Sembcorp Marine

DBS GROUP RESEARCH, Sept 11

SEMBCORP Marine has acquired Houston-based design and engineering solution provider SSP Offshore's SSP Floater technology and entire portfolio of proprietary SSP solutions and the company has released further details of the capex plan for Integrated Yard @ Tuas.

Semb Marine has signed a sales and purchase agreement with SSP Offshore to acquire its flagship SSP Floater technology, the next-generation circular hull form, and entire portfolio of proprietary SSP solutions including driller, FPSO and offshore logistic hub for US$21 million.

This is a positive move that will sharpen Semb Marine's technological capabilities and competitive advantage in the long term.

Semb Marine revealed plans to spend S$711 million for a highly-automated steel fabrication facility and Phase II development of the Integrated Yard @ Tuas.

Upon completion in Q3 2015, the new steel facility will have a tonnage capacity of more than three times that of the existing hull shop at the group's Tanjong Kling yard, and will eventually be the central kitchen for steel fabrication for all three phases of the new Tuas yard.

Phase II development at the Tuas yard has commenced at the 34.5 hectare site, and is scheduled for completion by the first quarter of 2017. This involves the construction of three dry docks as well as finger pier, quays and wharves which offer a total berthage of about two km, with maximum water depth ranging from nine metres to 18 metres.

These investments are expected to be funded by its recently announced S$600 million bond issue and internally generated funds. Semb Marine's balance sheet remains healthy with S$880 million net cash as of end-June. We expect the company to stay net cash, albeit declining, these two years on the back of high capex and weakening payment terms.

The rig-building sector is dampened by fears of cuts in E&P capex and short-term oversupply of rigs, but we believe Singapore rig-builders are better positioned to ride the market conditions, with efforts to move up the value chain and establish a presence in protected markets. We maintain "buy" with a target price of S$4.82.

BUY

Croesus Retail Trust

DBS GROUP RESEARCH, Sept 9

CROESUS Retail Trust (CRT) announced the acquisition of One's Mall for 11 billion yen (S$131 million) which represents a 5.2 per cent discount to the 11.6 billion yen independent valuation, and an initial NPI yield of 5.8 per cent.

One's Mall is a freehold, large-scale retail complex with a net lettable area of 52,844 square metres located in Inage Ward within Chiba City, which is 40 km south-east of Tokyo.

As of end-June 2014, occupancy and weighted average lease expiry (WALE) stood at 99.4 per cent and 5.8 years respectively.

The mall is located next to a major arterial road and is in an area served by three major train lines. It also provides exposure to a trade area which has a higher population/household growth and larger proportion of high-income households than the national and prefecture average.

The mall's key tenants include Daiei, Central Sports, Toys 'R' Us, Nitori and Sports DEPO.

The acquisition of One's Mall will be funded via the recently completed S$72.2 million share placement - 78.9 million shares at an issue price of S$0.915 per share, new Japanese local bank debt of 6.15 billion yen (includes 650 million yen payment of consumption tax which will be repaid within 12 months from completion of the acquisition) at an interest rate of 1.29 per cent, and 500 million yen from the S$100 million worth of bonds issued in January 2014.

Post-acquisition, total NLA will increase 27 per cent to 251,013 square metres with exposure to the top ten tenants dropping from 71 per cent of NLA to 69 per cent. WALE will also decline to 9.1 years from 10 years.

In addition, we estimate 0.1 per cent/0.8 per cent uplifts to FY2015/2016F DPU with gearing increasing marginally to 52 per cent (51.2 per cent including 650 million yen consumption tax) from 51.7 per cent at end-FY2014.

We continue to like CRT for its exposure to the Japanese retail market and the prospects of further cap rate compression. Maintain "buy" with target price of S$1.10.

