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Investors’ Corner (Del Monte Pacific, SMRT Corp, Neptune Orient Lines, Suntec REIT)
Investors' Corner | 09 September 2015
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By: Tan Jia Hui
Articles (82) Profile

Del Monte Pacific
Price – $0.32
Target – $0.49

Del Monte Pacific (DMP) reported a full-year loss of US$38m for FY15, the first full-year of reporting post its acquisition of US-based Del Monte Foods (DMF). During the transition, earnings were impacted by one-off expenses. Cashflow generation was healthy though, with an operating cashflow of US$231.5m. The high net gearing (6.2 times as at end-FY15) is still a concern, though our analysis shows that cashflows are able to cover the interest payments. DMP has a last outstanding refinancing transaction to switch US$350m of bank debt into preference shares, which will lower net gearing. Even so, our net gearing forecast in FY18 is still a high 1.2 times. We believe that an eventual US listing of DMF is likely to help reduce debts further. At 7.2 times CY16 entry multiple, this could be a cheap purchase into a well-known brand if DMF’s performance reverts to the historical norm and new initiatives help grow US market share. Maintain ADD. CIMB Securities (4 Sep)

SMRT Corporation
Price – $1.195
Target – $1.22

Since the 7 July train disruption incident, SMRT Corporation’s share price has dropped by approximately 24%. We believe this has largely priced in the negatives and concerns with respect to potential hikes in repair and maintenance costs (R&M). We also believe the new rail financing framework is still on the cards, though the details and timing are uncertain. This could provide support and a catalyst to share price. While we expect R&M costs to increase, this should be mitigated by higher fares, increased ridership and lower energy costs. Thus, we do not expect SMRT’s net profit to drop to the lows seen for FY14 (at approximately $62m). In addition, we expect bus operations to turn in a better performance as it transits into the new Government Bus Contracting model. However, higher-than-expected costs, particularly from R&M, could undermine our forecasts and present downside risks. Uncertainties with respect to potential fines or heightened costs could also cap share price gains. Upgrade to HOLD. DBS Vickers (4 Sep)

Neptune Orient Lines
Price – $0.81
Target – $1.10

2Q15 core earnings continued to be in the red, and spot rates in 3Q15 so far indicate that results will not be good either. However, we expect industry supply growth to decline next year and this should have a materially positive impact on rates, and Neptune Orient Lines’ earnings. We expect return on equity to recover from losses in 2015 to around 8% in 2017, which should be a key driver of a rerating. The stock is trading close to 10-year trough valuations and hence it appears as if most of the negative news is in the price. After the sale of its logistics business, we expect net debt-to-equity to be a more manageable 110% at the end of 2015E (2014: 225%). The stock is trading at 0.6 times 2015E P/BV, which is the lowest in the sector. Upgrade to BUY. Deutsche Bank (2 Sep)

Suntec Real Estate Investment Trust
Price – $1.53
Target – $1.85

On an industry-wide basis, for the office sector, we expect a combination of structurally lower demand and increased supply to put moderate pressure on rents resulting in a decline of estimated 10% over the next 2 years. Suntec City office (32% of gross valuation) has been more resilient than the market during past economic downturns and we expect the same this time around as well. Office prices continue to hold up – the recent purchase of the freehold ICS Building by a Chinese investor for more than $210m supports our view that investment demand remains robust. Since early 2015, Suntec Real Estate Investment Trust (REIT) shares have declined 22% and underperformed the broad market and the Singapore REIT index. At the current price Suntec REIT is trading at a 25.4% discount to our revalued net asset value (steepest discount since end-2011) and offers FY15F distribution per unit yield of 6.5%. Upgrade to BUY. HSBC (2 Sep)

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

Del Monte Pacific  -- -- --   
Business: Co produces processed & non-processed fruit & food pdts, beverages & food ingredients.

Insight: Mar-19, 9M19 turnover fell 10.4% to US$1.5b largel... Read More
Suntec REIT  1.880 -0.010 -0.53%   
Business: Real Estate Invs Trust. Ppties incl Suntec Office Towers, Suntec City Mall & Park Mall. [FY18 Turnover] Office (46.8%), Retail (34%), Others (Ad space, car park income , convention & exhibits) (19.2%).

Insight: Jan-19, FY18 gross revenue rose 2.6% to $363.5m du... Read More

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