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).

Ascendas REIT

OCBC on 22 Apr 2014

Ascendas REIT (A-REIT) reported 4QFY14 DPU of 3.55 S cents, up 16.0% YoY. This brings the full-year DPU to 14.24 S cents (+3.6%), largely in line with our expectation. For FY14, positive rental reversion averaging 14.8% was also achieved. Going forward, A-REIT guided that positive reversion in the mid-to-high single digit is still anticipated, given that passing rents are below market rates. A-REIT also announced two new asset enhancement initiatives (AEIs) this quarter, with the objective of maximizing the plot ratio and improving the marketability of the properties. We also note that the acquisition of Kallang Ave development may happen soon as TOP is expected in 2QCY14. We roll our valuation to FY15, while tweaking our assumptions to factor in potentially higher operating costs. Our fair value now increases to S$2.45 from S$2.40 previously. Maintain BUY.

Closing FY14 on positive note
Ascendas REIT (A-REIT) delivered a firm set of 4QFY14 results last evening. NPI grew by 12.2% YoY to S$112.3m, driven mainly by contribution from The Galen, Four Acres Singapore, Nexus@one-north and A-REIT City@Jinqiao. We note that no performance fee was payable for the quarter (versus S$7.0m fees registered in previous year), while a S$4.9m gain was clocked for the divestment of Block 5006 at Techplace II. In addition, A-REIT gained from distribution of income relating to its Ascendas Z-Link property in China. As a result, distributable amount and DPU increased by 23.9% and 16.0% YoY to S$85.3m and 3.55 S cents, respectively. This brings the full-year DPU to 14.24 S cents (+3.6%), largely in line with our projection of 14.13 S cents (consensus: 14.2 S cents).

Portfolio performance remained sturdy
We understand from management that there was a slowdown in leasing activity for the business/science park segment, while performance within the other property segments was generally stable. However, rents have been holding up well. Despite the impending increase in supply of industrial space in 2014, A-REIT expects the demand to remain healthy on the back of a tentative global recovery. As at 31 Mar, portfolio occupancy held steady at 89.6% (3Q: 89.7%). For FY14, positive rental reversion averaging 14.8% was also achieved. Going forward, A-REIT guided that positive reversion in the mid-to-high single digit is still anticipated, given that passing rents are below market rates.

Maintain BUY
A-REIT also announced two new asset enhancement initiatives (AEIs) this quarter, with the objective of maximising the plot ratio and improving the marketability of the properties. To date, total cost of committed AEIs amounted to S$106.5m. We also note that the acquisition of Kallang Ave development (~40% space committed) may happen soon as TOP is expected in 2QCY14. We roll our valuation to FY15, while tweaking our assumptions to factor in potentially higher operating costs. Our fair value now increases to S$2.45 from S$2.40 previously. Maintain BUY.

Ascendas REIT

UOBKayhian on 22 Apr 2014

FY14 DPU (S cent): 14.2
FY15F DPU (S cent): 15.1
Results were in line with expectations although a slower take-up of upgraded space continued to weigh on performance. Ascendas REIT (A-REIT) reported 4QFY14 DPU of 3.55 cents (+0.3% yoy, +0.3% qoq) as the dilution from a private placement in 1Q13 was offset by higher distributable income (+0.2% yoy, +0.2% qoq) on lower interest expenses, higher revenue, and distribution of income and income support from Z-Link Beijing. Results were in-line with expectations, with FY14 DPU representing 99.6% of our full-year forecast.

Maintain BUY and target price of S$2.73, based on DDM (required rate of return: 6.9%, terminal growth: 1.8%). We trim our FY15-FY16 DPU estimates by 2-3% on higher operating expenses and on lower occupancy assumptions due to a slower take-up of vacant space and divestments. We also introduce our DPU estimate for FY16. Key risks include an economic downturn impacting rentals and slow take-up for vacant and upgraded space. Watch for further organic growth from filling the 10% vacancy in AREIT's portfolio, AEIs and the potential acquisition of Aperia as it approaches
completion.

