Sin Heng Heavy Machinery

AmFraser Research, May 8

SIN Heng reported Q3 FY14 revenue of S$53.7 million, which was 33 per cent higher than the previous corresponding quarter and in line with our forecast. Reported Patmi (profit after tax and minority interests) at S$6.3 million witnessed a 106 per cent increased as compared with Q3 FY13.

Normalised earnings at S$3.6 million was 5 per cent higher than our forecast. We have previously advised investors to focus on normalised Patmi instead of reported Patmi, where the latter could be clouded by non-cash items such as forex gains/losses. This was seen in the previous quarter where reported Patmi came in at S$300,000 due to forex losses despite core operations remaining sound.

Sin Heng's rental business had been affected by the seasonally weaker Q3 due to events such as the Chinese New Year. However, its complementary trading business more than made up for the drop in its rental business. As a result, the group's overall gross profitability witnessed a 10.2 per cent increase from S$7.2 million in Q3 FY13 to S$7.9 million in Q3 FY14. Nine-month FY14 gross profit was also up 7.1 per cent to S$23.2 million when compared on a y-o-y basis.

The company continues to benefit from a weak yen, which makes Japanese-made cranes more affordable to its clients. This resulted in higher trading volumes of its cranes. We expect growth from this segment to be at least 10 per cent in the coming years as it penetrates high growth region such as Myanmar and Vietnam.

Its new distributorship to market Arcomet's self-erecting cranes in Singapore and other SEA (South-east Asia) countries will increase portfolio diversity of the company and help appeal to a wider range of customers.

Q4 FY14 is seasonally stronger. We expect Sin Heng's rental business to improve in Q4 which is the seasonally stronger quarter with a higher take-up rate from clients.

This will help to improve overall margins and profits.

Our normalised earnings forecast for FY14 and FY15 remains at S$15.1 million and S$18.1 million respectively. Based on 9.4x FY14 PE, which is the company's historical PE trading range, our fair value translates to S$0.250. Maintain "buy".

BUY

IHH Healthcare

AmFraser Research, Feb 19

WE reaffirm our "hold" recommendation on IHH Healthcare with a lower sum of parts-based fair value of RM3.60 (about S$1.38)/share (against RM3.90/share previously). Our revised fair value follows the adjustment to our Ebitda to reflect: (1) slower ramp-up at Mount Novena Elizabeth; (2) foreign exchange rate assumption; and (3) full consolidation of Parkway Life Reit (36 per cent-owned) as a subsidiary.

While we like IHH's strong branding and good prospect, its valuation of 37 times forecast PE for FY2014 is lofty when compared to regional peers' 30 times, in our view. Going forward, expansion will mainly be in Malaysia and Turkey. As for Singapore, there is no further expansion besides the ramp-up of bed capacities.

HOLD

Yield Plays

AmFraser, Feb 4

HIGH-YIELDING plays such as S-Reits and business trusts have fallen out of favour among investors as the Fed begins to taper its monthly bond-buying programme.

Amid risks of a rising rate environment and potentially higher required rates of returns, we advocate a selective stance on yield plays, preferring yield counters that are able to deliver on both stability and growth.

Our top picks under our yield stocks coverage are Asian Pay Television Trust ("buy", target price: $1.04):, Frasers Commercial Trust ("buy", target price: $1.48), Hutchison Port Holdings Trust ("buy", target price: $0.85), Cache Logistics Trust ("buy", target price: $1.40) and Soilbuild Business Space Reit ("buy", target price: $0.87).

Underpinned by favourable underlying sector and macrodynamics, the aforementioned yield counters should look forward to enticing growth prospects, complementing their already defensive profile.

While we maintain our preference for yield stocks that are able to deliver growth organically, we perceive growth through acquisitions as an added bonus. Supported by comfortable debt headroom and visible acquisition pipelines, we are optimistic about the inorganic growth prospects of our top Reit picks, in particular.

We perceive minimal impact of rising interest rates on the projected distributions of the yield counters under our coverage.

Well-staggered loan maturities, manageable leverage levels along with proactive interest risk hedging strategies mean that the majority of S-Reits and business trusts should find themselves well placed to circumnavigate a higher interest rate climate.

