Starhill Global Reit

Kim Eng on 30 Apr 2014

• 1Q14 DPU rose 5.1% YoY to 1.24 SGD cts; revenue up 1.8% YoY excluding payment of Toshin’s rent arrears in 1Q13.
• Non-core Chengdu mall remains a drag on overall portfolio; divestment is essential in our view.
• Maintain HOLD with DDM-derived TP unchanged at SGD0.84.

Results in line with expectations
Excluding the 1Q13 one-time payment of SGD5.3m in accumulated rental arrears from master tenant Toshin at Ngee Ann City, SGREIT posted a 1.8% YoY rise in 1Q14 revenue to SGD49.2m. This increase was bolstered by a 6.2% YoY uptick in revenue from its Singapore properties, offset by lower contributions from properties in Japan, China and Malaysia. Renhe Spring Zongbei Mall in Chengdu, China, continued to languish, with revenue sliding 16.5% QoQ and 29.5% YoY to SGD2.8m amid stiff competition and the slowdown in the high-end luxury retail segment. 1Q14 DPU rose to 1.24 SGD cts, up 5.1% YoY (stripping out the 0.19 SGD cts in 1Q13 from the Toshin payout). Balance sheet remained strong with a low gearing of 29.6%, with 28.6% of total borrowings due for refinancing in 2015 and 23.2% in 2016.

Upcoming lease renewals
In Malaysia, management is eyeing a ~7.2% increase in rent when the master tenancy with Katagreen Development for Starhill Gallery and Lot 10 is up for review in 2016. For Australia, it expects rent for the David Jones Building to go up by ~6% in Aug 2014. In Singapore, there is potential for leasable area expansion when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021. In our view, inorganic acquisitions have a higher chance of “moving the needle”, and management said previously that it was considering the Singapore, Malaysian and Australian markets. We also look forward to further acquisitions and divestments of its non-core assets in China and Japan in FY14E-15E. Until then, we maintain our HOLD recommendation with an unchanged DDM-derived TP of SGD0.84

Vard Holdings

Kim Eng on 30 Apr 2014

• 1Q14 results in line with PATMI of NOK92m making up 15% of our and 16% of consensus forecasts.
• EBITDA margin saw a third consecutive quarter of improvement to 6.4%.
• Selldown unwarranted. Maintain BUY and TP of SGD1.07, based on 1.4x FY14E P/BV, 1SD below its historical mean.

What’s New
Vard reported 1Q14 PATMI of NOK92m (-51.1% YoY, -18.6% QoQ), meeting 15% of our and 16% of consensus forecasts. Despite the sharp decline, we consider the results in line with our expectations and anticipate improvements over the next few quarters. On a pre-tax basis, EBT rose 36.8% QoQ as there was a NOK19m tax write-back in 4Q13. More importantly, EBITDA margin continued to climb higher for the third consecutive quarter, rising 1.3ppt to 6.4%.

What’s Our View
Following yesterday’s non-deal roadshow for Vard, we are even more confident of the company’s recovery. No further provisions were taken in the Niteroi yard while the Promar yard is ramping up according to plan. Management guided for long-term sustainable EBITDA margin of 8-10%, which is in line with our forecasts of 7.9%/9.8% for FY14E/15E.
1Q14 saw an exceptionally high level of order intake of NOK5.5b, achieving 43% of our full-year forecast of NOK12.8b. While this cannot be extrapolated, management is still optimistic on further order wins. Net orderbook is at a five-year high of NOK21.8b, providing strong earnings visibility for the next two years and support for the anticipated recovery. Vard is most positive on the OSCV market, citing opportunities even for AHTS and PSV vessels.
We keep our forecasts intact and view the selldown on the stock as unwarranted. Maintain BUY and TP of SGD1.07, pegged to 1.4x FY14E P/BV, which is 1SD below its historical mean.

Raffles Medical

Kim Eng on 29 Apr 2014

• 1Q14 results slightly below expectations on slower-than-expected revenue growth. But margins remained healthy. 
• Tight capacity at existing Raffles Hospital may curtail growth for now but significant medium-term growth beckons with completion of extension projects in 2016.
• Maintain BUY. Trim DCF-derived TP to SGD3.95, on lower earnings forecasts.

1Q14 results slightly below expectations
Raffles Medical reported 1Q14 revenue of SGD87.6m, up 8% YoY but down 1% QoQ as the first quarter is seasonally the weakest. Healthcare services grew 14.3% YoY and the hospital segment, 4.8% YoY. According to management, the hospital segment posted even growth in terms of volume and pricing, but it was still slightly below our expectations. Accordingly, we lower our revenue growth assumptions, as tight capacity at existing Raffles Hospital may curtail growth.
Margins stayed healthy as management continued to keep a tight lid on operating costs. Higher contracted services costs were largely due to a change in revenue mix, with higher growth coming from the corporate insurance business (healthcare services). This resulted in a net profit of SGD12.6m for 1Q14 (+8% YoY).

Maintain BUY
Management is still in talks with its China partners for two greenfield hospital projects. While the MOUs have a stop-date of Jun 2014, we believe this may be pushed back as the relevant parties iron out further details. We lower our FY14E-16E earnings by 3-5%. Earnings growth is likely to be below historical mid-teens over the next two years, but the company would have a significant growth trajectory once it’s Holland V and hospital extension projects are completed by 2016. We trim our DCF-based TP to SGD3.95 (previously SGD4.11). Maintain BUY.

Hutchison Port Holdings Trust

OCBC on 29 Apr 2014

HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. The trust also reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. Maintain HOLD.

Boost from divestment gain of ACT stake
HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. Management indicates the increase in average revenues per TEU in HK was due to more favorable mix of containers from liners, whereas the increase in China was due to fewer concessions to liners and a lower empty/laden container ratio. 

Outbound cargoes to US and EU showing uptrend
The trust reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. That said, we continue to see upward pressure in terms of cost of services rendered, which increased 11.0% YoY due to higher external contractor costs and inflationary pressures. Capex in 1Q14 also rose 27% YoY to HK$311m, and management indicates that it would revive expansion plans to add one berth each year at Yantian from 2015.

Maintain HOLD
We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. While conditions remain challenging due to a mix of rising labor costs and taxation increases, we see the downside to be limited here due to an attractive FY14F dividend yield of 8.1%. Maintain HOLD.

Raffles Medical Group

OCBC on 29 Apr 2014

Raffles Medical Group (RMG) reported its 1Q14 results, with both revenue and PATMI increasing by 8.0% YoY to S$87.6m and S$14.6m, such that topline and bottomline formed 23.0% and 21.4% of our FY14 forecasts, respectively. This is within our expectations as 1Q is seasonally RMG’s weakest quarter. RMG has started construction of its commercial building at Holland Village and is finalising the development plans for its Raffles Hospital extension. It is also in continued negotiations with its partners on working out the details for two separate greenfield hospital development projects in China. We keep our forecasts intact and expect RMG to record revenue and core PATMI growth of 11.7% and 12.1% in FY14, respectively. Rolling forward our valuations to 30x blended FY14/15F EPS, we derive a higher fair value estimate of S$3.90 (previously S$3.68). Maintain BUY.

1Q14 results within our expectations
Raffles Medical Group (RMG) reported its 1Q14 results, with both revenue and PATMI increasing by 8.0% YoY to S$87.6m and S$14.6m, such that topline and bottomline formed 23.0% and 21.4% of our FY14 forecasts, respectively. This is within our expectations as 1Q is seasonally RMG’s weakest quarter. On a segmental basis, revenue for RMG’s Healthcare Services division rose 14.3% YoY, aided by the addition of more corporate contracts and increased volume of healthcare insurance services. Revenue for its Hospital Services segment grew by a more modest 4.8% YoY. Management highlighted that it experienced slower growth in its Indonesian patients market, which was likely due to the weak SGD-IDR exchange rate and uncertainties caused by the upcoming presidential elections. Nevertheless, we believe this softness is transient in nature, and RMG will continue to focus on providing high quality curative healthcare services and enhancing its specialist offerings.