CapitaCommercial Trust

Kim Eng on 21 Apr 2014

• 1Q14 results in line with our expectations. DPU rose 7.2% YoY to 2.08 cts.
• 12% pre-commitment signed to-date for CapitaGreen. Cargill leases 51,000 sq ft and likely paying SGD9-10 psf per month.
• Reiterate HOLD with DDM-based TP raised to SGD1.66.

Results in line with expectations
CCT saw a 3.2% YoY rise in 1Q14 revenue to SGD64m, bolstered by higher income from most properties except One George Street, whose Deed of Yield Protection expired on 10 Jul 2013. 1Q14 DPU grew 7.2% YoY to 2.08 cts, driven by lower interest expense and higher NPI. Balance sheet remained strong, with a low gearing of 30% and 81% of borrowings on fixed rates. CCT has debt headroom of SGD1.2b, assuming a gearing of 40%. Portfolio occupancy rate edged up to 99.4% from 98.7% thanks to a mix of new and renewed leases, while monthly average office portfolio gross rent continued its uptrend, increasing to SGD8.22 psf from SGD8.13 psf in 4Q13.

CapitaGreen achieves 12% pre-commitment
CapitaGreen has secured a pre-commitment for 12% of its NLA of 700,000 sq ft from Cargill (51,000 sq ft), Bordier & Cie (12,000 sq ft) and an international gym operator (18,000 sq ft). These first-mover tenants are likely to be loss leaders, possibly paying a monthly rental of SGD9-11 psf, lower than CCT’s target of SGD12-14 psf for subsequent smaller floor-plate tenants. We see challenges ahead as CCT’s pre-leasing activities will coincide with those of the 782,000-sq-ft Asia Square Tower 2 (TOP 3Q13; 60% pre-committed) and 527,000-sq-ft South Beach Development. We expect the next significant increase in DPU to occur only in FY15 after the completion of CapitaGreen. We raise our FY14E-16E DPU estimates by 1.4-2.3% on interest savings and better growth prospects. Reiterate HOLD with a higher DDM-derived TP of SGD1.66 (previously SGD1.50).

Keppel Reit

Kim Eng on 15 Apr 2014

• 1Q14 results in line with our and market expectations.
• No news of MBFC Tower 3 acquisition from sponsor; equity fund-raising remains on the horizon.
• 1Q14 DPU flat YoY at 1.97 cts. Expect flat DPU CAGR over FY13-18E on income support expiry and marginal passing rents improvement.

What’s New
KREIT posted a 12.9% YoY rise in 1Q14 revenue to SGD46.8m, meeting 25% of our and 24% of consensus estimates. The increase came on the back of improved performance from Ocean Financial Centre and Prudential Tower in Singapore and additional income from 8 Exhibition Street in Melbourne, which was acquired last August. 1Q14 DPU remained flat YoY at 1.97 cts, forming 25% of our and consensus forecast. Portfolio occupancy rate was flat at 99.8% in Singapore with all properties fully leased, but rose to 97% from 95% in Sydney with 8 Chifley Square signing on its latest tenant Natixis. Opened last October, it has only half a floor remaining to be leased. Aggregate leverage for KREIT edged up slightly from 42.1% in 4Q13 to 42.4% in 1Q14.

What’s Our View
MBFC Tower 3 is 95% occupied to date, but KREIT has yet to announce any acquisition plans from its sponsor. We believe more equity fund-raising is still on the cards, with the possibility of capital recycling Prudential Tower (valued at SGD490m as at 31 Dec 2013) to fund a portion of the hefty acquisition cost estimated at SGD1.1-1.3b. KREIT has, respectively, 3.1% and 6.3% of its portfolio NLA due for lease expiry and rent review this year. We expect marginal improvements in passing rents, with CapitaGreen and South Beach Development due to come on-stream in 4Q14. We forecast flat DPU CAGR over FY13E-18E with the progressive expiry of income support. Maintain HOLD with an unchanged DDM-derived TP of SGD1.25.