BUY

K-Green Trust

AmFraser Research, Jan 21

K-GREEN Trust's (KGT) FY2013 revenue was 12 per cent lower year on year, which was largely the result of the exclusion of construction revenue arising from the flue gas treatment upgrade. Revenue from operation and maintenance (O&M) was S$50 million for FY2013, which was S$0.3 million lower than FY2012, due to lower output from the waste-to-energy plants and NEWater plant. This was partially offset by annual adjustment of O&M and power tariffs.

KGT's distribution per unit (DPU) of 7.82 cents per unit translates into a yield of 7.4 per cent. We continue to urge investors to look beyond the advertised yield as it masks a partial return of capital from the gradual decline in service concession receivables. KGT's service concession receivables represent the right to receive fixed and determinable payments from the NEA and PUB.

To put things into perspective, KGT's NAV continues to be on the decline and currently stands at S$1 per unit. As at Dec 12, KGT's NAV stood at S$1.05 ...

With a true free cash flow yield of merely 2.4 per cent, KGT certainly does not warrant as a compelling yield investment, in our view. The trust's declining NAV, the short remaining concession lives of its assets as well as its low true free cashflow yield are our key concerns. We maintain our "sell" recommendation on KGT with a target price of S$0.72.

SELL

Centurion Corp

AmFraser Research, Jan 14

INITIATING coverage on Centurion with "buy", target price at S$0.808.

Centurion is one of the largest purpose-built workers dormitory operators in Singapore, with an estimated 12 per cent market share (19,726 beds) of a S$450 million industry.

In addition, it operates and is developing dormitory assets in Australia, Malaysia and Indonesia, and manufactures and sells optical disc media.

Singapore dormitory operators have benefited from steady rent increases (17 per cent compounded annual growth rate from 2007 to 2013) due to the overwhelming shortage of beds available (160,000 beds versus 759,000 foreign workers). Strict regulations by several government agencies restrict near-term supply, and the 55,000 beds in the pipeline by 2015 will not alleviate the supply/demand imbalance.

Going forward, we believe rents have further room for growth, as a steady pipeline of infrastructure projects such as the Thomson Line and Terminal 4 will require additional foreign workers to build. Thus, we believe Centurion's Singapore dormitories will continue to generate strong income flows on current attractive gross margins of circa 60 per cent.

In addition, we estimate its acquisition of RMIT Village, a student dormitory in Melbourne, Australia, will immediately contribute 8 per cent to topline, with further upside potential from the redevelopment of the adjacent carpark building and under-utilised common areas ...

BUY

Sin Heng Heavy Machinery

AmFraser Research, Nov 19

SIN Heng is one of the leading heavy lifting service providers in Singapore, focusing on the mid- to high-lifting capacity segment. Its core business is in the renting and trading of cranes, aerial lifts and other heavy lifting equipment.

It is the only crane operator among its listed peers that is actively engaged in the trading business. The trading segment, despite being a lower margin business, requires less capital to operate.

It is also an additional income source and ensures that the company's rental fleet be kept young and its crane products relevant.

Sin Heng provides an indirect opportunity for investors to gain exposure to the growth of emerging countries, and is likely to be a beneficiary of the boom in the region's infrastructure spending, with its branded crane equipment already the leading standard in the infrastructure arena.

Synergistic effects could be achieved from the partnership with Toyota Tsusho Corporation (TTC), which also holds a 27 per cent stake in the company.

The yen depreciation in the past year has benefited Sin Heng in the form of lower purchase costs. High quality Japanese cranes are also now more cost-competitive relative to China-made ones. Buyers will be more receptive to purchase these cranes from suppliers like Sin Heng due to the narrower cost disparity.

Initiate "buy" with FV (fair value) S$0.300. We forecast earnings to grow at a CAGR (compounded annual growth rate) rate of 20 per cent from 2013-15.

On a valuation of 9.4X (5-year historical mean) FY14 PE, we derive a TP of S$0.300, representing a 50 per cent upside from current level inclusive of an expected dividend yield of 3.9 per cent.

BUY

Asian Pay Television Trust

AmFraser Securities, Nov 12

RESULTS consistent with expectations. TBC (Taiwan Broadband Communications) achieved revenue and net profit of S$78.6 million and S$18.2 million in Q3-2013, which were 2 per cent and 0.4 per cent above our forecasts.

Premium digital cable TV outperforming: Driven by its growing set-top box penetration and an increasing subscriber take-up of higher revenue generating tiers, TBC enjoyed a stellar performance in its Premium digital cable TV segment. TBC's segmental ARPU (average revenue per user) and subscriber numbers are already ahead of our expectations. As at Sept 30, 2013, Premium digital cable TV has total subscribers of 121,000 as well as an ARPU of NT$208 per month, exceeding our original full-year forecast of 121,000 subscribers and ARPU of NT$202/month. Accordingly, we raise our subscriber and ARPU forecast for the Premium digital cable TV segment to 124,000 and NT$208/month respectively.

TBC has decided to move ahead with its expansion plans across the greater Taichung area and expects its proposed expansion to be accretive to its distribution yield in the medium term. FY13 and FY14 distributions will not be negatively impacted by the planned expansion. We expect TBC's expansion across the broader Taichung area, starting FY14, to generate positive free cash flows, thus resulting in yield accretion.

Our projected FY15 DPU has increased from 8.8 cents to 9 cents. While NCC (National Communications Commission) has conditionally approved applications from VeeTime and West Coast Cable TV Co, we believe they are unlikely to pose major competitive threats to TBC. Given their relatively smaller scale, these licensees are unlikely to satisfy the 100 per cent network coverage requirement within three years, in our view.

Reiterate "buy" on fair value S$1.04. APTT has re-affirmed its distribution guidance of 4.13 cents per unit for the six months ending Dec 31, 2014, that is payable in March 2014. With a projected FY14 yield of 10.7 per cent, we cannot stress enough the attractiveness of APTT as a high-yielding play.

Moreover, APTT offers strong growth upside that is supported by continued up-selling and bundling initiatives, increasing set-top box penetration and greater availability of digital content.

BUY

Saizen Reit

AmFraser Securities, Nov 11

FOR the quarter ending September 2013, Saizen reported a 6.2 per cent and 5.3 per cent y-o-y increase in its gross revenue and net property income, respectively. This was supported by the acquisitions of five properties between November 2012 and June 2013. We note that Saizen Reit's Q1FY14 results were broadly within our expectations, with actual revenue and net property income 0.7 per cent and 2 per cent higher than our forecasts, respectively.

Stability remains the key element at play. We are continuing to witness improvements in rent reversions from new contracts inked at Saizen Reit. Overall rent reversions of new contracts entered into Q1FY14 were marginally lower by about 0.3 per cent from previous contracted rates (Q1FY13 and Q4FY13: lower by about 1.3 per cent and 0.4 per cent, respectively).

More notably, rent reversions have improved to positive 0.04 per cent and 0.7 per cent in August 2013 and September 2013, respectively - an improvement from a negative reversion of 1.9 per cent in July 2013. Average occupancy rates have also held steady at 91.2 per cent in Q1FY14, compared with 91.7 per cent in Q1FY13.

Yen depreciation remains a key risk. As it seeks to minimise the impact of the volatility in the yen/Singapore dollar rate on its upcoming distributions, Saizen Reit has entered into a hedge for its distribution payment ending Dec 31, 2013, at S$81.15/yen. For the subsequent distribution for the period ending June 2014, it has also been hedged at a rate between a cap of JPY82/S$ and JPY76.18/S$.

We expect Saizen Reit's H1FY14 DPU to increase by 8.7 per cent y-o-y in yen terms. However, this will be offset by a 8.2 per cent increase in the hedged rate compared with the corresponding period in H1FY13. Hence, in S$ terms, we expect Saizen Reit's H1FY14 DPU to be largely flattish compared with its H1FY13 DPU.

With a cash pile of 5.4 billion yen, Saizen Reit could certainly engage in acquisitions to accelerate its distribution growth. We are currently pencilling in 2.3 billion yen of acquisitions at a 6 per cent NPI (net property income) yield.

Unit consolidation completed. On Oct 30, 2013, Unitholders approved the consolidation of every five existing Units into one Unit, and this was completed on Nov 8, 2013. We adjust our FV and projected DPU accordingly to S$0.96 and 6.72 cents, respectively.

Maintain "hold" on FV S$0.96. We lower our exchange rate assumption from JPY76.9/S$ to JPY79.3/S$ and our projected FY14 DPU of 6.72 cents translates into a yield of 7.3 per cent. Our fair value of S$0.96 translates into limited capital upside of 3.7 per cent. Together with its projected yield of 7.3 per cent, this gives us a potential total return of 11 per cent. Hence, we maintain HOLD on FV of S$0.96.

