DAIRY FARM INTERNATIONAL HOLDINGS | HOLD MARCH 26 CLOSE: US$7.88 TARGET PRICE: US$8.40
CGS-CIMB, March 24
Dairy Farm plans to acquire an 18.25 per cent stake in, and be a partner with, Robinsons Retail Holdings in a deal worth around US$520 million (S$683.8m).
We are positive the deal could add scale for its Philippines business, given Robinsons Retail Holdings' size.
The stake could translate to about US$20-22 million to Dairy Farm's associate income, which stood at US$144 million in 2017, but the additional associate income accounts for only around 3-4 per cent of Dairy Farm International's estimated 2018 to 2020 profit before tax of US$599-657 million.
We maintain our estimates and call pending further details and completion of the deal.
While we believe the change in leadership - new chief executive Ian McLeod joined in September 2017 - could usher in positive winds of change, especially for Dairy Farm's weak South-east Asia supermarket and hypermarket division, we believe meaningful improvements will take time to bear fruit.
VIVA INDUSTRIAL TRUST | BUY MARCH 26 CLOSE: $0.87 FAIR VALUE: $0.93
OCBC Investment Research, March 23
Since the start of the market rout at the beginning of February until the March 22 close, Viva has clocked a total return of -7.4 per cent, underperforming the FTSE Straits Times Reit Index by 3.7 percentage points.
We believe the underperformance has to do with investor uncertainty in anticipation of further news on the proposed merger with ESR-Reit.
Based on the initial proposal, the exclusivity is to expire on March 31, unless both parties agree to extend it or an agreement is reached.
Should an agreement on the merger be reached, we believe the share swop ratio will likely be at least dividend-neutral in order to entice Viva unit holders to accept the offer.
Given that Viva is trading at a 8.6 per cent FY18F yield and 7.9 per cent FY19F yield as of March 22 close, we see this as a fairly attractive entry price.
On the other hand, should the relevant parties fail to reach an agreement, we expect the uncertainty associated with ongoing discussions to be alleviated, which may in turn help the unit price recover to prior levels.
Our forecasts and fair value of $0.93 remain unchanged. Upgrade from "hold" to "buy".
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