Capitaland

Kim Eng on 15 Apr 2014

• CapitaLand makes a conditional offer of SGD2.22/share to privatise 65.3%-owned subsidiary CMA.
• Main rationale: To fully integrate CMA as part of its streamlining exercise and enhance its strength in building integrated developments.
• Maintain BUY and TP of SGD3.85. A delisting would be positive for CapitaLand but the offer price may be insufficient for CMA’s minority shareholders to bite.

Offer details
CapitaLand’s (CAPL) offer of SGD2.22/share is a 27.0% premium on CMA’s one-month VWAP and a 20.7% premium over its FY13 BVPS of SGD1.84, but a 23.7% discount to our RNAV of SGD2.91. The offer is conditional upon CAPL receiving sufficient acceptances for its stake to exceed 90%, thereby allowing CMA to be privatised.

What’s Our View
This exercise makes sense for CAPL for a number of reasons. First, since its Nov 2009 IPO, CMA has been trading at deep discounts to its RNAV despite its strong execution and steady earnings delivery. If the privatisation is successfully executed, it would be one of CAPL’s most astute acquisitions, allowing it to leverage on CMA’s retail expertise while keeping it as a key earnings driver.

Second, we believe the business streamlining will be positive for CAPL as it would be more synergistic to pursue integrated developments – similar to its suite of Raffles City – under one combined entity, rather than a consortium of related listed entities (eg, Westgate and Raffles City Chongqing).

Third, this is a positive redeployment of the proceeds raised from the recent sale of Australand (~SGD1.5b). Post-acquisition, CAPL’s pro-forma net gearing would rise from 0.39x to 0.59x, which is still comfortable in our view. Pro-forma FY13 EPS would have been 21.5% higher on a post-acquisition basis, while headline ROE would have improved by 1.3ppt to 6.7%.
The only obstacle, in our view, is to achieve enough acceptances. Maintain BUY and TP of SGD3.85 for CAPL.

Ezion Holdings

Kim Eng on 16 Apr 2014

• Secures two new three-year liftboat contracts worth a total of USD78.7m, with deployment by 1H15.
• Places 100m new shares to Malaysian tycoon Quek Leng Chan at SGD1.94/share, a 9.6% discount to VWAP a day ago.
• Maintain BUY, TP trimmed to SGD2.70 on share dilution.

What’s New
Ezion has secured another two three-year liftboat contracts worth USD35m and USD43.7m respectively. The vessels are to be deployed by 1H15 and we forecast an annual net profit of USD10-
12m from both contracts with ROEs of 40-48% each. Ezion will also issue 100m new shares to the investment vehicle of Malaysian tycoon Tan Sri Quek Leng Chan at SGD1.94/share. The net  proceeds of SGD190m would enable it to continue to invest in new assets to grow its liftboat business.

What’s Our View
Following the share placement, Mr Quek would emerge as Ezion’s second-largest shareholder with a 7.7% stake. In our view, he could play a strategic role in enhancing business opportunities for Ezion in Malaysia. As it is, he has already helped Ezion to secure a higher charter rate for a yet-to-begin liftboat contract, although some reshuffling of vessels would be required. The SGD190m in net proceeds would immediately lower Ezion’s net gearing from 1.15x as of FY13 to 0.97x. More importantly, it provides financial firepower to invest in new assets and liftboat contracts. Contract wins YTD have reached USD260.3m (65% of our forecast of USD400m) for FY14E. Management expresses strong confidence in securing new contracts for the remainder of the year. If the current order win momentum continues, we see scope to raise our FY15E-16E earnings forecasts. We trim our FY14E-16E EPS by 6-7% in view of share dilution and net interest effects. Our TP thus falls  from SGD2.90 to SGD2.70, pegged to 13x FY14E P/E. Reiterate BUY.

