Towards Financial Freedom
DBS Equity Research: Wired Daily 17 June 2015
SIA - Fuel savings to offset MERS concerns. Maintain BUY, target price S$12.80.
SIA has underperformed (-12%) the STI (-5%) over the last 8 weeks, due to concerns over the impact of MERS, which are overblown, in our view. We maintain our BUY call on SIA with 23% upside to our target price of S$12.80, as earnings improve on lower fuel costs, particularly from 2QFYMar16 onwards. We have assumed an average jet fuel price of US$90 per barrel for SIA in FY16 and FY17, compared to the current price of c. US$75/bbl. If fuel prices do not move up further for a sustained period, there should be further upside
to our earnings estimates. Each US$1 savings on average jet fuel price boosts SIA's earnings, ceteris paribus, by S$50m per annum. With net cash of c. S$3.40 per share, we see current valuation of 0.9x FY16 P/BV as an attractive entry level for investors.
Headline CPI inflation for Singapore has been below zero for the past six months. In April it fell to -0.5% YoY from -0.3%. The main drivers of negative inflation continue to be housing, transport and healthcare, which together account for 47% of the overall CPI basket. There may be more downward pressure on prices going forward. Barring any significant uptick in oil prices, inflation will likely remain negative level for several more months. We now expect inflation for the year as a whole to be negative (-0.1%). Importantly, core inflation is slipping too. The output gap is widening with slower growth, putting more downward pressure on core inflation. If core inflation falls short of the official forecast range of 0.5-1.5%, the authorities may have to respond.
ST Engineeringannounced that its aerospace arm ST Aerospace has secured a seven-year contract worth more than US$100m (approximately S$134.8m), for aircraft component support with Flybe. This contract follows an existing agreement signed in 2004.
COSCO Corporation has entered into a contract valued over RMB129m from an Asian buyer to build one (1) Research Vessel. The contract will become effective upon the receipt of Letter of Guarantee from the bank of the shipyard. The vessel is expected to be delivered in the fourth quarter of 2017.
Noble Group snapped up more of its shares in its third buyback this month, with such share repurchases now totalling S$42.9m in value. Singapore Exchange data showed that the last string of buybacks made by the commodity trader was in November 2011. The shares were bought at average price of 70.87, 67.3 and 66.9 Singapore cents each.
Singapore eDevelopment proposed to place 15m new shares at an issue price of S$0.081 per share, about 6.5% discount to last volume weighted average price. The net proceeds of about S$1.165m will be used as general working capital of the Group.
Buying sentiment for strata-titled commercial properties continues to cool amid tapering demand from both endusers and investors, sending transaction volumes to new lows since the global financial crisis. Based on Knight Frank's analysis, the number of caveats lodged for strata office units between January and May plunged 72.7%y-o-y to 81 - the lowest level since the first half of 2009, when 63 caveats were lodged. In the retail space, the number of caveats lodged for strata units fell 58.4% y-o-y to 84 in the Januaryto-May period - the lowest level since the second half of 2008 when 80 caveats were lodged.
The announcement of the launch date of the landmark Hong Kong-Shenzhen stock market link is on hold due to technical issues, putting at risk China's pledge to have the scheme ready by year-end, BT reported that three sources familiar with the situation said. Global funds and other industry participants had been expecting regulators to announce in May a launch date for the Shenzhen trading link, which will complement an existing scheme connecting Hong Kong with Shanghai. A delay beyond August risks pushing the Shenzhen project into 2016 and would cause a setback to Chinese regulators who have been gunning for a 2015 start. It would also potentially delay the inclusion of China's "Ashares" into global benchmark indices such as the MSCI Emerging Markets Index, as one of the key criteria for inclusion is greater access to China's stock markets.
US stocks rose, treasuries advanced on speculation the FED will adopt a more dovish stance amid uncertainty over Greece's future in the Eurozone. Yields on US 10-year treasury fell 5bps to 2.31%. The FOMC meeting ends yesterday with investors speculating benchmark rates will be left unchanged and bets on an increase in September declining, this according to FED fund futures. Oil price rose ahead of an EIA report amid speculation that inventories fell as refiners prepare for higher fuel demand in summer.
Source: DBS
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