Global Premium Hotels

OCBC on 30 Apr 2013

Global Premium Hotels (GPH) performed in line with our expectations in 1Q13. Revenue fell 2.1% YoY to S$14.6m and gross profit declined 2.9% YoY to S$12.6m. Interest expense was S$1.3m higher YoY due to the restructuring exercise undertaken by GPH pursuant to the IPO in 2Q12 and this was the primary reason that net profit contracted 32.0% to S$4.3m. Revenue and net profit came out to 23% and 24% of our full-year estimates respectively. 1Q13 hotel room revenue decrease of 1.1% YoY was mainly due to the lower average occupancy rate (AOR) of 89.6%, down 2.1ppt YoY. We expect slightly better YoY performance in the remaining quarters, especially because 1Q13 was slow for the industry because of the later occurrence of Chinese New Year, which pushed back corporate travel. Using a 10% discount to RNAV, we maintain our fair value of S$0.33 and BUY rating on GPH.

1Q13 results in line
Global Premium Hotels (GPH) performed in line with our expectations in 1Q13. Revenue fell 2.1% to S$14.6m and gross profit declined 2.9% YoY to S$12.6m. Interest expense was S$1.3m higher (+211.2%) YoY due to the restructuring exercise undertaken by GPH pursuant to the IPO in 2Q12 and this was the primary reason that net profit contracted 32.0% to S$4.3m. Revenue and net profit came out to 23% and 24% of our full-year estimates respectively. 

Economy hotels resilient
1Q13 hotel room revenue decrease of 1.1% YoY was mainly due to the lower average occupancy rate (AOR) of 89.6%, down 2.1ppt YoY. Revenue per available room (RevPAR) remained relative stable YoY at S$91.4. Given that the vast majority of GPH's hotels are in the Economy tier, this matches with industry data, which shows that for 2M13, Economy tier hotels were the best performers with the lowest declines in RevPAR. Rental income for 1Q13 dropped by S$0.2m, or 38.6% YoY due to the disposals of the Changi Road property and Pasir Panjang commercial property in 2Q12. Administrative expenses for 1Q13 rose by S$0.7m (13.6%) YoY. This was mainly due to the general increase in wages and higher depreciation expenses from higher fair values on leasehold land and hotel buildings.

Expect a slight improvement for rest of FY13
We expect slightly better YoY performance in the remaining quarters, especially because 1Q13 was slow for the industry because of the later occurrence of Chinese New Year, which pushed back corporate travel. Management believes that with the increasing prevalence of budget airlines in the region, the performance of GPH's economy-tier and mid-tier hotels will continue to be resilient, despite increasing hotel room supply for the industry.

Maintain BUY
Using a 10% discount to RNAV, we maintain our fair value of S$0.33 and BUY rating on GPH.

Frasers Commercial Trust

OCBC on 30 Apr 2013

Frasers Commercial Trust’s (FCOT) 2QFY13 DPU came in at 1.9883 S cents, representing a 14.4% YoY growth. This is slightly above our expectations, as 1HFY13 DPU of 3.5715 S cents already formed 51.4% of our full-year DPU forecast. Key rental growth drivers for the quarter came from FCOT’s Australia properties. As at 31 Mar, the portfolio occupancy remained strong at 95.3%, with weighted average lease to expiry at 4.8 years. Looking ahead, we hold our view that FCOT will continue to perform strongly. While the actual occupancy at China Square Central stood at 73.0%, a high committed occupancy of 92.6% was secured. The passing rents for several of its properties are also below the market rates, thus presenting potential for rental upside. In addition, the redemption of another 157.1m CPPUs in Apr is likely to provide further uplift in DPU. We maintain our BUY rating with a higher fair value of S$1.66 (S$1.52 previously) on FCOT.

Strong uplift in DPU
Frasers Commercial Trust (FCOT) turned in a strong set of 2QFY13 results. While NPI fell 7.0% YoY to S$23.0m due to loss of income from the divestment of KeyPoint and Japan properties, distributable income grew 16.8% to S$13.1m on lower interest expenses and distribution savings following the redemption of its Series A Convertible Perpetual Preferred Units (CPPUs). Consequently, DPU for the quarter came in at 1.9883 S cents, representing a 14.4% YoY growth. This is slightly above our expectations, as 1HFY13 DPU of 3.5715 S cents already formed 51.4% of our full-year DPU forecast.

Robust demand for its properties
Key rental growth drivers for the quarter came from FCOT’s Australia properties. Notably, Caroline Chisholm Centre registered a 101.0% YoY jump in NPI post acquisition of the remaining 50% interest in the property. In addition, Central Park saw its NPI increase by 6.4% on the back of higher secured rentals. As a result, Australia properties contributed 54.2% of 2Q NPI, up from 37.4% a year ago (prior to divestments). As at 31 Mar, the portfolio occupancy remained strong at 95.3% (1Q: 94.7%), with weighted average lease to expiry at 4.8 years (1Q: 4.9 years). Positive rental reversions ranging from 8-87% for leases commenced during the quarter were also achieved – a strong indication of demand for its properties, in our view.

Maintain BUY with higher S$1.66 FV
Looking ahead, we hold our view that FCOT will continue to perform strongly. While the actual occupancy at China Square Central stood at 73.0%, a high committed occupancy of 92.6% was secured. This is expected to contribute positively to the rental income in the coming quarters. The passing rents for several of its properties are also below the market rates, thus presenting potential for rental upside (especially when Alexandra Technopark master lease expires in Aug 2014). Moreover, the redemption of another 157.1m CPPUs in Apr is likely to provide further uplift in DPU. We now incorporate the better results into our forecasts and tweak our CAPM assumptions. Our fair value is raised to S$1.66 from S$1.52 previously. Maintain BUY.

CDL Hospitality Trusts

CIMB Research on 29 April 2013

Q1's weak performance was in line with CDL Hospitality Trusts' (CDLHT) earlier muted guidance but the magnitude surprised. Distribution per unit (DPU) would have been lower if not for its recent purchase and refinancing savings. We see downside risks to revenues per available room (RevPARs) amid competition and weak corporate travel.

Q1 FY2013 DPU was below consensus and our forecasts due to weak local hotel performance, forming 23 per cent of our full-year estimate. We lower DPUs and our dividend discount model-based target price (discount rate: 8.0 per cent), given weaker assumed local RevPARs, offset by lower borrowing cost.

Downgrade from "neutral" to "underperform" on downside risks to RevPARs (target price: $1.94).

Q1 FY2013 DPU was down 3 per cent y-o-y and 7 per cent q-o-q due to weak local hotel performance and would have been weaker if not for its recent Maldives purchase and refinancing savings.

Weaker performance was in line with CDLHT's earlier muted guidance but the magnitude surprised. Local hotels' RevPAR slipped 7.9 per cent y-o-y due to lower occupancy (-1.2 percentage points to 87.0 per cent) and average room rate (-6.8 per cent to $219 per day) in Q1.

The y-o-y net property income decline was broad-based but sharper for Copthorne King (-23 per cent y-o-y, on lower room bookings from key accounts in the shipping and marine sector and large project groups) and Studio M (-15 per cent y-o-y).

Management guidance remains muted given tighter corporate travel budgets and bumper room supply in 2013. The leisure business helped to offset weaker corporate business but was insufficient due to lower rates.

RevPAR for the first 23 days of April 2013 was 7.9 per cent lower y-o-y, partly due to the absence of Food and Hotel Asia this year. Australian assets are also starting to experience some weakness although the impact has been softened by defensive lease structures. Angsana Velavaru (Maldives) was the only bright spot, registering 29 per cent y-o-y RevPAR growth in February to March 2013.

We now assume a 6-7 per cent y-o-y local RevPAR decline in 2013.

UNDERPERFORM

Raffles Medical Group

OCBC on 29 Apr 2013

Raffles Medical Group’s (RMG) 1Q13 revenue rose 11.2% YoY to S$81.1m, while PATMI increased by 16.0% YoY to S$13.5m. Topline and bottomline constituted 23.3% and 22.2% of our FY13 forecasts, respectively. This was within our expectations as 1Q is seasonally RMG’s weakest quarter. The improved financial performance was driven largely by its higher-margin Hospitals Services Division and better operational efficiencies, resulting in operating leverage. We retain our forecasts on RMG given the in line set of results. However, we raise our fair value estimate from S$3.01 to S$3.22, now based on 29x FY13F EPS, which is in line with its peers’ average. Maintain HOLD.