Keppel Corp

Kim Eng on 16 Apr 2014

• 1Q14 results within expectations, with a 5.1% YoY dip in PATMI to SGD338.7m due mainly to one-offs a year ago.
• O&M operating margin held steady both QoQ and YoY at 14.2%. Net orderbook stands at a record SGD14.4b with SGD1.9b worth of new orders secured in the first quarter.
• Maintain BUY and SOTP-based TP of SGD12.48.

What’s New
Keppel Corp’s 1Q14 PATMI of SGD338.7m (-5.1% YoY, +2.1% QoQ) came in largely within our expectations, meeting 21% of our full-year estimate. The O&M segment remains the largest net profit contributor at 78%, posting an 11% YoY growth. All other segments, however, marked a decline, albeit due to one-offs a year ago. O&M operating margin held firm at 14.2% (1Q13: 14.1%, 4Q13: 14.2%).

What’s Our View
We see efficiency gains driving O&M operating margin expansion this year and keep our FY14E margin forecast of 14.9% intact. On new contract wins, management remains optimistic and we expect it will meet our full-year projection of SGD6.2b. Keppel has already secured SGD1.9b of new orders in 1Q14, achieving 31% of our full-year forecast. Its net orderbook is also at a new record high of SGD14.4b, with deliveries extending through to 2019.
In our view, the contract win environment would remain robust as a strong replacement cycle would continue to sustain the jackup rig market. Moreover, weakness in the deepwater floaters market is but temporary as the long-term demand dynamics are strong, while the FPSO market is another area of growth opportunity.
Keppel’s proactive approach to developing its “Near Market, Near Customer” strategy via inroads into Mexico and China, as well as product innovations, should help it stay ahead of competition in the offshore space. We keep our estimates and SOTP-based TP of SGD12.48 unchanged. Reiterate BUY.

CapitaCommercial Trust

OCBC on 21 Apr 2014

1Q14 distributable income increased 7.6% to S$59.9m mostly due to stronger contributions from portfolio assets and lower interest expenses. 1Q figures were mostly within expectations and YTD distributable income now constitutes 25.6% of our full year forecast. We note that the Trust enjoyed higher revenues from all properties due to a mix of stronger occupancies and positive rental reversions, except for One George St which was impacted by the cessation of yield protection income. 1Q14 DPU of 1.94 S-cents translates to a 5.2% yield as at the last closing price of S$1.635. As our top pick in the REITs sector, CCT has outperformed significantly YTD, appreciating 12.8% versus the STI’s 2.7% movement over this period. We update our model for latest rental assumptions, and our fair value increases marginally to S$1.67 from S$1.61 previously. At this juncture, however, we believe CCT is almost fully valued; downgrade to HOLD on valuation grounds.

Good start to the year
1Q14 distributable income increased 7.6% to S$59.9m mostly due to stronger contributions from portfolio assets and lower interest expenses. 1Q figures were mostly within expectations and YTD distributable income now constitutes 25.6% of our full year forecast. Topline for the quarter came in 8.5% higher YoY at S$57.1m versus S$52.6m in 1Q13 (restated due to the adoption of FRS 111 which reclassified income from RCS Trust and MSO Trust under “share of results of JV”). We note that the Trust enjoyed higher revenues from all properties due to a mix of stronger occupancies and positive rental reversions, except for One George St which was impacted by the cessation of yield protection income. 1Q14 DPU of 1.94 S-cents translates to a 5.2% yield as at the last closing price of S$1.635.

CapitaGreen now 12% pre-committed
Portfolio occupancy came up to 99.4%, up 70 bps from 98.7% as of end 4Q13. We continue to see positive rental reversions across CCT’s portfolio assets, with average committed office portfolio rentals increasing to S$8.22 psf as at end 1Q14 from S$8.13 as at end 4Q13. Management highlights that more than two thirds of leases expiring in FY14 has been renewed. Greenfield asset CapitaGreen remains on track to complete by end FY14 and the Trust has already pre-leased 12% of the 0.7m sq ft net lettable area to Cargill, Bordier & Cie and an international gym operator. Management expects to achieve commitment levels of ~50% by completion.

