Brokers' take

Compiled by Stephanie Luo, The Business Times

SATS |BUY

OCT 19 CLOSE: $4.61

FAIR VALUE: $5.05

OCBC Investment Research, Oct 19

Satsannounced on Wednesday that it had entered into a memorandum of agreement (MOA) with Turkish Airlines (THY) relating to the provision of in-flight catering services to THY and other airlines at Istanbul New Airport.

Pursuant to the MOA and subject to due diligence, Sats will invest in a catering company in Turkey, which would operate one of the largest flight kitchens in the world.

This MOA is valid for a period of six months from Oct 17 (unless mutually terminated earlier or extended by both parties), during which both THY and Sats are allowed to evaluate the opportunities leading up to the execution of the definitive agreements and the conclusion of the transaction.

The completion of this transaction is subject to fulfilment of certain conditions precedent, which includes securing necessary regulatory approvals and completion of satisfactory due diligence.

In our view, this MOA is in line with Sats' strategy to expand its network internationally, especially within Asia, and is also positive in helping Sats diversify and reduce dependence on Singapore's aviation industry, if it is executed.

ESR-REIT |HOLD

OCT 19 CLOSE: $0.57

TARGET PRICE: $0.57

CIMB Research, Oct 17

Q3 17 DPU (distribution per unit) of 0.964 cents (-2.3 per cent year-on-year) was within expectations.

The gist of the quarter was the narrowing of quarterly DPU decline, from double digits in the past quarters to low single digit in Q3, reflecting the Reit is reaching an inflection point.

Income from new leases helped to partially offset multi-tenanted building conversion effects and the absence of property divestment income, resulting in a -1.6 per cent yoy decline in NPI (net property income) to $19.6 million.

Q3 17 portfolio occupancy dropped to 91.1 per cent (Q2 17: 95.4 per cent) due to the inclusion of 120, Pioneer Road (warehouse) following the completion of its asset enhancement initiative as well as the impact of the non-renewal of the CWT lease at 3, Pioneer Sector 3.

We understand the current occupancy of 120, Pioneer Road is in its 30s while that of 3, Pioneer 3 is in mid-70s.

We expect a slightly weaker Q4 17F due to the divestments in Q4 17F, lower occupancy at 3, Pioneer Sector 3 as well as the income void at 21B, Senoko Loop (following the pre-termination of Tellus Marine in Q2 17).

We tweak our FY18F-19F DPU by -0.1 per cent as the absence of income from divestments should be offset by lower borrowing costs. Nevertheless, we reiterate our view that the Reit's financial performance is bottoming out.

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