CapitaLand Retail China Trust | Buy
March 28 close: $1.55
Fair value: $1.66
Broker: OCBC Investment Research, March 28
Going forward, we expect retail sales growth in China to remain healthy for both online and offline stores. With Sasseur Reit units starting trading on Wednesday, we believe that both Reits may be closely compared as they both fall within the "Chinese retail" space. Nonetheless, it is important to draw some distinctions as the rental structure is quite different.
Ignoring Sasseur Reit's two years of guaranteed total rent, we believe CapitaLand Retail China Trust's structure enjoys greater stability though less upside participation. Its rental income is directly determined by the underlying leases within its portfolio, of which we believe a much smaller proportion is determined by turnover sales.
We have kept our forecasts for CapitaLand Retail China Trust largely intact and our fair value remains at $1.66.
We upgrade from "hold" to "buy".
Sembcorp Marine | Buy
March 28 close: $2.18
Target price: $2.90
Broker: DBS Group Research, March 28
Sembcorp Marine has announced that it has secured the engineering, procurement and construction contract for the hull and living quarters for a new build floating production, storage and offloading vessel from TechnipFMC, which we highlighted earlier this month. The first major contract win this year contributes approximately 15 per cent of our full-year expectation of $3 billion. We believe the order flow could be stronger than expected, given the robust pipeline.
Maintain "buy" and target price.
The share's pullback from the recent high of $2.80 has removed the merger and acquisition premium ascribed, thus providing a better entry point to position for a sector recovery.
ComfortDelGro | Reduce
March 28 close: $2
Target price: $1.85
Broker: Nomura, March 27
Uber Technologies has finalised an agreement to sell all of its South-east Asia business to Grab. We see this as a significant positive for ComfortDelGro's taxi business. In the light of this announcement, our earnings estimates for ComfortDelGro are under review.
Given intense competition in the Singapore taxi market, we earlier expected the overall fleet decline rate for Singapore's taxis to remain in the high teens but are reviewing our assumptions now. Management may go slow on rebuilding the Singapore taxi fleet. Lastly, we believe that the bulk of the gains from Uber's exit will accrue to Grab.
On a year-on-year basis, we still see scope for ComfortDelGro earnings declining this year, owing to the full-year impact of the taxi fleet cut taken last year; the absence of the one-time $10 million as dividend received last year from Cabcharge Australia; the impact of the North-East Line transitioning to the new framework; and continuing losses at the Downtown Line this year.
However, from 2019 onwards, we see some scope for earnings to rise year-on-year.
Dairy Farm International Holdings | Hold
March 26 close: US$7.88
Target price: US$8.40
Broker: CGS-CIMB, March 24
Dairy Farm plans to acquire an 18.25 per cent stake in, and be a partner with, Robinsons Retail Holdings in a deal worth around US$520 million (S$682 million). We are positive the deal could add scale for its Philippines business, given Robinsons Retail Holdings' size.
The stake could translate to about US$20 million to US$22 million to Dairy Farm's associate income, which stood at US$144 million last year, but the additional associate income accounts for only around 3 per cent to 4 per cent of Dairy Farm International's estimated 2018 to 2020 profit before tax of US$599 million to US$657 million.
We maintain our estimates and call pending further details and completion of the deal.
While we believe the change in leadership - new chief executive Ian McLeod joined last September - could usher in positive winds of change, especially for Dairy Farm's weak South-east Asia supermarket and hypermarket division, we believe meaningful improvements will take time to bear fruit.