Brokers' take

ComfortDelGro Corp > Hold OCBC Investment Research, Feb 2 Feb 2 close: S$2.14 Fair value: S$2.12

COMFORTDELGRO is reported to be scaling up on its petrol station business to serve its growing fleet of hybrid taxis, which we believe makes sense given the change in fleet profile. However, we do not think this will provide much lift to earnings, at least not until CDG's petrol station starts to serve the larger private hire car fleet of Uber, post approval of the CDG Uber alliance. We believe the latter has potential to more than offset the declining diesel sales.

Another recent news report cited market chatter that Grab is in talks to acquire Uber's operations in South-east Asia. Uber has refuted the claims and we advise investors against speculating on such market rumours.

AEM Holdings > Add CIMB Research, Feb 1 Feb 2 close: S$5.50 Target price: S$6.62

AEM inked an agreement to purchase a 100 per cent stake in Afore Oy, a leading and profitable microelectro-mechanical systems (MEMS) test solutions provider based in Finland, for 7.6 million euros (S$12.3 million).

Afore reported unaudited net profit of S$1.2 million for FY17. Based on that, the acquisition P/E (price to earnings) and P/BV (price to book value) multiples are 10.6x and 5.45x, respectively.

It's an accretive acquisition as cash forms two-thirds of the acquisition payment and new shares to be issued is just 1.3 per cent of AEM's share base.

The company also announced the retirement of its current chief executive Charles Cher and the appointment of new CEO Chok Yean Hung, who was previously the chief operating officer, and further strengthened its senior management team.

We believe our previously revised gross material margins for FY18-19F are still too conservative and hence adjust them upwards again. We also factor in the profit contribution from the Afore acquisition for the FY18-19F period and the higher share base.

Our revised target price is S$6.62, still based on 10x CY19F earnings (18 per cent discount to sector average P/E of 12.2x). Downside risks to our call are order cancellations/delays.

Compiled by Anita Gabriel