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Investors’ Corner (CapitaLand, Genting Singapore, SATS, Sembcorp Marine)

CapitaLand
Price – $3.19
Target – $3.95

CapitaLand has sold 98% of launched projects in Singapore as at 1Q18 and has only 1 residential project in the pipeline – the redevelopment of Pearl Bank Apartments. Among big-cap developers, the group has the least exposure to Singapore’s residential segment and is likely to see minimal impact from the latest cooling measures. China residential market remains resilient and property sales momentum is expected to continue in 2H18. Coupled with Rmb15.1b of unbilled revenue to recognise, this should boost CapitaLand’s earnings. Meanwhile, the group has been steadily increasing recurring income through growing serviced residential business, opening new malls and undertaking mall management contracts, as well as expanding its fund management wing. With share price supported by 4% dividend yield and share buyback programmes, we remained buy on CapitaLand with new target price of $3.95 pegged at 20% of revised RNAV estimate of $4.88. Maintain BUY. RHB Research (23 Jul)

Genting Singapore
Price – $1.28
Target – $1.46

The House of Councillors of the Japanese Diet passed the Integrated Resorts (IR) Implementation Bill on 20 Jul-18, which was the last of three bills needed to legalise the Japanese casino industry. Consensus expects the Request For Proposal process to begin in mid-2019, IR licences to be issued in 2020 and the first IRs to open in 2025. We noticed that lawmakers made repeated references to the social safeguards installed in Singaporean IRs entry fees, visit limits and research on gambling addiction, and hence believed that gaming operators in Singapore like Genting Singapore (GENS) have an advantage that others do not. In addition, the group’s huge cash pile of $3b also put it in a better financial position to see through the construction of any IR as compared to many debt-laden American gaming operators. In view of GENS’s responsible gaming experience and solid net cash position, we believe that it stood a good chance to win a license. Maintain BUY. Maybank Kim Eng (22 Jul)

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SATS
Price – $5.10
Target – $5.39

SATS reported a healthy 11.5% growth in net profit in 1Q19 on the back of a 3% increase in revenue, driven by higher revenue from both Food Solutions and Gateway Services. With respect to the group’s Memorandum of Agreement (MOA) with Turkish Airlines in relation to the provision of in-flight catering services at the Istanbul New Airport, the relevant parties have mutually agreed to terminate the MOA. Meanwhile, SATS has also entered into a conditional JV agreement with a subsidiary of Wilmar International to build a second central kitchen to supply high quality and safe food to the Chinese market. While the threat of global trade uncertainties might potentially affect cargo volumes, passenger volumes in Asia are expected to grow. Currently, SATS trades at a forecasted FY19F dividend yield of 3.7%. Downgrade to HOLD. OCBC Investment (20 Jul)

Sembcorp Marine
Price – $1.96
Target – $2.52

Sembcorp Marine (SCM) posted a loss of $55.6m for 2Q18 which included a one-off loss for the completion of West Rigel sale. EBIT losses narrowed to $29m as EBIT margin losses narrowed to -1.6% attributable to improvement in work volume amidst a leaner cost environment. Operating margin is likely to improve further in FY19 with the recognition of Karish floating production storage and offloading, a sizeable order and high-margin Shell Vito floating production unit. Furthermore, management appeared to be confident of its order pipeline as SCM has secured $730m of orders year-to-date meeting 37% of our $2b order forecast for FY18. Revenue from ship repair rose 59% q-o-q to $126m in 2Q18 while net gearing declined to 1.26 times. Going forward, balance sheet should gradually improve with progressive receipt collected as more rigs are delivered. Maintain ADD. CIMB Research (20 Jul)