Update on expansion plans
RMG has started construction work on its commercial building located at Holland Village in early Apr 2014, and management hopes this will be completed by end 2015. It is also working to finalise the development plans for its Raffles Hospital extension, which will boost its capacity by another 220,000 sf. RMG is targeting construction to commence in early 2H14, with a timeframe of ~24 months to completion. Its local projects have a remaining capital commitment of ~S$240m over the next 2.5 years, which we expect RMG to finance with its internal resources and debt. On the overseas expansion front, RMG is still in negotiations with its partners on working out the details for two separate greenfield hospital development projects in China, with the regulatory framework the main focal point of discussion.

Maintain BUY
We keep our forecasts intact and expect RMG to record revenue and core PATMI growth of 11.7% and 12.1% in FY14, respectively. Rolling forward our valuations to 30x blended FY14/15F EPS, we derive a higher fair value estimate of S$3.90 (previously S$3.68). Maintain BUY.

CapitaLand

OCBC on 28 Apr 2014

CapitaLand (CAPL) reported 1Q14 PATMI of S$182.8m, down 1.7% YoY mostly due to the absence of a one-time S$58.7m divestment gain in 1Q13. 1Q14 PATMI now constitutes 20.8% of our full year forecast and we judge 1Q performance to be mostly in line with expectations. An anemic 34 residential units were sold in Singapore over 1Q14, down significantly YoY from the 544 units sold in 1Q13, due to continued headwinds in the domestic housing segment and a lack of new launches over the quarter. We expect the run-rate to pick up ahead, however, as the group pushes to sell remaining inventory by adjusting prices at slower projects. Management reports that newly operational assets, Raffles City Chengdu and Raffles City Ningbo, are gaining good traction. The retail components for both assets are already 98% and 92% committed, respectively, with tenant sales and shopper traffic showing firm double-digits YoY growth. Maintain BUY with an unchanged FV estimate of S$3.79.

1Q14 figures mostly within expectations
CapitaLand (CAPL) reported 1Q14 PATMI of S$182.8m, down 1.7% YoY mostly due to the absence of a one-time S$58.7m divestment gain in 1Q13. 1Q14 PATMI now constitutes 20.8% of our full year forecast and we judge 1Q performance to be broadly in line with expectations. In terms of the topline, 1Q14 revenues fell 3.4% YoY to S$612.6m as we saw lower contributions from Singapore development projects, partially offset by stronger development revenues in China and Vietnam, and higher rental income from investment assets. 

Focused on marketing domestic residential inventory
An anemic 34 residential units were sold in Singapore over 1Q14, down significantly YoY from the 544 units sold in 1Q13, due to continued headwinds in the domestic housing segment and a lack of new launches over the quarter. We expect the run-rate to pick up ahead, however, as the group pushes to sell remaining inventory by adjusting prices at slower projects. Already, we have seen 106 units sold in Apr-14, mostly in Sky Habitat, as prices were lowered by an additional 10% to 15% versus initial launch levels. Over in China, total residential sales in 1Q14 fell 48% YoY to 1.2k units though we also expect the rate of sales to increase ahead as the group looks to launch about 8k units over the remainder of FY14. 

Maintain BUY with unchanged S$3.79 FV
Management reports that newly operational assets, Raffles City Chengdu and Raffles City Ningbo, are gaining good traction. The retail components for both assets are already 98% and 92% committed, respectively, with tenant sales and shopper traffic showing firm double-digits YoY growth. We continue to see value in CAPL shares and are optimistic about recent key strategic moves to simplify the group’s structure and increase shareholder ROE. Even accounting for CMA’s delisting, the group’s balance sheet is likely to remain healthy with S$3.06b in cash and a net gearing of 56%. Maintain BUY with an unchanged FV estimate of S$3.79.

CDL Hospitality Trusts

OCBC on 28 Apr 2014

CDL Hospitality Trusts (CDLHT) reported a 2.2% YoY growth in 1Q14 DPU to 2.75 S cents, ahead of our expectations. Over the quarter, CDLHT witnessed RevPAR growth for both its Maldives and Singapore assets. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. The Australia hotels, which saw reduced contribution in 1Q as a result of a weaker AUD and lower full-year variable income, may also continue to be impacted by the slower Australia economy and lower activity in the mining sector. However, as we factor in the better-than-expected results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.

1Q14 results exceeded expectations
CDL Hospitality Trusts (CDLHT) reported 1Q14 gross revenue of S$43.8m, up 15.3% YoY, due to higher contribution from its Maldives resorts and stable performance from its Singapore hotels. NPI rose at a slower pace of 4.1% to S$36.7m, dragged down by higher operating expenses with the inclusion of Jumeirah Dhevanafushi into CDLHT’s portfolio. Consequently, distributable income increased 3.0% to S$29.9m, while DPU grew 2.2% to 2.75 S cents. Nevertheless, the results were ahead of expectations, as the quarterly distribution made up 26.5% of our FY14 DPU projection.

RevPAR growth for Maldives and Singapore assets
Jumeirah Dhevanafushi made its maiden revenue contribution of S$6.9m, whereas Angsana Velavaru added S$0.7m (+54.1% YoY) to rental revenue. As a whole, the two Maldives resorts registered a RevPAR growth of 10.4% YoY. For the Singapore hotels, RevPAR also improved 0.5% to S$192 on the back of a 1.2ppt increase in occupancy to 88.2% and return of the biennial Singapore Airshow in Feb. This helped to offset the loss of income from the closure of Claymore Link for refurbishment. However, we note that the operating environment in Singapore remains competitive amid a restrained corporate travel budget and larger supply of new hotel rooms, as evidenced by a slight 0.5% decline in average daily rate.

Australia hotels hit by weaker AUD and variable income
The Australian hotels saw reduced contribution of S$5.0m in 1Q, down 21.4% YoY. This was attributable to a depreciating AUD and lower full-year variable income of S$1.1m (1Q13: S$2.0m) as a result of softer showing in 2013 and partial closure of Mercure Brisbane. Management cautioned the slower Australian economy and lower activity in the mining sector may lead to continued weakness. 

Maintain HOLD
Looking ahead, CDLHT expects the ~2,500 new rooms supply to perpetuate the competitive environment in Singapore. For the first 23 days of Apr, we understand that RevPAR for its Singapore hotels eased 1.2%. However, as we factor in the better results, our fair value is now raised to S$1.80 from S$1.65. Maintain HOLD.

CapitaRetail China Trust

OCBC on 28 Apr 2014

CapitaRetail China Trust (CRCT) reported 1Q14 DPU of 2.40 S cents, up 3.9% YoY. The improved performance was due to contributions from newly-acquired Grand Canyon and higher rentals from existing malls. We note that the asset enhancement works for CapitaMall Minzhongleyuan is near completion, and that ~90.0% of the mall’s total NLA has been secured or in advanced negotiations for leasing commitments. With the mall’s scheduled reopening in 2Q14, we expect it to provide additional rental uplift to CRCT’s earnings. CRCT is currently the top performer in the S-REITs sector, clocking a 13.2% gain YTD. At its present level, we believe that CRCT is justly valued, with limited upside over the near term. As such, we downgrade CRCT to HOLD from Buy. Our fair value is revised marginally from S$1.54 to S$1.55. 

 

Positive start to FY14
CapitaRetail China Trust (CRCT) reported a promising set of 1Q14 results, with gross revenue growing 15.5% YoY to RMB231.7m and NPI up 17.9% to RMB155.6m. The improved performance was due to contributions from newly-acquired Grand Canyon and higher rentals from its existing malls. In SGD terms, gross revenue and NPI grew at a faster 22.4% and 25.0% YoY to S$48.1m and S$32.3m, respectively, as a result of a stronger RMB. Distributable income rose 13.2% to S$19.6m, while DPU was up 3.9% to 2.40 S cents. This is largely in line with our expectations, as the quarterly DPU formed 25.1% of our FY14 forecast.