HOLD

Hutchison Port Holdings Trust

AmFraser Research, Oct 22

NORMALISED net profit after tax to unitholders down 13 per cent y-o-y. HPHT reported revenue growth of one per cent y-o-y and a decline of 8.4 per cent y-o-y in net profit (NPAT) attributable to unitholders in Q3 2013. On a year-to-date basis, HPHT recorded NPAT of $1.3 billion, which is down 16.6 per cent. After stripping out the one-off performance fee and Asia Container Terminals' acquisition-related costs, we note that the normalised y-o-y decline in NPAT to unitholders would narrow to 13 per cent.

Q3 2013 was a quarter of better fortunes for HPHT's HK terminals than its Yantian ports. Due to a stronger performance in Q3 2013, throughput growth across HPHT's Hong Kong terminals improved from -6 per cent YTD June 2013 to -4 per cent YTD September 2013. Comparatively, Yantian's YTD throughput was largely flattish, owing to lower throughput volumes of empty boxes.

Given that the US has yet to exhibit concrete signs of a turnaround as well as softer-than-expected trade conditions in Q3 2013, we taper our forecasts for Yantian from 4 per cent growth to a flattish full-year performance. On the other hand, we maintain our flat throughput growth expectation for the HK terminals. Accordingly, we lower our earnings per unit (EPU) forecast from 22.3 HK cents to 21.7 HK cents in FY2013. Our FY2013 DPU is also lowered from 41.2 HK cents to 40.3 HK cents.

Overall tax expenses YTD was 7.5 per cent lower y-o-y. This was a result of the utilisation of tax credits at Yantian and lower overall profitability. We highlight that the effective tax rate at Yantian will gradually edge up beyond FY2013 as tax concessions expire in phases. We are currently pencilling in an average tax rate of 17 per cent in FY2014, up from an estimated tax rate of 13 per cent in FY13.

On Sept 25, HPHT successfully refinanced its US$3.6 billion loan and is planning to draw down its borrowings in November 2013. The loan comprises three tranches, specifically a US$1 billion one-year loan, US$1.6 billion three-year loan and a US$1billion five-year loan. All-in interest cost on the borrowings is expected to be 2.25-2.5 per cent. On a separate note, management said it plans to issue a corporate bond to refinance its one-year US$1 billion tranche in FY2014.

This essentially means that a portion of HPHT's borrowings will be converted into fixed-rate, and thus partially hedging its overall interest rate exposure.

Maintain "buy" on FV US$0.86.

BUY

Soilbuild Business Space Reit

AmFraser Securities, Sept 17

WE initiate coverage on Soilbuild Business Space Reit (Soilbuild Reit) with a "buy" recommendation and a target price of $0.83.

Soilbuild Reit is a Singapore real estate investment trust that comprises two business park assets and five light industrial properties.

Distributions are on a quarterly basis and the first distribution per unit (DPU) is expected on or before Feb 27, 2014.

A best-in-class business space portfolio. Characterised by excellent connectivity to major transport nodes, longest weighted average leasehold term (Wale) for the underlying land of 50.6 years (versus industry average of 40 years) as well as its relatively young age, Soilbuild Reit clearly boasts a quality portfolio.

Defensiveness underpins yield sustainability. Soilbuild Reit is able to effectively capture rental upside at its multi-tenanted properties while enjoying rent stability through its master leases, which comprise 30 per cent of its IPO portfolio by net lettable area (NLA).

The defensiveness of Soilbuild Reit is further enhanced by a diversified trade presence and lease expiry schedule.

Having built-in rental step-ups of 2-3 per cent per annum incorporated into its master leases provides Soilbuild Reit with greater income visibility and underpins the sustainability of its payouts.

Harnessing the increasing appeal of business parks. A key differentiating point of Soilbuild Reit from its industrial S-Reit peers is its stronger exposure to the business park market, a compelling alternative to traditional office space.

Business parks comprise 43.2 per cent of Soilbuild Reit's portfolio valuation (versus peer average of 15.7 per cent).

Initiate "buy" with FV $0.83. Our valuation is derived from a dividend discount model, which incorporates an assumed cost of equity of 7.8 per cent.

Current projected yield of 8.3 per cent is highest among the industrial S-Reits and represents an attractive yield spread of 570 basis points over the risk-free rate.

