|MAYBANK KIM ENG||
Singapore Aviation Services
Jan-Feb 2019: where did the Chinese / ASEAN tourists go?
Visitors still slow but the hub continues to grow
Singapore visitor arrivals for Jan-Feb 2019 grew a tepid 2% YoY continuing the growth slowdown trend (4Q18 2.4%). China and ASEAN arrivals were flat but compensated by a strong showing from US and Europe. The “Terminal 4” effect of growing Changi as a regional hub is still playing out passenger throughput growth at 5.1% outpacing arrivals. We remain positive on the sector in the medium term and are BUYers of all three stocks in declining order of preference of ST Eng, SATS, SIA Eng.
Fu Yu Corp (FUYU SP)
Massive Hidden Value In Properties Recognised At Cost
FUYU’s conservative accounting policy in recognising its properties at book value has undervalued the assets by S$50m, or 33% of its market cap, based on its 2018 annual report. Any disposal to unlock value could further rerate the stock. The hidden value of these properties, its cheap valuation, diversified operations and low utilisation rate make FUYU an attractive takeover target. FUYU offers dividend yield of 8.5% for 2019, and net cash forms 53% of its market cap. Maintain BUY and TP of S$0.285.
SG Hospitality: Hold your horses
Despite a strong rally for hospitality REITs YTD, we are likely looking at a soft 1Q19 in terms of operations. Recent STB data reflected poor RevPAR performance from Upscale and Mid-tier hotels for the first two months of the year while our channel checks have revealed that March was also a subdued month for the industry. Given that the supply situation remains favourable, we believe the softness in RevPAR has more to do with the absence of events that were held last year (e.g. the biennial Singapore Airshow). Post the YTD rally, we downgrade top pick Ascott Residence Trust (ART) as well as Far East Hospitality Trust (FEHT) each from Buy to HOLD, while we maintain HOLD on CDL Hospitality Trusts (CDLHT). As at 12 Apr’s close, ART, CDLHT, and FEHT are trading at FY19F yields of 5.9%, 5.7% and 5.9% respectively, based on our forecasts. While we continue to see a two-year runway for RevPARs to improve given the benign supply outlook, we downgrade Singapore Hospitality from Overweight to NEUTRAL given the relatively tight dividend yields. Out of all the hospitality REITs under our coverage, we see the most upside for ART as at 12 Apr’s closing prices.
Frencken Group Limited
Beauty of diversification
Initiate coverage with BUY and 25% potential upside to S$0.75 TP
Diversification of business segments, manufacturing facilities and customer base brings resilience and stability
Benefitting from technological advancement and rising transformation trend
Attractive valuations - trading at steep discount to peers PE and offers c.4% dividend yield
Check out our compilation of Target Prices