Strong operational performance
Leasing demand at the multi-tenanted malls remained robust. Particularly, CRCT again strengthened the occupancy and tenant mix at Grand Canyon since its acquisition in Dec 2013. Occupancy at the mall, we note, stood at 99.8%, up from 95.9% in prior quarter, and included new quality tenants such as Li Ning and Childhood Villas. Over the quarter, positive rental reversion averaging 23.0% was also achieved for the 165 leases renewed/secured at the multi-tenanted portfolio, with Grand Canyon leading the pack at 42.8% growth. Management shared that tenant sales increased 13.9% YoY, whereas shopper traffic grew 7.3%. All these activities helped to contribute to a 39.2% NPI growth for the multi-tenanted malls. For CRCT’s master-leased malls, a 10.1% NPI growth was registered, similarly respectable in our view.

Downgrade on valuation grounds
CRCT disclosed that the asset enhancement works for CapitaMall Minzhongleyuan is near completion, and that ~90.0% of the mall’s total NLA has been secured or in advanced negotiations for leasing commitments. In addition, the secured rental was 11.5% higher than budgeted. With the mall’s scheduled reopening in 2Q14, we expect it to provide additional rental uplift to CRCT’s earnings. CRCT is currently the top performer in the S-REITs sector, clocking a 13.2% gain YTD. At its present level, we believe CRCT is justly valued, with limited upside over the near term. As such, we downgrade CRCT toHOLD from Buy. Our fair value is raised marginally from S$1.54 to S$1.55 after factoring in the results.

Sheng Siong

OCBC on 28 Apr 2014

During Sheng Siong Group’s (SSG) 1Q14 results briefing, management shared updates on growth strategies and business operations. Measures to grow bottom line are: 1) renovation of three stores in FY14, and 2) actively increasing the proportion of goods sold from direct sourcing (currently 55%), which will translate into improved GP margins that are sustainable. In SSG’s usual fashion of prudence, management updated it is in talks for new stores, but would not hesitate to walk away if the price is deemed too high. Finally, the pilot phase in e-commerce has expanded to other areas with a larger base of customers. We think that if this is executed well it will make up for the challenges in opening new stores. Maintain BUY with fair value estimate of S$0.68.

Measures to grow bottom line
During Sheng Siong Group’s (SSG) 1Q14 results briefing, management shared that three stores are slated for renovations in FY14. We view this positively as it shows SSG is constantly reviewing its operations for opportunities to improve growth. Additionally, SSG is actively increasing the proportion of goods sold from direct sourcing, which will translate into improved GP margins that are sustainable. As cost of goods sold (COGS) makes up the bulk of operating cost (82.1% in 1Q14), GP margin improvement will impact profits significantly. Direct sourcing made up 55% of sales in 1Q14 (vs 50% 1Q13), which we think there is ample room for increment.

Maintains cost discipline with new store opening
Management guided that it is in talks for new stores, but would not hesitate to walk away if the price is deemed too high. We like the prudence and discipline displayed in running their business - despite the dearth of new stores in FY13, management has not succumbed to pressure to open new stores at the expense of profitability.

Strategies beyond physical stores in Singapore
The pilot phase in e-commerce has expanded to other areas with a larger base of customers, of which most are recurring. We think that if this is executed well it will make up for the challenges in opening new stores. However, we note that it will require a shift in local shopping habits. In addition, management mentioned they are still looking for a partner to operate in Malaysia.

Maintain BUY but investment risks lurk
We maintain BUY with S$0.68 fair value estimate on the stock. Nevertheless, we think there are two key risks to SSG’s operations. First, if price competition heats up, SSG will not be able to pass on food inflation. However, with a tight labour market that hinders hiring of new staff at current wages to handle higher volume, we think price competition is deterred. Second, structural changes in the retail property market might continue the drought of new stores opening, thus limiting future growth.

Sheng Siong

OCBC on 25 Apr 2014

Sheng Siong Group’s (SSG) 1Q14 revenue increased by 5.7% YoY to S$190m, forming 26.3% of our FY14 forecast. This is within expectations as 1Q results are typically stronger due to Chinese New Year. As a result of better gross profit (GP) margin, 1Q14 operating profit increased proportionally higher by 21.3% to S$15.1m (vs. 5.7% YoY increase in revenue), forming 29.0% of our FY14 forecast. GP margin improved from 22.5% in 1Q13 to 23.8% in 1Q14, which we identify as the key driver for the significant YoY increase in operating profit as COGS made up 82.1% of operating costs in the quarter. We see limited downside to the share price at the last close of S$0.60 as FY14F dividend yield at 4.7% is expected to lend strong support. Maintain BUY with fair value estimate of S$0.68.

1Q14 results within expectations
Sheng Siong Group’s (SSG) 1Q14 revenue increased by 5.7% YoY to S$190m, forming 26.3% of our FY14 forecast. This is within expectations as 1Q results are typically stronger due to Chinese New Year. 2.7% of the revenue increase was contributed by eight new stores which opened in 2012, with the remaining 3.0% from comparable same store sales growth; the latter due to longer operating hours for most stores and marketing initiatives. As a result of better gross profit (GP) margin, 1Q14 operating profit increased proportionally higher by 21.3% to S$15.1m (vs. 5.7% YoY increase in revenue), forming 29.0% of our FY14 forecast. 

Margins as key driver this quarter
GP margin improved from 22.5% in 1Q13 to 23.8% in 1Q14. Despite the seemingly small percentage increase, we identify this as the key driver for the significant YoY increase in operating profit as COGS made up 82.1% of operating costs in the quarter. The better GP margin is due to lower input costs derived from the distribution centre, higher selling prices and rebates received from suppliers in direct sourcing. On the other hand, administrative expenses were lower than expected, making up 15.8% of revenue in 1Q14 compared with an average of 16.2% for FY13. We had expected it to creep upwards as a percentage of revenue on the back of a tight labour market, but this is more than compensated for by tight cost control this quarter. 

Share price’s downside limited; maintain BUY
We see limited downside at the last closing price of S$0.60 for the following reasons: 1) FY14F dividend yield at 4.7% is expected to lend strong support, 2) bottom line will continue to be boosted by margin improvements through better sales mix, higher warehouse utilisation and direct sourcing, and 3) the group has a healthy balance sheet with net cash of S$109m, making up 13% of market capitalisation. Maintain BUY with fair value estimate of S$0.68.

Suntec REIT

OCBC on 25 Apr 2014

Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and contribution from its recent acquisition in Sydney. Over the quarter, Suntec REIT continued to make significant progress on its leasing activities. On its capital management, we note that it has also signed a S$800m five-year unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.

Encouraging set of 1Q14 results

Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and a S$1.9m contribution from its recent acquisition in Sydney. DPU was flat YoY at 2.229 S cents. However, we note that no capital distribution was made in 1Q14, as compared to S$2.7m a year ago. Excluding the capital distribution, DPU would have been up 5.7%. We judge the results to be within expectations, as the DPU constitutes ~24% of ours and consensus FY14F DPU.

Leasing activities progressing well
Suntec REIT continued to make significant progress on its lease management. Within the office segment, over 100,000sqft of leases due to expire in 2014 was renewed, leaving only 9.6% of office space due for expiry for the rest of the year. Notably, average secured rents at Suntec City office continued to trend upwards to reach S$8.97 psf pm (4Q13: S$8.65). At Suntec City retail component, management also disclosed that Phase 1 space has achieved 100% committed occupancy. Given the positive response for Phase 2 AEI, Suntec REIT has brought forward ~32,000sqft from Phase 3 and has achieved 95% pre-commitment for the enlarged area. While retail passing rents at the mall eased from S$13.09 to S$12.69 with the inclusion of Phase 2 space (comprises few anchor tenants), we believe the rates would improve with the leasing of Phase 3, which is the crown jewel of the mall. Thus far, construction costs were within budget, with Phase 2 space expected to open shortly and Phase 3 AEI to complete by 4Q14.

