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Investors’ Corner (United Overseas Bank, M1, Valuetronics Holdings, Soilbuild Business Space REIT)

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United Overseas Bank
Price – $26.85
Target – $33.30

The Federal Open Market Committee (FOMC) raised the US federal funds rate (FFR) by 25 basis points (bps) on 26 Sep-2018, and indicated the possibility of another FFR hike in December with three more to follow next year. Historically, there is a positive correlation between FFR and 3-month SIBOR, which has also risen to an average of 1.63% in 3Q18 from 1.51% in the prior quarter representing a 12 bps q-o-q increment. This will help to widen the 3Q18 net interest margin for United Overseas Bank (UOB). Furthermore, healthy sales in recent property launches indicated that the Government’s property cooling measures in early July might have limited impact on mortgage growth. Meanwhile, UOB pressed on with its plans for a digital bank, which we believed will be positive for its long-term growth as we await more implementation details. Maintain BUY. RHB Research (28 Sep)

Price – $1.63
Target – $1.63

Keppel Corporation and Singapore Press Holdings have announced the formation of Konnectivity as their vehicle for making a general offer to acquire M1 at $2.06 per share. Inclusive of Keppel T&T’s stake in M1, the group collectively owns 33.3% of the telco currently and will proceed with the offer if they can increase their stake to over 50%. This offer could materialise in 15 weeks pending approval from telco regulator Infocomm Media Development Authority. The rationale for the offer is to have more effective control in preparation for the increased competition going forward as well as to give shareholders who are not ready to bear the risks associated with the complex business transformation a chance to exit. In view of the short- to medium-term earnings volatility due to heightened competition and potential changes to dividends, we find the general offer to be attractive. Maintain HOLD. Maybank Kim Eng (27 Sep)

Valuetronics Holdings
Price – $0.68
Target – $0.96

Valuetronics Holdings (Valuetronics) highlighted that its Danshui plant suffered limited impact from the recent flood on 17 Sep-18, and actual operations had resumed on 21 Sep when power was restored. The flood only destroyed some raw materials and the finished goods located on the higher floors were not affected. In addition, Valuetronics has full insurance coverage for its inventories. Meanwhile, management estimated that less than 10% of its revenue will be impacted by the new round of US$200b trade tariff. Nonetheless, the group is also exploring to expand into ASEAN to reduce future implications. Utilisation in the consumer electronics segment remained healthy at more than 90% which bodes well for earnings in the quarters ahead. At 4.3 times FY19F ex-cash P/E and net cash of $137.3m equivalent to 46.6% of current market capitalisation, current valuation appears attractive. Maintain BUY. UOB-Kay Hian (24 Sep)

Soilbuild Business Space REIT
Price – $0.59
Target – $0.69

Soilbuild Business Space REIT (Soilbuild REIT) has dropped 5.9% in less than 2 weeks since its announcement on the proposed acquisition of two Australian assets. The purchase is likely to be funded by a combination of Australian dollar loans and the issuance of perpetual securities. We believe that the recent decline in Soilbuild REIT’s unit price may have to do with concerns over the cost of perpetuals. While the expected DPU accretion is minimal, we see this deal as positive for Soilbuild REIT’s portfolio as it improves the operational stability of the portfolio through geographical diversification, longer WALE and in-built rental escalation, as well as increasing the average land lease to expiry of the portfolio. We are expecting the industrial space in Singapore to bottom end-2018/ early-2019. Hence we see this as an opportunity to accumulate units of the REIT before stronger signs of operational improvement are seen. Reiterate BUY. OCBC Investment (21 Sep)

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