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CapitaLand Limited (BUY; Target Price: S$4.00)

CapitaLand posted a 1Q12 PATMI (net profit) of S$133.2 million. Excluding revaluation gains, core PATMI of S$107.2 million would have been a 7 per cent YoY improvement, largely in line with expectations given the seasonally weak first quarter. CapitaLand Residential Singapore (CRS) and CapitaLand China Holdings (CCH) posted EBIT declines of 11.4 per cent and 35.9 per cent respectively. This is a timing issue, given that CCH only delivered 180 homes in China in 1Q12, mainly from Beau Residences in Foshan. CCH is expected to deliver more units from Beau Residences and The Loft in Chengdu later in the year. On the other hand, the Group’s recent new sales were encouraging, as it managed to sell 189 homes in the quarter worth RMB353 million. In Singapore, CapitaLand has sold 129 units of Sky Habitat in Bishan, setting a new benchmark for suburban homes prices at an estimated ASP of S$1,700 psf. Some Tier 2/3 cities in China have recently undergone selective policy loosening mainly aimed at stimulating end user demand, particularly from first-time home buyers. Our Hong Kong analyst, Ivan Cheung, believes that such loosening will go some way to help developers maintain strong contracted sales momentum into mid-2012, which should be positive for the sector as a whole. In general, sales could recover strongly in May, which is traditionally the peak season. CapitaLand could potentially benefit along with the possible rerating of the better capitalised Chinese developers. – Maybank Kim Eng Research

 

Lippo Malls Indonesia Retail Trust (BUY; Target Price: S$0.43)

Lippo Malls Indonesia Retail Trust’s (LMIRT) 1Q12 gross revenue of S$45.6 million and NPI (net property income) of S$30.9 million were in line with our expectations, meeting 25.1-25.6 per cent of our full-year estimates. The strong performance was primarily driven by a full-quarter contribution of the two retail malls that were acquired in 4Q11. Distributable income, however, was slightly lower than expected at S$15.0 million, due to higher tax expenses and one-off charges of SS1.7 million associated with the refinancing and acquisition activities in prior quarter. As a result, DPU (dividend per unit) for the quarter registered 0.69 S-cents, forming 18.6 per cent of our FY12F DPU. This is lower than the DPU of 1.17 S-cents seen a year ago due to a 1-for-1 rights issue in 4Q11, but represents a significant QoQ improvement of 30.2 per cent. As at March 31, LMIRT’s portfolio occupancy had remained steady at 94.5 per cent. This is well above Indonesia’s retail industry average occupancy rate of 87.6 per cent. According to management, its malls have been seeing strong interest by international and local retailers, while shopper traffic has been rising amid strong domestic consumption. LMIRT also reiterated that Jakarta remains ‘under-shopped’, as evidenced by its low retail density of 0.4 sq m per person relative to 0.7 sq m in Singapore and 2.7 sq m in Kuala Lumpur. Hence, it is confident that its retail malls are well positioned to benefit from the burgeoning Indonesian retail industry. LMIRT’s aggregate leverage was slightly up from 8.7 per cent in December 31 to 9.2 per cent, largely due to a 5.0 per cent QoQ decline in investment properties resulting from the effect of forex rate changes. However, its financial position is still strong in our view, with no refinancing needs until June 2014. We now revise our FY12-13 forecasts to factor in the 1Q results. Accordingly, our fair value eases slightly from S$0.45 to S$0.43. – OCBC Investment Research

 

Mapletree Commercial Trust (BUY; Target Price: S$1.11)

