 67 per cent gross margins in the fourth quarter on a better sales mix and lower initial costs of new restaurants in China led to better results in China and contributed 15 per cent in revenue this quarter. Singapore sales were up 4 per cent in the financial year but down 4 per cent year on year in the fourth quarter due mainly to the perceived threats from the Zika virus.

The year's performance confirmed that Jumbo's earnings in Singapore can be resilient even in times of belt-tightening due to effective market positioning and management of labour, rental costs. Also, overseas expansion and growth potential from overseas markets are intact and now include franchise and joint venture possibilities.


CAPITALAND

Broker: CIMB

Call: Buy

Target Price: S$4.17

Some of CapitaLand's projects in China and Vietnam show that on-ground activities continue to be fairly vibrant. To drive group return of equity expansion (ROE), the company intends to continue strengthening its core businesses and competitive advantages, adopt an "asset-lighter" strategy, expand assets under management of its investment management business and stay relevant within the real estate space.

CapitaLand's focus remains on Tier 1 and 2 cities in China. It has accelerated launches ahead of the new housing restrictions in the fourth quarter and has locked in 14 billion yuan (S$2.9 billion) worth of sales year to date, of which 40 per cent is expected to be recognised in this quarter.

CapitaLand is also tapping into urban renewal projects, namely the Datansha Island project for which it has 2 million sq ft gross floor area. It is projected to generate better returns once completed and sold.

To ride on the robust growth in Vietnam, CapitaLand intends to accelerate its residential activities and aims to acquire landbank for 2,000-2,500 homes in 2017, as well as secure one to two new commercial sites together with its capital partners to expand into the commercial segment via its US$500 million (S$711 million) commercial fund.

Core net profit would also be boosted by the completion of eight malls in 2017. Once their earnings contribution stabilises, group ROE is expected to improve with higher recurrent income from these assets.


SEMBCORP MARINE

Broker: DBS Group Research

Call: Hold

Target Price: S$1.55

Sembcorp's orderbook declined by $800 million quarter on quarter to $8.4 billion as at the end of September this year, and is set to decline further as order flows are expected to remain sluggish.

The order book stands at $5.2 billion, excluding Sete's rig orders. Sembcorp is expected to have secured $1 billion in new orders this year, and has clinched orders worth $320 million year-to-date.

While its macro outlook has improved, the rigbuilding sector is on a structural downturn. The restructuring of its Brazilian customer continues to be an overhang and deferment and cancellation risks remain prevalent in the current climate.

Both Singapore rigbuilders have been rationalising their operations since early last year to cope with the lower activity level. A merger could make sense to further streamline their operations, achieve cost synergies and eliminate competition. Key downside risks are sustained by low oil prices which affect rig count and new building activities.

A version of this article appeared in the print edition of The Straits Times on December 05, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe