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Ascendas REIT (BUY; Target Price: S$2.30)

Cache Logistics Trust (BUY; Target Price: S$1.19)

Mapletree Logistic Trust (BUY; Target Price: S$1.20)

The acquisition momentum in the industrial REIT subsector has panned out according to our expectations as communicated in our February sector report. Following Ascendas REIT’s proposed acquisition of three properties at Science Park Drive in February 2012, we note that two other industrial REITs, namely Mapletree Logistics Trust (MLT) and Cambridge Industrial Trust, have also announced their respective acquisitions. All the acquisitions are expected to be DPU-accretive, according to the REIT managers. In addition, the YTD aggregate acquisition consideration in the industrial REIT subsector now amounts to S$606.9 million, above the S$556.4 million level seen in 4Q11. In the months ahead, we believe the acquisition trend will continue, given the still-sound market fundamentals. This may potentially lift their aggregate leverage levels higher. However, industrial REITs’ financial positions are still strong in our view, having taken a proactive approach in their capital management strategy. Mapletree Industrial Trust (MINT), for instance, had successfully refinanced part of its S$209.2 million borrowings due in September 2012 via the issuance of S$125 million 7-year fixed-rate notes recently, thereby extending its average debt duration from 2.5 years to 3.2 years. There is also a recent trend of financing acquisition via a combination of debt and equity, especially when a REIT’s debt-to-asset level approaches the 40 per cent mark and when the acquisition is sizable. Noteworthy was MLT’s recent issuance of perpetual securities, which followed suit on successful launches by several corporations such as Genting Singapore and Global Logistics Properties. Such hybrid securities will not only provide REITs with the firepower for future investments but also have the effect of lowering their aggregate leverages. The only concern, we believe, is the successful deployment of the net proceeds on yield-accretive acquisitions. We expect growing popularity in perpetual securities in the industrial REIT space, as REITs seek alternative funding sources apart from a direct rights issue. – OCBC Investment Research

 

Cambridge Industrial Trust (BUY; Target Price: S$0.605)

The management of Cambridge Industrial Trust (CIT) just announced the acquisition of the property at 16 Tai Seng Street for a purchase consideration of S$59.25 million. 16 Tai Seng Street is a purpose built, contemporary, with a current gross floor area of approximately 16,282 square metres. On completion of the acquisition of the property (2Q12), CIT will lease back the property to the seller for a period of six years. This acquisition, which is expected to bring in an additional dividend of 0.16 S-cent, will be funded through a combination of 40 per cent debt from the Acquisition Term Loan Facility and 60 per cent cash from the net proceeds from the Medium Term Note (MTN) issuance. We view this acquisition positively as the company is able to gain a spread of 2 per cent through this action with no dilution to shareholders’ equity. – DMG Research

 

China Fishery (BUY; Target Price: S$1.40)

We hosted China Fishery Group (CFG) for a non-deal roadshow (NDR) in Singapore. CFG will enjoy US$13-14 million of annual interest expense savings over the next two years due to early redemption of senior notes in FY11. Though comfortable with current net gearing level of 60 per cent, management intends to reduce its debt further. Though North Pacific TAC (total allowable catch) has been reduced by a small 5 per cent to 1.67 million MT, CFG will be deploying two new factory vessels (though each on a smaller scale than the Lafayette) to the North Pacific for production of surimi. This is slated to take place from 2HFY12 onwards and is expected to result in better margins given its higher ASP (average selling price) of US$3,000/MT versus Alaska Pollock’s US$1,650/MT. Peru FY12 TAC is 25 per cent higher at 2.5 million MT. Coupled with acquisitions done in November 2011, this should lead to strong anchovy catch volumes in FY12. CFG intends to deploy the Lafayette and five catcher vessels to the South Pacific international waters and Peru, while three to four trawlers will be deployed to Mauritania, Senegal and Namibia. Following a 10,000 MT quota secured in Namibia, CFG plans to secure additional quota in the African region in the future. – DMG Research

 

M1 Limited (BUY; Target Price: S$2.85)

When Apple’s new iPad comes onto the market, we do not expect M1 to suffer a margin upset. The iPad tends to have a much smaller impact on subscriber acquisition costs than the iPhone. In fact, with all the telcos making a concerted break away from unlimited data caps on their new iPad plans (now only 10GB bundled), we are hopeful tablets will play a larger role in boosting data ARPUs. M1 appears to be easing up on its aggressive stance on fibre. At the recent IT Show 2012, it raised its promotional monthly rate for 100Mbps home fibre broadband from S$39 to S$45, putting it closer to SingTel’s rate of S$49.90 and StarHub’s S$49.65. Even so, M1’s rate is still considered attractive vis-à-vis its peers because its price point is lower and it also includes a bundled mobile broadband plan with 5GB data cap. With the new iPad out on the market, the next iPhone is not expected to be launched until October. This is in line with the timing of the iPhone 4S last year, when Apple pushed back the rollout date from a traditional June launch closer to the year-end holiday season. M1’s margins had taken a beating in 4Q11, hence this will give it time – at least two quarters – for its margins to recover. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet works on increasing its permanent installation capacity and comes out with a way to better handle demand fluctuations, we anticipate faster growth in fibre net-adds this year. NGNBN take-up has been slow last year, but if the teething issues are resolved, this will be a positive catalyst for M1. – Maybank Kim Eng Research

 

Pacific Andes Resources Development (Not Rated)

PARD announced last week that it will undertake a 1-for-2 rights issue at S$0.14 per share to raise about S$220 million. The rights pricing is a 39 per cent discount to its closing share price then of S$0.23. The share price has since declined by 13 per cent and the stock goes ex-rights Friday. The level of frustration among investors over the dilution from PARD’s rights issue was palpable at a recent company briefing. It was its third rights issue after two 1-for-1 issues in 2007 and 2009 at S$0.52 and S$0.15, respectively. Management was vague and non-committal on the purpose of the fund-raising, except to say that it was for potential acquisitions and working capital. It reiterated that the funds were not meant to cover debt repayments and that the company is comfortable with its net gearing level of approximately 80 per cent. PARD’s profitability and macro fundamentals are still positive, as highlighted in our report in February. While we concede that its business is built on scale which requires large amounts of working capital, this round of rights issue out of left field will severely test investor confidence. – Maybank Kim Eng Research

 

Swiber Holdings (HOLD; Target Price: S$0.61)

Swiber Holdings has entered into a placement agreement with Religare Capital Markets which will procure on a best-effort basis subscriptions for up to 101.071 million new Swiber shares. The issue price is S$0.635 per placement share, representing a discount of about 9.74 per cent to the VWAP of S$0.7035 for trades on the preceding day before the trading halt. Should the placement be fully subscribed, Swiber’s share base would be enlarged by about 20.0 per cent, and the group will be able to raise net proceeds of about S$62.5 million which will be used for general working capital. This development is not a surprise given the relatively high placement activity level among O&M companies recently, such as Ezion Holdings, Ezra Holdings and of course Swiber Holdings. Besides the terms of the placement, it is worth looking at where the proceeds will be channelled to in order to ascertain whether a placement is beneficial to existing shareholders of the company. If they are used for 1) expansion plans and business opportunities that are earnings accretive, or 2) the equity raised is used to pay off debt that has a higher cost of capital, then it may be argued that the placement is in the interest of shareholders. After securing US$36 million worth of charter contracts in early March, Swiber’s orderbook has risen to over US$1.1 billion. Looking ahead, the group is likely to secure more projects, given the buoyant industry outlook and its strong foothold in certain geographic areas. – OCBC Investment Research