Downgrade to HOLD on valuation grounds
As our top pick in the REITs sector, CCT has outperformed significantly YTD, appreciating 12.8% versus the STI’s 2.7% movement over this period. We update our model for latest rental assumptions, and our fair value increases marginally to S$1.67 from S$1.61 previously. At this juncture, however, we believe CCT is almost fully valued; downgrade to HOLD on valuation grounds.

Keppel Corp

OCBC on 17 Apr 2014

Keppel Corporation (KEP) reported a 8.6% YoY rise in revenue to S$3b and a 5.1% fall in net profit to S$338.7m in 1Q14, and within expectations. Excluding one-off gains in 1Q13, net profit in 1Q14 was largely in line with that in 1Q13. Operating margins in the O&M segment remain healthy at 14.6% in 1Q14, and construction of the semi-submersible rigs for Sete remain on track. On the infrastructure side, we understand that no provisions were made for the Qatar project in 1Q14. The O&M division secured S$1.9b of new orders in 1Q14, and it is expected that the ongoing bifurcation towards premium assets and the replacement of old rigs should continue to support order momentum. As at end 1Q14, the net orderbook stood at a record S$14.4b with deliveries till 2019. Maintain BUY with S$12.25 fair value estimate.

1Q14 results in line
Keppel Corporation (KEP) reported a 8.6% YoY rise in revenue to S$3b and a 5.1% fall in net profit to S$338.7m in 1Q14, both accounting for about 22% of our full year estimates and are in line with expectations. Excluding one-off gains from the reversal of provision from the sale of a power barge and write-back of tax provision made by Keppel Land in 1Q13, net profit in 1Q14 was largely in line with that in 1Q13.

Operations mostly remain on track
The O&M segment saw operating margins of 14.6% in 1Q14, or about 14.2% excluding the sale of Berich Enterprises and Keppel Kazakhstan. This is close to the 14.1% margin seen in 1Q13. We also understand that the first and second semi-submersible rigs for Sete Brasil have also reached 60% and 20% revenue recognition, respectively. The lower hull of the first semi has arrived in Angra, Brazil, and construction is “progressing well” for the second and third semis. On the infrastructure side, Keppel Seghers has completed the first burn as part of the commissioning process for Phase 1 of the Greater Manchester Energy-from-Waste plant. As for the challenging Qatar project, no provisions were made in 1Q14 and management hopes for completion by year end. 

O&M order momentum to sustain
The O&M division secured S$1.9b of new orders in 1Q14, of which five are jack-up rigs. This is evident of a still strong market for the jack-up rig segment, which is seeing utilization rates close to 100%. The ultra-deepwater segment, however, has seen a softening in day rates, but we do note that major oil companies are still encouraging E&P spending due to concerns over reserve replacement ratios. Overall, the ongoing bifurcation towards premium assets and the replacement of old rigs should continue to support order momentum, supported by oil prices which are in a comfortable range. As at end 1Q14, the net orderbook stood at a record S$14.4b with deliveries till 2019. Maintain BUY with S$12.25 fair value estimate.

Ezion Holdings

OCBC on 17 Apr 2014

Ezion Holdings recently clinched two service rigs charter contracts worth a total of US$78.7m, bringing its YTD order wins to US$260.3m. We believe this underscores Ezion’s dominant position in the service rigs market, especially in the Asia-Pacific region. Separately, Ezion also announced that it will issue 100m new shares (7.7% of Ezion’s enlarged share capital) to two subsidiaries of Hong Leong Company (Malaysia) Berhad (HLCM) at S$1.94/share, thus raising gross proceeds of S$194m. As the Chairman and CEO of HLCM is Tan Sri Quek Leng Chan, Ezion believes it will be able to tap on his vast experience and network, and has plans to increase its penetration into the Malaysian oil and gas market. We take into account these developments, and pare our FY14 and FY15 core EPS projections by 6.2% and 3.5%, respectively. Maintain BUY on Ezion, albeit with a reduced fair value estimate of S$2.41 (previously S$2.57).

