Goldman Sachs downgrades the Asian airline sector to Neutral from Attractive following the sector’s outperformance in 2H 2010.
“Our downgrade is underpinned by three key reasons: (1) slower traffic growth momentum expected; (2) rising unit costs to result in margin pressure; and (3) sector appears fairly valued.”
Says investors should be selective in 2011, prefers Buy-rated Cathay Pacific (0293.HK), Singapore Airlines (C6L.SG), and CEA H- (0670.HK) and A-shares (600115.SH).
UOB KayHian starts Super Group (S10.SG) at Buy with a $1.66 target, based on a PEG valuation of 1.0x, “which we think is justified given its steady but solid growth outlook of 16% CAGR over the next three years.”
It says the company is “a leading instant food and beverage brand owner with a strong position in Southeast Asia. Super also owns more than 10 brands that are targeted at different consumer groups.”
DBS Vickers raises Yangzijiang’s (BS6.SG) target price to $2.60 from $2.38 after rolling over its valuation to blended 2011-2012 earnings and increasing 2011-12 earnings forecasts by 4% and 14% respectively in anticipation of increased orders.
DBS Vickers lifts its target price for Cosco (F83.SG) to $2.76 from $2.35 after rolling forward its valuation to blended 2011-2012 earnings to align with its Singapore peers.
Keeps its Buy call and upgrades 2011 and 2012 earnings forecasts by 2% and 17% respectively to assume increased orders.
BNP Paribas starts Sembcorp Industries (U96.SG) at Buy with a $5.90 sum-of-the-parts target price.
Expects the stock’s performance to be driven by its unit SembMarine (S51.SG), which historically has a 90% price correlation with oil prices.
Says orders for SembMarine are likely to increase to $3.3 billion next year from the $1.25 billion trough in 2009, driven by a rig replacement cycle and better returns from its high-specification rigs.
Kim Eng Securities downgrades Wilmar (F34.SG) to Hold from Buy and cuts its target price to $6.24 from $7.20 (based on 15x FY11 P/E vs 18x FY10 P/E previously).
Flags the risk of margin compression given higher raw material costs due to rising prices of CPO and soybeans.
Samsung Securities starts Yanlord Land (Z25.SG) at Buy with a $1.95 target price, based on a 20% discount to a 2011 NAV estimate.
Says the China-based high-end developer continues to surprise the market with its ongoing success with quality project launches.
RBS upgrades City Developments (C09.SG) to Hold vs Sell and lifts its RNAV-based target price to $11.90 vs $10.93 to reflect the higher valuations of the developer’s commercial properties and its Millennium & Copthorne (MLC.LN) unit.
“We expect the capital value of CDL’s commercial portfolio to appreciate next year on the back of higher transaction volume and rents.”
CIMB lifts Yangzijiang’s (BS6.SG) target price to $2.57 vs $2.15, based on 14x P/E vs 11x previously, after increasing its 2011 order-win assumption to US$1 billion ($1.3 billion) vs US$800 million.
Adds, the China-based shipbuilder secured US$1.3 billion worth of news orders in 3Q10; “we believe the strength in containership orders could make up for the softer demand for bulk carriers in 2011.”
HSBC initiates CapitaMall Trust (C38U.SG) at Overweight with $2.22 target price; says the REIT’s stable income profile ensures steady payouts while its asset enhancement initiatives will result in continued rental uplift.
Says the “recent correction (is) an opportunity to go long on Singapore’s oldest REIT.”
DBS Vickers starts Consciencefood Holding (L1D.SG) at Buy with a $0.38 target based on 7x FY11 P/E.
Says the immediate growth driver for the Indonesia-based instant noodles maker is its expansion into cup noodle production in FY11.
Nomura starts Mewah International (MV4.SG) at Buy with a S$1.30 target price. Says the palm oil refiner’s large scale and risk management capability help it achieve stable margins.
Cites company’s strong distribution network in Africa’s downstream business as one of its key strengths, given that more than 40% of consumer pack earnings have come from the continent over the past 3 years.
Expects China-based maker of spray pumps and bottles to benefit from robust demand from country’s pharmaceutical and fast-moving consumer goods sectors; “fast-moving consumer goods as well as pharmaceuticals are showing strong growth rates within China and internationally. This would be advantageous to Sunmart’s operations” as they derive about 55% of sales from overseas and 45% locally.
Goldman Sachs downgrades Wilmar (F34.SG) to Neutral from Buy, and cuts its target to $ 6.25 from $ 7.00 as it now values company against the Southeast Asian commodities sector instead of the plantations sector.
“The Asean plantations sector may not be as good of a comparable for Wilmar as its earnings are not as highly leveraged to CPO prices.”
Goldman Sachs starts Olam (O32.SG) at Neutral with a S$3.20 target price. Says the commodity trader’s ROE peaked at 30% in FY08 and has since de-rated to 17% in FY09-10.
Notes while the company is selectively investing in upstream and midstream businesses to boost margins and restore ROE, this may take time to mature, with upsteam earnings subject to agriculture commodity prices.
“Olam tends to sell on a forward basis for a long duration which we think may reduce the correlation with spot prices in the short term.”
Shares –0.6% at $3.19.
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Goldman Sachs starts Noble Group (N21.SG) at Buy with a $2.60 target price, implying 15.3x FY11 P/E.
Says commodity supply chain manager could benefit from a strong 2011 macro outlook as pro-cyclical commodities like coal and oil, plus metals are expected to account for 60% of next year’s earnings.
DMG starts Mun Siong Engineering (MF6.SG) at Buy with a $0.28 target price.
Says the provider of mechanical and electrical engineering services is well placed to ride the strong growth in petrochemical industry in Singapore, where oil giants Shell and Exxon Mobil have set up new petrochemical plants.
BNP Paribas says SATS’ (S58.SG) buy of Japan Airlines 50.7% stake in TFK Corp for $122 million “strategically positive overseas endeavour.”
Stake buy is SATS’ first major M&A in recent years in in-flight catering segment, should provide entry into Japanese airline catering market, provide synergies with culinary operations, “which we think is a long-term positive for the group.”
