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CapitaLand (BUY; Target Price: S$3.21)

Last Friday, CapitaLand (CAPL) announced that its President and CEO, Liew Mun Leong, would retire in 12 months. A Board Succession Committee would review internal and external candidates and it is understood a successor could be named in as soon as three months. Liew has already served two extensions and we believe his retirement is not a surprise. In addition, with a significant 12-month notice period, this is likely to have limited impact on the share price. While CAPL is widely diversified geographically and across different property segments, its Chinese exposure, making up the largest 38 per cent component of assets, constitutes a key driver of the share price. We have seen a challenging environment for residential sales in China over the last two quarters, with only 350 units sold in total, and a take-up rate of 65 per cent of units launched. Going forward, we expect this to continue in FY12 but believe conditions in China have likely reached a trough in terms of prices and volume, barring a wide-spread macro shock. In Singapore, about 25 per cent of the 509-unit Sky Habitat has been sold at a median psf S$1,600, which underscores a difficult market for units at price quantums above the S$1.0 million range. We believe current prices represent an attractive proposition at 0.75x book and 0.62x our RNAV estimate. In our view, the share price has likely baked in excessively pessimistic expectations for Chinese residential ASPs and capitalisation rates. Moreover, CAPL’s diversified exposure and a solid balance sheet (S$6.0 billion in cash and a benign net gearing of 31 per cent) point to a significant degree of resilience, in terms of earnings and liquidity, even in our bear case scenario of a wide-spread economic crisis. – OCBC Investment Research


CapitaMall Trust (BUY; Target Price: S$2.02)

CapitaMall Trust (CMT) recently announced that it would issue HK$1.15 billion 3.76 per cent Fixed Rate Notes due 2022 under its US$2.0 billion Euro-Medium Term Note Programme. The proceeds would be swapped into S$190.1 million at a fixed 3.45 per cent rate and used to partially refinance the S$783 million secured term loan maturing in October 2012. We note that CMT’s refinancing is going smoothly with interest costs mostly in line with its current average of 3.3 per cent (end 1Q12), which would consolidate its balance sheet position and lengthen the average term to maturity of its debt structure. CMT also recently completed the sale of Hougang Plaza for S$119.1 million, resulting in a divestment gain of S$83.8 million. Proceeds would likely be used to repay debt and fund potential acquisitions. In our view, with S$1.2 billion of cash already on its balance sheet and its share price trading at a relatively tight yield of 5.6 per cent, we think CMT’s deployment of the sales proceeds could potentially shed further light on the odds of making a bid for its parent’s stake in the ION ahead. Bugis+ remains on track to complete AEI works by July 2012 and its major anchor tenant, Uniqlo, recently began operations. We believe that over 90 per cent of tenants, including Sephora and Aeropostale, would begin sales over the next few months. The yield on cost (including AEI) for Bugis+ is estimated at 5.8 per cent, in line with that of Bugis Junction, and is significantly improved from the 3.8% passing yield seen when Bugis+ was first acquired as Illuma. We continue to like CMT’s significant exposure to sub-urban retail rentals, which was relatively resilient during the last downturn. Note that, despite seeing gross turnover fall as much as 21 per cent in some trade categories over FY09, rental reversions remained positive at 2.3 per cent across the portfolio with occupancy rates close to 100 per cent. – OCBC Investment Research


Dyna-Mac Holdings (HOLD; Target Price: S$0.34)

Dyna-Mac Holdings Ltd (DMH) provides engineering, procurement and construction services to the offshore oil & gas industry. Its principal activities are the fabrication and assembly of topside modules for FPSO and FSO in Singapore. Other activities include ad-hoc general engineering and fabrication projects for specialized structures and semi-submersibles and sub-sea products such as manifolds, buoys, process piping and tanks. Having delivered more than 154 topside modules, the group has established itself as a specialist in the fabrication and assembly of topside FPSO and FSO modules. We think that its track record of consistent execution and timely delivery of products would help it secure more contracts in the future.  DMH’s main yard has an uninterrupted waterfront shoreline and is integrated with a load-out bay. This enables completed topside modules to be easily transported to nearby shipyards for installation onto an FPSO. Besides time savings, the close proximity also implies lower risks and closer collaboration between shipyards. Due to the difficulties in securing waterfront land, we believe its main yard provide it with a key competitive advantage against its competitors. After a weaker-than expected financial performance in FY11, we believe that DMH’s revenue and earnings will rebound in FY12-13F. This is because its order-book is at an all-time high (S$201 million as of 20 April 2012) and the majority of its projects are expected to be completed by end FY12F. We value DMH at 10x blended FY12-13F earnings estimate and obtain a fair value estimate of S$0.34. – OCBC Investment Research


Hutchison Port Holdings Trust (BUY; Target Price: US$0.85)