Secures US$78.7m of new charter contracts
Ezion Holdings announced two contract wins on 15 Apr 2014 with an aggregate value of US$78.7m. The first is a charter contract worth ~US$35m for the provision of a service rig to a Middle-Eastern state-linked company over a three year period in the Arabian Gulf. The second order entails a charter contract with a value of US$43.7m over a three year period, in which Ezion will provide a service rig to support a South Asian based national oil company in the Arabian Sea. Both service rigs are expected to be deployed by 1H15 after refurbishment and upgrading works. We estimate the ROE for the first and second contract to be 39.8% and 48.1%, respectively. YTD, Ezion has already secured US$260.3m of contracts, which underscores its dominant position in the service rigs market, especially in the Asia-Pacific region.

Hong Leong Company (M’sia) becomes substantial shareholder
Separately, Ezion also announced that it will issue 50m new shares each to Asia Fountain Investment (AFI) and GuoLine Capital (GLC) at S$1.94/share (gross proceeds of S$194m), which is a 8.9% discount to its last closing price prior to this announcement. The 100m new shares to be issued represent ~7.7% of Ezion’s enlarged share capital. AFI is an indirect wholly-owned subsidiary of Guoco Group, which is in turn an indirect subsidiary of Hong Leong Company (Malaysia) Berhad (HLCM). GLC is an indirect wholly-owned subsidiary of HLCM. The Chairman and CEO of HLCM is Tan Sri Quek Leng Chan. Ezion believes it will be able to tap on his vast experience and network, and has plans to increase its penetration into the Malaysian oil and gas market. 

Lower EPS forecasts on dilution; but maintain BUY
We lift our FY14 core PATMI forecast by 3.4% on slightly higher margin assumptions. Our FY15 revenue and core PATMI forecasts are raised by 6.5% and 8.8%, respectively, as we take into account Ezion’s recent contract wins. However, we pare our FY14 and FY15 core EPS projections by 6.2% and 3.5%, respectively, to factor in the dilution from this new shares issuance. Maintain BUY on Ezion, albeit with a reduced fair value estimate of S$2.41 (previously S$2.57), still pegged to 12x FY14F core EPS.

Keppel Land

OCBC on 16 Apr 2014

KPLD reported 1Q14 PATMI of S$87.7m, decreasing 9.2% YoY mostly due to the absence of a tax write-back recognized in the same period last year. We judge this set of results to be mostly in line with expectations and YTD PATMI now constitutes 19.7% of our full year forecast. The group sold 54 homes in Singapore over 1Q14, mostly from The Glades which is now 23% sold (~170 out of 726 units). The run rate over 1Q14 so far represents 14.5% of the 370 total units sold in FY13, in line with expectations for a fairly muted FY14 in terms of SG home sales given the weak outlook. In China, 570 home units were sold over the quarter, down 33% YoY versus the 850 units sold in 1Q13, though management highlights that the achieved sales value was actually 5.9% higher to a change in mix to higher-end projects. Maintain BUY with an unchanged fair value estimate of S$4.09 (30% discount to RNAV).

1Q14 numbers hit by absence of tax write-back
Keppel Land (KPLD) reported 1Q14 PATMI of S$87.7m, decreasing 9.2% YoY mostly due to the absence of a tax write-back recognized in the same period last year. Contributions from the property development segment decreased 37.4% YoY to S$35.6m as The Botanica Ph.6 and Marina Bay Suites achieved TOP over the year; this dip was partially offset by an 8.9% increase in property investment income to S$29.3m from Keppel REIT and MBFC T3. We judge this set of results to be mostly in line with expectations and YTD PATMI now constitutes 19.7% of our full year forecast. 1Q14 topline came in at S$284.9m, up 37.6% as revenues from Chinese development projects increased.