Maintain BUY
On its capital management, Suntec REIT announced that it has signed a S$800m five-year unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. Gearing is also expected to drop to 33.9% from 37.3% currently, while average debt term will be extended to 4.2 years. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.

CapitaLand

UobKayhian on 28 Apr 2014

FY14F PE (x): 19.0
FY15F PE (x): 16.9

Results in line with expectations. CapitaLand reported 1Q14 net profit of S$182.8m,
down 1.7% yoy. Excluding the portfolio gains of S$9.0m, revaluation gains of S$20.8m
and impairment loss of S$2.7m, the operating PATMI increased 29.9% to S$155.7m
yoy, driven by higher development profits from China and improved performance from
shopping malls. The results are in line with our expectations, and account for 21.5% of
our full-year forecast of S$725m. The sale of Australand was completed on 24 Mar 14.
Maintain BUY with a target price of S$3.83, pegged at 25% discount to our RNAV of
S$5.11/share. The stock is currently trading at a steep 43% discount to its RNAV and
is at an attractive 0.8x P/B.

SATS

UOBKayhian on 28 Apr 2014

FY14F PE (x): 18.4
FY15F PE (x): 17.1

Expecting weak underlying net profit, but strong cash generation should lead to a generous dividend payout. On a pre-exceptional basis, FY14 underlying net profit is likely to drop 6.0% yoy to S$189.7m. However, operating cash flow is likely to at least remain flat yoy (3QFY14: +20% yoy). We expect SATS to declare a final and special dividend of 10.5 cents (equivalent to a total payout of 90.8%). As a percentage of cash earnings (depreciation + net profit), this would amount to a manageable 64% payout. Maintain HOLD but we raise our target price by 9.6% to S$3.32. Reasons for the upward revision are: a) we roll forward our DDM valuation to FY15-17, and b) we raise our sustainable ROE to 14.6% from 13.5% (following M&A). At our fair value, the stock will offer FY15F dividend yield of 5.1%. Suggested entry price is S$3.10.

Sheng Siong Group

UOBKayhian on 28 Apr 2014

VALUATION

• Sheng Siong Group (Sheng Siong) is currently trading at consensus 2014F and 2015F PE of 21.4x and 19.4x respectively. This is in comparison to Dairy Farm International’s PE of 25.8x and 23.4x. The group’s earnings are projected to grow at a 3-year CAGR of 6.5%.
• 4.3-4.8% dividend yields for 2014-16 based on consensus forecasts. Consensus 12-month target price of S$0.67 implies an upside of 8.1% from the current level.

INVESTMENT HIGHLIGHTS

• 5.7% yoy revenue growth beat consensus and management expectations. 1Q14 revenue of S$189.7m represents 26.4% of consensus full-year forecast. About 2.7ppt of revenue growth was attributable to eight new stores that opened in 2012 while 3ppt was due to higher sales from existing stores. The latter was also helped by the 24-hour operations in 29 outlets. Top-line growth beat management’s 5% guidance. The eight new stores are expected to continue to ramp up sales for the rest of the year. The group will also be renovating three outlets that have been underperforming (growth of 1% or less), temporarily shutting down operations at two while partially closing one.
• Margin improvement despite operating cost pressures due to higher prices and lower cost of goods. Sheng Siong’s gross margin edged higher from an adjusted 23.4% in 4Q13) to 23.6% in 1Q14) while operating margin improved from 6.6% to 7.9%. Management attributed these to: a) higher selling prices, b) lower input costs due to bulk and direct purchasing, c) better operating leverage, and d) lower distribution expenses on improved efficiency. The group has been able to manage labour cost pressures so far as we estimate that 25-35% of its personnel expense is variable. There is also minimal cost added from its 24-hour operations as operating expenses such as utilities are already fixed (ie freezers always operate 24 hours) while only a lean staff count is needed to cover night shifts. Net profit rose 19.3% yoy to S$12.5m, representing 30.7% of consensus full-year forecast.
• Still shopping for new space; industry trend towards premium pricing. Management continues to be actively scouting for good locations to set up new outlets. While availability is not an issue, negotiating the right terms and suitability of the space are more challenging hurdles. Supermarket players are also seen to be shifting towards high-end pricing as cost pressures are expected to remain. As an indication, Dairy Farm’s upscale supermarket brand (Cold Storage) continued to perform well in 2013 while mid-market brands (Giant, 7-Eleven) were affected by escalating costs, sluggish consumer demand and intense competition.

CDL Hospitality Trusts

Kim Eng on 28 Apr 2014

• Singapore Airshow boosted 1Q14 occupancy by 1.2ppt YoY and RevPAR by 0.5% YoY; 2H14 should benefit from opening of Sports Hub and hosting of more world-class events.
• Maldives resorts did better than expected, contributing 12% of 1Q14 NPI; DPU raised by 2.5% to reflect this.
• TP raised to SGD1.91 (from SGD1.75); reiterate BUY.

Results in line with expectations
CDLHT posted a 15.3% YoY rise in 1Q14 revenue to SGD43.8m, bolstered by its Maldives resort acquisitions. Revenue would have been higher were it not for the weaker trading performance of its Australian hotels and partial closure of Mercure Brisbane for refurbishment. DPU rose 2.2% YoY to 2.75 SGD cts. With the return of the biennial Singapore Airshow in February, CDLHT’s Singapore hotels saw 1Q14 occupancy improved by a modest 1.2ppt YoY to 88.2% and RevPAR edged up 0.5% YoY to SGD192. Balance sheet remained strong with a low gearing of 29.9%, with 21% due for refinancing in 2014 and 36% in 2015.

Maldives resorts post stellar performance
CDLHT expects another 2,000 hotel rooms to be added during the remainder of 2014 (2013: 3,357). This should provide some relief to hoteliers. The opening of the Sport Hubs in June and the hosting of events such as World Club 10s Rugby in the same month and Women’s Tennis Association Championships in October would also add to the attractiveness of Singapore’s MICE infrastructure. The Maldives resorts, acquired last year, delivered stellar performance in 1Q14. Despite making up just 8% of CDLHT’s asset value as of end-Dec 2013, they contributed 12% of 1Q14 NPI and 20% of revenue. Visitor arrivals to Maldives registered strong growth of 11.6% YoY for the first two months of the year. As Chinese outbound travel to the island nation continues to grow, CDLHT can expect to benefit from rising Asian affluence. We adjust our FY14E-16E DPU by close to 3% on better-than-expected performance from Maldives. Reiterate BUY with a higher DDM-derived TP of SGD1.91.

Sheng Siong Group

Kim Eng on 28 Apr 2014

• Upgrade to HOLD on better-than-expected 1Q14 results due to higher same store sales growth and margin improvement. TP raised to SGD0.63, pegged to 20x FY14E P/E.
• Even after normalising the effect of rebates received from suppliers, gross margin appears to be on the uptrend. This is a testament to the company’s continual drive for efficiency.
• Revenue growth from new stores likely to remain limited, but margins are likely to stay strong.

1Q14 results exceed expectations
1Q14 revenue of SGD627.6m, up 5.7% YoY, with 2.7% attributed to new stores opened in 2012 and 3% same store sales growth. SSSG was bolstered in part by switching most of its outlets (29 out of 33) to round-the-clock operations. SSSG would have been even higher at 3.9% if two stores affected by construction work were excluded.

Gross margin improved to 23.8% for the quarter (1Q13: 22.5%, 4Q13: 23.2%), helped by the flow-over of rebates from suppliers as Chinese New Year occurred earlier this year. Normalising this effect would result in an estimated gross margin of 23.6%, which is still a decent improvement in view of the company’s continued push to procure more efficiently and raw material price subsidies. Together with good operating cost control (+6.6% YoY), 1Q14 net profit was up 19.3% YoY to SGD12.5m.

Upgrade to HOLD
We raise our FY14E-16E EPS by 9% on account of the better-than-expected margin. While we believe revenue growth from new stores will remain limited due to the lack of sites, we are impressed by management’s success with its ongoing efficiency initiatives. Upgrade to HOLD from SELL with a higher TP of SGD0.63 (previously SGD0.53), based on a higher 20x FY14E P/E (previously 18x) given a stronger EPS growth profile.

