Compiled by Navin Sregantan
OUE LIMITED | BUY (MAINTAINED)
FEB 28 CLOSE: $1.65
FAIR VALUE: $2.32
OCBC Investment Research, Feb 28
OUE Limited's FY2018 revenue fell 14.7 per cent to $642.9 million, largely due to lower contribution from the group's property development arm.
Profit after tax and minority interests recorded an 89.4 per cent drop to $10 million, on the back of one-offs. We deem this set of results to be broadly under expectations.
The group has proposed a special dividend of 11 cents.
Moving forward, we believe that the group should be able to book revenue relating to OUE Twin Peak units under deferred payment schemes of $280 million and $130 million in 2019 and 2020, respectively.
Given that Oakwood Premier has obtained its hotel licence in Jan 19, we believe that a possible divestment to OUE Hospitality Trust could be on the cards this year.
In downtown Los Angeles, OUE is looking to divest its US Bank Tower, while also actively looking for an opportune time to cash in on some of its investments to help pare down debt.
Taken together, we believe these divestments will help to narrow the significant discount that OUE trades at (Bloomberg forward price-to-book ratio of 0.37 times).
As such, we roll forward our valuations, and raise our fair value slightly from $2.25 to $2.32.
BEST WORLD INTERNATIONAL | BUY (MAINTAINED)
FEB 28 CLOSE: $2.45
TARGET PRICE: $2.95
RHB Research Institute, Feb 28
Best World's Q4 results beat ours as well as the consensus' estimate. Sales from all markets came in above our expectations, while the franchise business model in China achieved stronger margins.
During the briefing, management said it still expects 50 per cent y-o-y growth in end-consumer demand for the China market.
As such, we remain confident of its growth prospects in the near term.
Over-exuberance in the market resulted in its share price soaring 24 per cent in the first two weeks of February over no apparent news, before collapsing on concerns raised in a Business Times article.
Best World issued a statement to clarify the issues raised and is also looking to engage an independent review to address the relevant concerns and we believe the move towards greater transparency will build greater confidence among the investment community.
Since the share price has now retraced to a more reasonable level, we see value emerging, given the strong growth prospects in its China franchise business.
While we are confident of the near-term earnings prospects, we caveat investors to avoid chasing share price when valuation runs way too high.
Key risks include overstocking of inventories by franchisees and inability to track sudden drop in end-consumer demand.
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