Highline Residences to launch in 2Q14
The group sold 54 homes in Singapore over 1Q14, mostly from The Glades which is now 23% sold (~170 out of 726 units). The run rate over 1Q14 so far represents 14.5% of the 370 total units sold in FY13, in line with expectations for a fairly muted FY14 in terms of SG home sales given the weak outlook. In 2Q14, we expect KPLD to launch its condominium project in Tiong Bahru, Highline Residences; pricing will likely be a key driver for launch performance here, in our view. In China, 570 home units were sold over the quarter, down 33% YoY versus the 850 units sold in 1Q13, though management highlights that the achieved sales value was actually 5.9% higher due to a change in mix to higher-end projects. KPLD also reports that sales had slowed over Jan-Feb due to the winter weather and Lunar New Year holidays, but it has since seen sales pick up in Mar-14. 

Maintain BUY with unchanged S$4.09 FV
We continue to like KPLD for its compelling valuation and its strong balance sheet with S$1.0b in cash and 40% net gearing. Maintain BUY with an unchanged fair value estimate of S$4.09 (30% discount to RNAV).

First Reit

OCBC on 15 Apr 2014

First REIT (FREIT) reported 1Q14 gross revenue of S$22.5m, which translates into a 28.3% YoY growth. Distributable amount to unitholders and DPU increased by 22.3% and 14.4% YoY to S$14.2m and 1.99 S cents, such that 1Q14 revenue and DPU formed 24.1% and 24.0% of our FY14 forecasts, respectively. This was within our expectations, with growth driven largely by a full quarter of contribution from two Indonesian hospitals which were acquired in May 2013. Looking ahead, FREIT’s main focus will remain on the Indonesian healthcare market. We do not foresee any impact on FREIT’s prospects and current operations from the upcoming Indonesian presidential elections. We keep our forecasts intact as this set of results closely matched our expectations. Maintain BUY, with an unchanged DDM-derived fair value estimate of S$1.21, as FREIT is still trading at an attractive FY14F distribution yield of 7.4%.

1Q14 results within our expectations
First REIT (FREIT) reported 1Q14 gross revenue of S$22.5m, which translates into a 28.3% YoY growth. Distributable amount to unitholders and DPU increased by 22.3% and 14.4% YoY to S$14.2m and 1.99 S cents, such that 1Q14 revenue and DPU formed 24.1% and 24.0% of our FY14 forecasts, respectively. We view this as in-line with our expectations. FREIT’s growth was driven largely by a full quarter of contribution from its two Indonesian hospitals, Siloam Hospitals Bali and Siloam Hospitals TB Simatupang, both of which were acquired in May 2013. Its net property income margin normalised to 98.7% (+1.0 ppt YoY; +3.9 ppt QoQ) as a result of a new rental structure struck for its Sarang Hospital (provisions made in FY13 due to payment issues by tenant). FREIT will trade ex-dividend on 21 Apr 2014, and the DPU of 1.99 S cents is payable on 29 May 2014. Unitholders may choose to receive their distributions in the form of fully-paid new units in lieu of any part or the entire cash amount of any distributions they are entitled to.

Indonesia remains as focal point
Looking ahead, FREIT’s main focus will remain on the Indonesian healthcare market. We conservatively expect contribution from its new Siloam Hospitals Purwakarta to commence on 1 Jul this year (pending unitholders’ approval). We do not envisage any impact from the upcoming Indonesian presidential elections as FREIT’s leases are long-term in nature and FREIT also does not foresee any major changes in regulations or policies in the Indonesian healthcare sector in the short to medium term. 

Maintain BUY
We are keeping our forecasts intact as this set of results closely matched our expectations. Maintain BUY, with an unchanged DDM-derived fair value estimate of S$1.21, as FREIT is still trading at an attractive FY14F distribution yield of 7.4%.