Sasseur Reit | Buy
Target price: 91 cents
Sept 27 close: 72.5 cents
Broker: DBS Group Research, Sept 27
Sasseur Reit on Wednesday said it is involved in litigation by its contractor due to a disagreement between the contractor and its sponsor on the final construction sum payable for Sasseur Hefei outlets. The claim by the contractor, Zhongjian Sanju No. 2 Construction Engineering Co (ZS2), is for a sum of 148.4 million yuan (S$29.6 million) and its legal costs. ZS2 had obtained interim orders from the court to freeze some of Sasseur Hefei's bank accounts, which Sasseur Hefei has successfully lifted.
The sponsor's indemnity of the Reit for any potential losses that arise from this lawsuit should calm nerves. As we understand that the construction sums payable of 117.5 million yuan have been provided for, and the sponsor will further indemnify the Reit for any further claims of 30.9 million yuan if it comes true, there is likely to be no material impact on the Reit's distributions.
This episode could dent investor confidence in the near term. That said, we believe there should be ample safeguards in place to prevent any impact on distributions.
Golden Agri-Resources | Hold
Fair value: 24 cents
Sept 26 close: 24 cents
Broker: OCBC Investment Research, Sept 26
Should weather conditions turn severe, they could have a negative impact on total palm oil production subsequently.
A decrease in overall supply would increase prices, should demand stay the same.
However, despite the impending El Nino, crude palm oil prices have failed to rally.
According to OCBC Treasury Research and Strategy, the prognosis over palm oil demand remains soft to date; the recent contraction in palm oil demand in both the European Union and India is likely to persist for the rest of this year.
For Golden-Agri, though production is expected to increase for the rest of this year, palm oil prices remain weak. Another reason that could have contributed to the share price weakness so far is likely the depreciation of the Indonesian rupiah.
With weak crude palm oil prices, we lower our price to earnings from 17.5 times to 16 times fiscal 2019 earnings.
Valuetronics | Buy
Target price: 92 cents
Sept 25 close: 70 cents
Broker: RHB Research Institute, Sept 25
We maintain "buy" and discounted cash flow-based target price of 92 cents with a 33 per cent upside. Management clarified that the flooding at its plant in China had caused minimal impact on operations. It has since resumed production of its consumer electronics products. It also guided that less than 10 per cent of topline would likely be impacted by the recent US$200 billion (S$273 billion) additional tariffs.
The recent correction has placed Valuetronics at an attractive valuation. After the flash flood on Sept 17, Valuetronics' Danshui plant resumed operations after local power was restored on Sept 21. The finished goods and machines, which were located at the higher floors, were not impacted by the flood - only the raw materials were damaged.