Genting Singapore

Kim Eng on 24 Apr 2014

• Marina Bay Sands’ 1Q14 VIP volume plunged 29% YoY.
• We expect GENS’ 1Q14 VIP volume to also fall YoY.
• Maintain contrarian SELL with a lower TP of SGD1.24, still pegged to 10x FY14E EV/EBITDA.

What’s New
Marina Bay Sands (MBS) reported a 10% YoY increase in 1Q14 EBITDA to USD435.2m, mainly due to a VIP win rate of 3.41% which was 90bps higher YoY. More ominously, VIP volume in USD terms plunged 29% YoY. Mass market GGR (tables and slots) did not help much either, easing 47bps YoY in USD terms. Management did not comment much on the Japanese casino liberalisation process.

What’s Our View
Assuming Resorts World Sentosa (RWS) commands a 51% VIP volume share (FY13 average), we can expect GENS to report 1Q14 VIP volume contraction of ~19% YoY to ~SGD17b. Furthermore, we note that MBS’s 1Q14 rebate rate of 1.38% of VIP volume was its all-time high. RWS might have offered higher rebate rates to its VIPs as well to preempt VIP volume share loss. If so, it would lead to lower EBITDA margins.

If RWS commands a 45% mass market GGR share (FY13 average), we estimate its 1Q14 mass market GGR would fall 7% YoY to ~SGD430m. That said, this would be a welcome change from the 4Q13 mass market GGR of ~SGD370m, which we estimate was an all-time low due to low mass market win rates. Assuming normalised VIP win rate of 2.85%, we expect GENS to report 1Q14 EBITDA of ~SGD300m or below expectations. We trim our FY14E/15E/16E earnings by 5%/3%/2% to account for higher depreciation for now. We also trim our TP from SGD1.26 to SGD1.24, still pegged to 10x FY14E EV/EBITDA. Maintain SELL.

SMRT

Kim Eng on 24 Apr 2014

• Share price surged 18.5% to its highest since 10 Dec.
• While a favourable transition of its business model is likely, this surge is speculative in the absence of announcements by the regulators or operators.
• Maintain Sell with TP of SGD0.60, based on 14x average EPS for FY3/14-16.

SMRT’s share price surged…
SMRT’s share price surged by 18.5% to close at its highest in almost five months, stoking speculations of impending corporate developments. In response to this, the stock exchange’s surveillance department has issued a query to which SMRT has replied that they are not aware of any news that has caused the price surge.

… Avoid the hype; maintain SELL
In our view, there are two possible corporate developments:
1) Nationalisation of SMRT via a general offer. This allows SMRT to run as a non-profit organisation. However, we think this is unlikely as Singapore’s Transport Minister had previously argued against nationalisation on ground that nationalisation may lead to higher fares and become a burden on taxpayers.

2) Favourable transition to new business model for fare-based business. This is a more likely scenario. SMRT’s core fare-based business suffered an operating loss of SGD32m in 2013 and is expected to remain a key drag to profitability in the future. While a change is imminent, it is highly speculative to conclude that the terms will be favourable to shareholders. In particular, we are concerned over the treatment of the asset purchase obligations under the old rail financing regime (note). In the absence of material announcements, we advise investors to stay cautious. SMRT trades at a rich valuation of 30x FY3/15E P/E. Maintain SELL with TP of SGD0.60.

Suntec Reit

Kim Eng on 25 Apr 2014

• 1Q14 results in line; No DPU top-up for the first quarter since 4Q12.
• Average rent for Phase 1 and 2 AEI hit SGD12.69 psf/mth, above original target of SGD12.59 psf/mth.
• Maintain HOLD with a higher DDM-derived TP of SGD1.70.

Results in line with expectations
Suntec REIT’s 1Q14 DPU of 2.23 SGD cts marked a 13% QoQ contraction but flat YoY. The decline was mainly due to the absence of capital distribution from the sales proceeds of Chijmes (additional 0.120 SGD cts in 1Q13 and 0.175 SGD cts in 4Q13) and income loss following the start of Phase 3 AEI at Suntec City.

Stripping out the top-up, 1Q14 DPU would have shrunk 6.6% QoQ but up 5.7% YoY. Suntec received cash proceeds of ~SGD147m from the sale of Chijmes in 1Q12. So far, management has topped up SGD19m in FY13 and did not rule out top-ups for the remainder of FY14. A SGD800m loan facility at a margin of 100+bps has been secured, extending its debt maturity to 4.2 years (4Q13: 2.44 years). This means no refinancing need for Suntec until 2016. Following its SGD350m private placement in March last year and loan reduction, gearing slid to 35.1% in 1Q14 from 38.4% in 4Q13.

Suntec City AEI on track
Following the completion of Phase 1 AEI, Suntec achieved 100% occupancy rate (4Q13: 99.6%), while 95% of Phase 2 NLA has been pre-committed (4Q13: 97%). Phase 2 will open in two stages before 31 Jun 2014, with GV cinema to start at the later phase. The combined average rent committed for both phases reached SGD12.69 psf/mth, above management’s original target of SGD12.59 psf/mth. We adjust our FY14E-16E DPU by 1.9-3.4% on revised rental assumptions and interest cost savings. This translates to a three-year FY13-16E CAGR of 3.4%. Maintain HOLD with a higher DDM-derived TP of SGD1.70 (previously SGD1.63).

Frasers Commercial Trust

OCBC on 24 Apr 2014

Frasers Commercial Trust (FCOT) reported 2QFY14 DPU of 2.05 S cents (+3.0% YoY), in line with our expectations. China Square Central (CSC) continued to bolster FCOT’s performance, and helped to mitigate the softer showing at its Australia properties. Looking ahead, we remain positive on FCOT’s Singapore portfolio, as CSC is expected to continue to benefit from its asset enhancement works and better connectivity with the opening of Telok Ayer MRT station, while Alexandra Technopark is likely to see meaningful rental uplift upon the master lease expiry in Aug. For its Australian assets, we believe the income may continue to suffer from weaker AUD. As such, we are making minor adjustments to our forecasts to factor in the potential weakness; but there is no change to our fair value of S$1.45. Maintain BUY.

2QFY14 scorecard largely in line
Frasers Commercial Trust (FCOT) reported 2QFY14 gross revenue of S$28.6m, down 3.7% YoY due to a weaker AUD and lower occupancy at Central Park. NPI dropped 5.8% to S$21.7m, further impacted by higher expenses due to painting works undertaken at Caroline Chisholm Centre. On a cash basis, however, NPI would only be marginally lower by 0.5% at S$21.0m. We note that cash flows from the Australian properties were hedged via forwards and AUD-denominated loans. Over the quarter, FCOT also continued to enjoy savings from its convertible perpetual preferred units (CPPU) distribution. As a result, distributable income and DPU rose by 5.6% and 3.0% YoY to S$13.8m and 2.05 S cents, respectively. We deem the results to be largely within view, as 2HFY14 DPU met 46.1%/47.1% of our/consensus full-year DPU forecasts.

Robust leasing activities
Expectedly, China Square Central (CSC) continued to bolster FCOT’s performance, raking up 14.5% growth in NPI amid higher occupancy and rental rates. This has helped to mitigate the softer showing at its Australian properties, which saw a 15.5% fall in NPI. Nevertheless, portfolio occupancy stayed at a high 97.5% (1Q: 97.1%). Leasing activities, particularly in Singapore, also remained robust, as 286,372 sqft or a sizable 12.6% of FCOT’s portfolio NLA, were committed, leased and renewed in the quarter. In addition, rental reversions ranging from 6.4% to 18.2% were achieved for the Singapore properties, reinforcing our view for a firm recovery in the domestic office rental market.

