Mapletree Greater China Commercial Trust

Citi Research, July 31

MAPLETREE Greater China Commercial Trust (MGCCT) reported its first quarterly results post-listing, covering the period from March 7 (the listing date) to June 30.

Such a nearly four-month period has generated a distribution per unit (DPU) of 1.73 Singapore cents, beating the company's forecast of 1.60 cents by 8.3 per cent and our estimate of 1.66 cents by 4.2 per cent.

Its strong performance is in line with Mapletree's historical track record of delivering better-than-expected results on Mapletree sponsored Reits.

We have maintained our full- year FY2014 forecast DPU of 5.49 Singapore cents on MGCCT, representing a dividend yield of 5.8 per cent based on the closing price of S$0.945. We believe its current valuation is attractive given its low-risk profile. Reiterate "buy" (target price: S$1.17).

Festival Walk shopping mall has seen a robust 21 per cent rental reversion over the expiring leases, which is better than Fortune Reit's latest 18.2 per cent rental reversion and heading close to Link Reit's 24.6 per cent reversion.

Eighty-four per cent of expiring leases in FY2014 have already been pre-committed, indicating a high assurance on both occupancy and rental rate for Festival Walk mall in the current financial year.

The mall retail sales delivered a sound 7.8 per cent y-o-y growth in Q1 FY2014 to HK$1.207 billion (S$198 million), with footfalls increasing 1.5 per cent y-o-y in the first quarter to 9.2 million.

Festival Walk office portion also sees a decent 25 per cent positive rental reversion, with 90 per cent of expiring leases in FY2014 already precommitted.

Office demand for Gateway Plaza in Beijing remains strong. Gateway Plaza's occupancy rate is stable at 97.8 per cent. As of June 30, 43 per cent of the leases expiring in FY2014 had been committed.

These committed leases registered positive rental reversions of about 86 per cent and represent tenants from diverse trade sectors such as machinery/equipment/ manufacturing, natural resources and professional services.

Among MGCCT's total debt of HK$12.15 billion, two-thirds have been hedged for the next two years. The trust has a well staggered debt profile with average maturity of four years, with no refinancing risk in the next two years. Its gearing ratio, measured by total debt to total assets, was 41.5 per cent as of June 2013, also better than the pro-forma 43 per cent as of the listing date.

We see that MGCCT is in a strong financial position to tackle different interest rate environments.

BUY

Noble Group

CITI RESEARCH on 14 Aug 2012

THE worst of Noble's negative earnings revisions cycle, which started in November 2011, should now be over post Q2 2012 results.

For Noble, negative earnings revisions at about 25 per cent (versus peak earnings levels in Q3 2011) have reached about two-thirds of the earnings revisions seen during the Global Financial Crisis (GFC).

This has marked stock-price bottoms historically, with Noble performing strongly in 2009. While there has been poor interest in the stock in H1 2012, Noble showing good execution for another quarter (ie, three well-managed quarters in FY12 post its very weak Q3 2011 in November 2011) will likely help generate greater interest in the stock, given global financial crisis-like valuations on the stock currently. We rate Noble "buy (1)" with a S$1.68 per share target price. Noble is a strong proxy for investors looking to participate in volume growth in the commodities marketplace with a steady rise in margins expected as its investments in selected assets and upstream projects come on-stream and achieve optimal scale. With the recently concluded Gloucester Coal/Yancoal Australia coal merger, Noble has significantly enhanced cash levels that will enable it to take advantage of weaker asset prices if the macro situation turns tougher; its US gas/power assets were acquired at attractive prices during the GFC. Investors will also focus on Noble's ability to grow coal offtake volumes from the enlarged Australian entity, as it targets a rise in saleable production to 25-30 million tonnes by CY2016, from a pro forma 12.8 million tonnes in CY2011.

Our S$1.68 target price is based on the Gordon Growth valuation framework which values Noble at a price/book multiple of 1.8x using a long-term growth assumption of 3.0 per cent, sustainable ROE of 16 per cent and cost of equity of 10.2 per cent. We believe the stock's catalyst could come from:

• Noble clearly demonstrating an ability to lift its long-term margins as its assets and investments start contributing meaningfully and
• an ability to perform capital recycling on some of its assets that would help enhance its ROE profile.

BUY

Olam International

Citi Investment Research on 20 June 2012

THE firm yesterday announced the departure of its CFO Krishnan Ravi Kumar, Olam's CFO since 1996.

We believe Mr Ravi is pursuing a new career outside the agri-commodity sector. He will continue in his role till end-July.

The replacement: Olam's executive director Shekhar Anantharaman will take on the role as the executive director for finance & business development.

Mr Shekhar is among the founding team at Olam with 20 years at the firm, with tenures in finance, treasury, and operations at two of Olam's key segments - the edible nuts, spices & vegetable ingredients and packaged foods businesses.

