Compiled by Anita Gabriel
CHINA AVIATION OIL (S) CORP | BUY
TARGET PRICE: $1.98
MARCH 1 CLOSE: $1.51
DBS Group Research, March 1
We continue to like China Aviation Oil (CAO) given its monopolistic position as the sole importer of bonded jet fuel into China, and for its 33 per cent stake in the exclusive jet fuel refueller at Shanghai Pudong International Airport.
It also has a growing international jet fuel supply and trading business that will increasingly benefit from CAO's greater scale. It is a beneficiary of growing air travel demand both in China and globally.
CAO had a cash balance of US$300 million (S$397.2 million), or net cash of US$180 million, at the end of 2017 and has also recently refreshed and strengthened its management team with seconded personnel from parent China National Aviation Fuel Group Ltd.
We believe this could help the company deliver on the mergers & acquisitions front.
CAO's share price should re-rate as it delivers steady earnings growth and/or if it can make value accretive acquisitions using its strong balance sheet position.
As 80 per cent of its earnings are derived from monopolistic businesses with a firm growth outlook, we see current valuations at 10.7 times FY18 forecasted price earnings (PE), declining to 9.8 times FY19 forecasted price earnings, as attractive.
Factoring in net cash per share of $0.28, valuations are even more enticing.
Our target price is based on 13 times FY18F PE and has not factored in acquisitions.
VENTURE CORP | BUY
FAIR VALUE: $34.00
MARCH 1 CLOSE: $26.92
OCBC Investment Research, March 1
Venture Corp's FY17 results were spectacular and exceeded expectations.
Revenue growth was driven by a diversified revenue base, continuing strong execution of customers' programmes and deepening of collaborative partnerships with strategic customers.
Looking ahead, we believe Venture's growth will be sustainable given its relentless pursuit to create value through deep collaboration with customers.
By providing research & development (R&D) services, it will be able to continue to ensure customer stickiness.
Venture's focus to continue to grow its talent pool will be a factor to drive growth through increased R&D work.
The ongoing productivity drive, building of advanced manufacturing capabilities, strong sourcing capabilities and disciplined cost management will also contribute positively to the margins.
In addition, the company's strategy to continue pursuing deep collaborative alliances with leaders in fast-growing technology domains of interest will result in persistent top-line growth.
We adjust our forecasts upwards significantly, as well as roll-forward our valuations.
Consequently, we increase our fair value for Venture from $23.00 to $34.00.
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