Brokers' Call: Singapore Reits

Singapore Reits | Neutral

OCBC Investment Research, May 23

We are projecting stable distribution per unit growth, weighted by market capitalisation, of 1.9 per cent for the current financial year and 1.6 per cent for the next financial year.

Despite the S-Reit sector's share price correction in the year to date, valuations are still stretched, in our view. We believe this decline has been driven by concerns over a rising interest rate environment, as government bond yields have also seen a spike since the start of the year. This is despite the more positive operational outlook amid firmer underlying industry fundamentals.

Maintain "neutral", with a selective stock picking approach key at this juncture.

BreadTalk | Neutral

May 23 close: 92 cents

Target price: 93 cents

Broker: RHB Securities, May 22

Maintain "neutral" with a target price of 93 cents, as we adjust for the share split on May 17.

BreadTalk has announced a joint venture with Pindao, a tea beverage company from China. The joint venture will operate and manage Pindao's tea beverage brands, Nayuki and Tai Gai, in Singapore and Thailand.

We are positive on the longer-term prospects for some of BreadTalk's new ventures, but note that the surge in new joint ventures and expected new store openings in the second half of 2018 would result in start-up costs dragging bottom line growth this year. While long-term potential remains intact, we think there is greater downside risk to near-term earnings.

Uni-Asia Group | Buy

May 23 close: $1.40

Target price: $2

Broker: KGI Securities, May 22

We reiterate our "buy" recommendation and fair value of $2, based on the sum-of-the-parts valuation of its three businesses - shipping, property and hotel.

Uni-Asia is positioned to ride the growth in its three business segments on dry bulk shipping recovery; the completion of its second and third Hong Kong properties and investment in its fourth and fifth Hong Kong properties in the first half of 2018; and an increase in hotel rooms under operation ahead of two of the world's largest sporting events to be held in Japan - the Tokyo 2020 Olympics and Rugby World Cup 2019.

One risk is that Uni-Asia's shipping business - which made up 40 per cent of Uni-Asia's FY2016 revenues - is cyclical in nature.

Plantation - Singapore | Market weight

UOB Kay Hian, May 22

First-quarter results were disappointing. All the companies under our coverage, except Bumitama Agri, reported weaker-than-expected first-quarter results. This was due mainly to either lower-than-expected production in the first quarter or lower sales volumes, with volumes to be delivered in the second quarter instead.

Production and sales volumes are likely to play catch-up in the subsequent quarters, but overall sector performance will still be dragged down by a weaker crude palm oil average selling price and hence lead to lower earnings year-on-year.

In recent briefings, Singapore-listed plantation companies under our coverage guided that their fresh fruit bunches production is likely to increase marginally quarter-on-quarter on the back of a yield recovery. All in all, we expect stronger fresh fruit bunches production in the second half of 2018.

With crude palm oil prices weakening, high crude oil prices and expected increase in biodiesel demand, we expect downside risk for crude palm oil prices will not be as high as that earlier this year. We expect crude palm oil prices to trade in the range of US$600 to US$650 a tonne in the second quarter of 2018.

Keppel Corporation | Add

May 22 close: $8.21

Target price: $10

Broker: CGS-CIMB, May 22

We recently hosted Keppel Corporation's chief executive officer on a non-deal roadshow in the United States. We believe the company is a solid long-term investment candidate and is on track to regain shareholders' trust.

Maintain "add" and sum-of-parts-based target price at $10.

Japan Foods Holding | Buy

May 22 close: 48.5 cents

Target price: 64 cents

Broker: KGI Securities, May 21

The continuous improvement in gross margins is very impressive amid ever increasing costs in Singapore. We think FY2018 may already represent peak margins and to be able to maintain it at 85 per cent ahead would be commendable. Further earnings growth, in our view, may have to be driven mainly by overseas expansion.

We maintain our "buy" recommendation with a fair value of 64 cents with discounted cash flow valuation.

We see several upside catalysts in FY2019, driven by organic growth amid an improving macro environment and through joint ventures with overseas partners.

A version of this article appeared in the print edition of The Straits Times on May 28, 2018, with the headline 'Brokers' Call: Singapore Reits '. Print Edition | Subscribe