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Investors’ Corner (Wilmar International, Keppel-KBS US REIT, SIA Engineering Co, Raffles Medical Group)

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Wilmar International

Price – $3.16

Target – $3.58

Crude palm oil (CPO) prices have surprised us on the downside reaching a low of RM1,717/tonne attributable to the continued rise in CPO stock levels in Malaysia as well as the decline in crude oil prices recently. As such, our in-house CPO price forecasts are now reduced to RM2,200/tonne for FY19 and RM2,400/tonne for FY20 while earnings for Wilmar Int’l (Wilmar) are also reduced by 4.5% for FY19F. Nonetheless, Wilmar’s processing and merchandising capacity for palm oil is far larger than its plantation output, and we believe that the lower earnings from plantation will be mitigated by positive palm refining margins. In addition, being the largest biodiesel producer in Malaysia and Indonesia, margin of Wilmar’s tropical oil segment may improve aided by increasing demand due to the rising biodiesel mandates. Hence, Wilmar remains as our top pick for the plantation sector given its diversified portfolio to mitigate the fall in CPO prices. Maintain BUY. RHB Research (10 Dec)

Keppel-KBS US REIT

Price – US$0.56

Target – US$0.78

We continue to believe that Keppel-KBS US REIT (KORE) offers investors the opportunity to catch the next leg of the US office market return with 12 freehold office assets located in seven key regional markets in the US which are seeing positive dynamics. This thesis was substantiated by KORE exceeding its IPO forecast since its listing a year ago. KORE’s share price has corrected over the last few months due to the disappointment over its recent right issue and concerns over a negative ruling on its tax structure. However, we believe that the majority of these negativities have been priced in given that KORE now trades at a 10-11% forward yield and 25% discount to book value during a period when rents are still on an upswing. As KORE delivers or exceeds its IPO forecasts, investors’ concerns should be allayed leading to a re-rating of the stock. Maintain BUY. DBS Vickers (7 Dec)

SIA Engineering Co

Price – $2.49

Target – $3.00

SIA Engineering Co’s (SIE) share price had sunk to nine-year lows on a decline for the past two and a half year. This was due to growth concerns caused by structural changes in aviation MRO, arising from lower maintenance frequency required by next-generation aircraft using more composite materials as well as fleet growth at low-cost carriers requiring MROs to innovate solutions to reduce aircraft downtime at hangars. SIE’s weaker-than-expected 1H19 results and cautious guidance have largely reflected such growth challenges. That said, the share price weakness has more than sufficiently priced in growth risks in our view. Furthermore, we expect Changi Airport aircraft traffic growth to be sustained at 4-5% annually supported by the additional capacity of Terminal 4 opened in 2017. While structural changes to the MRO business posed some challenges, SIE’s maintenance market share at Singapore held steady at 78% which other operators may find hard to compete with. Upgrade to BUY. Maybank Kim Eng (6 Dec)

Raffles Medical Group

Price – $1.20

Target – $1.30

The Ministry of Health recently published fee benchmark guidelines for private sector professional fees with regards to common surgical procedures, aiming to ensure that healthcare costs remain affordable and the healthcare system sustainable. Nonetheless, the fee benchmark merely serves as a common reference and is non-binding in nature. Hence, we think that its effects may not be largely felt for Raffles Medical Group (RFMD). Meanwhile, medical inflation is still set to continue on its upward trajectory underpinned by macro factors such as shortage of facilities and capacity from an ageing population. While RFMD’s share price has hit a one-year high, there remains some room for growth with the successful execution of its China hospitals as a key catalyst. Maintain BUY. UOB-Kay Hian (5 Dec)

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