Investors’ Corner (Mapletree Logistics Trust, Delfi, Singapore Airlines, Singtel)

 

Mapletree Logistics Trust
Price – $1.22
Target – $1.34

The ongoing trade friction between the US and China has casted a dark cloud over the outlook of global trade and logistics-related securities. With the recent acquisition of a 50% interest in each of 11 logistics properties in China on 6 Jun, an estimated 11% of Mapletree Logistics Trust’s (MLT) pro forma FY18 net property income is expected to derive from China as compared to 6% previously. While MLT’s increased exposure to China amid the current trade spat may raise some concerns, we believed that a significant portion of its underlying end-user revenue from China is derived domestically attributable to the fast growing e-commerce sector and hence, the impact on MLT’s earnings could be limited. Taking into account the acquisition and recent private placement exercise, we trimmed FY19F and FY20F DPU forecast by 0.9% and 0.8% respectively. Together with the growing uncertainties surrounding the trade tensions, we adopted a more conservative stance lowering fair value estimate to $1.34. Maintain BUY. OCBC Investment (21 Jun)

Delfi
Price – $1.32
Target – $1.47

Indonesia has seen 2 consecutive monthly improvements in consumer confidence in April and May which would help to encourage consumption of consumer discretionary goods such as confectionery. Although consumer spending was negatively affected by the withdrawal of electricity subsidies while products were not readily available in minimarts, Delfi has since re-organised supply chain to cater to increasing minimarts and completed the rationalisation of stock-keeping units. Hence, negative trend in sales growth should likely reverse from the low base in 2017. In addition, core brands and Delfi premium products have also shown positive sales results since 1Q18. We believe that the growth in sales volume could more than offset the negatives of IDR depreciation, and Delfi valuation is also undemanding compared to its historical average and other consumer companies in Indonesia and Philippines. Upgrade to BUY. RHB Research (20 Jun)

Singapore Airlines
Price – $11.20
Target – $11.90

Passenger load factors for Singapore Airlines (SIA), SilkAir and Scoot rose 2.1%, 3.1% and 3.9% y-o-y respectively for May-18, attributable to higher capacity injection. However, cargo loads fell 3.9% due to reduced cargo traffic across all route regions while 2M19 cargo traffic has also declined 1.9% y-o-y. In view of increased trade protectionism from the US and tentative signs of economic slowdown in China, exports to China are expected to decline. As China is Singapore’s largest export market accounting for 18% of non-oil domestic exports (NODX) in 2017, reduced exports to China would lead to lower NODX and thus causing a potential slowdown in recovery for SIA’s cargo traffic. Downgrade to HOLD. UOB-Kay Hian (19 Jun)

Singtel
Price – $3.19
Target – $3.57

Singtel expects that its traditional carriage businesses will be flat in the next 5 years in admission of the headwinds facing the segments. Nonetheless, the group aims to scale digital and enterprise revenues from 24% of consolidated revenues in FY18 to 50% by FY23E to offset the pressure on the traditional carriage business. The lead up to planned IPO for the digital business in the next 3 years could crystallize the segment’s value. Meanwhile, competition and aggressive data pricing faced by regional associates continued to involve a mix of risk and opportunity. We believed that the market has not valued the digital growth component yet given its lack of profit contribution. As and when the digital transformation starts to build meaningful and profitable momentum, this could translate to more upside to the outlook. Singtel is our preferred pick with its geographical diversification but competition headwinds remained. Maintain HOLD. Maybank Kim Eng (18 Jun)