Brokers' take

Silverlake Axis

Buy

UOB Kay Hian Research | Feb 6 |

Feb 6 close: S$1.31

Target price: S$1.66

WHILE there is short-term disappointment over the cancellation of the CIMB-RHB-MBSB merger, we believe investors should look beyond the near-term noise. While the termination of the merger is a blow, we do not believe Silverlake will stand still. The group is likely to resume discussions with RHB for a core banking upgrade worth more than 100 million ringgit, on our estimates. . . As a result, our earnings growth estimates are trimmed from 20 per cent to 15 per cent as we assume more moderate growth.

The group derives more than 50 per cent of its revenue from maintenance and enhancement services. We expect this segment to remain resilient as the group has a 100 per cent retention rate for its existing group of clients. This growing pool of clients would eventually require maintenance and upgrade works. Hence, we project the revenue from its maintenance segment to grow by 15 per cent to 288 million ringgit in 2016.

Silverlake remains on our "Buy" list for its superior business model (with high recurring earnings) and strong cash flows. Dividend yield is also decent at 3-4 per cent.

Global Logistic Properties

Buy

CIMB Research | Feb 5 |

Feb 6 close: S$2.49

Target price: S$3.30

GLOBAL Logistic Properties' (GLP) lower Q3 FY15 earnings showed the impact of divestment adjustments. On a like-for-like basis, earnings would have been up 58 per cent year on year. Demand for space remains robust in China and Japan. Although near-term new completions in China had been lowered, GLP continues to guide for a 79 per cent jump in development completions to US$2.3 billion in FY16, as well as strong fee income growth.

Investor interest in GLP's US assets remain strong and the group is on track to pare down its stake to 10 per cent over the next few months. Balance sheet is strong with a net cash position as at Q3 FY15.

We remain convinced of the logistics warehouse sector's growth prospects in GLP's core markets as well as the accelerated growth of its fund management platform with assets under management of US$20.4 billion. This should move the group closer to its 15 per cent return on equity target in the medium term. We cut our FY15-17 forecast to factor with the latest guidance and maintain our "Add" call with a lower sum-of-parts-based target price of S$3.30.

Fraser and Neave

Sell

Phillip Securities Research | Feb 6 |

Feb 6 close: S$2.82

Target price: S$2.40

WE project that Fraser and Neave (F&N) will lose its 55 per cent stake in Myanmar Brewery Limited (MBL). The sale would leave Fraser with the slower growing soft drinks and dairy businesses. In our view, it's better to be prudent as we think F&N will not be appropriately compensated for the loss of MBL.

We estimate that the MBL sale would take place beginning FY16 forecast, valuing F&N at 16 times FY16 forecast enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda). This implies a 25 per cent premium over the global distiller peers' average (12.8 times). We do not think the premium is justified given the slow growth business left following the MBL sale.

Our assumption is a sale price of S$1 billion for F&N's 55 per cent stake in MBL. If a higher price is obtained, the premium it trades against its peers (on an EV/Ebitda basis) may not be present.

We initiate coverage on F&N with a "Reduce" rating and peer average multiple 12.8 times FY16 forecast EV/Ebitda target price of S$2.40. This implies a 14.1 per cent downside to F&N's last closing price.

Compiled by Chan Yi Wen

Brokers who wish to send in their reports can email us at btnews@sph.com.sg