Brokers' take

Compiled by Lynette Khoo

SATS | BUY

SEPT 25 CLOSE: $4.57

TARGET PRICE: $5.02

DBS Group Research, Sept 25

We remain positive on Sats and maintain our "buy" recommendation with a higher target price of $5.02.

We see long-term potential growth drivers from:

1) More landing slots at Changi Terminal 4 leading to higher passenger traffic,

2) Qantas diverting its European sector hub from Dubai to Changi,

3) Automation and staff productivity coming through, limiting cost increase at a modest pace in the next few years,

4) Opening of Terminal 5, which will support growth over the longer term.

Valuations are compelling with Sats trading attractively at 19.4 times forward price-to-earnings ratio versus peer average of 21 times.

While consensus sees pricing pressure dampening earnings growth, passenger growth at Changi will be a key driver for the share price.

Also, better staff productivity and cost controls will eventually come through to lift margins. Recovery in aviation volumes should offset the impact of pricing pressure eventually.

YANGZIJIANG SHIPBUILDING | HOLD

SEPT 25 CLOSE: $1.395

TARGET PRICE: $1.48

OCBC Investment Research, Sept 25

After Yangzijiang Shipbuilding's (YZJ) share placement announcement on Aug 31, its share price has dropped 13 per cent from a high of $1.625 on Aug 30 to $1.41 as at yesterday's close.

Some 137 million new shares (representing 3.6 per cent of existing share capital) will be placed out at $1.53 per share to raise net proceeds of about $209 million.

As at H1 2017, the net-cash group had 6.3 billion yuan (S$1.28 billion) in cash and cash equivalents, 6 billion yuan of current held-to-maturity financial assets, 1.1 billion yuan of current available-for-sale financial assets and 724 million yuan of financial assets at fair value through profit or loss.

Under non-current assets, there were 4.6 billion yuan of held-to-maturity financial assets and 200 million yuan of available-for-sale financial assets.

There have been questions on the need to raise funds, unless the group is preparing to undertake significant M&A.

Another possible explanation could be that the placement adds to cash at the listed platform level, as a significant portion of cash may be with the subsidiaries in China, while increased scrutiny over capital movements after certain high-profile incidents in China have led to more capital controls. Hence the placement would allow YZJ to undertake more significant overseas acquisitions.


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