Compiled by Anita Gabriel
TARGET PRICE: $2.50
JAN 30 CLOSE: $2.35
PhillipCapital, Jan 30
Revenue and profit after tax and minority interests for Q218 were below expectation.
With the strong October and November semiconductor sales (up a combined 21 per cent year-on-year), we were expecting stronger revenue and earnings growth.
While part of the weaker topline was due to currency movement and perhaps trade loading (inventory was up 36 per cent year-on-year), Q218 did miss our forecast.
We are reducing estimates for FY18 revenue and earnings by 6 per cent and 7 per cent respectively. Visibility is never perfect for the semiconductor cycle.
As the current semiconductor industry sales double-digit surge began only in December 2016, we are concerned the comps could get harder as we approach calendar 2018.
As a result, we have to taper down our expectations. In the last two semiconductor cycles, the positive year-on-year growth ran for 20 and 26 months. The current upcycle is 16 months.
The attractive investment merits of Micro-Mechanics have not changed - return on equity of over 30 per cent, gross profit margins of around 60 per cent, $22 million net cash and 3 per cent dividend yield.
The run-up in share price (+55 per cent since our initiation in September last year) and lack of a catalyst to raise our target price, limits the upside. As a result, we downgrade our recommendation to accumulate.
STARHILL GLOBAL REIT | NEUTRAL
TARGET PRICE: $0.81
Jan 30 close: $0.765
RHB Research, Jan 30
Starhill's Q2FY18 results came slightly below our estimate. The retail and office markets in the Orchard area remain challenging, amidst competitive market conditions, impacting Starhill.
Asset enhancement initiatives are currently in progress across many of its overseas assets. While these works have created a near-term dent in distribution per unit (DPU), we expect positive contributions to DPU from FY19 onwards.
Starhill continues to actively look out for acquisitions. However, with the strong cap rate compression across retail/office asset classes in Singapore, yield-accretive acquisition opportunities look limited.
Key near-term target markets for acquisitions are Australia and Japan.
Key catalysts for the stock are yield-accretive acquisitions and better-than-expected demand for space in Singapore's retail and office sectors while the key risk is a prolonged weakness in Orchard Road's retail and office markets.
The stock's valuation remains attractive. It is trading at a relatively cheap level, offering a dividend yield of 6.5 per cent.
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