BUY

Saizen Reit

AmFraser Research, Aug 26

SAIZEN's gross revenue and net property income increased by 9.7 per cent and 13.6 per cent, respectively, in FY2013, largely supported by its acquisitions of seven properties. For the six months ending June 30, 2013, Saizen declared a distribution per unit (DPU) of 0.63 cents, amounting to a full-year DPU of 1.29 cents. This is marginally higher than our projected FY2013 DPU of 1.24 cents.

In FY2013, overall rental reversions of new contracts were marginally lower by about 0.5 per cent. This marks an improvement from rental reversions witnessed in FY2012, during which rental reversions were lower by 2.1 per cent. Given our cautiously optimistic outlook on the Japanese residential market, we maintain our assumption of flat rental reversions across Saizen's portfolio.

FY2014 will witness the full-year contribution of Saizen's recently acquired properties. Sitting on a cash pile of six billion yen (S$78 million), Saizen could tap on its cash balance to engage in immediately yield-accretive acquisitions. Moreover, Saizen has unencumbered properties valued at two billion yen, further strengthening its financial clout. We are currently pencilling in 2.3 billion yen of acquisitions at a 6 per cent NPI yield.

To provide its unitholders with greater visibility on distributions, Saizen has entered into hedging transactions for its upcoming distributions. The distribution payment for the period ended June 30 has been hedged at an average rate of 75.12 yen per S$ and the subsequent distribution is hedged at an average rate of 81.15 yen per S$, which compares unfavourably with the current rate of 77.14 yen per S$. This would inevitably weigh on Saizen's FY2014 DPU in S$ terms.

While we expect Saizen's H1 2014 DPU to grow by 2.8 per cent y-o-y in yen terms, this will be offset by a 8.2 per cent increase in the hedged rate. We currently project Saizen's H1 2014 DPU at 0.63 cents, that is 4.5 per cent lower than H1 2013 DPU.

Accompanying its latest results, Saizen proposed a unit consolidation involving the consolidation of every five existing units in Saizen Reit held by unitholders into one unit, subject to regulatory and unitholder approvals. The motivation behind such a proposed move is to reduce the magnitude of a single tick move on Saizen's share price, and thus its perceived volatility. The share consolidation is expected to be completed in November 2013.

We roll over our estimates and lower our target price to S$0.195 on the back of a higher riskfree rate of 2.7 per cent, implying a capital upside of only 6 per cent. In our opinion, Saizen's current yield level of 7 per cent, which translates into approximately 430 basis points over the risk-free rate, does not yet sufficiently compensate investors for the inherent macro, forex and interest rate risks. Maintain "hold".

HOLD

Asian Pay Television Trust

AmFraser Research, July 9

ASIAN Pay Television Trust (APTT), structured as a business trust, is focused on pay-TV businesses through its seed asset Taiwan Broadband Communications (TBC) Group.

APTT distributes semi-annually and its first distribution per unit is guided to be 4.8 cents, payable in September/October. Since its debut on May 29 at an initial public offering (IPO) price of S$0.97, APTT's share price has declined by about 12.9 per cent. We do not have a rating on APTT.

At the price of S$0.845, this leads us to consider whether investors are overpricing in the risks pertaining to APTT's business. In this quick take, we therefore seek to explore some of the key investor concerns.

Risk of non-renewal of cable licences: We believe risks on this front are negligible, given TBC Group's track record in satisfying the National Communications Commission of Taiwan (NCC)'s regulatory audits, digitisation initiatives and its strong local content. Substantial capital expenditure (capex) needs and lengthy lead times for infrastructure development are major deterrents for new market entrants, reducing risks of a non-renewal of APTT's cable licences.

Re-zoning of franchise areas: NCC's recent re-rezoning of franchise areas permits cable TV operators in Taiwan to apply for extension of their current francise areas. We highlight that new system operators must provide only digital cable TV services, ensuring that new competitors will not encroach on TBC Group's existing Basic Cable TV market. TBC's massive scale, technical expertise and well-entrenched market position should stand it in good stead to pursue expansions, while long lead-time and heavy capex needs could keep market players at bay.

Rate cap reductions: Rate cap reductions in future years would negatively impact APTT's distribution per unit. We believe APTT is most susceptible to this risk, although this could be mitigated by maintaining the quality of its cable network and services provided.