4Q12 gross revenues and NPI (net property income) was 10.9 per cent and 16.1 per cent YoY higher respectively, largely due to Vivocity’s strong positive rental reversions, as well as the progressive opening of Alexandra Retail Centre (ARC). On a QoQ basis, NPI also rose by a healthy 6 per cent despite a seasonally-weak quarter on the back of lower property and maintenance expenses. Monthly rents are now at S$10.62, which is above the earlier forecast of S$10.40 psf. Rental uplift for the year was 24.9 per cent and retention rate at a high of 92.1 per cent. Negotiations for its FY12/13 leases (33.4 per cent of its revenue) have begun and management has indicated that there is healthy interest amongst tenants. Most of these leases will expire in 2H and are largely specialty shops. As these leases were likely signed in 2009, at the trough of the retail market, so assuming a typical three-year lease term, we expect the trust to see healthy positive rental reversions, supported by high shopper traffic and tenant sales. Meanwhile, occupancy costs remain healthy at 15.8 per cent. ARC has been opening up, progressively from 15 December 2011 and has reached a committed occupancy rate of 57.1 per cent. PSAB has also completed its asset enhancement work, and the incremental 15,000 of office space has already been leased out. We should see a higher contribution from this asset going forward. Meanwhile rents for the offices continued to trend up nicely by 8.6 per cent YoY on the back of higher occupancy.  We continue to like MCT for its proactive leasing strategy and its ability to drive rental renewals. We have nudged target price up by 1.8 per cent to S$1.11 to account for its better-than-expected performance at VivoCity. FY13/14 yields are at 6.8/7.2 per cent and our revised target price of S$1.11 offers a total upside of close to 30 per cent. – DBS Vickers

 

SMRT (HOLD; Target Price: S$1.71)

SMRT reported a weak set of FY12 results. Although its revenue increased 9.1 per cent YoY to S$1.057 billion on the back of higher ridership, it recorded a sharp 25.6 per cent YoY decline in profit after tax to S$119.9 million following spikes in its energy costs, higher staff related expenses, and an ascension in repairs and maintenance cost. SMRT’s bottomline was further exacerbated by an impairment of goodwill on its Bus operations (S$21.7 million). Despite the disappointing set of results, SMRT kept its dividend commitment and declared a final dividend of 5.7 S-cents per share to bring the total dividend payout to 7.45 S-cents, which is almost 95 per cent of its FY12 basic EPS (earnings per share). FY13 will be a challenging year ahead for SMRT, and we see key risks in the following areas: additional capex outlay and related repair and maintenance costs as well as elevated energy and staff cost levels. While there will be initial selling pressure on the counter following its weak results and anticipated headwinds, we deem the possibility of a sharp double-digit percentage drop to be remote. Train travel remains an integral part of travel for the public community, especially with the lack of affordable alternatives. SMRT should also not have difficulty addressing its higher capital outlay requirements given its existing net cash position. We tweaked our FY13 projections to incorporate higher operating expenses and applied a conservative 60 per cent PATMI (net profit) dividend payout ratio, which returned a valuation of S$1.71 under our dividend discount model. – OCBC Investment Research

 

World Precision (BUY; Target Price: S$0.68)

Net profit of RMB40.6 million exceeded our RMB36.6 million forecast by almost 11% per cent, attributed to stronger than expected sales and margins. Although revenue was 17 per cent weaker YoY at RMB242.9 million given the exceptionally strong 1Q11, gross margin rose 3.3 percentage points to 32.2 per cent from a year back due to higher proportion of sales of high performance and high tonnage stamping machines, which formed 71 per cent of total sales, up from 62 per cent last year. Net gearing declined to 0.15 from 0.26 as World continues to pare down loans amid strong cashflow generation. Despite higher stock of raw materials, cash conversion cycle tightened to 171 days from 193 days last quarter. Although the orderbook has risen by just 10 per cent QoQ, most orders were picked up in March and scheduled for delivery in April. Hence, we are positive of a strong 2Q12 where margins should also improve on the back of lower material costs and operating leverage. 1Q12 earnings made up 19 per cent of our FY12F. We believe World is on track to achieve our forecast of 20 per cent profit growth this year as it continues to see good interest in mid size contracts from major automotive parts suppliers for domestic car brands including Changchun FAW, BYD auto etc. In our view, domestic car brands will benefit from the more stringent budget on China official cars, particularly for lower level officials. In addition, the Chinese government’s credit easing moves would also inject liquidity to help revive capital spending in the economy. – DBS Vickers