Maintain BUY
Looking ahead, we remain positive on FCOT’s Singapore portfolio, as CSC is expected to continue to benefit from its asset enhancement works and better connectivity with the opening of Telok Ayer MRT station, while Alexandra Technopark is likely to see meaningful rental uplift upon the master lease expiry in Aug. For its Australian assets, we believe the income may continue to suffer from weaker AUD, based on Bloomberg consensus forecasts. As such, we are making minor adjustments to our forecasts to factor in the potential weakness; but there is no change to our fair value of S$1.45. Maintain BUY.

CapitaMall Trust

OCBC on 24 Apr 2014

CapitaMall Trust (CMT) reported 1Q14 DPU of 2.57 S cents, 4.5% higher than that achieved in 1Q13. This met 23.4% of both ours and consensus full-year DPU projections. The better performance was driven mainly by higher occupancy at Plaza Singapura and Atrium@Orchard, and completion of Phase 1 asset enhancement initiative (AEI) at IMM Building. Looking ahead, CMT will continue to focus on executing its AEIs at Bugis Junction and Tampines Mall. In addition, it will also embark on Phase 2 AEI at IMM Building and reconfigure Level 2 of JCube to increase the retail offerings and enhance the shoppers’ experience. We are making minor adjustments to our forecasts except incorporating the FRS111 Joint Arrangements accounting principle into our model. Maintain BUY with unchanged S$2.20 fair value on CMT.

1Q14 results within view
CapitaMall Trust (CMT) reported its 1Q14 results yesterday. NPI grew by 5.3% YoY to S$114.3m, while amount available for distribution to unitholders rose 9.3% to S$102.4m. We note that S$8.0m cash has been retained for distribution in FY14, and S$5.3m income from CapitaRetail China Trust for working capital purposes. As a result, DPU for the quarter came in at 2.57 S cents, 4.5% higher than that achieved in 1Q13. This met 23.4% of both ours and consensus full-year DPU projections.

Healthy operating metrics
The better performance was driven mainly by higher occupancy at Plaza Singapura and Atrium@Orchard, and completion of Phase 1 asset enhancement initiative (AEI) at IMM Building. There was some softness in the portfolio shopper traffic and psf tenant sales, which saw a decline of 1.9% and 4.0% YoY respectively over the quarter. However, leasing activity remained sanguine, with 172 leases or 427,276 sqft NLA renewed at rents 6.2% higher than previously contracted rates. For the rest of 2014, 12.8% of CMT’s gross rental income is due for renewal. Portfolio occupancy as at 31 Mar improved 0.3% QoQ to 98.8%, boosted by Westgate mall which registered 92.0% occupancy versus 85.8% when it commenced operations in Dec 2013 (S$3.3m NPI contribution in 1Q14). Given that Westgate Wonderland has recently opened and Kids Club is targeted to open in 2Q, we believe performance at Westgate is set to improve further.

Maintain BUY
Looking ahead, CMT will continue to focus on executing its AEIs at Bugis Junction and Tampines Mall. In addition, it will also embark on Phase 2 AEI at IMM Building and reconfigure Level 2 of JCube to increase the retail offerings and enhance the shoppers’ experience. We are making minor adjustments to our forecasts except incorporating the FRS111 Joint Arrangements accounting principle into our model. Maintain BUY with unchanged S$2.20 fair value on CMT.

Cache Logistics Trust

OCBC on 24 Apr 2014
 (CACHE) delivered 1Q14 DPU of 2.14 S cents, representing a YoY decline of 4.2%. However, this is within expectations as the unit base has risen due to the private placement in Mar 2013. CACHE’s portfolio continued to exhibit strength, with occupancy holding steady at 100% and weighted average lease to expiry healthy at 2.9 years. During the quarter, CACHE also renewed its master lease at Kim Heng warehouse for another two years. Only 2% of portfolio GFA is now left for renewal in 2014. As announced last week, CACHE has secured an agreement to develop and lease a build-to-suit (BTS) ramp-up warehouse. In our view, the contract will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse in Singapore. We maintain BUY with unchanged fair value of S$1.25 on CACHE.

Sturdy results consistent with expectations
Cache Logistics Trust (CACHE) turned in a firm set of 1Q14 results last evening. NPI climbed 8.2% YoY to S$19.6m, whereas distributable income rose 5.5% to S$16.7m. The positive performance was mainly attributable to contribution from acquisition of Precise Two in Apr 2013 and stepped-up rents within the portfolio. DPU for the quarter stood at 2.14 S cents, representing a YoY decline of 4.2%. However, this is expected as the unit base has risen by 10.5% due to the private placement in Mar 2013. 1Q14 DPU, we note, constitutes 24.6% of both ours and consensus full-year distribution forecasts.

Continued focus on lease and capital management
CACHE’s portfolio continued to exhibit strength, with occupancy holding steady at 100% and weighted average lease to expiry healthy at 2.9 years (3.1 years in 4Q13). Further to management guidance in last quarter that it was negotiating with relevant parties for lease renewals, CACHE announced that it has renewed its master lease at Kim Heng warehouse for another two years (only 2% of portfolio GFA left for renewal in 2014). Looking ahead, CACHE will continue to focus its efforts on addressing its lease expiries (34% of GFA expiring in 2015) and refinancing needs (59.9% of total debt expiring in 2015) for the next two years. We view this move positively given that the impending supply of warehouse space is relatively substantial and that the interest costs look set to trend upwards.

BTS development to enhance portfolio profile
As announced last week, CACHE has also secured an agreement with DHL Supply Chain to develop and lease a build-to-suit (BTS) ramp-up warehouse located at Tampines LogisPark. This marks CACHE’s foray into BTS development through collaboration with its sponsor CWT Limited. In our view, the contract will not only provide CACHE with quality recurring income, enhance its lease expiry profile, but also strengthen its market position in modern ramp-up warehouse in Singapore. Aggregate leverage is guided to increase from current 29.1% to 34.8% upon completion in 2H15, still within healthy levels. We maintain BUY with unchanged fair value of S$1.25 on CACHE.

Mapletree Industrial Trust

UOBKayhian on 24 Apr 2014

Results in-line as MIT focuses on developing alternative growth avenues with two AEIs and a BTS completed in FY14, and another two BTS and an acquisition due to complete over the next three years. Near-term organic growth will emerge from filling vacant space with further upside from expiry of rental caps in 2H14.

Maintain BUY with a marginally higher target price of S$1.66 (from S$1.65), based on DDM (required rate of return: 7.1%, terminal growth: 1.8%). We raise our FY15-16 DPU estimates by 2-3%, factoring in lower interest costs and higher NPI margins, and also introduce our estimates for FY17. Key risks include occupancy risks for older business park space.

Cache Logistics Trust

UOBKayhian on 24 Apr 2014

First BTS project for Cache, with the project jointly managed with sponsor CWT. When
completed, the S$124m BTS ramp-up warehouse for DHL will increase Cache’s total
deposited properties by 8.6% to S$1.17b, and increase the Weighted Average Lease
Expiry (WALE) to 4.1 years from 3.1 years currently. The deal is DPU accretive with 2%
accretion to DPU in 2016, as the BTS development is larger than our original estimated
acquisition.

Cache renewed its master lease at Kim Heng Warehouse with its existing tenant, Kim
Heng Tubulars Pte. Ltd., for another two years. Positive rental reversions to drive
organic growth master-leases are coming due in 2015 (34% of portfolio). We estimate
that the IPO portfolio could see double-digit rental reversions of 10-12% in 2015.
Maintain BUY with an unchanged target of S$1.31 based on DDM.

Property - S-REITs: Industrial REITs are better than retail REITs

UOBKayhian on 24 Apr 2014

Results were in line with expectations, though the Industrial REITs (MINT and Cache) fared better than the Retail REITs (CMT & FCT), which reported a fall in shoppers traffic and weakness in tenant sales. MINT is developing alternative growth avenues with two AEIs and a BTS completed in FY14. FCT’s Changi City Point acquisition is awaiting SGX regulatory approval. Cache embarked on its first BTS ramp-up warehouse for DHL. We prefer the following segments/stocks in order of preference: a) Office (CCT & Suntec), b) Hotel (CDREIT), c) Industrial (MINT), and d) Retail (FCT). Maintain OVERWEIGHT.

