Compiled by Leila Lai
SEMBCORP MARINE | BUY (MAINTAINED)
SEPT 2 CLOSE: $1.16
TARGET PRICE: $1.80
Citi Research, Sept 2
Sembcorp Marine (SMM) has announced that it has clinched a slew of new contracts with a combined value of $400 million.
These new orders bring the year-to-date FY19 order win tally to $575 million, about 30 per cent of our full-year FY19E target of $2 billion. We estimate a roughly 15 per cent accretion to the June 2019 ex-Sete order book of $2.1 billion.
We value Sembcorp Marine on a price/book multiple, as we view this as a more relevant benchmark at this stage of the cycle, given the volatility expected of earnings.
Our $1.80 target price is based on a 1.7 times P/B, 0.7 standard deviation below its long-term average of 2.6 times, in-line with the previous time SMM last emerged from the order trough (post-GFC in 2009).
The cyclical nature of the offshore and marine business may result in significant earnings volatility and the key downside risks to our investment thesis and target price include weaker-than-anticipated contract wins; and lower-than-expected margins arising from unfavourable contract pricing and cost overruns.
CHINA AVIATION OIL | BUY (MAINTAINED)
SEPT 2 CLOSE: $1.14
TARGET PRICE: $1.50
RHB Research, Sept 2
Maintain "buy" with unchanged $1.50 target price, 30 per cent upside with 4.2 per cent 2020F yield.
We reduce China Aviation Oil's (CAO's) forecasts by 1 to 2 per cent to account for our revised CNY forecasts.
Nevertheless, we remain confident in CAO's long-term growth.
This is expected to be driven by growth in China's aviation traffic.
In the near term, the increase in passenger capacity at Shanghai Pudong International Airport (SPA) provides scope for an upside surprise to jet fuel sales in China.
Amid expectations of some negative impact from the US-China trade war, we have conservatively forecast mid-single-digit jet fuel supply volume growth in 2019.
This compares with an average volume growth of 11 per cent in the last 10 years.
Amid hiccups on the trade front, PBOC easing and further liquidity injection into its money market, our FX team has revised its forecasts for CNY.
This change reduces our 2019-2021F earnings by 1 to 2 per cent.
Despite outperforming the Straits Times Index by 9 per cent year to date, CAO continues to trade at a low 2020F price/earnings of 7.2 times with an estimated 2020 growth of 5.8 per cent.
The stock also remains cheap versus regional and global peers.
Given its zero debt balance sheet and significant net cash position, CAO is expected to undertake a sizeable earnings-accretive acquisition.
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