BUY

Yoma Strategic Holdings

DBS Group Research, Sept 4

YOMA has finalised its 1-for-3 rights issue to raise circa S$164 million to kick-start the Landmark development and to acquire more land in Pun Hlaing. This issue of 432.5 million rights shares (at S$0.38/share) will enlarge its share base by 33.5 per cent. Yoma's chairman Serge Pun undertakes to subscribe all excess entitlements on top of his own. Previous indication is for the exercise to be completed by end-September, subject to SGX (Singapore Exchange) and shareholders' approval.

The entire rights proceeds will be utilised for 1) 1st land payment for Landmark (S$54 million); 2) 70 per cent interest in development rights to 10.8 million square feet of land in Pun Hlaing (S$95.9 million); and 3) acquisition of an authorised dealer of New Holland tractor and farm equipment for S$14.8 million. The S$0.8 million shortfall will be funded internally.

We are positive that funding is available now to kick-start the long-awaited Landmark project. We look forward to milestones such as a successful extension of master lease, partnerships with more branded hoteliers or retailers, and possibly sales of apartments. Near term, we expect this rights issue to sustain interest in the stock. We have tweaked our fair value to S$0.88 from S$0.90 to account for a 135 million new share placement in July. Maintain "buy".

BUY

Singapore Post

DBS Vickers Research, Sept 3

SINGPOST received approval for 12-30 per cent rate hike across domestic and international mail from Oct 1, 2014 - the first hike in eight years to mitigate cost increase.

Annual revenue set to improve S$12 million to S$16 million but most of it will flow to the bottom line; our FY15/16 forecast EPS is raised 3 per cent/5 per cent conservatively.

Maintain "buy" with revised DCF (discounted cash flow) based (weighted average cost of capital 6.3 per cent, terminal rate 2 per cent) TP of S$2.12. Offers potential return of 25 per cent.

Rate hike in response to declining domestic mail volume and rising costs. Since 2008, according to SingPost, labour and fuel costs have gone up ~30 per cent each, inflation has risen 26 per cent while terminal dues for international mail have risen 43 per cent and will further rise 37 per cent by 2017. About 60 per cent of the domestic mail and ~30 per cent of international outgoing mail is still regulated across which SingPost has raised postal rates by 12-30 per cent, in our estimates.

The hike will be effective from Oct 1, 2014, and SingPost will absorb the cost increase for SMEs in the first year.

Based on last year's volume, SingPost believes that annual revenue impact could be ~S$16 million; however, the actual impact may be ~S$12 million due to rebates to SMEs in the first year.

Given that the mail segment is a high-margin business, this should translate into 3 per cent/5 per cent higher FY15/16 forecast EPS conservatively.

SingPost should command premium valuation for three reasons. Assuming it makes S$300 million worth of acquisitions at 12-15x PE, it may add S$20-25 million or 15-20 per cent to our FY16 forecast earnings. Secondly, SPOST is incurring ~S$15 million developmental expenses each year, mainly in hiring and training people which could continue for 2-3 more years.

We expect SingPost to register healthy growth beyond that.

Lastly, higher e-commerce volumes could surprise in FY16 forecast as we have assumed only ~S$50 million worth of business from its Chinese e-commerce partner in our forecasts.

BUY

Olam International

DBS VICKERS RESEARCH, Sept 1

FY14 core net profit was up 29 per cent y-o-y but missed both our and consensus estimates; 2.5 Singapore cents special DPS (dividend per share) was declared. Olam is on track to achieve FY16 gearing target and has completed 61 per cent of its cash realisation plans. Re-rating is expected to continue on the back of strong earnings growth and positive Free Cash Flow to Firm (FCFF) by end FY15. Upgrade to "buy" with target price raised to S$3.05.

BUY

ARA Asset Management

DBS Group Research, Equity, Aug 26

THE Business Times reported on Tuesday that the Straits Trading Building, currently owned by Straits Trading Company (STC), may be sold to an overseas party in Asia for about S$450 million, implying S$2,800 per square foot of NLA (net lettable area).

