Brokers’ take

Compiled by Leila Lai

MAPLETREE INDUSTRIAL TRUST | HOLD (MAINTAINED)

JAN 17 CLOSE: $1.99
TARGET PRICE: $2.04

OCBC Investment Research, Jan 17

Mapletree Industrial Trust (MIT) recently announced its proposed acquisition of 18 Tai Seng from its sponsor for an agreed property value of $268.3 million.

This is a high specification mixed-use development that is expected to generate a healthy initial net property income yield of about 6.8 per cent.

Management intends to make this transaction distribution per unit (DPU) and net asset value (NAV) accretive.

We assume full debt funding at this juncture, and raise our FY20 DPU forecast by 2.4 per cent (FY19 unchanged). Consequently, our fair value moves from $2.01 to $2.04.

Other recent developments for MIT include the signing of a long lease agreement with Equinix at its 7 Tai Seng Drive property, and subsequently upgrading it to a data centre.

Looking ahead, although there are concerns of continued negative rental reversions, we believe management's drive to scale up the high-tech value chain will help to mitigate some of the weakness in the traditional industrial space.

Time is needed to extract more value from this transition, but management is clearly moving in the right direction, in our view.

Maintain "hold".

SINGAPORE AIRLINES | HOLD (MAINTAINED)

JAN 17 CLOSE: $9.67
TARGET PRICE: $10.20

UOB Kay Hian Research, Jan 17

Parent airlines' load factor for last month improved for the ninth consecutive month as traffic outpaced capacity growth.

Singapore Airlines (SIA) noted that Rask (revenue relative to seat capacity) remained resilient throughout the quarter. In Q2 FY19, Rask improved by 3.1 per cent, while yields fell 1 per cent.

For pax yields to remain at least flat year-on-year, Rask would have to rise by 2.2 per cent in Q3 FY19.

December's 3.5 per cent year-on-year decline in cargo traffic does not come as a surprise.

However, leading indicators such as weak Purchasing Managers' Index now seem to suggest that the trend of weaker cargo will accelerate into 2020.

Thus, we lower our cargo traffic growth assumptions from -2.6 per cent to -3.0 per cent for FY19, and from -1.0 per cent to -4.0 per cent for FY20.

Scoot's pax load factor has declined for two consecutive months and the carrier is likely to report a loss.

We thus lower our traffic growth assumptions from 16 per cent to 14 per cent for FY19, and by 3 percentage points to 12 for FY20.

We continue to value SIA on a sum-of-the-parts basis, with the airline operations valued at 0.75 times book value and SIA Engineering valued at $2.70.

Our fair value is now lowered to $10.20.

Suggested entry price is $9.

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