Money Talk: King Wan, Singapore Airlines, CityDev

Stay up to date on Singapore market chatter with our picks of the latest broker research, compiled by The Straits Times Money Desk.

1. King Wan

Broker: OSK-DMG

An article in last Friday's Bangkok Post stated that Kaset Thai will be listing on April 21-23. This means that King Wan will be able to realise part of the value of its Thai holdings and begin paying a special dividend.

If the initial public offering (IPO) is priced high, King Wan will be able to offload its stake in its Thai associate at an attractive price during the IPO period. If the listing multiple is on the low side, the company will receive more shares in Kaset Thai. Either way, the company's shareholders will benefit from the upcoming IPO.

We expect King Wan to liquidate part of its Kaset Thai stake regardless of the IPO valuation. This will result in sufficient cash inflow to pay a higher dividend.

We raise our final dividend (to be declared in May) forecast to 1.5 cents and maintain our expectation for a total dividend of 3 cents in FY15, doubling the yield to 10 per cent. Maintain Buy and target price of 0.43 cent.

2. Singapore Airlines

Broker: Maybank Kim Eng

Singapore Airlines (SIA) has endured considerable pressure on its profitability in recent years as Singapore-based carriers embarked on aggressive fleet expansion. (But) carriers are keenly aware of the supply glut and are taking steps to scale back their expansion plans.

We expect the overcapacity situation to ease, (which) would, in turn, relieve downward pressure on yields. A look at the key markets served by SIA indicates that economic conditions remain accommodative for sustained growth.

Following three years of weak profitability, we expect SIA to see a rebound in profits. The significant operating leverage in its business also implies that the rebound in profits will be powerful. As the supply glut in its home base eases, we expect SIA to see sustained earnings growth and the stock to emerge from its depressed valuations. We see sustained earnings per share growth over the next three years.

We raise our target price from $10.00 to $12.00. While near-trough valuations should limit downside risks, SIA's solid net cash position of around $3.50 per share would provide support for the stock. Upgrade to Buy.

3. CityDev

Broker: OCBC

We judge CityDev's share price to be fairly rich here, given a deteriorating outlook for its core development business, and opt to take profit at this juncture.

Downgrade to Sell with a lower fair value estimate of $8.72, versus S$9.17 previously, as we incorporate softer residential average selling prices and lower valuations for listed holdings into our model.

From latest data-points and channel checks, we anticipate increasing headwinds in the domestic residential space as both primary and rental markets continue to suffer from weakening supply-demand dynamics.

In addition, we expect pressure on rental rates ahead as the physical market heads deeper into an over-supply situation.

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