Trading at a forecasted yield of 10.6 per cent, this begs the question: are investors overpricing in the risks here? As detailed in our analysis, we perceive the overall risk to be low, As things stand, APTT's risk-reward trade-off is looking more attractive than before and it could certainly be worth taking a closer look at this high-yielding play.

NO RATING

Super Group

AmFraser Research, May 14

SUPER delivered yet another strong quarter where Patmi (profit after tax and minority interests) grew 25.2 per cent y-o-y. Earnings were largely in line with our expectations, meeting 21.8 per cent of our full-year estimates. Growth in the food ingredients (FI) segment contributed the bulk of the sales growth, growing 33.1 per cent y-o-y to S$38.5 million for the quarter. Sales from the FI segment formed 29 per cent of entire group sales in the quarter, compared with just 23.7 per cent a year ago.

Branded consumer (BC) sales stagnated at S$93.9 million for the quarter, growing only about 1.3 per cent y-o-y. Stronger markets were Thailand, Philippines and China, which registered double-digit growth rates. Other emerging markets such as Malaysia, Indonesia and Myanmar suffered dipping growth from increased competition and racial riots (in the case of Myanmar). In light of increased competition and uncertainty in these environments, we might continue to see muted growth for the BC segment.

On May 6, Super announced the disposal of its 35.3 per cent equity stake in Sun Resources Holdings Pte Ltd, which owns the Changzhou, China, factory, for S$26 million. The direct P&L (profit and loss) impact would be a fair value gain of S$16 million in FY13. On another front, Super injected US$20 million or RM61.93 million (S$24.8 million) in its wholly owned subsidiary, Super Continental Pte Ltd, to fund the Botanical Herbal Extract Plant in Johor Baru, Malaysia, and for working-capital purposes. These transactions should net off cash-flow impact to the group.

We now value Super at 24x FY14 forecast's EPS of S$0.218 (instead of at FY13 forecast's core EPS of S$0.182), giving us a fair value of S$5.23. However, we note that Super's share price has sharply re-rated to levels that provide only approximately 10 per cent return (including dividends) to investors based on our fair value.

We believe Super's growth prospects, along with its strong financial position and brand value, have mostly been priced in. Super currently trades at 26.6x FY13 forecast core EPS. With that, we downgrade Super to "hold".

HOLD

K-Green Trust

AmFraser Research, April 16

WE initiate coverage on K-Green Trust (KGT) with a "sell" call and a fair value of S$0.80.

KGT is a business trust listed on Singapore Exchange, with a focus on "green" infrastructure assets. Its portfolio contains three assets: Senoko Waste-to-Energy (WTE) Plant, Keppel Seghers Tuas WTE Plant and Keppel Seghers Ulu Pandan NEWater Plant. We estimate that Senoko WTE plant accounts for about 70 per cent of KGT's overall cash flow. KGT's assets are held on long-term concession agreements with statutory bodies such as the National Environment Agency (NEA) and national water agency PUB, which have a remaining concession term of 11-21 years.

On the surface, KGT's 7 per cent yield may seem enticing, compared with the average 5.8 per cent yield across S-Reits and business trusts at present. However, we note that KGT's 7 per cent yield comprises both a partial return of capital and free cash flow yield. We estimate that KGT's partial return of capital makes up approximately 68 per cent of its overall distributions, implying that its true free cash flow yield is merely a low 2.2 per cent.

We believe a 7 per cent yield is insufficient to compensate for the cost of its lease runoff and declining NAV. The concession agreement for the Senoko Plant expires in 11 years; we expect its overall distributions to be more than halved post 2024. After the expiry of Senoko's concession agreement, the concession for the Ulu Pandan Plant would cease in 2027, resulting in another step-down in distributions.

The acquisition cost of KGT's assets is recognised as service concession receivables, which will decline gradually as KGT receives its fixed capital cost payments from the NEA and PUB over time.

KGT says its WTE plants - Tuas DBOO (design, build, own and operate) and Senoko - are operating at near-full capacity and therefore have limited room to take advantage of higher energy demand. While there is scope for capacity expansions at Ulu Pandan, there are currently no plans to commit capex to increase capacity at the plant.

Although KGT's zero gearing level is a plus, its inability to act on any acquisitions since its IPO listing probably brings into question its ability and willingness to leverage on its clean balance sheet and build on its existing cash flow stream. Given the management's conservative approach towards acquisitions, we are currently not factoring in any acquisitions in our model.

