Compiled by Angela Tan
VIVA INDUSTRIAL TRUST | HOLD
MAY 17 CLOSE: $0.89
FAIR VALUE: $0.90
OCBC Investment Research, May 17
Q1 results of Viva Industrial Trust (VIT) were within expectations. The growth outlook for VIT's assets remains positive.
Going forward, we continue to expect double-digit rental reversions for the leases expiring at UE Bizhub later this year, given the opening of the Downtown Line connection at Expo MRT late last year.
The period of exclusivity for the discussions on the proposed merger with ESR-Reit has been extended from May 15 to May 31.
We note that according to a Bloomberg article, the companies are waiting final approvals from a Singapore regulator before announcing the deal.
After adjustments, our fair value decreases from 93 cents to 90 cents, mainly due to the management fees being paid in cash.
VIT is trading at 7.6 per cent FY18F yield and 6.9 per cent FY19F yield as of May 16 close.
Subject to further announcements from VIT regarding the potential merger, we downgrade from Buy to Hold on VIT.
SIA ENGINEERING | BUY
MAY 17 CLOSE: $3.33
TARGET PRICE: $3.92
DBS Group Research, May 17
SIA Engineering's (SIE) forward price earnings (PE) and price to book value (P/BV) ratios are below standard deviation levels, which we view as a buy-in opportunity.
There are some positive earnings drivers ahead - an upswing in the engine MRO (maintenance, repair and overhaul) cycle is already under way, with workload boosted further by visits from the problematic Trent 1000 engines and cabin retrofitting work on Singapore Airlines's legacy A380s, which is expected to come in at the end of the year.
In addition, the new GE facility which should be operational in 2019 or early 2020 has the potential to be a large contributor to JV/associate income and expansion of the line maintenance segment in Japan (with a view towards other countries as well) could help drive the top line.
We maintain our buy call with a higher target price of $3.92; together with a dividend yield of 4 per cent, this implies an all-in return of some 24 per cent.
The adverse effect on the heavy maintenance segment of longer check intervals and lower check content of newer generation aircraft should be mostly offset by a growing fleet size, especially in the Asia Pacific.
Also, while the fleet management business is facing headwinds, with the fleet having already shrunk from 193 aircraft at its peak to the current 89 (with 2H18 actually recording a half-on-half increase of five aircraft under management), the worst could be over for that segment.
Our target price of $3.92 is based on a blended valuation framework (PE, enterprise value/earnings before interest, taxes, depreciation and amortisation, dividend yield and discounted cash flow), and includes a 20 per cent mergers and acquisitions/privatisation premium.
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