1Q13 results within expectations
Raffles Medical Group (RMG) reported its 1Q13 results which were within our expectations. Revenue rose 11.2% YoY to S$81.1m, while PATMI increased by 16.0% YoY to S$13.5m, such that topline and bottomline constituted 23.3% and 22.2% of our FY13 forecasts, respectively. This is unsurprising as 1Q is seasonally RMG’s weakest quarter and we had expected this trend to continue this year. To put things in perspective, 1Q revenue and core PATMI had on average formed 23.5% and 21.7% of RMG’s full-year figure from FY10-12, respectively. 

Growth driven largely by Hospitals Services Division
RMG’s improved financial performance was driven largely by its higher-margin Hospitals Services Division, which experienced a 16.4% YoY increase in revenue. This increase was in turn propelled equally by both volume and ASP growth. Coupled with an improvement in operational efficiencies, the operating leverage enabled RMG’s bottomline to grow at a faster pace than its topline. Meanwhile, RMG’s Healthcare Services Division recorded a more modest 4.0% YoY increment in revenue, partly due to the absence of the Singapore Prison Service medical services contract (expired on end 2012).

Maintain HOLD on higher S$3.22 fair value estimate
Management updated us that it is awaiting a report from its property consultants before deciding on the next course of action with regards to its commercial podium at 30 Bideford Road. Construction for its Raffles Hospital extension will also take place this year, although a firm timeline was not provided. We retain our forecasts as RMG’s results were within our expectations. However, we raise our fair value estimate from S$3.01 to S$3.22, now based on 29x FY13F EPS, which is in line with its peers’ average. Maintain HOLD.

CDL Hospitality Trusts

OCBC on 29 Apr 2013

CDLHT reported 1Q13 revenue of S$37.9m, down 1.3% YoY. Lower gross revenue from the Singapore hotels was partially offset by higher revenue from the overseas properties. Net property income fell 2.1% to S$35.3m. Total return for the period dipped 0.7% YoY to S$28.4m. 1Q13 DPU of 2.69 S cents fell slightly short of expectations, forming 23.0% and 22.6% of ours and consensus FY13F estimates respectively. RevPAR for CDLHT's Singapore hotels fell 7.9% YoY to S$191 on the back of 1.2ppt drop in occupancy to 87.0% and a 6.8% drop in average room rate to S$219. We are lowering our FY13 RevPAR growth assumption for CDLHT's Singapore hotels from 3.2% to 0% and cut our RNAV-based fair value for CDLHT from S$2.11 to S$2.05. We maintain our HOLD rating on CDLHT.

1Q13 misses expectations 
CDLHT reported 1Q13 revenue of S$37.9m, down 1.3% YoY. Lower gross revenue from the Singapore hotels was partially offset by higher revenue from the overseas properties. Net property income fell 2.1% to S$35.3m. Total return for the period dipped 0.7% YoY to S$28.4m. 1Q13 DPU of 2.69 S cents fell slightly short of expectations, forming 23.0% and 22.6% of ours and consensus FY13F estimates respectively. 

Weak Singapore performance
RevPAR for CDLHT's Singapore hotels fell 7.9% YoY to S$191 on the back of 1.2ppt drop in occupancy to 87.0% and a 6.8% drop in average room rate to S$219. Management attributed the weak performance to the absence of the biennial Singapore Airshow, Chinese New Year falling in Feb instead of Jan, which disrupted corporate travel. There was softer demand for meetings and conferences with tighter spending on corporate travel. Management also acknowledges that competition in Singapore is increasing with a growing supply of hotel rooms, e.g. a large increase of 8.6% in hotel room supply is expected this year. 

Maiden contribution from Angsana Velavaru 
Angsana Velavaru contributed S$1.2m in gross revenue for the first two months after its acquisition. The resort registering a year-on-year RevPAR growth of 28.5% or US$105 to US$474 for the two months ended 31 Mar 2013. With gearing at 28.3% as of 31 Mar 2013, CDLHT remains on the lookout for acquisition opportunities in the next 12 months. 

Maintain HOLD
While we have been cautious on the local hospitality sector since Dec, industry data and data from corporates has been weaker than what we anticipated. We are lowering our FY13 RevPAR growth assumption for CDLHT's Singapore hotels from 3.2% to 0% and cut our RNAV-based fair value for CDLHT from S$2.11 to S$2.05. We maintain our HOLD rating on CDLHT.

Ascott Residence Trust

OCBC on 29 Apr 2013

Ascott Residence Trust (ART) reported a 3% YoY decrease in revenue to S$69.2m for 1Q13. RevPAU fell 10% YoY to S$124 and gross profit fell 9% YoY to S$33.8m. However, unitholders’ distribution increased by 14% YoY to S$27.6m. Unitholders’ distribution included S$8.1m from the replacement of foreign currency bank loans using proceeds from the S$150m placement in Feb. Without this one-off item, unitholders’ distribution would have fallen by 19% YoY, missing ours and the street’s expectations. 1Q13 DPU increased 5% YoY to 2.25 S cents, forming 25% of ours and the street's FY13F expectations. We are cutting our FY13F DPU estimate to 8.1 S cents from 8.7 S cents. Our fair value for ART declines from S$1.36 to S$1.35 and we maintain our HOLD rating.

Realised exchange gain of S$8.1m
Ascott Residence Trust (ART) reported a 3% YoY decrease in revenue to S$69.2m for 1Q13. Gross profit fell 9% YoY to S$33.8m. However, unitholders’ distribution increased by 14% YoY to S$27.6m. Unitholders’ distribution included S$8.1m from the replacement of foreign currency bank loans using proceeds from the S$150m placement in Feb. Without this one-off item, unitholders’ distribution would have fallen by 19% YoY and we judge the results to be lower than ours and the street’s expectations. 1Q13 DPU increased 5% YoY to 2.25 S cents, forming 25% of ours and the street's FY13F expectations.

SG RevPAU dips 11% YoY 
Revenue fell because there was a reduction of S$3.1m in contributions from existing properties, chiefly from Singapore, Vietnam and Japan (due to a depreciation of JPY against SGD). A partial counteracting factor was a S$0.7m increase in revenue from the net effect of acquisitions less divestments. RevPAU fell 10% YoY to S$124, weighed by the performance of Singapore and the Philippines. In Singapore, 1Q13 RevPAU decreased by 11% YoY on a same store basis to S$193, driven by lower occupancy as a result of disruption from the construction of MRT tunnel for the new downtown line near Somerset Liang Court, poorer demand from project groups, and higher non-refundable GST.

Maintain HOLD
We are cutting our FY13F DPU estimate to 8.1 S cents from 8.7 S cents. Our fair value for ART declines from S$1.36 to S$1.35 and we maintain our HOLD rating. With the equity placement in Feb, ART lowered its gearing to 36% as of 31 Mar. We expect that the REIT will continue to be active with acquisitions this year and if substantial enough, such acquisitions could serve as positive price catalysts.

CapitaLand Limited

OCBC on 29 Apr 2013

1Q13 PATMI came in at S$188.2m – up 41% YoY mostly due to heavier income recognition of property developments in Singapore and China and S$46m net gain from the sale of a Beijing project. Excluding one-time items, 1Q13 operating profit is S$133.3m which increased 70% YoY and we judge this to be generally within expectations. Despite incremental curbs from Chinese authorities, a good 955 residential units were sold in China over the quarter; this is a strong start to the year and significantly higher than the 189 units sold in 1Q12. There was also a stark pickup in Singapore residential sales, with 544 units sold over 1Q13 versus 681 units sold in the entire FY12. In addition, retail mall segment CMA’s 1Q13 PATMI was above view due to lower-than-expected opening costs, increased contributions from new malls and better performances from CMT, ION Orchard and the China Funds. Maintain BUY on CAPL with an unchanged fair value estimate of S$4.29 (20% discount to RNAV).

