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Global Premium Hotels (Not Rated)

Fragrance Group has successfully spun off its hotel arm under GPH for a public listing and will own a 55 per cent stake post-IPO. Compared to high-end hotels, budget hotels have been more resilient in cyclical downturns. As evidence, GPH has enjoyed average occupancy rate (AOR) of 90 per cent and average revenue per room (ARR) of S$133 as at 9M11. Its realised gross and net margins stood at 88.3 per cent and 44.5 per cent, respectively, for the same period. The group plans to add 200-300 rooms within 1-2 years of listing. Boosted by Singapore’s strong tourist arrivals last year and the opening of a number of attractions, the hospitality sector has seen AOR and ARR rising across the board. According to the Singapore Tourism Board, AOR is expected to remain above 80 per cent during 2011-15, while ARR will grow at a moderate pace. As of 2010, the total retail value of Singapore’s budget hotel market is worth S$340 million. GPH has a 12.2 per cent market share, trailing behind Hotel 81’s share of 29.2 per cent. GPH is committed to paying out 80 per cent of its net earnings in FY12. If its 9M11 results were annualised, estimated EPS would be 2.3 S-cents, which would imply a highly attractive yield of 6.5 per cent. After the IPO, GPH would be holding S$463 million of debt with an interest rate of 2-3 per cent pa. As of 9M11, the group’s interest coverage ratio is at 10.8x, which implies the group is sufficient in covering any rise in interest expense. GPH’s landbank has been valued at S$747.6 million, assuming that Fragrance Hotel-Riverside is fully completed now. – Maybank Kim Eng Research


Mapletree Industrial Trust (BUY; Target Price: S$1.30)

Mapletree Industrial Trust (MINT) reported gross revenue and net property income of S$66.3 million and S$46 million respectively, representing 20.8 per cent and 23.4 per cent growth above forecasts. The stronger performance was largely attributed to the contribution from its newly acquired JTC portfolio of eight flatted-factories and three Amenity Centers, supported by portfolio wide positive rental reversions. The new portfolio contributed 63 per cent of topline growth this quarter. As a result, distributable income of S$35.8 million was 28 per cent above forecasts, translating to a DPU of 2.22 S-cents. NAV (net asset value) was lifted to S$1.03 (from S$0.95), due to stronger occupancies and rental income achieved. Gearing headed slightly lower to 37.8 per cent. MINT’s diversified portfolio of industrial properties continued to exhibit resilience, achieving reversions of between 15 per cent and 29 per cent. Occupancies were stable at 94.9 per cent in 4Q12 (vs 95.1 per cent in 3Q12) and the average portfolio rental at S$1.55 psf/month was slightly higher. Retention rates remained healthy at 76.1 per cent. Looking ahead, we believe performance will remain relatively stable with portfolio near full occupancy. The manager’s strategy to lengthen its WALE has met with good response, with tenants offered leases with longer tenures. While there will be organic growth from expiring rents in view of the positive spread between passing and market rents, we expect the pace of growth to moderate given the uncertain operating environment with end tenants facing cost pressures on all front. – DBS Vickers


Sakari Resources (BUY; Target Price: S$2.50)

From late February to date, SAR’s share price has declined by 25 per cent. Factors for this include declining coal prices, negative regulatory news from Indo, and expectations of weak 1H12 results. Newcastle coal prices are down 9 per cent YTD to US$102/MT. YTD average coal price is US$111/MT compared to US$121/MT for 2011. With a slower outlook, we cut our FY12 coal price assumptions by 11 per cent to US$113/MT. This will consequently lower our FY12 PATMI (net profit) by 29 per cent to US$177 million. There has been much negative mining related news coming from Indonesia recently. Some of these include talks of banning the export of unprocessed ore and minerals, a 51/49 per cent domestic/foreign share ownership structure, as well as mining export taxes. Though none of these are finalised, we think further news flow could weigh share price down in the short term. Jembayan is undergoing a mine review plan which will result in significantly lower output in 1H12 versus 2H12. Coupled with a higher cost base, we think upcoming 1Q12 earnings could account for as little as 9 per cent of our full year estimate. – OSK-DMG


SBI Offshore (BUY; Target Price: S$0.34)

SBI has recently become the first ever Asian turnkey drilling equipment solution provider joining the ranks of drilling equipment giants like Aker and NOV. With its maiden contract win of US$30 million, SBI has found its niche in the smaller yet still lucrative tender rig market. SBI is currently in possession of multiple OEM product lines, ranging from lifeboats to offshore cranes. In view of the robust prospects for the offshore oil & gas industry, we believe that outlook for SBI remains bright. In view of the record orderbook of US$41 million as well as its contract win momentum, we expect SBI’s earnings to surge 10-fold to US$3.2 million this year and subsequently double again in FY13. Based on its forward earnings, SBI looks attractive at the current trading price of S$0.21, as its P/E (price earnings) will fall drastically to 6.2x in FY12, and further to 2.8x in FY13. – OSK-DMG


SMRT (NEUTRAL; Target Price: S$1.73)

SMRT has announced a planned renewal and preventive maintenance across the MRT system which is estimated to cost S$900 million. It intends to address the needs of an ageing 25 year old MRT system, on top of the current maintenance regime for the tracks and trains. The cost sharing arrangements between SMRT and LTA are currently in discussion, and this program is expected to roll out over eight years. Though we do not know SMRT’s share of the costs at this point in time, we think that the impact on SMRT may not be that significant. The simple average of the S$900 million amounts to S$113 million a year, while our sensitivity analysis shows that if our FY13 base case capex increases by S$100 million (or 40 per cent), SMRT’s FY13 PAT (net profit) would only decrease by 6 per cent. Moreover, we see a possibility of LTA bearing the bulk of the S$900 million cost, given its recent efforts to more actively engage in Singapore’s public transport matters. – OSK-DMG


