Compiled by Kenneth Lim
SEMBCORP INDUSTRIES | BUY
TARGET PRICE: $3.43
AUG 23 CLOSE: $3.02
OCBC Investment Research, Aug 23
Sembcorp Industries' (SCI) management is in the process of undertaking a strategic review of the group's businesses, and this is expected to be completed by Q4 2017.
There can be various scenarios which can happen, but we also note management's comment in last quarter's results briefing that while it seeks to take a prudent approach in whatever it does, it also wants to be agile and capture opportunities when the market recovers.
As such, some of the possible outcomes include the divestment or privatisation of Sembcorp Marine. For the funding of the latter, divestments of non-core assets could help to shore up capital, and this could include Sembcorp Design and Construction, as well as Singapore Mint.
There could also be divestments of certain utilities assets in more mature markets where the projected rate of growth is lower than assets in emerging markets.
That said, whatever the results of the strategic review, we believe it will be done in the interests of shareholders.
Meanwhile, since we downgraded our rating to "hold" on Aug 4, SCI's share price has corrected by 7.2 per cent compared to the Straits Times Index's 2.4 per cent drop.
The stock also closed at a recent low of $2.94 on Monday.
SINGAPORE TELCOS | NEUTRAL
RHB Research, Aug 23
H1 2017 results of the Singapore telcos reflect the still-keen competition in the market and persistent structural mobile service revenue weakness.
We expect the operating landscape for the remainder of the year to remain challenging, with the incumbent mobile network operators seeking to defend their revenue share amid higher handset costs.
This comes ahead of the entry of the fourth player and a new mobile virtual network operator over the next two to 12 months.
We think the competitive risks from new entrants have been priced in to a certain extent, with sector valuations at a fair 10.1 times weighted FY18 enterprise value-to-earnings before interest, tax, depreciation and amortisation ratio - off the high of 12 times in the last two years and in line with the post-global financial crisis mean.
We keep our "neutral" call on all three telcos, with Singtel as our preferred pick.
Post Q2 2017 results, we cut M1's FY17 forecast to FY19 forecast core earnings by 12 per cent to 13 per cent but retain our estimates for Singtel and StarHub.
Our forecasts for M1 and StarHub have not factored in the potential network collaboration, which remains under discussion.
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