Brokers' take

Land Transport Sector | Neutral

OCBC Investment Research, June 8

Land Transport Authority (LTA) yesterday put up the third bus package in Seletar for tender, which consists of around 420 buses and is expected to grow to around 500 buses in 2023.

We note that the commencement date is delayed from H2 2016 to H1 2018, and will be carried out in two tranches.

However, we still expect a punctual transition to the new bus government contracting model (GCM) for the remaining nine packages that will remain with the incumbents by Sept 1, 2016.

Note that the contract terms for the nine packages will be privately negotiated between the incumbents and LTA, and in our view, independent of third package's schedule.

With the ongoing regulatory changes in Singapore's land transport sector, we maintain our "neutral" rating on the sector. Our top pick within the sector is ComfortDelGro ("buy", fair value S$3.40), being the key beneficiary of the transition to GCM with around 75 per cent market share in Singapore's public bus industry.

Singapore stocks

Citi Research, June 6

We hosted 30 Singapore corporates during our Citi Asean C-Suite. Here are our takeaways.

The greatest interest was on transportation and real estate investment trusts (Reits). Dividends continue as a draw. Our count of client meetings was highest for firms from the transport sector (SATS, ComfortDelGro) and Reits (A-Reit, PLife, CMT, FCT, CCT). Other firms that had firm interest included DBS, CapitaLand, ST Engineering & Wilmar. The small-cap firm with the greatest number of client meetings was seafood restaurant chain Jumbo.

Singapore has been weakest in Asean year to date despite below-mean valuations.

Singapore is already in a restructuring cycle, with similarities to the path during 2002-2004 after the dot-com bust.

During that cycle, financials and real estate underperformed, and outperformance came from domestic consumer names/regionally-exposed conglomerates.

We continue to see banks' valuations at book value more as ceilings, given concerns of a turning credit cycle and increased risks to asset quality. Our top picks include telco Singtel, airport services operator SATS, real-estate conglomerate CapitaLand, integrated agri-food supplier Wilmar, and defence-engineering conglomerate ST Engineering.

Compiled by Cai Haoxiang

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