Frasers CentrePoint Trust (FCT SP/BUY/Target: S$2.15)
Rental renewals signed during the quarter registered a 9.3% increase over the preceding leases driven by Causeway Point (9.7%) and Northpoint (10.9%). Worst is over for Bedok Point. Occupancy at Bedok Point is projected to recover to above 95% in 2H14 as new tenant leases commence (from 77% currently for the repositioned mall focused on F&B (>40%) and learning/education). Passing rents of about S$9 psf pm are compelling compared to about S$18 psf pm for the opposite Bedok Mall Management views the traffic diversion to the newly opened malls in Jurong among the factors that led to a 7.6% decline in shopper traffic aside from the AEI works at Bedok Point and Causeway Point. Changi City Point acquisition is awaiting SGX regulatory approval.

Acquisition will be ~1% accretive to FY15 DPU assuming 60/40 debt/equity funding. Expect further upside from initial acquisition yield of 5.0-5.5% as Changi City Point enters into its first lease renewal cycle. Maintain BUY with an unchanged target of S$2.15 based on DDM.

Singapore Banks

Kim Eng on 23 Apr 2014

• Property market weakness has stoked fears of fallout in housing loan quality; the health of housing market is critical to banks as mortgages account for 29% of total DBU loans.
• We see slim chances of fallout, given the cooling measures in place since 2009, strong household balance sheets and resilience of housing loans in past economic cycles.
• Maintain Overweight on banks. DBS remains our top sector pick, followed by UOB. Stay cautious on OCBC.

Whither housing loan quality?
Singapore’s residential property market is showing signs of weakness and investors are worried about the spillover effects on the banks sector, which has enjoyed a robust housing loan CAGR of 15% in the past five years. Tighter lending rules, a deliberate move to slow down the pace of immigration and an expected influx of new home completions point to further price weakness ahead. Concerns over weaker housing loan quality thus loom large.

Downside risks modest and manageable
With the property market in a state of flux, loan quality concern does look significant at first glance. But we argue that the downside risks are still modest and manageable. First off, the authorities have taken proactive steps since Sep 2009 to curb residential property speculation, tightening the measures in response to changing circumstances. Second, housing loans have historically shown great resilience even under prolonged economic stress. Third, household balance sheets are strong with people more cashed up now than during the period prior to the 1997-1998 Asian financial crisis. Fourth, our analysis indicates that household leverage remains reasonable even under tremendous stress. Based on our estimates, a fourfold rise in housing NPL ratio (from 0.5% currently to 2%) would conservatively reduce EPS by up to 3%. Maintain Overweight on banks. For exposure, DBS is our top pick as it is best positioned to take advantage of a rising interest rate environment. We would remain cautious towards OCBC.

Frasers Centrepoint Trust

OCBC on 23 Apr 2014

Frasers Centrepoint Trust (FCT) reported 2QFY14 DPU of 2.88 S cents, up 6.7% YoY. This is largely within our view, given that first-half DPU of 5.38 S cents met 47.8% of our FY14F DPU. We note that portfolio occupancy has maintained steady at 96.8% (1Q: 96.7%), while rental reversions stayed robust at 9.3% (1Q: +2.5%) for the leases renewed during the quarter. Looking ahead, FCT reiterated that Causeway Point and Northpoint are expected to underpin growth within its existing portfolio, as both malls contribute to the bulk of the lease renewals in FY14-15. As announced on 8 Apr, FCT has proposed to acquire Changi City Point for S$305.0m. We view this addition as timely, as it will provide another boost to DPU in an otherwise moderating growth portfolio. Maintain BUY with unchanged S$2.02 fair value on FCT.

Consistent set of 2QFY14 results
Frasers Centrepoint Trust (FCT) reported its 2QFY14 scorecard last evening. NPI and distributable income grew by 2.0% and 1.4% YoY to S$29.3m and S$23.8m respectively. The better performance was driven mainly by higher revenue from Causeway Point (CWP), though partially offset by higher property taxes, maintenance costs and property manager’s fees. No cash was retained during the quarter, as opposed to S$1.2m cash reserved in prior year. As such, DPU grew at a faster pace of 6.7% YoY to 2.88 S cents. This is largely within our view, given that first-half DPU of 5.38 S cents met 47.8% of our FY14F DPU (consensus: 48.9%).

Disruptions from Bedok Point; portfolio steady
On first look, headline figures such as a 7.6% YoY decline in shopper traffic to 20.4m and 19.5ppt YoY drop in Bedok Point’s occupancy to 77.0% have raised concerns. However, we understand that the fall in shopper traffic was mainly impacted by on-going refurbishment works at Bedok Point and CWP. Management projects the occupancy at Bedok Point to recover to above 95% in 2HCY14 after the lease commencement of several new tenants, which we believe will bring about improvements in occupancy and footfall. Overall, we note that portfolio occupancy has maintained steady at 96.8% (1Q: 96.7%), while rental reversions stayed robust at 9.3% (1Q: +2.5%) for the leases renewed during the quarter.

Maintain BUY with unchanged S$2.02 fair value
Looking ahead, FCT reiterated that CWP and Northpoint are expected to underpin growth within its existing portfolio, as both malls contribute to the bulk of the lease renewals in FY14-15. As announced on 8 Apr, FCT has proposed to acquire Changi City Point for S$305.0m. No additional colour was given on the transaction, except that FCT intends to finance it using a combination of debt and equity (via private placement), and that the deal is expected to be DPU-accretive. We view this addition as timely, as it will provide another boost to DPU in an otherwise moderating growth portfolio. Maintain BUY with unchanged S$2.02 fair value on FCT.

Mapletree Logistics Trust

OCBC on 23 Apr 2014

Mapletree Logistics Trust (MLT) reported 4QFY14 DPU of 1.89 S cents, up 9.2% YoY. This is in line with both our and consensus expectations. Operationally, MLT has been exhibiting resilience, as evidenced by its stable portfolio occupancy and healthy rental reversion achieved during the year. Going forward, management expects the demand for logistics facilities in its markets to remain robust, while rental reversion to stay positive. MLT also said that it will focus on driving organic and inorganic growth. We believe MLT may carry out capital recycling to partially fund the potential investments, given that it has identified a few lower yielding assets for divestment. We lift our fair value from S$1.06 to S$1.10 as we roll our valuation to FY15. However, as the stock appears fairly priced, we maintain our HOLD rating.

4QFY14 results within expectations
Mapletree Logistics Trust (MLT) reported 4QFY14 gross revenue of S$80.1m and NPI of S$68.3m, up 5.7% and 4.3% YoY, respectively. The positive showing was due mainly to new income stream from Mapletree Benoi Logistics Hub, contribution from The Box Centre, and robust rental reversions from Hong Kong and Singapore. We note that NPI growth would be even stronger at 5.4%, if not for a weaker JPY. Nevertheless, the forex impact on distribution was mitigated by currency hedges. Together with lower finance costs and a distribution of S$0.6m divestment gain, DPU came in at 1.89 S cents, up 9.2% YoY. As a result, FY14 DPU totalled 7.35 S cents (+7.1%). This is in line with our DPU forecast of 7.26 S cents (consensus: 7.2 S cents).

Operational performance staying resilient
Operationally, MLT has been exhibiting resilience, as evidenced by its stable portfolio occupancy of 98.3% (3Q: 98.4%) and healthy rental reversion of 17% achieved during the year. For FY15, we note that ~18.0% of MLT’s leases will be expiring, of which 14.0% has been renewed ahead. Going forward, management expects the demand for logistics facilities in its markets to remain robust. In addition, rental reversion is expected to stay positive, albeit at a moderate pace.