1Q13 PATMI up 41% YoY
1Q13 PATMI came in at S$188.2m – up 41% YoY mostly due to heavier income recognition of property developments in Singapore and China and S$46m net gain from the sale of a Beijing project. Excluding one-time items, 1Q13 operating profit is S$133.3m which increased 70% YoY and we judge this to be generally within expectations. 1Q13 topline is S$661.9m; this is up 3% YoY and again mostly in line. We see 1Q13 results and sales updates pointing to firm operating trends across key fundamental drivers – Singapore and Chinese residential sales and the retail mall business – and therefore believe the market would likely react positively to 1Q13 figures. 

Pickup in residential sales in Singapore and China
Despite incremental curbs from Chinese authorities in 1Q13, a good 955 residential units were sold in China over the quarter; this is a strong start to the year and significantly higher than the 189 units sold in 1Q12. We see a good chance that CAPL would at least sustain the rate of ~3k units sold in FY12. There was also a stark pickup in Singapore residential sales, given the impact of price incentives, with 544 units sold over 1Q13 versus 681 units sold in the entire FY12.

Strong execution at retail mall segment
CMA’s 1Q13 PATMI increased 10% YoY to S$73.2m. Excluding one-time items, we judge this to be above view due to lower than expected opening costs, increased contributions from new malls and better performances from CMT, ION Orchard and the China Funds. Given the H7N9 bird flu outbreak, shopper traffic for its Chinese malls showed a decrease of 0.9% YoY but note that same-mall tenant sales were up +15.9% YoY. We see a nearer term impact from worsening H7N9 fears to be possible but a sustained long-term business impact, in our view, is unlikely.

Maintain BUY
Maintain BUY with an unchanged fair value estimate of S$4.29 (20% discount to RNAV).

Starhill Global REIT

OCBC on 29 Apr 2013

Starhill Global REIT’s (SGREIT) 1Q13 results came in within our expectations. DPU for the quarter stood at 1.37 S cents, representing 27.0% of our FY13F DPU. Excluding the Toshin arrears payout, we note that DPU would have increased 10.3% YoY to 1.18 cents, still impressive in our view. Noteworthy was the strong operational performance at its Singapore portfolio, which contributed 66.3% to 1Q13 NPI. For the first time, both Ngee Ann City and Wisma Atria achieved full occupancy for both its office and retail segments, while positive rental reversions were secured. This helped to offset the decline in NPI at its Japan and Chengdu properties. We are currently maintaining our view that SGREIT is likely to perform well going forward, as it continues to ride on the strength of its Singapore portfolio, gain from its newly acquired Plaza Arcade, and a 7.2% rent increase from its Malaysia master leases. Maintain BUY with a higher fair value of S$1.05 (before: S$0.98) as we lower our cost of equity to 6.7% from 7.0%.

Commendable set of 1Q13 results
Starhill Global REIT’s (SGREIT) 1Q13 results came in within our expectations. Revenue and NPI grew by 16.5% and 12.3% YoY to S$53.6m and S$41.9m respectively, due mainly to the 10% increase in base rent for Toshin master lease at Ngee Ann City (NAC), receipt of the resulting rental arrears, and stronger performance at Wisma Atria (WA) post redevelopment. The impact from the accumulated net arrears (S$3.8m or 0.19 S cents) was more apparent on the distributable income, which saw a 28.0% jump to S$26.6m. As such, DPU for the quarter stood at 1.37 S cents, representing 27.0% of our FY13F DPU. Excluding the arrears payout, we note that DPU would have increased 10.3% YoY to 1.18 cents, still impressive in our view.

Singapore portfolio delivered strongly
Noteworthy was the strong operational performance at its Singapore portfolio, which contributed 66.3% to 1Q13 NPI. For the first time, both NAC and WA achieved full occupancy for both its office and retail segments, while positive rental reversions were secured. Management noted that the centre sales at WA increased 49% in 1Q as the new tenant mix created an uplifting effect on the sales efficiency. This helped to offset the decline in NPI at its Japan (-37.8% YoY) and Chengdu properties (-12.8%), which suffered from a loss of income from asset disposal, weakening JPY and increased competition.

Maintain BUY
SGREIT also updated that the next rent review with Toshin for the period from Jun 2013 to Jun 2016 is still in progress. We do not rule out the possibility that SGREIT may again benefit from further upside. We are currently maintaining our view that SGREIT is likely to perform well going forward, as it continues to ride on the strength of its Singapore portfolio, gain from its newly acquired Plaza Arcade, and a 7.2% rent increase from its Malaysia master leases. We also understand that SGREIT has obtained loan facilities to fully refinance its debts due 2013, leaving it with no refinancing needs until 2015 (30.5% gearing). Maintain BUY with a higher fair value of S$1.05 (before: S$0.98) as we lower our cost of equity to 6.7% from 7.0%.

Yangzijiang Shipbuilding

OCBC on 26 Apr 2013

Yangzijiang Shipbuilding (YZJ) reported a 22% YoY fall in revenue to RMB2.9b and a 30% drop in net profit to RMB717.2m in 1Q13, accounting for 24% and 26% of our full year estimates, respectively. Results were in line with our expectations, and we note that gross profit margin from the shipyard operations remained healthy at 25.9%. Despite stiff competition in the shipbuilding industry, YZJ entered into eight new shipbuilding contracts worth US$237m recently, though margins are understandably low. Meanwhile, the group has affirmed its intention to further develop its financing business. With an order book of US$3.31b as at 26 Apr 2013, YZJ is in an enviable position amongst Chinese yards, but we do not see an industry upturn any time soon. Maintain HOLD with fair value estimate of S$0.95, based on 8x blended FY13/14F earnings.

Decent 1Q13 results
Yangzijiang Shipbuilding (YZJ) reported a 22% YoY fall in revenue to RMB2.9b and a 30% drop in net profit to RMB717.2m in 1Q13, accounting for 24% and 26% of our full year estimates, respectively. Results were in line with our expectations, and we note that gross profit margin from the shipyard operations remained healthy at 25.9% vs 26.4% in 1Q12 and 24.1% in 4Q12. Due to the difficult business climate faced by ship operators and an altered vessel delivery schedule with the cessation of previous orders, YZJ delivered nine vessels in 1Q13 vs 15 units in 1Q12. 

US$597m of new orders YTD
Despite stiff competition in the shipbuilding industry, YZJ entered into eight new shipbuilding contracts worth US$237m recently; this after it secured US$360m worth of new orders to build four units of 10,000 TEU containerships in Jan 2013 when Seaspan exercised its options. We are estimating single-digit gross profit margins for these contracts, as the Chinese shipbuilding industry has entered into a low-margin period which may last for at least the next 12-18 months. 

Intends to further develop its financing business
YZJ has increased the amount invested in held-to-maturity assets from RMB11.4b in 4Q12 to RMB11.6b in 1Q13, and management expects to increase its investments. In fact, the group has hired more people to further develop its quasi-bank business to support overall profitability of the group. 

Downtrend has stabilised but signs of upturn remain elusive
The group is seeing an increase in new order enquiry recently, and management believes “the downtrend has stabilised”. With an order book of US$3.31b as at 26 Apr 2013 (we estimate that 35 out of its 65 vessels in its order book command gross profit margins of at least 10%), YZJ is in an enviable position amongst Chinese yards, but we do not see an industry upturn any time soon. Maintain HOLD with fair value estimate of S$0.95, based on 8x blended FY13/14F earnings.

Olam International

OCBC on 26 Apr 2013

Olam International Limited (Olam) has completed its strategic review and intends to take a rebalanced approach to growth and cashflow generation. To achieve its goals, Olam has identified six specific pathways or “concrete actions”. By doing so, management believes that Olam can become FCF positive by FY14 and also reduce its gearing boundary condition from <2.5x to <2.0x. However, we suspect that any meaningful impact may take some time to flow through (likely towards end FY16). As 3Q13 results are due in two weeks, we opt to leave our forecasts unchanged for now. Meanwhile, we keep our HOLD rating but place our S$1.50 fair value under review.

Accelerate free cash flow generation
Olam International Limited (Olam) has completed its strategic review and intends to take a rebalanced approach to growth and cashflow generation. Olam believes that the successful execution will considerably strengthen the group and result in continued growth in profits, a stronger balance sheet, improved operating performance, sustained positive FCFs and promote a better understanding of Olam’s business by its key stakeholders.

