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Fortune REIT (BUY; Target Price: HK$4.88)

Two shopping mall properties, Belvedere Garden and Provident Centre, were recently acquired in February for HK$1.9 billion. The yield-accretive acquisition was funded by debt. There is much potential for Fortune to improve their monthly passing rents of HK$16.5-19.5 psf (versus HK$32.2 psf for the original portfolio). Like the other suburban retail malls in Fortune’s portfolio, the two new properties have sizeable population catchment areas and are easily accessible by public transportation, including train stations. Retail sales in Hong Kong jumped 25 per cent YoY to HK$406 billion in 2011, reflecting an increase in consumption by locals and foreigners, including 28 million tourists from the mainland. With HK and China’s real GDP projected to grow at 3 per cent and 8.5 per cent respectively in 2012 (Bloomberg), and with median household incomes growing, retail sales should continue to do well. Prices of retail spaces have grown significantly faster than average retail rents, and rents will probably continue to catch up. Knight Frank projects that retail rents in non-core areas will increase by 5 per cent this year. Management has a comprehensive asset enhancement programme in place and it intends to spend HK$50 million-100 million per year on asset enhancement initiatives (AEI). Its current portfolio has enough potential for AEI over at least the next three years. With target ROI of at least 15 per cent, we view properly-executed AEI as a cost-effective way to pursue revenue and dividend growth. – OCBC Investment Research

IEV Holdings (Not Rated)

Net profit fell by 33.6 per cent YoY to RM11.2 million due mainly to lower GPM (gross profit margin) arising from the shift in its product mix and higher administrative and other operating expenses (predominantly professional fees and expenses related to its IPO last October). At the briefing, management also outlined several strategies to propel growth for IEV. In the offshore engineering division, IEV stands to benefit from the marginal field development sector. It has already secured the first platform reuse project in Malaysia that was announced on 19 December 2011 and which is expected to be completed by year-end. At the other end of the life cycle, decommissioning has gained momentum in several countries and IEV is also expected to benefit from this market segment. Two turnkey decommissioning projects in Malaysia, which were awarded to the group last year, are expected to be completed sometime in 1H12. As at the end of last month, the group’s orderbook amounted to about RM280 million. IEV is making inroads into the mobile natural gas segment, where we understand that it is working towards securing several stranded gas sources in Indonesia, as well as “Operation Cooperation” programme with Pertamina EP to secure feed gas supply for its future expansion needs. It is also expected to start the development of its new mobile natural gas supply chains to monetise stranded gas sources in 2Q12. Management will step up marketing efforts to increase CNG sales to existing customers while negotiating gas sales and purchase agreements with new customers. Management believes that IEV will make a quantum leap this year in view of strong growth potential in the engineering and energy sectors. The stock has more than tripled from its IPO price of S$0.30, reflecting market optimism for its outlook. Based on Bloomberg estimates, the counter trades at about 7.4x FY12 PER (price earnings ratio). Key risk includes sound execution and implementation of its business plans. – Maybank Kim Eng Research

 

Lian Beng Group  (BUY; Target Price: S$0.62)

We estimate that the spin-off and listing of Lian Beng’s subsidiaries in Taiwan could propel its valuation from S$0.62 to S$0.71. To recap, Lian Beng has proposed to spin off two subsidiaries (one in the engineering and leasing of construction machinery business, the other in the concrete manufacturing business) and list them on the Taiwan Stock Exchange. The proposal received shareholder approval this month. We expect Lian Beng to raise about S$29 million from the expected sale of 30 per cent stake in the subsidiaries, based on a PER (price earnings ratio) valuation of 11.5x and FY12 forecast earnings of S$9.3 million. If all goes well, we expect the listing to take place by end-2Q12. We expect Lian Beng to return some capital to shareholders in the form of a special dividend, which it can well afford. An additional one cent per share of special dividend works out to just S$5.3 million cash and will translate to an incremental yield of 2.6 per cent on top of the existing forecast yield of 4.6 per cent. We believe a special dividend of up to 1.6 S-cents per share is possible, based on its S$185 million cash less its committed capital for property developments, for a total dividend of 3.4 S-cents per share, or 8.7 per cent yield. Lian Beng has taken stakes in four property projects in the past 12 months. The latest was a 10 per cent stake in the joint venture led by Oxley Holdings for the S$96.2 million acquisition of a freehold mixed development in Seletar Garden, the first successful collective sale this year. The total attributable development cost for the four projects is S$176.4 million, which is well supported by its war chest of S$185 million cash. – Maybank Kim Eng Research

 

Tiger Airways (SELL; Target Price: S$0.60)

Tiger Airways (TGR) this week reported an 81 per cent passenger load factor (PLF) in February 2012. This is only the second time it has recorded a PLF of more than 80 per cent since the grounding of its Australian operations last year. However, TGR’s decent PLF in February 2012 can be primarily attributed to the significant seat capacity reduction of 17 per cent YoY to 474,000, as number of passengers flown fell 19 per cent YoY to 384,000. Management said demand for its flights was weak in February 2012 because 1) the Chinese New Year holiday fell in January this year, compared to February in 2011, and 2) Tiger Airways Australia in February 2012 was still operating at a less than optimal capacity. It is also notable that, for the third consecutive month, TGR has retrospectively adjusted its comparative year-ago monthly operating statistics. TGR said these adjustments are the result of reclassification of operating statistics, without providing further details. While the adjustments are not significant, TGR’s YoY operating statistics comparison will seem a tad worse when matched against previously announced numbers. Thus far in 4QFY12, SGD-adjusted jet fuel prices (JETKSIFC Index) have averaged 3 per cent higher QoQ. In fact, it has been two and a half years since quarterly average jet fuel prices have seen the current level. With fuel costs contributing to 40-45 per cent of total expenses, persistently high jet fuel prices are likely to continue to depress TGR’s profitability. – OCBC Investment Research