Maintain HOLD on valuation grounds
MLT also reiterated its focus on driving organic growth through proactive leasing efforts and asset enhancements, such as the redevelopment of 5B Toh Guan Road East. However, unlike previous quarter, management now raises the possibility of growth through acquisition. Specifically, MLT highlighted that it has signed an MOU for a Korea-based property from a third-party vendor, and is currently performing its due diligence for potential purchase. From its sponsor’s pipeline, MLT is eyeing two China-based assets. We believe MLT may carry out capital recycling to partially fund the potential investments, given that it has identified a few lower yielding assets for divestment. We lift our fair value from S$1.06 to S$1.10 as we roll our valuation to FY15. However, as the stock appears fairly priced, we maintain our HOLD rating.

Mapletree Logistics Trust

CIMB Research, April 22

MAPLETREE Logistics Trust (MLT) reported its FY2014 results, with revenue coming in at $80.1 million (+5.7 per cent y-o-y) and DPU at 1.87 cents (+7.8 per cent y-o-y).

The growth in revenue was dampened in part as a result of the weaker yen.

Excluding forex losses, gross revenue would have increased to $81.0 million (+6.9 per cent y-o-y) due to new attribution from the newly completed AEIs in Singapore and Japan, and contribution from the Box Centre in Korea that was acquired during the year (July 2013).

Lower borrowing costs and the partial distribution of the net gain from the divestment of 30 Woodlands Loop boosted its earnings, taking the total DPU to 1.89 cents (+9.2 per cent y-o-y).

Rental reversion in FY2013/2014 remained healthy at 17 per cent, mainly from Hong Kong and Singapore properties. Looking ahead, with positive rental reversion expected to moderate, together with only 18 per cent of net lettable area (NLA) (of which 14 per cent has been renewed ahead of expiry) to be renewed in FY2014/2015, we believe MLT will rely more on acquisition and redevelopment for growth.

In FY2014/2015, MLT is likely to benefit from the completed redevelopment project at Mapletree Benoi Logistics Hub (100 per cent pre-committed), and the recently announced $34.3 million acquisition in Iskandar.

With the current leverage ratio of 33.3 per cent, MLT continues to have the financial ability to capitalise on further inorganic opportunities.

Although it is well poised to grow in FY2014/2015, we believe that the positivity of MLT may be dampened by the continual weakness in the yen. We maintain our "hold" rating with a slightly higher DDM-based target price of S$1.13 as we wait for more impactful acquisitions and redevelopments.

HOLD

Ascendas Reit

DBS Group Research, April 22

A-REIT's Q4 2014 distribution per unit (DPU) of 3.55 cents (+5.3 per cent y-o-y) brings DPU for the full year to 14.2 cents, within our estimates. Q4 2014 topline and net property income came in 8 per cent and 12 per cent higher y-o-y at $156.5 million and $112.3 million, respectively.

This was largely due to contributions from an expanded portfolio (105 properties versus 102 a year ago), supported by organic growth of about 1.9 per cent y-o-y.

Rental reversions remained robust, with an uplift of about 14.8 per cent owing due to low passing rents. Occupancy rates remained stable at 89.6 per cent.

Distributable income was 22 per cent higher at $85.2 million (inclusive of tax income from prior periods/capital distribution) due to payment of performance fee of $6.9 million in Q4 2013 but nil in Q4 2014 and lower interest expenses.

NAV is higher by about 1.5 per cent at S$1.98. This was brought about by revaluation gains from A-Reit City @ Jinqiao and slight compression in portfolio cap rates to 6.57 per cent (versus 6.6 per cent in FY2013).

We expect A-Reit to continue reporting positive rental reversions from the renewal of about 21.6 per cent of its income in FY2015; however uplifts in rents are expected to be more moderate in the mid- to high-single-digit range. We believe this will more than compensate for expected hikes in operating costs (utilities/maintenance contracts) and nil vacancy refunds going forward from the tax authorities.

As a result, net property income margins are expected to remain flattish.

A-Reit's potential to grow inorganically is strong through an active pipeline of development and committed asset enhancement projects (AEI) worth $106.5 million (added new development projects - C&P Logistics Hub and Techlink and Techview); and proposed acquisition of Aperia in Q1 2015.

Management gave an update that Aperia property is on track to achieve TOP by Q1 2015 and is 40 per cent pre-committed at this point. The manager is expected to acquire the remaining stake from the vendor.

We estimate the trust will have sufficient debt-headroom to fund these initiatives and should see gearing settle at about 34 per cent.

A-Reit is expected to offer steady and resilient earnings. TP is raised to $2.47 as we roll forward our valuation base. Maintain "buy" for a total return of about 12 per cent.

BUY

Mapletree Logistics Trust

Kim Eng on 23 Apr 2014

• FY3/14 results in line with our and market expectations.
• Japan portfolio still a drag on top line; aggregate revenue and NPI for the past four quarters fell 17% YoY.
• FY3/14-17E DPU CAGR to be an unexciting 0.3% without concrete growth catalysts. Maintain SELL with TP of SGD1.00.

FY3/14 results largely in line
MLT reported a mere 0.9% YoY growth in FY3/14 revenue to SGD310.7m, aided by 17% positive rental reversion for leases secured during the year, but offset by a weaker yen and lower translated revenue from the Japan portfolio. It expects rental reversions to moderate going forward. Full-year DPU rose 7.1% YoY to 7.35 cts, with the SGD2.48m gain from the divestment of 30 Woodlands Loop contributing 0.1 cts. MLT has about 18% of leases (in terms of NLA) due for renewal this year. The all-in-financing cost for 4QFY3/14 averaged 1.9% (4QFY3/13: 2.4%) with an average term of debt of 3.6 years. According to MLT’s interest rate sensitivity analysis, its DPU would decline ~0.5%, or 0.01 cts per quarter, for every 25bps increase in interest rate.

Unexciting DPU growth
We forecast DPU to grow at an unexciting CAGR of 0.3% over FY3/14-17E. Management said it will proactively seek to divest low-yielding assets to recycle capital. As for sponsor injections, the Mapletree Shah Alam Logistics Park in Malaysia is unlikely to be acquired this year due to ongoing defect rectification at the property. However, MLT cited opportunities in Mapletree Yangshan and Mapletree Zhengzhou in China. It has also signed a third-party MOU for a hi-specs warehouse in South-Korea and a purchase agreement may be forthcoming. As these prospective acquisitions have yet to materialise, we adjust our FY3/14-16E DPU forecasts by 1.2% on lower borrowing costs and better reversion rates. Maintain SELL with a DDM-derived TP of SGD1.00 (previously SGD0.98), given high valuations (1.2x P/BV) and lack of concrete growth catalysts.

OSIM

Kim Eng on 23 Apr 2014

• OSIM’s net cash holdings look set to swell to SGD300m this year as convertible bond holders exercise their option before July before OSIM recalls the bonds.
• This war chest will empower OSIM to acquire and incubate more new brands and generate cash. ONI (GNC) and TWG have proven to be astute buys despite market scepticism.
• Reiterate BUY with a new Street-high TP of SGD3.45. 1Q14 results to be announced on 6 May.

Sit back and watch the cash roll in
OSIM is now a highly established brand in its key markets. It is a capex-light business as most of the heavy lifting has been done in prior years in terms of store count expansion. By year-end, we estimate the company will be sitting on net cash of almost SGD300m and generating free cash flow in excess of SGD100m.

Much is remembered of OSIM’s unsuccessful SGD144m acquisition of a majority stake in US-based retailer Brookstone, but the market was initially sceptical when it invested just SGD118m in ONI (GNC) – SGD53m and TWG – SGD65, which have turned out to be great contributors. We expect management to be on the lookout to add another valuable brand to its outstanding portfolio.

1Q14 results preview
With TWG’s maiden consolidation, we expect OSIM to report revenue growth of 16% YoY in 1Q14 despite muted consumer sentiment in Singapore and Malaysia. We also expect net profit to grow 15% YoY to SGD28.9m and are keeping our forecasts intact for now. OSIM is currently in a lawsuit against TWG minority shareholders, but we believe this will not derail growth plans. With its net cash pile having grown substantially, we believe it is fair to account for that separately, after subscribing a 20x FY14E ex-cash P/E valuation. This takes our TP up to SGD3.45 (previously SGD2.78).