Targets FCF positive by FY14
To achieve its goals, Olam has identified six specific pathways – 1) recalibrate pace of investments (reduce pace of capex by S$1b); 2) optimize balance sheet (release ~S$500m of cash); 3) pursue opportunities for unlocking intrinsic value (release ~S$1b of cash); 4) reshape portfolio and reduce complexity (optimize portfolio and rationalize profit centres not meeting productivity norms); 5) improve operating efficiencies (release ~S$80-100m of annual savings); and 6) enhance stakeholder communication (give additional performance data). As such, Olam expects to be FCF positive by FY14 and also reduce its gearing boundary condition from <2.5x to <2.0x.

Meaningful impact may take time
While the review has identified “concrete actions”, we believe that any meaningful impact may still take some time to realize. And in the meantime, the re-jigging of its business units is likely to have some impact on earnings, although management believes that it should still see earnings growth in the next four quarters. Olam also notes that the release of cash is likely to be progressive and be recognized by the end FY16. Olam adds that it will not give specific point or range guidance on profitability for FY16; previously it had a target to grow NPAT to S$1b by then (including fair value gains).

No change to estimates for now
As 3Q13 results are due in two weeks, we opt to leave our forecasts unchanged for now. Meanwhile, we keep our HOLD rating but place our S$1.50 fair value under review.

Suntec REIT

OCBC on 26 Apr 2013

Suntec REIT announced 1Q13 DPU of 2.228 S cents, down 9.2% YoY. This is within expectations, given that the quarterly distribution made up 24-25% of our and consensus FY13F DPU. Retail segment registered a 38.9% YoY decrease in revenue due to the partial closure of Suntec City Mall. However, the office segment continued to perform, achieving a 7.6% growth in revenue on the back of positive rental reversions and consistently high occupancy of 99.7%. Management updated that it has signed a total of 185,000 sqft of leases in 1Q, leaving it with only 10.3% of office leases due to expire in 2013. As such, we expect the segment to continue to exhibit resilience for the rest of FY13. We also understand that the Suntec City AEI and ROI target of 10.1% remain on track, with Phase 1 space due to open in Jun 2013 as planned and already securing a 96.7% pre-commitment. We are keeping our forecasts intact but now raise our fair value to S$2.16 from S$1.94. Maintain BUY on Suntec REIT.

Strong delivery of 1Q13 results
Suntec REIT announced its 1Q13 results after the market close yesterday. Gross revenue fell 32.2% YoY to S$49.7m, while NPI saw a 37.4% decline to S$30.7m amid the partial closure of Suntec City Mall (SCM) and Suntec Singapore for asset enhancement works (AEI). However, distributable income dropped by a more benign rate of 13.3% to S$47.6m. Further aided by a S$2.7m top-up from Chijmes sale proceeds, the distributable amount eased only by 8.4% to S$50.3m. This translates to a DPU of 2.228 S cents, down 9.2% YoY. We deem the results to be well within expectations, given that the quarterly distribution made up 24-25% of our and consensus FY13F DPU.

Office segment alleviated fall in 1Q revenue
Retail segment registered a 38.9% YoY decrease in revenue as another portion of SCM next to Promenade MRT station was closed in Mar to execute the Phase 2 AEI. We also note that Suntec Singapore made minimal contribution during the quarter. However, the office segment continued to perform, achieving a 7.6% growth in revenue on the back of positive rental reversions and consistently high occupancy of 99.7% (unchanged QoQ). Management updated that it has signed a total of 185,000 sqft of leases in 1Q, leaving it with only 10.3% of office leases due to expire in 2013. As such, we expect the segment to continue to exhibit resilience for the rest of FY13. 

Maintain BUY
We also understand that the Suntec City AEI and ROI target of 10.1% remain on track, with Phase 1 space due to open in Jun 2013 as planned and already securing a 96.7% pre-commitment (83% in 4Q12). In addition, Phase 2 pre-commitment reached 53.0%, up from 37% in previous quarter. We are keeping our forecasts intact as the results have panned out according to our expectations. However, we now raise our fair value to S$2.16 from S$1.94 after lowering our equity risk premium to reflect Suntec REIT’s continued strong execution and portfolio resilience. Maintain BUY.

Sheng Siong Group

OCBC on 26 Apr 2013

Sheng Siong Group reported an excellent set of 1Q13 results with contributions from new stores boosting revenue growth by 12.3% YoY while cost management initiatives continued to improve operating margins. In the coming quarters, Sheng Siong’s outlook remains positive as the lack of any foreseeable price competition amongst the Big 3 players, and defensive consumer spending in the face of continued economic uncertainty should prove supportive for the group. That said, we expect a double-digit top-line growth and margin enhancements to sustain for FY13. We maintain BUY on Sheng Siong and increase our fair value estimate to S$0.82 from S$0.69 previously.

Excellent 1Q13 as expected
Sheng Siong Group’s (SSG) 1Q13 results came in within expectations. Revenue increased 12.3% YoY to S$179.4m while gross profit and operating margins improved to 22.5% and 6.9% respectively (+1.7 ppt and +0.9 ppt each) following continued cost management initiatives. This resulted in 1Q13 core net profit coming in 30.7% higher YoY at S$10.5m (excluding 1Q12’s one-time gain of S$10.4m from the sale of its Marsiling warehouse and S$1.6m tax provision).

Outlook remains positive for SSG
Aside from the seasonal bump related to the Lunar New Year, revenue was boosted by the contributions from the eight new stores opened since 1Q12. With this 14.9% increase in gross floor space to 400K s.f since then, SSG will experience an increase in revenue in the coming quarters even without adding further stores. That said, management maintains its 10% retail space growth target for FY13, which is achievable in our view given the ongoing estate rejuvenations plans for older estates such as Hougang.

Cost management to continue
In spite of ongoing input and wage pressures, the group’s margins have remained stable and we continue to have faith in the group’s cost management initiatives. In terms of the competitive landscape, we are unconcerned by Dairy Farm’s recent move to rebrand its Shop n Save shops to Giant stores as we believe that none of the Big 3 supermarket players would risk another price war similar to that in 4Q11. The tacit agreement since then has led to a recovery in margins for everyone. 

Maintain BUY at higher fair value
Although SSG hit an all-time high yesterday (counter closed 5% higher at S$0.715), we believe that there is still further upside to go. The confluence of new store contributions and a defensive consumer spending environment lead us to adjust our projections upwards. We maintain BUY on SSG with a higher fair value estimate of S$0.82 (S$0.69 previously).

CapitaMalls Asia

OCBC on 25 Apr 2013

CMA’s 1Q13 PATMI came in at S$73.2m – up 9.6% YoY mostly due to contributions from Star Vista, four malls in Japan and Queensbay Mall, a S$6.6m gain from warehousing of two assets sold to CCDFII, better performance from CMT, ION Orchard and the China Funds, and a sale at The Orchard Residences. Excluding one-time items, we judge 1Q13 results to be somewhat above expectations. Given the H7N9 bird flu outbreak, shopper traffic for CMA’s Chinese malls showed a decrease of -0.9% YoY. On a same mall basis, however, tenant sales were up +15.9% YoY. We see worsening H7N9 fears potentially reducing retail traffic over the nearer term but a sustained long-term business impact, in our view, is unlikely. Maintain BUY with an unchanged fair value estimate of S$2.55.

1Q13 numbers above expectations
CMA’s 1Q13 PATMI came in at S$73.2m – up 9.6% YoY mostly due to contributions from Star Vista, four malls in Japan and Queensbay Mall, a S$6.6m gain from warehousing of two assets sold to CCDFII, better performance from CMT, ION Orchard and the China Funds, and a sale at The Orchard Residences. Excluding one-time items, we judge 1Q13 results to be somewhat above expectations. 1Q core PATMI, estimated at S$64.6m, now constitutes 34% of our FY13 core PATMI forecast. 1Q13 topline came in at S$91.5m which increased 29.1% YoY due to contributions from Star Vista and four malls in Japan and higher management fee revenue from new malls and improved performances.

