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Investors’ Corner (First REIT, SIA Engineering Co, ComfortDelGro Corp, Ezion Hldgs)

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First REIT

Price – $1.14

Target – $0.97

S&P Global has recently downgraded PT Lippo Karawaci Tbk (LK) from B- to CCC+ and mentioned that they could lower the rating by one notch or more if LK fails to raise IDR1t in 3 months. We believe that this IDR1t can potentially be satisfied by the sale of LK’s remaining 10.6% stake in First REIT (FREIT) in order to avert a further credit rating downgrade. Based on Siloam’s 2017 Annual Report, rent expenses due to LK amounted to IDR111.9b, or around $12.1m assuming a generous Jan-17 SGDIDR conversion rate of 9,263.04. However, FREIT received $91.5m of rental income from LK in 2017. This stark contrast makes it reasonable to deduce that LK would cease the above arrangement at the earliest opportunity. With the recent rally, FREIT’s forward yield spread against ParkwayLife REIT has dropped to 1.85 standard deviations above the 7-year mean. Hence on valuation grounds, we downgrade FREIT with an unchanged fair value of $0.97. Downgrade to SELL. OCBC Investment (11 Feb)

SIA Engineering Company

Price – $2.52

Target – $2.85

SIA Engineering Company (SIAEC) reported 40% lower 3Q19 profit well below our expectations. The large part of this decline was caused by three one-off adjustments to associate/JV profit, namely a change in fee structure, foreign exchange adjustment from an associate changing its functional currency as well as one-off tax adjustments at certain associates. The underlying operations remained weak although stabilising. Meanwhile, catalysts for growth including SIAEC’s investments in manufacturing technology for cabin interior parts and in-flight entertainment and connectivity systems may take more time to contribute. Nevertheless, SIAEC is trading at 15% discount to its 10-year forward price-to-earnings mean, at a level which we think its dominant franchise at Changi Airport is undervalued. Maintain BUY. Maybank Kim Eng (11 Feb)

ComfortDelGro Corporation

Price – $2.36

Target – $2.59

ComfortDelGro Corporation (CDG) closed 2018 with a taxi fleet of 12,360 taxis, representing a 6.7% drop y-o-y larger than our expectation. Mitigating this decline would be the maiden contributions from the Bukit Merah bus contract that kicked off in 4Q18, which is expected to add $24m in revenue to the public transport segment. In addition, taking into account full-quarter contributions from CDG’s recent overseas acquisitions, we expect the group to report a 4Q18 core net profit of $78m on revenue of $994m. As prior concerns regarding Go-Jek starting a new price war have proven to be largely unfounded, the threat to CDG is fading. Earnings growth in 2019 is likely to be driven by overseas acquisitions, with 2 percentage points of the 9% projected incremental earnings attributed to overseas acquisitions. Maintain BUY. UOB-Kay Hian (08 Feb)

Ezion Holdings

Price – $0.05

Target – $0.06

Ezion Holdings (Ezion) has formed a JV with China Merchant Group’s 52%-owned subsidiary, TSC Group, to cooperate in the ownership and operations of liftboats. We believe that such partnership with prominent industry players could enhance the group’s longer term growth prospects. However, given potential asset impairments and slower-than-expected ramp up in utilisation and revenue, we lowered Ezion’s target price to $0.06 after pegging a lower target multiple of 0.3 times FY19F book value. While the stock’s valuation has already being greatly discounted for the slow recovery, we think that clearer indications of a turnaround are required for Ezion to be re-rated. Downgrade to HOLD. DBS Vickers (07 Feb)

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