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Investors’ Corner (Starhill Global REIT, Valuetronics Hldgs, Wilmar Int’l, Singapore Airlines )

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Starhill Global REIT

Price – $0.70

Target – $0.78

Starhill Global REIT (Starhill) announced the signing of new master lease agreement of its two Malaysian assets – Starhill Gallery (SG) and Lot 10 Property (Lot 10) – with existing master tenant, YTL Corp, to have a long tenure of 19.5 years and 9 years for SG and Lot 10 respectively. The initial rental incomes are similar to the expiring rent and both leases have built-in rental step-up after every three years. This came at the expense of upfront capex for asset enhancements for SG which will be undertaken by the master tenant with the REIT bearing an estimated cost of RM175m as well as the provision of a 6-month rent rebate of RM26m for the first two years to offset the AEI impact. Nevertheless, we view the master lease extensions positively in securing earnings sustainability. In addition, Starhill is among the cheapest S-REITs with a yield 160 basis points higher than sector average and price-to-book of 0.8 times versus sector’s 1.1 times. Maintain BUY. RHB Research (21 Mar)

Valuetronics Holdings

Price – $0.69

Target – $1.05

Should Valuetronics Holdings’ (VALUE) customer decides to diversify its supplier pool due to the Sino-US trade war, we believe that its PCB Assembly (PCBA) business is the next most vulnerable after smart-lighting because of the low entry barriers. To gauge the impact, we assume an aggressive 50% drop in VALUE’s FY20E PCBA sales and our simulation suggests limited downside with VALUE’s revenue and net profit declining 16% and 10% respectively. Meanwhile, VALUE’s Industrial and Commercial Electronics (ICE) revenue is more resilient given its greater value-add from design involvement, qualification processes for certain customers as well as lower volumes than the group’s Consumer Electronics (CE) segment. While near-term overhang may persist owing to the allocation worries, we believe that such risks are priced in and VALUE remains attractive with clarity of international expansion plans and resilient ICE volumes. Maintain BUY. Maybank Kim Eng (20 Mar)

Wilmar International

Price – $3.30

Target – $3.90

Wilmar International’s (Wilmar) operation in China will be listing on the Shanghai Stock Exchange expected in 4Q19 and it could be the largest listed vegetable oil and food ingredient producer with a market capitalisation of US$12b – 13b. Upon listing, Wilmar China could trade at a higher valuation given its strong branding and market positioning in China. While the soybean crushing operation could be affected by the drastic drop in crushing margin, Wilmar’s 2019 earnings are well supported by higher contributions from its consumer packs and tropical oils segments. Furthermore, higher capex for the expansion of wheat flour and rice milling capacities in China is justified as China starts to see consumer purchasing slowly migrating to premium brands. We continue to like Wilmar for its integrated agri-business model and dominance in key emerging markets, maintaining a target price of $3.90 based on 13.7 times 2019F blended price-to-earnings. Maintain BUY. UOK-Kay Hian (20 Mar)

Singapore Airlines

Price – $9.80

Target – $10.25

An Ethiopian Airlines 737 MAX 8 flight crash on the 10 Mar-19 and similar accident with a Lion Air crash five months ago have led aviation regulators across the world to ground the Boeing MAX 8/9 planes. On 12 Mar-19, SilkAir grounded its fleet of six 737 MAX 8 planes which make up 16% of its seat capacity. However, the net impact of their grounding is nowhere that significant. SilkAir has increased the utilisation of its A320 and 737-800 planes while Singapore Airlines (SIA) mainline has also mounted supplementary widebody flights. By raising aircraft utilisation and with help from SIA mainline, we estimated that the net loss of capacity at only 1.5% of SilkAir’s systemwide seat capacity. Meanwhile, it may also be possible for SilkAir to claim compensation from Boeing for the MAX groundings either in the form of a direct cash transfer or discounts on future aircraft deliveries. That said, we think that it is still too early to assess the long-term impact on SilkAir and the wider SIA group. Maintain HOLD. CIMB Research (18 Mar)

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