Bird-flu unlikely to have long-term impact
Given the H7N9 bird flu outbreak, shopper traffic for CMA’s Chinese malls showed a decrease of -0.9% YoY. On a same mall basis, however, total tenant sales were up +15.9% YoY (up 8.3% on a per sqm basis). We see worsening H7N9 fears potentially reducing retail traffic over the nearer term but a sustained long-term business impact, in our view, is unlikely. NPI performance in its Chinese malls continue to show improvement, with a 15.2% YoY increase in same-mall NPI seen in 1Q13. CapitaMall Meilicheng in Chengdu began operations on 28 Apr 2013 and is 90% leased with an expected NPI yield of 5% after its first year of operations.

Singapore portfolio showing stable growth
Singapore malls in the pipeline, Westgate (>50% committed) and Bedok Mall (>70% committed), remain on track for completion in 4Q13. Singapore same mall NPI also increased 1.3% YoY, while tenant sales per sqm and shopper traffic increased 3.6% and 3.7%, respectively.

Maintain BUY
We favor CMA for its sharp execution and retail property exposure in China and Singapore which continue to enjoy firm long-term fundamentals. Maintain BUY with an unchanged fair value estimate of S$2.55.

Cache Logistics Trust

OCBC on 25 Apr 2013

Cache Logistics Trust (CACHE) reported 1Q13 DPU of 2.234 S cents, up 7.1% YoY. This is in line with our expectations, given that the quarterly DPU made up 26.5% of our DPU forecast. The strong performance was mainly attributable to upward rental adjustments and incremental contribution from its past acquisitions. As at 31 Mar, the portfolio assets remained 100% occupied, with a healthy weighted average lease to expiry of 3.7 years. We also understand that CACHE has secured a new tenant, Agility Logistics, for its lease at APC Distrihub during the quarter. With this, CACHE has fully addressed its lease expiry in 2013, with zero renewals due for the rest of the year. CACHE currently has an aggregate leverage of 29.2% and a stable all-in financing cost of 3.52%. This provides CACHE with ample flexibility and firepower to pursue its growth opportunities. We are maintaining our BUY rating with a higher fair value of S$1.45 (S$1.33 previously) on CACHE.

Consistent set of 1Q13 results
Cache Logistics Trust (CACHE) released its 1Q13 results last evening. NPI rose 12.4% YoY to S$18.1m, forming 23.4% of our FY13F NPI, while distributable income increased 18.3% to S$15.8m, meeting 24.7% of our full-year income projection. DPU for the quarter came in at 2.234 S cents, up 7.1% YoY despite being partially impacted by an enlarged unit base following the private placement in Mar. This is also in line with our expectations, given that the quarterly DPU made up 26.5% of our DPU forecast (consensus: 25.4%).

Strength seen across all operating metrics
The strong performance was mainly attributable to upward rental adjustments and incremental contribution from its past acquisitions. As at 31 Mar, the portfolio assets remained 100% occupied, with a healthy weighted average lease to expiry of 3.7 years (4Q12: 3.9 years). We also understand that CACHE has secured a new tenant, Agility Logistics, for its lease at APC Distrihub during the quarter. With this, CACHE has fully addressed its lease expiry in 2013, with zero renewals due for the rest of the year.

Maintain BUY with higher fair value
Looking ahead, CACHE expects to continue to deliver sustainable growth for FY13, as it carries on its pursuit to acquire yield-accretive assets across its key markets such as Singapore, China and Malaysia, as well as to grow organically. We note that CACHE has recently completed the acquisition of Precise Two, a new ramp-up warehouse, at an attractive NPI yield of 8.7% on 1 Apr. This is likely to contribute ~4.2% to its FY13 NPI, based on our projections. CACHE currently has an aggregate leverage of 29.2% (down from 31.7% in 4Q12) and a stable all-in financing cost of 3.52%. This provides CACHE with ample flexibility and firepower (~$100m debt headroom based on 35% debt ceiling) to pursue its growth opportunities. We are raising our fair value from S$1.33 to S$1.45 on firmer cap rates and RNAV assumptions. Maintain BUY on CACHE.

Tiger Airways

OCBC on 24 Apr 2013

Following the TGR AU sale approval, investors can now look to TGR SG as the main growth driver for the Group. As a recap, TGR SG recorded an impressive set of growth figures for 9MFY13 (revenue +30.7% YoY to S$444m) while its operating statistics for the quarter just ended has been equally positive and encouraging. Although TGR will continue to experience some drag from TGR AU – albeit at a lower 40% proportion – and SEAir (which is still in its infancy), we expect TGR SG’s performance to more than offset any draw-downs and continue to lead the ongoing recovery process for TGR. We reiterate our BUY rating on TGR with a lower fair value estimate of S$0.79 (S$0.86 previously) after taking into consideration the recent rights and PCCS issuance.

ACCC approves TGR AU sale to Virgin
Tiger Airways (TGR) announced yesterday that it received approval from the Australian ACCC to sell 60% of TGR AU to Virgin Australia. This long-awaited approval was met positively and TGR’s share price closed more than 6% higher as a result.

TGR SG’s performance will no longer be overshadowed
Following this approval, TGR will record a one-time gain on disposal of S$119.8m and shore up its balance sheet. More importantly, investors can now look to TGR SG as the main growth driver for the Group. As a recap, TGR SG recorded an impressive 30.7% YoY growth in 9MFY13 revenue to S$444m on the back of passenger load factor improvements (+3ppt to 84.3%). Subsequently, TGR SG has continued to post encouraging operating statistics for the quarter just ended (4QFY13), and passenger load factors are expected to increase by at least 4ppt to 84.4% from a year ago.

Some drag to remain from associates, TGR AU
While TGR AU will be a standalone entity following the expected sale completion in 2HCY13, we do expect the incurrence of losses to continue – albeit at a lower 40% proportion. Although operating losses have narrowed, TGR AU remains loss-making and this trend could continue until the new entity incorporates complimentary services with Virgin Australia. Similarly, TGR’s other associate – South East Asian Airlines (SEAir) – is still in its infancy stage and operating losses could still hit TGR’s books in the near-term.

Maintain BUY
Despite the risk of a drag on performance by its associates, we continue to stand by our assertion that TGR’s turnaround is ongoing. LCC’s such as TGR will continue to benefit from improvements in emerging Asia affluence and corresponding increases in consumer demand from a value/cost standpoint. Maintain BUY rating on TGR with a lower fair value estimate of S$0.79 (S$0.86 previously) after taking into consideration the recent rights and PCCS issuance. 

First Reit

OCBC on 24 Apr 2013

First REIT (FREIT) reported its 1Q13 results which were within our expectations. Gross revenue grew 25.0% YoY to S$17.5m, underpinned by a full-quarter of contribution from the two properties it acquired on 30 Nov 2012. Distributable amount to unitholders and DPU increased by 16.5% and 9.4% YoY to S$11.6m and 1.74 S cents, respectively, if we exclude a special distribution made in 1Q12. Although FREIT is currently finalising its proposed acquisition of two hospitals from its sponsor Lippo Karawaci (subject to unitholders’ approval at an EGM), we expect it to continue its search for more yield accretive assets in the near future. We reiterate our HOLD rating and S$1.31 fair value estimate on FREIT as we believe that its valuations are not compelling (trading at 1.6x FY13F P/B).

1Q13 results in line with expectations
First REIT (FREIT) reported that its gross revenue for 1Q13 increased 25.0% YoY to S$17.5m. This was driven largely by a full-quarter of contribution from the two properties it acquired on 30 Nov 2012. Distributable amount to unitholders and DPU increased by 16.5% and 9.4% YoY to S$11.6m and 1.74 S cents, respectively, if we exclude a special distribution of S$2.2m (S$0.34 per unit) in 1Q12 which arose from a gain from the sale of the Adam Road property. The ex-dividend date for the distribution is on 29 Apr at 9 a.m., while the date payable is on 30 May. Although gross revenue and DPU for 1Q13 formed 21.2% and 22.1% of our FY13 estimates, respectively, this was within our expectations as contribution from its proposed two new hospital acquisitions has yet to kick in. We believe that contribution would begin around late May or early Jun this year (subject to unitholders’ approval at its EGM on 29 Apr).

Acquisition appetite remains strong
Once FREIT completes the acquisition of the two new hospitals from its sponsor Lippo Karawaci (Lippo), it will be able to boost its portfolio size from S$797m to ~S$1b. But we expect FREIT to continue its search for more yield accretive assets, which are likely to come from Lippo. Future acquisitions in the near-term are likely to be financed by a combination of both debt and equity, in our opinion, even if FREIT obtains a credit rating.