This is understood to be a benchmark pricing for an office block in recent years. The price is understood to imply an exit yield of 3 per cent. The property, which was completed in 2009 and has a NLA of 159,000 sq ft, is currently 100 per cent occupied and anchored by Rajah & Tann, one of Singapore leading law firms and the headquarters of STC.

Will Suntec Reit buy? Earlier in May, we had mooted the possibility that STC could sell the asset to Suntec Reit, given STC's tie-up with ARA, which is also the manager of Suntec Reit.

We see synergies to Suntec Reit's portfolio, given its strategic location within Singapore central business district, which is its core investment strategy.

However, the property's reported selling price of S$450 million is significantly higher than its S$400 million valuation as at Dec 31, 2013. A 3 per cent cap will mean that the deal is likely to be only marginally accretive to Suntec Reit, assuming 100 per cent debt funding which will lift gearing up to about 40 per cent (after computing for future capex for its Australia investments); we believe this is not sustainable in the long term.

ARA AM aims to extract maximum value for its investors.

Although the Straits Trading Building is widely anticipated to be acquired by Suntec Reit, a sale to a third party while having a negative impact on the value of ARA's total AUM, would not be a worse case scenario.

This further reaffirms the group's focus on extracting maximum value from assets under its management, versus simply retaining them for the purpose of generating management fees.

For Suntec Reit, given the high capital value of its office assets in Singapore, we believe that near-term acquisitions will remain limited. However, future earnings will continue to be driven by the completion of asset enhancement works at Suntec City Mall in the near term, as well as the completion of the 177-190 Pacific Highway office development in Sydney in 2016; the Reit had acquired this for S$413 million in November 2013.

We maintain our recommendations for

ARA: BUY (TP: S$2.00)

Mapletree Greater China Commercial Trust

DBS Group Research, July 30

MAPLETREE Greater China Commercial Trust's gross revenue grew 9 per cent y-o-y to S$63.8 million, beating prospectus forecast by 6 per cent. NPI also came in 9 per cent better than expected at S$52.6 million (+10 per cent y-o-y).

The improved results were driven by an increase in portfolio occupancy to 99.2 per cent from 98.5 per cent at end-March. Festival Walk continued to enjoy full occupancy with Gateway Plaza adding more tenants (98.6 per cent occupancy).

Over the quarter, Festival Walk and Gateway Plaza also achieved positive rental reversion of 12-21 per cent and 33 per cent, respectively. Underlying shopper traffic at Festival Walk was stable, up 0.5 per cent y-o-y to 9.25 million, while tenant sales inched up 0.1 per cent y-o-y to HK$1.2 billion (S$193 million).

Mapletree Greater China declared 1.56 Singapore cents distribution per unit (DPU) in Q1 2015. This was on the back of S$42.1 million distribution income, which was 10 per cent ahead of prospectus forecast.

Moving forward, Mapletree Greater China has hedged 90 per cent of forecast FY2014/2015 Hong Kong dollar distributable income and is actively monitoring the market to progressively convert yuan distributable income to Singapore dollar.

Meanwhile, exposure to rising interest rates is partially mitigated with 71 per cent of the group's debt carrying fixed rates until end- FY2016.

Outlook remains positive. Despite slower retail sales in Hong Kong YTD, we expect positive rental reversion at Festival Walk given its positioning in the mid-to-upper consumer segment, supported by the manager's active tenant management and strong demand from tenants.

Rents should also rise at Gateway Plaza as recent new leases were transacted at 320-350 yuan (S$65-71) per square foot per month, more than 35 per cent higher than existing rents. In 2014, Mapletree Greater China will see 14 per cent of leases (by gross rental income) expiring at Festival Walk and 13 per cent at Gateway Plaza.

After adjusting for the stronger-than-expected results YTD, we raised FY2015 and FY2016 distributable income estimates by 4-5 per cent and lifted our discounted cash flow-based target price (TP) to S$1.04 (implied yield of 5.9-6.3 per cent) from S$1.02.