Starhill Global REIT (BUY; Target Price: S$0.70)

Starhill Global REIT (SGREIT) released its 1Q12 results after the market close Thursday. NPI and distributable income were essentially flat YoY at S$37.3 million and S$23.3 million respectively, but were up 2.3 per cent. Similarly, DPU came in at 1.07 S-cents, unchanged from that in 1Q11. However, on a sequential basis, it represents an improvement of 5.9 per cent. This, we note, was achieved despite ongoing redevelopment works at Wisma Atria. The results were in line with both our and consensus expectations, with headline numbers forming 24.7-25.5 per cent of our/consensus full-year forecasts. Singapore portfolio contributed S$22.2 million to 1Q12 NPI, up 1.0 per cent YoY, driven mainly by improved office occupancy and start of rental collection for some units affected by the redevelopment at Wisma Atria. This more than offset a 7.7 per cent decline in NPI at Ngee Ann City office, which was dragged down by negative rental reversions. For its overseas portfolio, we note that David Jones building in Australia was the star performer, raking up 6.7 per cent growth in NPI on higher achieved rental rates and stronger AUD. Its Japan portfolio, on the other hand, turned in a 5.7 per cent rise. Only the Chengdu property in China experienced a fall in NPI (down 9.2 per cent) due to tenants’ remix, renovation and increased competition from newly-opened malls. In view of this, management intends to embark on a series of tenancy works over next two quarters to enhance the property’s retail offerings and boost its advertising activities. SGREIT also maintains that Wisma Atria redevelopment is on track for completion in 3Q, with first Orchard Road façade tenant already started retail operations in April. While temporary disruptions to footfall traffic is inevitable, it expects the demand for retail space in its Singapore properties to remain strong with positive rental reversions secured. SGREIT’s aggregate leverage is at a healthy 30.4 per cent, while average lease term is strong at 6.6 years (99.0 per cent overall occupancy). – OCBC Investment Research


Suntec REIT (BUY; Target Price: S$1.45)

1Q12 gross revenue and NPI rose by 20.1 per cent and 5.0 per cent YoY to S$73 million and S$49 million respectively, largely due to the consolidation of revenue from Suntec Singapore. Additional contribution from Marina Bay Financial Centre (MBFC) Phase 1 also helped to lift distributable income by 3.8 per cent to S$54.9 million. DPU was 2.453 S-cents representing 28 per cent of our FY12 forecast. While this quarter marked the end of the income support for ORQ, we expect this income vacuum to be offset by positive rental reversions for its remaining portfolio, and the possible refund of the GST paid on the ORQ income support in the next three quarters. Meanwhile, monthly signing rents at Suntec City Office Towers remained firm at S$8.79 psf supported by high occupancy (99.5 per cent). First phase of Suntec retail mall’s AEI works starting. Approximately 193,000 sq ft, or 23 per cent of the Suntec City retail space is expected to undergo AEI works from June 2012. While we expect some downtime in occupancy, the management will mitigate this by carrying out the works in phases. 4Q12 is likely to be the most intensive phase of its refurbishment exercises before occupancy starts trending up in 1Q13. On a positive note, NLA will be boosted to 380,000 sf upon the completion of AEI works in mid -2013, of which 45 per cent has been pre-committed to popular tenants like H&M, GAP and La Senza. At the same time, some of the anchor tenants are expected to have new concept stores. This will boost the mall appeal and drive footfall in the medium term. – DBS Vickers


Yangzijiang Shipbuilding (HOLD; Target Price: S$1.23)

Yangzijiang Shipbuilding (YZJ) reported a 12 per cent YoY rise in revenue to RMB3.7 billion and a 7 per cent increase in net profit to RMB1.0 billion in 1Q12, accounting for 24.0 per cent and 27.9 per cent of our full year estimates respectively. Bottomline was also within the street’s expectations, representing 28.4 per cent of Bloomberg’s mean full year estimate. Gross margin in the shipyard segment decreased slightly from 27.1 per cent in 1Q11 to 26.4 per cent in 1Q12, partly due to revenue recognition from the lower-margin ship demolishing business of about RMB123.5 million. With no meaningful new orders in the quarter, the group’s orderbook fell to US$4.5 billion as at 31 March 2012 vs. US$4.7 billion in December 2011 and US$5.3 billion in December 2010. We look back at what transpired in the last few years, and find that new ship building orders has generally been the main driver of the stock price. This in turn depends on global economic events such as fear of a Eurozone collapse, as certain key customers of YZJ are from Europe. We are forecasting US$2.5 billion new orders for this year, which we believe has largely been priced in at current share price levels. We note that about 70 per cent of our FY12 new order estimate of US$2.5 billion depends largely on the 18 orders from Seaspan, resulting in a high concentration risk. Though the share price may see a positive knee-jerk reaction when the orders turn effective, we believe that the risk-reward ratio is currently biased against investors, unless the general shipbuilding market turns for the better. According to management, newbuild prices are still trending lower. Though the group is diversifying into the offshore industry, YZJ still has to undergo a learning curve before there can be earnings contribution. We lower our peg to 7.5x core FY12F earnings, in line with YZJ’s historical average, and as such our fair value estimate drops to S$1.23. – OCBC Investment Research