Maintain HOLD
FREIT’s share price has surged 32.1% YTD, making it the best performing stock in the S-REITs universe. Nevertheless, with the stock trading at 1.6x FY13F P/B, we believe that valuations are not compelling at current levels. The market appears to have priced in the positives from its recent proposed acquisitions, in our view. We finetune our assumptions after taking into account this set of results, and reiterate our HOLD rating and S$1.31 fair value estimate on FREIT.

Suntec Reit

Kim Eng on 24 Apr 2013

Q13 DPU likely down. Suntec’s 1Q13 DPU is likely to be lackluster, dragged down by Suntec City Mall’s (SCM) ongoing renovation works. We estimate that the largest dip on FY13 DPU will occur in 1Q-2Q13, when Phase 1 new tenants have yet to start paying rentals and Phase 2 old tenants are being vacated for the AEI. We forecast 1Q13 DPU at 2.20 SG-cts (-5% QoQ; -10% YoY) and FY13 DPU at 9.2 SG-cts. (-3% YoY).

Look out for progress update on AEI. Pre-commitments for Suntec City Mall’s (SCM) Phase 1 post-AEI leases hit 83% in 4Q12 and we believe most were secured above the targeted SGD12.59 psf/mth. Suntec also reported that 37% of Phase 2 NLA has been pre-committed. We noted that Phase 2 AEI for SCM has commenced and the intensity of the refurbishment works could mean that overall AEI works should wrap up as scheduled by 4Q14.

Optimistic on SCM Rental Uplift. We estimate that the average passing rents for SCM post-AEI may be secured at SGD13.50 psf/mth. We think this is still conservative, given that passing rents at nearby Raffles City Mall are contracted at ~SGD18-19 psf/mth. In addition, the recent AEI at Causeway Point (suburban mall in Woodlands) has managed to uplift its average rent from SGD10.20 psf/mth (pre-AEI) to current SGD13.52 psf/mth, and we expect Suntec to do likewise, if not better, for a Downtown Core mall.

High chance of DPU top-up. Suntec received cash proceeds of ~SGD147m from the sale of Chijmes in 1Q12. We think it will keep the flexibility for DPU top-up in 2013, when its mall occupancy will be most affected (DPU: 9.22 cents in FY13F vs 9.49 cents in FY12). 1Q13/2Q13 quarters will witness the largest occupancy dip and we do not rule out the likelihood of a DPU top-up as early as 1H13. Reiterate BUY with a TP of SGD2.07, priced at P/B of 1x.

Convertible bonds. Suntec has issued a SGD280m convertible bond (CB) due 2018 at an interest rate of 1.4% (initial conversion price of SGD2.154). About SGD231.7m will be used to refinance its existing debt, which includes the SGD270m CB issued in 2008 with final redemption date on 20 Mar 2013 and coupon interest of 3.25%. Following cash settlement and cancellation, the principal amount of the 2013 CB remaining outstanding is SGD216.25m, which will be redeemed by the REIT at 105.5063% of its principal amount. We estimate interest savings of ~SGD5m pa. 

Starhill Global REIT

Kim Eng on 24 Apr 2013

Special Distribution expected in 1Q13. SGREIT will be announcing its 1Q13 results on 26 Apr (aft. market). We think SGREIT is likely to announce a special distribution of 0.2 SG-cts, following the 10% rent increase for the master lease with Toshin at Ngee Ann City (NAC). The net rental arrears from 8 Jun 2011 to 31 Dec 2012 amounted to ~SGD3.8m. We forecast 1Q13 DPU at 1.37 SG-cts and FY13 DPU at 4.88 SG-cts. This represents an 11% YoY growth, boosted by positive rental reversions following Wisma Atria’s AEI (21.5% of gross rent up for renewal in FY13) and acquisition of Plaza Arcade.

Toshin rental dispute resolved. What to expect next? A separate rent review exercise with Toshin is in progress to determine the NAC renewal rent to be paid upon the commencement of the option period of 12 years starting 8 June 2013. The 10% increment from 8 Jun 2011, estimated at SGD14.90 psf/mth, will be used as the base rent for this renewal. Our sensitivity analysis shows that every 50 SG-cts psf/mth increment of the base rent will add another 1 SG-cts to our TP.

How big a drag will Japan be? Following the depreciation of Yen against SGD(down ~9% last quarter), we expect the Japan portfolio to report weaker earnings (down 8%-12% QoQ) this round. SGREIT adopts a natural currency hedge strategy (capital hedge), which maximises the use of local currency denominated borrowings, whenever possible, to match the currency of the asset investment. Occupancy rate is also likely to come under pressure from 92.7% in 4Q12. Nonetheless, Japan portfolio represents only a small fraction of SGREIT’s asset, constituting 4% of FY12 revenue/NPI and FY13 RNAV,

Will YTL convert its CPUs? YTL Corp (sponsor) holds 173m CPUs, as part of the consideration for the acquisition of the Malaysia Properties (Starhill Gallery & Lot 10) in 2010. YTL is being paid up to RM0.1322 per CPU equivalent to a distribution rate of 5.65% per annum. The CPUs are eligible for conversion by the sponsor after 28 Jun 2013 at a conversion price of SGD0.7266. If fully converted, this will bring down Unitholders’ fund/shr to SGD0.86 from SGD0.88, with 238m newly issued units (10.9% dilution post-conv). Compared to FY12 DPU yield of 4.6% vis-à-vis CPU coupon rate of 5.65%, we think SGREIT is likely to benefit from the cost savings in annual CPU payments (SGD9.1-9.3m), if the CPUs are converted in full. Nonetheless, this will be at the expense of free float, with YTL increasing its SGREIT’s deemed interest to 37.09% from 29.38%.

Regardless, Investment thesis is intact. SGREIT’s key assets are in the coveted Orchard Road area, where tight supply and the entry of new international retailers should give it greater bargaining power in terms of leasing its space. We continue to like SGREIT for the rental upside at Wisma Atria and income stability in Malaysia and Australia. At 5.2% FY13F yield and 1.06x P/B, we reiterate BUY with a DDM-derived TP of SGD1.02. 

Courts Asia

Kim Eng on 24 Apr 2013

Key takeaways from luncheon. We hosted a luncheon for Courts Asia’s CEO Terry O’Connor this week which was well-received by institutional investors. Following an introductory briefing on Courts’ evolvement and past problems, investors grilled them on current market positioning, plans for Indonesia, and its liquidity issue. We continue to view its ambitions to expand regionally in a positive light. Our TP remains the highest on the Street at SGD1.49 on this under-researched stock.

The past and the present. In the past, Courts had operations in Indonesia, Thailand, Singapore and Malaysia, where it had struggled with over- expansion and poor credit control. Now, management has centralised its credit system to make it independent of the country heads and refocused on credit quality control and collection, rather than aggressive credit recognition. Right now, 65% of sales in Malaysia and 10% of sales in Singapore are credit sales, with respective bad debt levels at their lowest in 5 years at 4.2% and 2%. When the quality of credit was questioned, management emphasised that the receivables placed in Malaysia’s SPV had to be rated triple-A quality to be accepted. To counter this, Courts has recently proposed establishing a SGD500m multicurrency debt program to expand on its credit drawdown at more favourable rates, depending on the risk appetite of investors.

Indonesia’s potential reemphasised. Growth prospects were a hot topic during the luncheon and management highlighted that the strongest growth is expected to come from Indonesia, then Malaysia. Previously, Courts had operated in various parts in Indonesia, and although it remained profitable, it was not where consumer spending was strongest. This time around, Courts will only be focusing on one high consumption region – Jakarta. It will be opening outlets predominantly around Bekasi to fully utilise its joint warehouse with a Megastore store expected to open in 2014. Management expects this to break even within two years.

Liquidity issue. Currently, SRG holds 68.2% of Courts, with the remaining 29% the free float. Of this, institutional investors such as JF Asset Management, New Silk Road, Target Asset Management and Value Partners Hong Kong together held 13.9% of the shares at the IPO offering. We expect Barings Equity to place out small blocks to free up liquidity, while retaining a majority share to benefit from Courts’ regional growth. 