The stock remains attractive, offering 12 per cent upside to our revised TP and FY2015 DPU yield of 6.6 per cent. Mapletree Greater China offers a strong organic growth profile backed by positive rental reversion at its portfolio of quality properties.

BUY

Indofood Agri Resources

DBS Group Research, July 29

Q2 2014 earnings in line on annualised basis: Excluding translational foreign exchange losses of 91.5 billion rupiah (S$9.78 million), IndoAgri (IFAR) booked Q2 2014 core earnings of Rp316 billion (+377 per cent y-o-y; +228 per cent q-o-q ) - representing 25 per cent of our full year forecast (ex translational foreign exchange gains/losses).

On a pretax level, H1 2014 results represented only 32 per cent of our full year forecast versus 41 per cent historical average) - given the poor Q1 2014 performance.

Despite strong sequential recovery in Q2 2014 edible oils and fats contribution, overall performance was dragged by 22 per cent q-o-q jump in G&A expenses, sequentially lower CPO ASP (average selling price); and a jump in tax rate to 34 per cent from 26 per cent in Q2 2014.

Higher contribution from edible oil and fats division: The group omitted disclosure of segmental Ebitda in its results announcement, but Q2 2014 plantations revenue recorded a 4 per cent sequential decline (+21 per cent y-o-y) to Rp2,332 billion; we suspect marginally higher volumes were offset by lower ASP.

On the other hand, edible oils and fats revenue rebounded sequentially by 28 per cent (+32 per cent y-o-y), as Q2 2014 benefited from the full impact of the about 6 per cent hike in cooking oil and margarine ASPs since April 2014 and the delivery of inventory backlogs in the previous quarter.

Expanding debt, but balance sheet still strong. Net debt to total equity ratio stood at 27 per cent at end of June 2014, up from 25 per cent at end March 2014, on higher debt. IndoAgri had spent about Rp1.5 trillion on capex in H1 2014 vs. our forecast of Rp2.2 trillion for the full year. This excludes announced acquisition of 3.8k ha of sugarcane estates for Rp227billion in July 2014.

Our view: Boost from Q3 2014 earnings may be inadequate to meet our earnings expectations. We expect seasonal contribution from its sugar division to drive IndoAgri's Q3 2014 earnings, in addition to peak harvesting season for palm oil. But, with ramp-up in fertiliser costs and dry conditions re-appearing in East Sumatra, H2 2014 earnings may not meet our current expectations.

Recommendation: Near-term recovery priced in. Our "hold" rating stays for now, pending further analysis and review of our CPO price forecasts. We do not expect a significant recovery in IFAR's share price, given the bearish outlook on near term soya bean prices. We believe the counter has priced in this year's prospective jump in earnings.

HOLD

CWT Ltd

DBS Group Research, Equity, June 25

CWT'S core logistics business goes from strength to strength. Broad-based revenue growth and higher rate renewals drove top line improvement and better margins in Q1-14, which should continue for the rest of 2014.

Additionally, with CWT Cold Hub's TOP (temporary occupation permit) this quarter and CWT Pandan Logistics Centre's TOP in Q4, this additional 1.4 million sq ft of owned warehouse space will boost the segment's prospects further.

Meanwhile, revenue from financial services has grown exponentially from $8 million in Q1-13 and $9 million in Q2-13 to $34 million in Q4-13 and $48 million in Q1-14.

We now project this segment to contribute $220 million (+237 per cent y-o-y) in revenue in 2014F, with a conservative 15 per cent growth estimate in 2015.

Granted a Capital Markets Service Licence by MAS recently, CWT's financial services segment's growth should be further enhanced in the longer term as well.

CWT is still trading at attractive valuations of 1.3 times FY14 P/B against 16.7 per cent ROE and less than 9 times FY14 PE, versus 17 times PE for Logistics peers and 15 times PE for commodity trading companies. Reiterate BUY.

