Brokers' Call: ST Engineering

ST Engineering | Buy

Fair value: $3.90

July 5 close: $3.27

Broker: OCBC Investment Research, July 5

Singapore Technologies Engineering (STE) recently announced the divestment of 25 per cent equity interest in its indirect associate, Airbus Helicopters SE Asia , to its joint venture partner, Airbus Helicopters SAS, for around $14 million.

In May, the group also streamlined entities in its electronics arm as part of the group's ongoing business review. We like STE with its strong order book, which provides visibility, as well as its diversified operations.

In at least the past five years, the group has been paying out full-year dividends of 15 cents per share; from fiscal 2013 to fiscal 2016, a portion of this was paid as a "special dividend".

From fiscal 2017, the group classified this as part of the "final dividend", illustrating the group's confidence in its cash flows and dividend sustainability.


Frasers Logistics & Industrial Trust | Buy

Target price: $1.20

July 5 close: $1.04

Broker: DBS Group Research, July 5

Frasers Logistics & Industrial Trust (FLT) announced the proposed divestment of 80 Hartley Street, Smeaton Grange, in New South Wales for A$90.5 million (S$91.3 million).

The property has a gross floor area of 61,281 sq m and was constructed in 1998. It has good specifications, comprising a cross-dock, regional distribution facility with office accommodation, and offers good access to trucks and ample carpark spaces.

With demand for warehouses in Sydney running red-hot, we are positive that FLT's manager has chosen to selectively realise their value through divestments. The manager has been able to unlock a significant gain through the divestment, and the proceeds can be utilised towards other higher-yielding assets.


CapitaLand | Buy

Target price: $3.62

July 6 close: $2.99

Broker: DBS Group Research, July 6

With the re-introduction of property measures in Singapore, we see limited impact on CapitaLand, given that the group has substantially sold off existing inventories and the Singapore residential exposure forms only 5 per cent of revalued net asset value.

Strong upcoming Q2 2018 results on the back of growing income from its commercial property portfolios from China and Singapore will be re-rating catalysts.

We continue to see value in CapitaLand as we anticipate strong catalysts in the medium term to drive its share price higher. A 20 per cent increase in dividend payment in fiscal 2017 provides investors with confidence that all business units are on an uptrend.


UOB | Hold

Target price: $28.30

July 6 close: $26.26

Broker: DBS Group Research, July 6

For United Overseas Bank (UOB), cooling measures are set to be a dampener as it may see slower-than-expected loan growth arising from the recent set of property cooling measures effective July 6.

UOB has the largest property-related loans exposure among the Singapore banks, with its mortgage loans accounting for around 28 per cent of total loans in Q1 2018. We lower our loan growth forecast for fiscal 2018 to around 6 per cent (previously 7.5 per cent) on slowing demand.

Further improvement in net interest margin should support earnings strongly. Lower credit cost is a new trend for UOB and should be viewed positively.

A version of this article appeared in the print edition of The Straits Times on July 09, 2018, with the headline 'Brokers' Call: ST Engineering '. Print Edition | Subscribe