Business

Brokers’ take

Compiled by Navin Sregantan

ST ENGINEERING

HOLD (DOWNGRADED)

AUG 15 CLOSE: $4.07

TARGET PRICE: $4.30

Maybank Kim Eng, Aug 14

Operationally, Q2 was in line with expectations with Ebitda boosted by the MRAS integration in April. First half Ebitda forms around 45 per cent of estimated FY2019 earnings. But Patmi was lower than expected due to a higher depreciation and amortisation (D&A) run-rate post-integration than we initially estimated.

A negative in the first half results is a sharp increase in D&A after the MRAS integration, much higher than we had initially estimated. The lion's share of the increase came from goodwill amortisation.

In our view, going forward there could be additional pressure on the D&A front as other recently announced large acquisitions such as Newtec Group also involve a high level of intangibles and goodwill.

While we remain optimistic on ST Engineering's growth prospects, the share price performance in the past year leaves little room for upside to our valuation estimates when weighted off against an already all-time-high backlog and integration and execution risks of various new investments.

MANULIFE US REIT

BUY (MAINTAINED)

AUG 15 CLOSE: US$0.885 (S$1.23)

TARGET PRICE: US$0.98

RHB Research Institute, Aug 15

Manulife US Reit's second quarter results were in line with our expectations.

The outlook for the US office market remains favourable, with positive demand-supply dynamics and we see Manulife US Reit's office assets as a good proxy to this trend.

Organic and inorganic growth are expected from built-in rent escalations and acquisitions.

Manulife US Reit is currently awaiting the finalisation of proposed US tax regulations post which the Reit should be able to roll back to its initial public offering tax structure, avoiding the need for a Barbados entity, which could result in additional tax savings of around 1.5 per cent.

In addition, post recent acquisitions, Manulife US Reit is also close to meeting the criteria (i.e. free float and liquidity) for inclusion into the Nareit Index. The inclusion would be a positive re-rating catalyst in our view as it will further increase liquidity and widen investor base.

Manulife US Reit remains our top pick for the sector. Valuations remain attractive with 6.7 per cent yields (>150 basis points of the average among office S-Reits) and 1.1 times price-to-book value.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.

The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Business