BUY

Frasers Centrepoint Trust

DBS Group Research, Equity, June 24

EARLIER this month, Frasers Centrepoint Trust (FCT) announced it had issued 88 million shares at S$1.835 a share (S$161.5 million in total) in a private placement to partially fund its S$305 million acquisition of Changi City Point (CCP), which was completed on June 16.

This was well subscribed, accounting for about 52 per cent of the acquisition price, on the higher end of our initial assumptions of 40-45 per cent, based on a gearing cap of 35 per cent (vs 31 per cent post-acquisition and placement).

As CCP is still in its first rent cycle and about 60 per cent of leases are up for renewal in FY14/15, the manager is uniquely poised to deliver earnings growth by refreshing the mall's tenant mix to better cater to its growing catchment population.

While there are no plans to increase the relative proportion of F&B tenants from the existing level of 44 per cent, we understand that the manager is looking to bring in F&B tenants that better cater to the preferences of students at the upcoming Singapore University of Technology and Design and workers at Changi Business Park.

Furthermore, for its retail tenants, the manager is looking to offer a better complementary shopping experience for the weekend expo crowds.

Through these initiatives, we forecast FCT to deliver two-year earnings CAGR (compound annual growth rate) of 6 per cent for FY15-16.

At current levels, FCT offers an attractive FY14-16F yield of 6.0-6.8 per cent - higher than Singapore-focused retail S-Reits, which are trading at yields of 5.5-6.6 per cent.

We have marginally increased our FY14 forecast earnings estimates to account for revised funding assumptions, no change to our TP of $2.13. FCT offers investors a 24-25 per cent total return for FY14/15. We maintain our BUY call.

BUY

Del Monte Pacific

DBS Group Research, June 18

AFTER Del Monte Pacific (DMPL) reported its results for the transition period January-April 2014 and change of its full-year end to April, we revised our forecasts and the consolidation of recently acquired Del Monte Food Inc (DMFI).

We project that FY15F will still register losses of about US$40 million, including preference share dividends) from the US$43 million loss registered for January-April 2014, before jumping to a net profit of US$50 million in FY16F, as DMFI targets a reversion to its historical performance trend (sales revenue of US$1.8 billion).

DMPL is looking to issue preference shares (to raise US$350 million) within the next six months, subject to Philippine authorities' regulatory approvals. A further US$180 million is to be financed by new common shares/rights issue, while US$100 million will be financed by medium-term loans.

We have assumed a 10-for-4 rights shares to raise US$180 million. Following the exercise, we estimate that net debt to equity should drop to 1.8 times and 1.6 times by end FY15F/16F respectively.

While we see the longer-term stability and potential of the enlarged entity, we expect a meaningful turnaround only in FY16F. Our target price is revised to S$0.62, based on 18 times FY16F earnings from a discounted cash flow-based methodology previously.

At this juncture, we believe the upside to its share price could be limited in the near term, and the counter could appeal instead to investors with mid- to longer-term horizons. Downgrade to "hold".

HOLD

Vard Holdings

DBS Group Research, June 5

ORDERS continue to flow in faster than expected. Vard has secured a design and construction contract from Norwegian customer Rem Offshore for one high-end offshore construction and anchor handling vessel worth NOK800 million (S$167.7 million), to be delivered in Q1 2016. This is the second contract secured in a week, following a LOI for two PSVs (and an option for a third) signed with upcoming PSV player Nordic American Offshore.

FY2014 order wins could potentially better FY2013's high. Including the LOIs, this marks Vard's fifth contract win in Q2 2014 and its 13th newbuild contract since the beginning of FY2014. We estimate YTD contract wins to be about NOK8.5 billion already, or 60 per cent of our full-year order win forecast of NOK14 billion within just five months of FY2014, ahead of our expectations.

Vard is in the running to beat FY2013 new order wins of NOK14.2 billion, which included the landmark NOK6.5 billion pipelay vessels order from Petrobras. Apart from the offshore subsea construction space where Vard scored heavily in FY2013 and Q1 2014, Q2 2014 orders seem to signal the long-anticipated revival in the high-end OSV space as well, with orders for PSVs and anchor handlers returning.

