Investors’ Corner (Frasers Logistics & Industrial Trust, Hi-P International, Singapore Technologies Engineering, China Aviation Oil)

Frasers Logistics & Industrial Trust
Price – $1.05
Target – $1.18

Frasers Logistics & Industrial Trust’s 3Q18 results came in within our expectations with gross revenue and NPI rising 22.6% and 21.7% respectively. This was driven largely by contribution from acquisitions in Australia, annual fixed rental increment in the group’s Australia portfolio as well as incremental NPI from its Europe portfolio acquired in May-18. As a result, DPU improved 3.2% to $0.0541. Overall portfolio metrics remained healthy with high occupancy at 99.3% and only 0.1% and 3.4% of its leases expiring for 4Q18 and FY19, while aggregate leverage stood at 36.3% following the completion of Europe portfolio acquisition. Although there has been an increase in industrial supply in Sydney and Melbourne, demand continues to be strong which can be seen from the 4.6% growth in prime grade net face rents for Sydney in 2Q18. For Melbourne, prime grade net face rents grew 1.1%. Maintain BUY. OCBC Investment (3 Aug)

Hi-P International
Price – $1.15
Target – $1.27

Hi-P International’s (HIP) 2Q18 net profit fell 19% despite a surprising 8% increase in sales on higher volumes. The sales growth was mainly achieved through higher volumes for metal components which yield a lower margin than plastic counterparts. As HIP prefers sacrificing pricing in order to secure sufficient volume to cover fixed costs, this made the group a price taker susceptible to steep price pressure from its customers. While 3Q18 product ramp-up appears intact, the outlook for 4Q18 would be dependable on the reception of HIP’s key wireless customers’ products which present many uncertainties. The new Suzhou plant is on track for completion in 4Q18 and management has indicated interest in acquiring a European-based automotive precision components company. Going forward, possibly volume disruption caused by the indirect effects of the trade war could lead to underperformance to our current expectations. Maintain HOLD. Maybank Kim Eng (3 Aug)

Singapore Technologies Engineering
Price – $3.36
Target – $4.10

Singapore Technologies Engineering (STE) has scaled down its exposure to commercial O&M shipbuilding sector. While we still expect the shipbuilding segment to continue to see sequential revenue decline, y-o-y losses are likely to narrow due to the low-base effect. Meanwhile, the Singapore Navy’s 6 missile corvettes will be retired by 2025 to be replaced by new multi role combat vessel (MRCV). ST Marine is likely to be a major supplier given that five of the former were built by STE. Electronics division will be a key earnings driver as STE has guided earlier that smart city related revenue was expected to more than double to $2b in 5 years. Furthermore, STE has also affirmed that the imposition of tariffs on steel is unlikely to impact existing contracts for the marine sector. At 1.61x P/S below 10-year average P/S of 1.64x and at -1SD to long term mean P/E, STE is trading below historical valuations. Maintain BUY. UOB-Kay Hian (3 Aug)

China Aviation Oil
Price – $1.50
Target – $2.03

China Aviation Oil (CAO) surprised with a 2Q18 gross profit of US$16.4m propped up by better performance of other oil products division. 2Q18 other oil product volumes rose to 5.4m tonnes driven by higher trading volumes of crude oil. However, this was offset by sequentially lower associate earnings on softer Shanghai Pudong International Airport Aviation Fuel Supply (SPIA) contributions. 2Q18 SPIA earnings fell to US$15.7m impacted by foreign exchange losses. Nonetheless, refuelling volumes have increased implying that operationally all is well. We see CAO as a proxy for China’s growing outbound travel and like its healthy balance sheet, with higher product volumes and associate earnings as potential catalysts. Maintain ADD. CIMB Research (1 Aug)