Brokers' take

Keppel Corporation > Hold Target price: S$6.79 Oct 19 close: S$6.64 UOB Kay Hian, Oct 19

Keppel reported Q3 2018 core net profit that was significantly below expectations. Of the S$226 million headline net profit, S$162 million comprised one-off gains. O&M returned a profit, helped by a one-off catch-up recognition of interest income. The weakness in property continued into Q3 2018. Investments saw higher expenses from new initiatives dent profitability.

Our concerns about the headwinds facing the property business were not unfounded. Earnings from the key property segment remain weak. Launch dates for some projects in China and Vietnam have been pushed to the right, suggesting market conditions on the ground to be unfavourable in the short term. Land sales in Tianjin Eco City were also lacklustre, with price per GFA coming in below expectations. While Keppel's property projects remain profitable, earnings are tracking below expectations in the near term.

Earnings recovery remains distant. With the key property business seeing a slowdown, and the O&M business still in the doldrums, it is difficult to see an earnings recovery for Keppel.

Soilbuild Business Space Reit > Buy Target price: S$0.65 Oct 19 close: S$0.595 DBS Group Research, Oct 19

We upgrade Soilbuild Business Space Reit to "buy" with a higher target price of S$0.65, implying a total return of around 21 per cent. As industrial rents continue to bottom out, we believe the timely expansion into Australia and positive contributions from crown jewel Solaris will help anchor resilience and yields. This may help revive investor interest in Soilbuild as DPU outlook reverts to positive trajectory after a three-year hiatus.

Offering attractive FY2018-2020 yields of 8.9 - 9.3 per cent, we believe that value has emerged at current levels and it is worth a relook.

We are more optimistic over DPU prospects. While Q3 2018 results remained weak, we believe that it has been largely priced in by the market. DPUs have also been under pressure over the last few years, but is set to change as contributions from Soilbuild Reit's Australian assets kick in.

Compiled by Wong Kai Yi