Hence, with Brazil issues likely to diminish from H2 2014 onwards, and with improved utilisation and arguably better priced contracts at the rest of the group's yards, we maintain our "buy" call with a higher target price of S$1.34, as we believe the recent spate in order wins and ongoing sector re-rating call for a higher peg of 11 times FY2014/2015 blended earnings estimates.

BUY

Yangzijiang Shipbuilding

DBS Group Research, June 2

YANGZIJIANG's share price took a toll following headlines that Mr Ren is under investigation for misconduct relating to his personal investment in China-listed Tianjin Guoheng Railway Holding (Guoheng).

Yangzijiang has released an announcement to clarify that the allegations are against Mr Ren and not Yangzijiang. In addition, Mr Ren has reassured shareholders that the accusations are unfounded and he is taking necessary actions to set matters straight.

The selldown on Yangzijiang seems overdone. The allegations were against Mr Ren and have no impact on Yangzijiang's operations and financials. While sentiment may be hit, it is premature to jump to any conclusions especially with Mr Ren dismissing these allegations.

It appears that the motive behind the accusations seems ambiguous as Guoheng's board of directors has resisted Mr Ren's attempts to reconstitute the board and restructure Guoheng.

Lastly, based on interactions with Mr Ren over the past seven years, he has been forthcoming in his guidance and outlook on the company and industry during both good times and the downcycles.

In fact, he cautioned investors when the market was overheated during the 2007/2008 superboom.

Reiterate "buy"; target price unchanged at S$1.55. Valuation has fallen to an attractive six times FY2014 PE estimate and 1.0 times P/B following the knee-jerk reaction to the news last Friday, presenting buying opportunities for investors who remain positive on Yangzijiang's fundamentals.

BUY

Biosensors International

DBS Group Research, May 29

BIOSENSORS International Group's (BIG) FY2014 core net profit (US$46 million, -65 per cent y-o-y) was 9 per cent below our forecast as revenue and margins fell. Revenue fell 4 per cent y-o-y to US$324 million due to:

1) lower licensing and royalty income (US$44 million, -24 per cent y-o-y) from Terumo Corp in Japan; and

2) lower Interventional Cardiology revenue (US$256 million, -3.4 per cent y-o-y) on lower average selling price (ASP) in China for drug-eluting stents.

Gross and operating margins fell as a result of smaller share of licensing and royalty income (high margin) and higher sales and marketing expenses for Japan and Spectrum Dynamics.

The company did not declare dividends for FY2014 following the maiden payout of two US cents per share (30 per cent payout) for FY2013, citing the need to conserve cash resources.

New CEO

BIG announced organisational changes which involved Jack Wang and newly appointed Jose Calle Gordo.

Mr Gordo will be BIG's chief executive officer from Nov 1, replacing Mr Wang who takes over as chief technology officer from the retired John Shulze. Mr Gordo, 52, has over 25 years of experience in medical devices at Abbott, Eli Lilly and Guidant.

He was responsible for leading, developing and commercialising Abbott's Xience and ABSORB drug- eluting stents. He also managed the international operations of Abbott Vascular outside the US in 2011 and 2012.

Muted growth outlook

We expect revenues and margins to be weak ahead. Selling prices will remain soft in China, while licensing income from Terumo is expected to taper off.

In addition, a changing product mix - declining licensing and royalty income from Terumo and larger contribution from lower-margin Spectrum Dynamics' business - will continue to weaken margins.

Maintain "hold" with S$0.90 target price (sum-of-the-parts matrix). Growth will be muted ahead, but there may be upside risk to our call, including Citic Private Equity making a takeover offer for BIG.

HOLD

PACC Offshore Services

DBS Group Research, May 27

A LEADING Asia-based operator of offshore support vessels, PACC Offshore Services (POSH) is also arguably one of the top five globally, operating a combined fleet of 112 vessels (including joint-venture vessels).

