SG Market (20 Jul 18)

MARKET OVERVIEW
- The market may slip, tracking losses on Wall Street as financial shares lagged after US President Trump criticised the Fed for raising interest rates and countering efforts to grow the economy.
- Commodities entered a correction on Thu with copper dipping below US$6,000/MT, while crude fell below US$68/barrel before rebounding.
- Technically, the STI will face some resistance at 3,300 with next level at 3.340, while underlying support is at 3,200.

CORPORATE RESULTS
*Keppel Corp
- 2Q18 net profit jumped 44.4% to $246.2m, bringing 1H18 earnings to $583.6m (+38%), which forms 58% of full-year consensus estimate.
- Revenue for the quarter dipped 2% to $1.52b as higher O&M takings (+35%) and gas & power sales (+24%) were eroded by weaker property business (-55%) in China and Singapore.
- O&M swung into $17m loss (2Q17: $11m profit) due to lower work volume and absence of gain from divestment of Keppel Verolme.
- Property reaped $225m earnings (2Q17: $97m) from en-bloc sales of Shenyang and Vietnam development projects and a $48.3m fair value gain on Nassim Woods.
- Infrastructure reaped earnings of $40m (2Q17: $25m) on the back of revaluation gain from 29.4% owned Keppel DC REIT and higher contributions from environmental and infrastructure contracts.
- Management expects O&M business to continue to its gradual recovery as it clinched $680m worth of contracts, bumping the order book to $4.6b (+7% q/q).
- Declared interim DPS of 10¢ (2Q17: 8¢) and a special DPS of 5¢ to mark its 50th anniversary.
- Trades at 10.7x forward P/E.

*SATS
- 1QFY19 net profit climbed 11.5% to $63.9m, coming in above market expectations.
- Revenue rose 3% to $439.4m on improved turnover for food solutions (+2.7%) and gateway services (+3.4%) despite the deconsolidation of SATS HK in Jul '17.
- Operating margin expanded 2.2ppt to 14.8% on slower pace of cost expansion (+0.4%) amid reduced staff costs.
- Looking ahead, the group expects Asian passenger volume and food, cruise traffic to grow despite the threat of global uncertainties potentially affecting cargo volumes.
- However, the termination of its MOA with Turkish Airlines for the provision of in-flight catering services at Istanbul New Airport is a major disappointment.
- Trades at 22.4x forward P/E.

* SIA Engineering
- 1QFY19 net profit grew 10.4% to $40.5m, in line with estimates
- Revenue fell 5.5% to $257.7m due to lower airframe and fleet management turnover.
- Operating margin contracted 2.9ppt to 4% as operating expenses declined at a slower pace.
- Bottom line was underpinned by contributions from associates/JVs of $32.4m (+53.6%) driven by higher takings from engine and component centres.
- Management notes that the aviation MRO environment remains challenging but expects its performance to benefit from strategic partnerships and various productivity initiatives.
- Trades at 19.7x forward P/E.

*CapitaLand Mall Trust
- 2Q18 DPU grew 2.2% to 2.81¢ on distributable income of $100m (+2.9%) This took 1H18 payout to 5.59¢ (+2%), on track with estimates.
- For the quarter, gross revenue and NPI rose 1.6% and 2.8% to $171.4m and $120.8m respectively due to stronger performance at Plaza Singapura (+4.0%) and Clarke Quay (+3.5%), which offset weakness at by Westgate (-2.1%) and Bedok Mall (-1.5%).
- Portfolio occupancy dipped 0.9ppt q/q to 98%.
- Shopper traffic and tenant sales were down 2.4% and 0.2% respectively while rental reversion stayed at +0.8%.
- CMT's average cost of debt and aggregate leverage were 3.1% and 31.5%
- AUM has risen by 0.8% HoH at the annual half-year revaluation, as cap rates assumptions were lowered by about 15bp across each property.
- Trades at 5.2% yield and 1.1x P/B

NEUTRAL NEWS
*Olam
- Its wholly-owned subsidiary, Olam Americas Inc (OAI) has successfully priced a US$100m issuance of 5-year fixed rate notes via a private placement.
- The Notes were placed to four investors in the US at a spread of 160 basis points over the 5-year US treasury rate, which translates to a fixed coupon of 4.35% for 5 years.
- Proceeds from the issue of the Notes will be used by OAI and its US affiliates for repayment of existing debt and general corporate purposes.
- Trades at 13.8x forward P/E

NEGATIVE NEWS
*OUE Lippo Healthcare
- Warned that it is expected to report a net loss for the 2Q18, attributable mainly to higher operating costs.
- Trades at 2.4x P/B.