SELL

Cache Logistics Trust

AmFraser Research on 7 Feb 2013

CACHE announced that it has entered into a call option agreement with industrial developer Precise Development (PDPL) to acquire Precise Two, a newly completed three- storey fully ramp-up warehouse with a gross floor area of approximately 284,381 square feet. Purchase consideration for the property is around $55.2 million. Subject to attaining regulatory approval from JTC Corporation, the acquisition is expected to be completed in April 2013.

Cache is beefing up its competitive position in the logistics space. Cache's planned acquisition of Precise Two is, in our opinion, hugely complementary to its existing portfolio strengths. Boasting approximately 23 per cent market share of Singapore's ramp-up logistics warehouses, Cache's proposed acquisition of Precise Two distinctly accelerates its competitive edge.

Cache is harvesting diversification rewards. Upon completion of the acquisition, Cache and PDPL would enter into an agreement to which Precise Two would be leased back to PDPL. As the master lease agreement provides for a lease term of six years with a renewal option for an additional six years, the acquisition would strengthen Cache's lease expiry profile and reduce its asset concentration risk on CWT Commodity Hub.

CWT Commodity Hub's revenue contribution is estimated to fall from 37.8 per cent to 36.5 per cent following the acquisition of Precise Two. Another plus for Cache would be a reduced reliance on master lessees CWT and C&P for rental income.

We assume that the acquisition of Precise Two would be financed entirely with debt. Given the 8.7 per cent initial net property income yield of Precise Two, we estimate that the acquisition would boost its 2013-2014 forward dividend yield of 6.6-6.7 per cent to 6.7-6.9 per cent.

Cache is loading up its acquisition cannon. Following Cache's Wednesday announcement that it had secured an investment grade credit rating from Moody's, we believe that Cache is now equipped with greater financial flexibility to support its inorganic growth. Assuming that the purchase of Precise Two is to be financed entirely with debt and a target gearing of 38 per cent, we estimate that Cache would have a remaining debt headroom of around $42.5 million, clearly underscoring a healthy acquisition appetite.

While we view the proposed deal as a positive strategic move, we believe that there is limited room for upside from current valuations. Maintain "hold" with a fair value of $1.370.

HOLD

HUTCHISON Port Holdings

AM Fraser Research on 5 Feb 2013

HUTCHISON Port Holdings (HPH) Trust, sponsored by the world's top container operator Hutchison Port Holdings, is structured as a business trust holding container port assets in Hong Kong and Yantian.

HPH Trust's core container ports are Hong Kong International Terminals (HIT) (100 per cent) and Yantian Ports (51.6-56.4 per cent), which boast market leading positions in the Pearl River Delta (PRD) region. We believe that backed by its twin pillars of growth, HPH Trust is strategically poised to leverage on PRD's growth potential.

Yantian and HIT are equipped with competitive advantages such as natural deep-water facilities, superior land and sea connectivity as well as strong operational efficiency. These asset positives have underpinned HPH Trust's resilience through the global financial crisis and, in our opinion, will continue to support its sturdy growth going forward.

Generating a sustainable stream of cash flows. HPH Trust's distributions are paid out of its operating cash flows.

Given the earnings resilience and strong cash flow generation of its portfolio assets, we are confident about the consistency of HPH Trust's distribution yield. We project a forward yield of 6.6-7.9 per cent between 2013 and 2015.

Current yield of 7.8 per cent is compelling. HPH Trust has had a dismal performance since IPO, which we believe can be attributed to its mispricing at the start. While HPH Trust has recovered some ground since then, we believe current valuations remain attractive.

The present degree of undervaluation in HPH Trust could potentially be linked to softened trade conditions in the US, EU and China. Moreover, investors may be concerned with the sustainability of HPH Trust's distribution yield on the back of company-specific factors such as rising tax rates and operating costs. The semi-annual distribution frequency of HPH Trust could have been another contributing factor as well.

The key question is whether current valuations are overpricing in these concerns and we certainly believe so.

In our opinion, HPH Trust's current valuations present an attractive entry opportunity for investors to take part in an earnings growth story as global economic recovery gathers momentum and goes full steam ahead. We initiate coverage on HPH Trust with a "buy" recommendation and a dividend discount model-derived target price of US$0.940.

BUY