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CapitaCommercial Trust (SELL; Target Price: S$1.06)

CCT’s average office portfolio rent fell from S$7.66 psf in December 2011 to S$7.45 psf in March 2012. Jones Lang Lasalle estimated that prime Grade A rents declined by 4.4 per cent QoQ in 4Q11 to S$9.75 psf. With possibly another 6.5 million sq ft of prime office NLA scheduled for completion between 2012 and 2016, there will be no lack of supply. Coupled with the prospect of tepid GDP growth, we believe that a quick upturn in office demand is unlikely. CCT completed the acquisition of Twenty Anson for S$430 million on 22 March 2012, or S$2,121 psf, excluding a yield stabilisation to provide a net yield of 4 per cent for the first 3.5 years. The passing rent on acquisition was S$6.18 psf and to achieve the 4 per cent net yield without the need for yield support, CCT would have to bring the passing rent up to its estimated current market rent of S$8.44 psf. As we expect Grade A office rents to slide by 10 per cent pa this year and next, we foresee that Twenty Anson’s yield could slip back to below 4 per cent when the stabilisation period ends. CCT is seeking unitholders’ approval at its AGM on Friday for a unit buyback mandate, capped at 2.5 per cent of the total units. Though not a particularly significant move, it can be construed as productive use of cash – other than to pare down debt – as truly yield-accretive acquisitions are hard to come by. CCT’s share price has already risen by 17.9 per cent YTD, outperforming the FTSE REIT Index (FSTREI INDEX). As we do not foresee an imminent upturn in office rents, current valuations appear rich and the FY12F yield of 5.9 per cent is insufficient to offset sectoral headwinds. – Maybank Kim Eng Research


Eu Yan Sang (BUY; Target Price: S$0.90)

EYS clinched its first pharmacy license in China in February 2012 and will be opening its first pharmacy in Dongguan, China by end FY12. This allows it to circumvent the stringent Chinese regulations on the sale of “medicinal products.” So far, two of its bestselling products i.e., Bak Foong Pills and Bo Ying Compound, which accounted for 6 per cent and 9 per cent of Group sales, can only be prescribed via hospitals and clinics. We expect sales at this pharmacy to outperform its normal retail outlets. We believe Group should focus on opening pharmacies rather than normal retail outlets but pharmacy licenses are very difficult to secure and only awarded on a store by store basis. We forecast one new pharmacy annually in FY12-14F respectively. EYS paid A$5 million to acquire 96 HealthyLife stores (70 franchised, 26 owned) and Healthzone’s distribution business in Australia. Accounts will be consolidated from 17 February 2012 and we expect the business to contribute S$13.4 million/S$56.8 million/S$59.3 million in FY12/13/14F. – OSK-DMG


First REIT (HOLD; Target Price: S$0.935)

First REIT (FREIT) reported its 1Q12 results which were within our expectations. Gross revenue rose 6.3 per cent YoY to S$14.0 million, meeting 24.6 per cent of our FY12 forecast. Distributable income and DPU (dividend per unit) jumped 22.7 per cent and 22.2 per cent YoY to S$12.1 million and 1.93 S-cents, respectively. Excluding a special distribution of S$2.2 million arising from a gain from the sale of a property, distributable income and DPU constituted 24.5 per cent and 24.8 per cent of our full-year forecasts, respectively. This distribution is payable on 30 May 2012 (ex-dividend: 26 April 2012). Lippo Karawaci (Lippo), FREIT’s sponsor, has high aspirations for its Hospitals division given the bright growth prospects in the healthcare sector. While the hospitals owned by FREIT and operated by Lippo continued to exhibit growth with higher revenue reported in FY11 as compared to the preceding year, we note that the growth rates of some of these hospitals have eased (partly due to higher base effect). This would translate into lower variable rental for FREIT should this trend persist, given that the variable rental component is a function of the hospital’s preceding year revenue growth rate. We lower our estimates for some of FREIT’s hospital revenue growth, but our RNAV-derived fair value estimate is lifted from S$0.89 to S$0.935 as we also update our WACC assumptions by incorporating a lower equity risk premium. Given FREIT’s strong share price performance this year (+21.7 per cent YTD), we downgrade the stock from Buy to HOLD on valuation grounds. – OCBC Investment Research


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

Mapletree Logistics Trust (MLT) posted a 12.3 per cent YoY increase in NPI (net property income) to S$61.4 million and a 10.1 per cent YoY increase in distributable amount to S$41.3 million for the financial quarter ended 31 March 2012. This is in line with our projections of S$63.0 million and S$42.0 million respectively. DPU (dividend per unit) similarly grew by 9.7 per cent YoY to 1.70 S-cents and is also consistent with our estimate of 1.73 S-cents. Together with the DPU of 4.99 S-cents in the last three quarters, DPU for the trailing four quarters ending March 31 amounted to 6.69 S-cents. This translates to a respectable DPU yield of 6.9 per cent. In the coming year, we understand that about 15 per cent of MLT’s leases (by revenue contribution) will be up for renewal, of which 19 per cent has been renewed ahead of expiry. Amidst the ongoing economic uncertainties, management guided that the organic growth and positive rental reversions (anticipating 5-10 per cent range) are likely to moderate going forward, although occupancy is expected to remain stable. However, MLT added that attractive investment opportunities have resurfaced, and that acquisitions in overseas markets like Korea, China and Australia may materialize in the coming months. In addition, it may divest non-core assets and deploy the proceeds on investments in better yield-accretive properties. We keep our FY12-13 forecasts largely intact as the results were in line with our expectations. – OCBC Investment Research


UOL Group Limited (Not Rated)

Last week, UOL launched Katong Regency, the residential component of its mixed development on the site of the former Lion City Hotel. Approximately 70 per cent of the 244 units have been booked, with around 130 units confirmed sold at an ASP of S$1,475-1,727 psf. The 244-unit freehold Katong Regency sits atop ONE KM Mall, which has a net lettable area of 210,000 sq ft. We believe that its integration with a mall is a strong selling point, with eventual ASP estimated at S$1,600 psf. The project is also expected to tap on the growth potential of Paya Lebar Central, a designated regional commercial hub. We estimate the breakeven for the residential component to be S$1,145 psf, which would translate to a healthy pretax margin of 40 per cent. Riding on the sustained demand for mass market projects, UOL’s 544-unit Archipelago at Bedok Reservoir has enjoyed a pickup in sales momentum after a relatively slow start. In 1Q12, the group sold 168 units at an ASP of around S$1,100 psf on an estimated breakeven of S$900 psf. As of end-March, 77 per cent of the 350 units launched have been sold. UOL’s latest acquisition is the S$172 million en-bloc purchase of St Patrick’s Garden off East Coast Road. Land cost for the freehold site works out to an attractive S$817 psf ppr for UOL and we estimate the eventual breakeven at S$1,265 psf. With units at Grand Duchess at St Patrick’s next door transacting at an average of S$1,350 psf in the secondary market, we think that UOL could be eyeing a launch price of S$1,500 psf for its new project. – Maybank Kim Eng Research