In a capital-intensive industry, being part of the Kuok Group has its distinct advantages; ready access to affiliated shipyards and lower financing costs enable it to not only achieve lower costs of ownership and compete favourably in the charter market, but also to identify opportunities early and enjoy first mover advantage in key growth markets.

Deepwater offshore accommodation market the next big driver. POSH will enter this market with two newbuilds to be delivered by end-2014, which will make it a key semisub accommodation vessel (SSAV) provider in the large berthing capacity space.

Along with its non-semisub assets, POSH should actually emerge as one of the top four offshore accommodation players by capacity in the world by 2015.

Superior returns can be expected from these semi-sub assets, given the tight market conditions, and lower ownership costs achieved by POSH, boosting margins and profits significantly from FY2015 onwards. POSH has already won a contract with attractive terms for the first SSAV from Petrobras.

We initiate coverage with "buy", and a target price of S$1.36.Our valuation peg of 10 times FY2015 earnings is in line with the average of regional peers, despite stronger growth potential on the back of a healthy balance sheet post-IPO. Key near-term catalysts will be:

i) Significant charter contract wins, including a contract for its second SSAV, which should provide very strong visibility for FY2015 earnings;

ii) Resolution of certain near-term issues at its Mexico JV; and

iii) Better-than-expected quarterly earnings delivery.

BUY

Global Logistic Properties

DBS Group Research, May 26

GLOBAL Logistic Properties (GLP) reported a 20 per cent growth in Q4 FY2014 revenue to US$150.4 million. However, lower fair-value gains from associates, including a revaluation loss from Brazil and forex losses, led to a 29 per cent drop in reported Patmi (profit after tax and minority interests) to US$160 million (US$152 million after perpetual securities distributions).

For the year, revenue dipped 6.8 per cent to US$598.3 million, while Patmi (before perpetual capital distributions) inched up 0.1 per cent to US$685.2 million. The group has proposed a final 4.5 S cents dividend per share.

Operation-wise, China showed the highest new leases tied for the quarter, of 1.044 million sq m, +123 per cent y-o-y, leading to a total take-up of 2.3 million sq m for the year. Average rental growth achieved was 5-7 per cent and occupancy rose 3 percentage points to 91 per cent.

In Japan, leasing momentum continued to be strong with lease rates up 58 per cent y-o-y to 0.4 million sq m for the year and rents tracking ahead of budget.

Brazil saw a 6.3 per cent growth in Q4 rents, with total take-up reaching 0.29 million sq m for FY2014.

With the recent tie-up with strategic partners to establish a China Holdco, forward growth should accelerate from FY2016 onwards. The first tranche of the transaction, valued at US$875 million, should be completed in six months and the second tranche of US$163 million, by June 2014.

With strategic access to land holdings and planned acceleration of development activities in China, this should translate into stronger growth momentum in the medium term. It targets to start development on 3.3 million sq m of gross floor area (GFA) worth US$1.7 billion for FY2015, up 40 per cent y-o-y. Land reserves stand at a healthy 12.8 million sq m GFA.

In Japan, it targets development starts of US$675 million for FY2015, similar to FY2014, as appetite for modern logistics warehouse space continues to be fuelled by increased outsourcing activities and obsolescence of old building stock.

In addition, the recent purchase of the US$1.4 billion portfolio of assets in Brazil from BR Properties would double the size of the group's activities in the country. GLP intends to fund the acquisition with internal resources, borrowings as well as bringing in other shareholders. The group has gross cash of about US$1.5 billion on its balance sheet and a net debt of US$1.1 billion, equating to a net debt-to-asset ratio of 9 per cent.

We retain our "buy" call for GLP and raise our target price to S$3.42 as we roll our valuations forward into FY2015. We expect earnings growth momentum to pick up over the next 24 months as the group ramps up its activities in China and Brazil.

BUY