Mapletree Commercial Trust

MAPLETREE Commercial Trust's (MCT) Q4 FY2013 revenue and net property income (NPI) rose by 22 per cent and 23 per cent y-o-y, to $60.7 million and $44.2 million, respectively. Growth was largely driven by strong rental reversions at VivoCity and PSA Building, supported by improved occupancy levels of 97.7 per cent (versus 94.6 per cent a year ago).

Meanwhile, the quarter also saw partial contribution from Mapletree Anson, which was acquired on Feb 4, 2013. Distributable income came in at $34.7 million (+20 per cent y-o-y), translating into a distribution per unit (DPU) of 1.737 cents (+12 per cent y-o-y).

With revaluation of close to $196 million made at the year-end, MCT's NAV increased by 11 per cent to $1.06. Gearing, as a result, fell slightly to 40.8 per cent. Financial metrics remain healthy with an interest cover of 5.4 times, about 70 per cent of interest costs is fixed, and weighted average lease expiry is 3.3 years.

MCT's portfolio achieved a robust uplift in rental revenues for FY2013 with strong retention rates of about 83 per cent (retail) and 65.2 per cent (office). Notably, revenue from VivoCity increased by about 6 per cent y-o-y, supported by a 33 per cent uplift in fixed rents, while its office leases, namely PSA Building, were signed at 44.3 per cent higher rates. Looking ahead, the outlook remains robust based on the following: 1) the trust has 17.9 per cent of its income up for renewal, of which a majority will be leases at VivoCity. The manager has plans to continue to remix the mall's tenant base to maintain its appeal; and 2) full-year contribution from Mapletree Anson, which offers further upside when its leases are up for renewal in the coming year.

While we believe that the current price fully reflects the positives of the current portfolio, we remain optimistic that given the significant pipeline from its sponsor, acquisitions will remain a key feature for MCT. A medium-term target remains Maple Business City, which will provide a solid platform for MCT to grow to the next level. We have assumed $1 billion worth of acquisitions in FY2015 (at 5.25 per cent yield, with an equity/debt funding ratio of 60 per cent/40 per cent, keeping gearing constant). "Buy", with target price raised to $1.53.

BUY

Hospitality Sector

OCBC on 23 Apr 2013

We have analyzed the relationship between the YoY change in average RevPAR and YoY change in average tourism receipts per visitor arrival. In general, the signs of both are the same for the same year, with change in RevPAR being of larger magnitude than the change in average tourism receipts. 2012 was an exception, where average tourism receipts per visitor fell ~5.5% YoY while RevPAR grew 5.7% YoY. STB’s targets imply that average tourism receipts per visitor may fall by 1% YoY. This further supports our cautious view regarding RevPAR performance in 2013. STB preliminary data supports what we have been saying since Dec: 1Q13 performance for the sector will be weak. 2M13 RevPAR fell 3.1% YoY to S$215.00. Economy hotels were the best performers. We remain NEUTRAL on the hospitality sector. Our top pick is Global Premium Hotels [BUY, FV: S$0.33], which is a longer-term asset value play in the Economy space.

RevPAR vs. average tourism receipts
We have analyzed the relationship between the YoY change in average RevPAR and YoY change in average tourism receipts per visitor arrival for 2001-2012. In general, the signs of both are the same for the same year, with change in RevPAR being of larger magnitude than the change in average tourism receipts. 2012 was an exception, where average tourism receipts per visitor fell ~5.5% YoY while RevPAR grew 5.7% YoY. We believe RevPAR numbers were positively skewed by the good performance of the IRs’ hotels. For 2013, STB is targeting 14.8m-15.5m visitor arrivals (+2.9% to +7.7% YoY) and tourism receipts of S$23.5b-24.5b (+2.2% to +6.5% YoY). The targets imply that average tourism receipts per visitor may fall by 1% YoY. This further supports our cautious view regarding RevPAR performance in 2013.

2M13 saw RevPAR fall
Preliminary data from the STB supports what we have been saying since Dec: 1Q13 performance for the sector will likely be weak. On a YoY basis, gross lettings for 2M13 fell 4.7% to 1.70m room nights. Room revenue declined 7.2% YoY to S$427.8m. The average occupancy rate fell 0.4% YoY to 85% and the average room rate contracted 2.7% YoY to S$252.20. These changes caused RevPAR to fall 3.1% YoY to S$215.00.

Economy tier has best RevPAR performance
Luxury hotels’ RevPAR in Jan was roughly flat YoY, but RevPAR in Feb 2013 fell a whopping 28% YoY. We attribute this at least partially to Chinese New Year falling in Feb instead of Jan this year, pushing back the start of pickup in business travel. For 2M13, the subsectors’ RevPARs performed as follows: Economy (-0.8%), Mid-tier (-1.4%), Upscale (-3.6%) and Luxury (-14.6%).

Remain NEUTRAL
We are maintaining our NEUTRAL stance on the hospitality sector. For 2013-2015, we forecast hotel room demand growth of 5.4% p.a., lower than the projected 5.8% p.a. increase in room supply. Our top pick is Global Premium Hotels [BUY, FV: S$0.33], which is a longer-term asset value play with exposure to Economy-tier hotels. 

Wilmar

OCBC on 23 Apr 2013

Wilmar International Limited (WIL) has acquired a strategic 27.5% stake in Cosumar SA – a Morocco-based sugar producer – for MAD2.3b (US$263m), funded by internal funds and bank borrowings. WIL believes that Cosumar provides the group with the opportunity to service a large and growing structural deficit in sugar in Morocco and the surrounding regions of Southern Europe, Northern and Western Africa. While we see the latest acquisition dovetailing nicely with WIL’s strategy of becoming a global sugar player, the near-term impact is likely going to be muted by still-weak sugar prices. Weaker sugar prices notwithstanding, we believe that WIL’s large distribution network in China puts the group in a good position to capitalize on the expected increase in sugar consumption there. Maintain BUY with an unchanged S$3.90 fair value (based on 15x FY13F EPS).

Acquires 27.5% stake in Cosumar SA
Wilmar International Limited (WIL) has acquired a strategic 27.5% stake in Cosumar SA – a Morocco-based sugar producer; Cosumar is also the sole sugar supplier in Morocco and the third largest sugar producer in Africa. WIL intends to focus the MAD2.3b (US$263m) acquisition with internal resources and bank borrowings. Based on its FY12 balance sheet, WIL has a total liquidity of US$15.1b available, with cash of US$1.5b and unutilized credit facilities of US$13.5b.

Likely medium-term positive
According to management, Morocco is an attractive investment destination with a stable and resilient economy, plus the regulated sugar industry offers steady growth. WIL further believes that Cosumar provides the group with the opportunity to service a large and growing structural deficit in sugar in Morocco and the surrounding regions of Southern Europe, Northern and Western Africa. WIL has been growing its sugar business rapidly since 2010 – it now operates five sugar refineries across Australia, New Zealand and Indonesia with an annual production volume of >1.8m MT.

Near-term impact more muted
While we see the latest acquisition dovetailing nicely with WIL’s strategy of becoming a global sugar player, the near-term impact is likely going to be muted by still-weak sugar prices. Industry experts note that there is still a large statistical surplus on the world market and global sugar prices could fall further this year. Nevertheless, sugar experts believe that Asia will now be the engine for consumption growth, noting that the average level of sugar consumed in China is still very low at 10-11kgs compared to 24kgs globally.

Still a BUY with S$3.90 fair value
Weaker sugar prices notwithstanding, we believe that WIL’s large distribution network in China puts the group in a good position to capitalize on the expected increase in sugar consumption there. Maintain BUY with an unchanged S$3.90 fair value (based on 15x FY13F EPS).

About Cosumar SA
Based in Casablanca, Cosumar is the sole sugar supplier in Morocco. It is also the third largest sugar producer in Africa, with ownership of one of the largest refineries in the world, as well as seven beet and cane sugar mills situated in five regions in Morocco.