The concern: While Olam has a deep management bench, investors will likely fret about this development somewhat given Mr Ravi's tenure and seniority.

Olam's aggressive growth pipeline in acquisitions and greenfield projects also means investors will be keen to track growth in management bandwidth post Mr Ravi's departure.

Global financial crisis (GFC) vs now: Its recent share buyback programme (which commenced on June 8, its first buyback ever with 20.1 million shares or 0.89 per cent of its issued shares purchased up to June 19) has helped somewhat.

Olam's valuation for its equity is close to that seen during the GFC in part due to the various difficulties that Olam (and the sector) has encountered in the past few quarters, as well as the increased gestation period on some of its fixed-assets linked investments (ie, it will take longer for growth to come from investments such as its US$1.3 billion greenfield fertiliser project in Gabon).

In contrast, Olam's debt is trading close to par vs large 40-50 per cent discounts seen during the GFC. Olam repurchased debt in H1 2009 during the GFC period, which helped mark the bottom for equity valuations then.

While it is not likely that Olam repurchases debt at current prices, Olam has more options in this cycle as it has lower leverage this time around, with adjusted net gearing of 0.4 times (or 1.9 times nominal net debt/equity) which leaves it room to fund further equity buybacks (it raised $740 million in new equity in June 2011).

Its current gearing level of 0.4 times is also favourable when compared to the 0.7 times in adjusted net gearing at end-FY08 during the GFC period.

BUY

OLAM International

Citi Investment Research on  11 June 2012

OLAM has commenced a share buyback programme: Last Friday, Olam started a share buyback programme with 3.1 million shares purchased ($5.2 million worth). This comes under its share buyback mandate renewed at its last AGM October 2011.

Olam has shareholders approval to purchase up to 10 per cent of total number of issued shares (up to about 244 million shares) at a maximum price of 105 per cent of the average closing price of the last five market days at the time of acquisition.

This is the first time Olam has conducted a share buyback exercise.

Global financial crisis (GFC) vs now: Olam's price-to-equity (P/E) valuation for its equity is now at similar lows to those seen during the GFC, in part due to the various hits that Olam (and the sector) has encountered in the past few quarters as well as the increased gestation period on some of its fixed-asset linked investments (ie it will take longer for growth to come from investments such as its US$1.3 billion fertiliser project in Gabon).

In contrast, Olam's debt is trading close to par vs large 40-50 per cent discounts seen during the GFC. Olam repurchased debt in H1 2009 during the GFC period, which helped mark the bottom for equity valuations then.

This cycle, while it is watching the trading yields on its debt carefully, it believes that it is better off investing in operational projects versus debt buybacks at current values.

More options this cycle: Olam has more options this cycle as it is more lowly geared this cycle, with adjusted net gearing of 0.4 times (or 1.9 times nominal net debt/equity) which leaves it room to fund further debt or equity buybacks as it had raised $740 million in new equity in June 2011.

Its current gearing level of 0.4 times is also favourable when compared against the 0.7 times in adjusted net gearing at end FY2008 during the GFC period.

Which is more powerful: Debt or equity buybacks?

Equity investors likely prefer debt buybacks at substantial discount as the reduced debt burden is seen as a tangible benefit and the benefits also flow through the P&L, while the opinion on the benefit of an equity buyback can be diverse.

BUY

Genting Singapore

CITI INVESTMENT RESEARCH on 2 March 2012

GENTING Singapore (GENS) finalised the pricing of its $1.8 billion, 5.125 per cent perpetual subordinated capital securities. The distribution is payable semi-annually in arrears. The distribution rate is subject to a step-up on Sept 12, 2022. The securities may be redeemed at the option of GENS in whole, but not in part, on Sept 12, 2017 or any distribution payment date thereafter. The securities are expected to be issued on March 12, 2012.

Implications to common shareholders: We believe the perpetual securities will be accounted for as equity. The annual distribution to perpetual security holders is estimated to reduce profit attributable to common shareholders by about $92 million. More importantly, we believe that GENS cannot pay common shareholders any dividends before they satisfy the distributions payable to the perpetual holders.

Use of proceeds: According to management, the funds raised will be used towards funding general corporate expenses and financing capital expenditures and expansion of its business. Given management's guidance of capex requirement of only about $500 million in 2012 and the dividend payment of about $122 million, we suspect most of the funds raised will be used towards investment opportunities outside Singapore. Management views this as a good opportunity to build up its war chest, but we question the timing of such a fundraising exercise.

Maintain sell: We lower our 2012-14E earnings estimates by 7-9 per cent to reflect the obligations to the perpetual security holders. We maintain our 'sell' rating and our $1.47 target price, as the stock is trading at about 10.5 times 2012E EV/Ebitda multiple, roughly par to its Macau peers. We think the stock is expensive given the difference in growth profile between Singapore and Macau.
SELL