Brokers' take

Compiled by Wong Kai Yi

VALUETRONICS | BUY

TARGET PRICE: S$0.92

SEPT 25 CLOSE: S$0.70

RHB Research Institute, Sept 25

We maintain "buy" and discounted cash flow-based target price of S$0.92 with a 33 per cent upside.

Management clarified that the flooding at its plant in China had caused minimal impact to operations. It has since resumed production of its consumer electronics products.

It also guided that less than 10 per cent of topline would likely be impacted by the recent US$200 billion additional tariffs.

The recent correction has placed Valuetronics at an attractive valuation of just 7.9 times fiscal 2019 price-to-earnings, accompanied by a 6.3 per cent yield.

Management would be implementing more overtime shifts to catch up on production.

After the flash flood on Sept 17, 2018, Valuetronics' Danshui plant resumed operations after local power was restored on Sept 21.

The finished goods and machines, which were located at the higher floors, were not impacted by the flood - only the raw materials were damaged.

Management has already procured new raw materials and implemented more overtime shifts to catch up with the production delay caused by the flash flood. It also guided to have full insurance coverage on inventory.

We also expect management to continue rewarding shareholders with higher dividends, especially when performance improves.

A total dividend per share of HK$0.27 has been declared for fiscal 2018, and we expect more dividends to be paid out in FY 2019 with a higher payout ratio due to the strong balance sheet.

We are projecting an attractive FY 2019 dividend yield of 6.3 per cent.

FRASERS COMMERCIAL TRUST (FCOT) | BUY

TARGET PRICE: S$1.65

SEPT 25 CLOSE: S$1.43

DBS Group Research, Sept 25

We recently undertook a site tour of Alexandra Technopark (ATP) after its S$45 million asset enhancement initiative (AEI).

ATP generated some S$5.6 million in net property income (NPI) in the last quarter, down from S$9-10 million due to HP's staggered exit from the property. Contribution to overall FCOT's NPI has also fallen to about 34 per cent from low 40s previously.

The refresh now gives the property a brighter and contemporary feel vs a "dated" design compared to other newer competing buildings in the Alexandra precinct.

The AEI was initially planned to enhance the competitive position of the property, which we believe, after seeing the works, has hit the mark with prospective tenants potentially thinking "why aren't we here" given an enhanced product, city fringe location and attractive rents in the low S$4 per square foot (psf)/month vs S$5-7 psf/month for nearby buildings and around S$10 psf/month for CBD offices.

We understand with the AEI largely completed and prospective tenants can now view the refreshed product at ATP, leasing enquiries have increased for the property.

We believe this should translate to new leases soon, with FCOT backfilling space vacated by HP resulting in committed occupancy rising from 64.8 per cent as at June 30, 2018.

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