CapitaCommercial Trust

OCBC on 22 Apr 2013

CapitaCommercial Trust (CCT) reported 1Q13 distributable income of S$55.7m – up 3.3% YoY. This translates to a 1Q13 DPU of 1.96 S-cents, which is 3.2% above the 1.90 S-cents paid in 1Q12. We see this to be in line with expectations and 1Q13 distributable income now makes up 24% of our full year forecast. The growth in distributable income was mainly due to a full contribution from 20 Anson (acquired in Mar-12) and higher rentals at HSBC Building. CCT’s portfolio occupancy remained fairly stable at 95.3% in 1Q13, down marginally from 97.2% in 4Q12, mainly due to Cisco’s relocation from Capital Tower. We continue to see positive rental reversion in the portfolio – average monthly portfolio rents increased from $7.64 psf in 4Q12 to $7.83 psf in 1Q13. In addition, CapitaGreen remains on track for completion in 4Q14. Maintain BUY with a fair value estimate of S$1.80.

1Q13 DPU up 3.2% YoY
CapitaCommercial Trust (CCT) reported 1Q13 distributable income of S$55.7m – up 3.3% YoY. This translates to a 1Q13 DPU of 1.96 S-cents, which is 3.2% above the 1.90 S-cents paid in 1Q12. We see this to be in line with expectations and 1Q13 distributable income now makes up 24% of our full year forecast. The growth in distributable income was mainly due to a full contribution from 20 Anson (acquired in Mar-12) and higher rentals at HSBC Building. In addition, 1Q13 topline grew 9.7% to S$95.9m – again within expectations and forming 25% of our full year estimate.

Positive rental reversion continues
CCT’s portfolio occupancy remained fairly stable at 95.3% in 1Q13, down marginally from 97.2% in 4Q12, mainly due to Cisco’s relocation from Capital Tower. We continue to see positive rental reversion in the portfolio – average monthly portfolio rents increased from $7.64 psf in 4Q12 to $7.83 psf in 1Q13. ~26.8% of portfolio NLA was up for lease renewal in 2013, of which 16.9% has already been committed (88% renewals and 12% new leases). As a result, the weighted average lease term to expiry (top 10 tenants) is lengthened from 3.0 years in 4Q12 to 3.8 years currently. CapitaGreen remains on track for completion in 4Q14. Asset enhancement works at 6BR and Raffles City Tower would complete by end-2013 and 2Q14, respectively.

Maintain BUY
For the remainder of FY13, CCT has only S$50m of debt due in Jun which it could refinance using its undrawn bank facilities. With net gearing at a relatively low 30.4%, we note that CCT has significant debt headroom for acquisitions and asset enhancements. Though management would likely be cautious on the acquisitions front due to the criteria for yield accretion, we believe that acquisitions are still workable in current conditions (low financing costs and DPU yield at 4.7%) and that there is meaningful growth potential ahead. Maintain BUY with an unchanged fair value estimate of S$1.80.

CapitaRetail China Trust

OCBC on 22 Apr 2013

CRCT's 1Q13 results were generally in line with ours and the street's expectations. Gross revenue climbed 3.7% YoY to S$39.3m and net property income rose 1.8% YoY to S$25.9m. On a QoQ basis, NPI at CapitaMall Minzhongleyuan (MZLY) fell 32% to RMB4.7m. We expect NPI from MZLY to dip further in the coming quarters since the AEI there is being fast-tracked, with temporary closure of the mall from Jul 2013 to 2Q14. According to management, CRCT has secured offers at favorable terms to refinance S$150.5m due in Jun 2013. Adjusting our estimates slightly, we increase our fair value from S$1.72 to S$1.76 but we maintain our HOLD rating on CRCT on valuation grounds.

1Q13 NPI rose 1.8% YoY
CRCT's 1Q13 results were generally in line with ours and the street's expectations. Gross revenue climbed 3.7% YoY to S$39.3m and net property income rose 1.8% YoY to S$25.9m. Increases in both gross revenue and NPI was due to good tenancy adjustments at CapitaMall Saihan and CapitaMall Wuhu. NPI margin decreased due to: 1) accrual to compensation to tenants from pre-termination of leases as part of brand refinement and to facilitate AEI work at CapitaMall Xizhimen and CapitaMall Minzhongleyuan (MZLY) respectively, and 2) higher property management fees and staff-related costs. DPU fell 4.1% YoY to 2.31 S cents; excluding the 57m units issued through private placement in Oct 2012, DPU would have been 3.7% higher YoY.

NPI at Minzhongleyuan fel 32% QoQ
For 1Q13, tenant's sales and shopper traffic grew by 11.1% and 10.6% YoY respectively. These figures refer to the multi-tenanted malls, excluding MZLY, which is undergoing AEI. Excluding MZLY, NPI grew 7.1% YoY to RMB127.3m. On a QoQ basis, NPI at MZLY fell 32% to RMB4.7m. We expect NPI from MZLY to dip further in the coming quarters since the AEI there is being fast-tracked, with temporary closure of the mall from Jul 2013 to 2Q14.

Secured refinancing offers; positive retail outlook
CRCT has a reasonably good financial position, with gearing at 25.4%, and interest coverage ratio of 8.4x, although average term to maturity is not long at 1.3 years. According to management, CRCT has secured offers at favorable terms to refinance S$150.5m due in Jun 2013. All-in cost of debt is expected to be maintained below 3%. For 2013, the Chinese government is targeting the country's GDP and retail sales to grow at 7.5% and 14.5% respectively. To stimulate consumption, the government is promoting urbanisation, increasing wages and encouraging credit consumption.

Maintain HOLD 
Adjusting our estimates slightly, we increase our fair value from S$1.72 to S$1.76 but we maintain our HOLD rating on CRCT on valuation grounds.

CapitaMall Trust

OCBC on 22 Apr 2013

CapitaMall Trust (CMT) turned in a strong set of 1Q13 results last Friday. DPU increased by 7.0% YoY to 2.46 S cents, despite a retention of S$8.4m in income for the quarter. This is slightly ahead of our expectations, as S$6.6m in taxable income may be distributed in FY13 (1Q DPU already formed 25.2% of our FY13F DPU). Operationally, we note that CMT continued to deliver on various fronts. CMT also updated that the repositioning of IMM Building has been gaining traction, while the space vacated by Carrefour in 4Q12 at Plaza Singapore has been leased to Cold Storage and John Little and British retailer George. As previously guided, CMT announced a new AEI at Bugis Junction, which is expected to last from 2Q13 to 3Q14. We remain positive on CMT’s performance going forward, in view of these positive developments. We maintain BUY on CMT with a higher fair value of S$2.43 (previously S$2.32).

Promising start to FY13
CapitaMall Trust (CMT) turned in a strong set of 1Q13 results last Friday. As we have previously expected, NPI and distributable income grew by 15.5% and 14.3% YoY to S$125.1m and S$93.7m, respectively, on the back of incremental income from JCube, Bugis+ and The Atrium@Orchard following the completion of their asset enhancement initiatives (AEIs). DPU came in at 2.46 S cents, representing an increase of 7.0% YoY despite a retention of S$8.4m in income for the quarter. This is slightly ahead of our expectations, as S$6.6m or ~0.19 S cents in taxable income may be distributed in FY13 (1Q DPU already formed 25.2% of our FY13F DPU).

Steady operational performance
Operationally, we note that CMT continued to deliver on various fronts. Notwithstanding a slight dip in occupancy at IMM Building due to ongoing AEI, portfolio occupancy inched up 0.1ppt QoQ to 98.3% amid stronger take-up rates at The Atrium@Orchard. Steady positive rental reversion of 6.2% was also achieved during the quarter, consistent with our view for a 6.0-6.5% increase. In addition, 1Q shopper traffic improved 4.3%, while tenant sales climbed 2.4% YoY.

Maintain BUY with higher fair value
CMT updated that the repositioning of IMM Building has been gaining traction, as evidenced by the commitment of another 10 outlet brands in 1Q (total: 50 outlets). We also understand that the space vacated by Carrefour in 4Q12 at Plaza Singapore has been leased to Cold Storage (operational on 18 Mar) and John Little and British retailer George (open in Jul), much to our delight. ~S$8.7m in capex is estimated for reconfiguration of the space and AEI, with target ROI to come in at 9.8%. As previously guided, CMT announced a new AEI at Bugis Junction, which is expected to last from 2Q13 to 3Q14 (S$35.0m capex, 9.0% ROI). We remain positive on CMT’s performance going forward, in view of these positive developments. We are raising our fair value from S$2.32 to S$2.43 after factoring the better-than-expected results and new initiatives. Maintain BUY.a