Continuing with the trend seen in April, Yantian Port operating data for May was again encouraging, with volumes growing 5.1 per cent YoY. YTD volume growth at Yantian Port now stands at 2.1 per cent, and is trending in line with our estimates even before the traditional peak season has started. We think export bookings to the US are still holding up, though the European market remains weak and could weaken further. According to our economists, the prospect of a Greek exit from the eurozone does not have to be another “Lehman moment” for Europe or the rest of the world. The key driver for sharp decline in container trades in 2009 was the credit crunch, which rendered trade financing very difficult. The risk of a credit crunch remains lower this time than in 2008-09, as liquidity is abundant in Asia and markets have had two years to think about the current situation and prepare for it. Also, in 2008, the crisis was about dollars, this time it’s mainly the euro, which is not as important to Asia’s trade financing as the dollar. We expect the Trust to meet its DPU guidance of 6.6 US-cents for FY12, after taking into account some degree of capex deferral. We also devise two sets of pessimistic scenarios, as shown on inside pages, but according to our calculations, unless tariff rates are affected materially, DPU for FY12/13 will still be above the (annualised) FY11 DPU of 6.0 US-cents. But despite these largely secure cash flows, the Trust is trading in excess of 9 per cent yield, which makes it one of our top large cap high yield picks in Singapore. – DBS Vickers


Olam International (HOLD; Target Price: S$1.86)

Olam International Limited has announced that its CFO Krishnan Ravi Kumar has resigned to pursue a new career outside the Agri-commodity sector. Ravi has led the corporate finance and treasury function for Olam for nearly 20 years. Meanwhile, Shekhar Anantharaman will be moving into a new and enhanced role as Executive Director – Finance and Business, where he will lead the group’s overall strategy and new business development activities and also oversee the corporate finance & accounts, and investor relations. Following the announcement of the news, Olam saw a 5.4 per cent fall in its share price Thursday. However, we do not see the resignation as having a material impact on its daily operations as Shekhar is also a veteran in Olam, having spent 20 years there. As such, we believe that the resignation news is probably just an excuse to take profit on the stock’s recent jump of 23 per cent over the last two weeks. Speaking of the recent rally, it is likely due to the announcement of the company’s share buyback program. As a recap, Olam commenced its share buyback programme on June 8, where it can buy up to 10 per cent of its issued share capital, or 244.2 million shares, at a maximum price of 105 per cent of the average closing price of the last five market days at the time of acquisition. As of June 19, Olam has bought back some 21 million shares. While share buybacks generally reflect the company’s confidence in its prospects, we are somewhat neutral in this instance, given the company’s high net gearing ratio of 2.2x (end March); book value per share (S$1.03) is also way below the current price. Meanwhile, we continue to believe that the fundamental picture remains unchanged – the share price could continue to remain volatile in view of the ongoing issues in Europe and also sluggish economic growth in China. – OCBC Investment Research


Sakari Resources (BUY; Target Price: S$2.00)

SAR’s share price has declined 51 per cent from its end February 2012 peak due to declining coal prices, poor results, negative regulatory news from Indonesia, and weak economic sentiment. Coal prices averaged US$112/tonne for 1Q12 and US$96/tonne for 2Q12 so far. Current coal price stands at US$84/tonne. Channel checks and newswires suggest coal prices may see support at current levels, given the cost structure for US coal exports to Asia is US$80-85/tonne. We assume 3Q12 and 4Q12 coal price to average US$95/tonne and US$105/tonne respectively, leading to FY12 average of US$102/tonne (US$113/tonne previously). Our FY12 PATMI is lowered by 33 per cent to US$119 million. Our FY13 coal price assumptions stand at US$115/tonne. SAR is doing its best amidst the current weak coal price environment by improving margins through increasing production of its high-margin Sebuku coal while slowing production growth of its low-margin Jembayan coal, and at the same time reducing operating costs at Jembayan. Our expectation of coal prices and production to increase sequentially towards 4Q12 bodes well for SAR’s profitability. SAR remains attractive trading at 9.9x FY12 P/E with dividend yield of 6 per cent. Our target price of S$2.00 is based on 15.5x FY12 P/E, which is in-line with its 3 year average. Downside risks to our call include lower than expected coal production and coal prices. – OSK-DMG


Suntec REIT (HOLD; Target Price: S$1.37)

Suntec REIT recently announced that it has successfully converted the vehicle which holds Marina Bay Financial Centre Phase 1 (MBFC1) from a private limited to a LLP (limited liability partnership) structure, which grants it tax transparent status. Previously, Suntec had to pay 17 per cent corporate tax rate on rental income generated by MBFC1. The new tax structure took effect from 16 June 2012. Based on our estimates, Suntec will enjoy tax savings of S$2.8-5.2 million for FY12-15F, adding 0.8-1.5 per cent to our forecasted DPU. We understand that the restructuring of One Raffles Quay (ORQ) into a similar tax-efficient LLP structure may not happen in the near term and has not factored this into our estimates (estimate boost of another S$1.7-3.3 million if allowed). Suntec will be closing the Suntec Singapore International Convention and Exhibition Centre (SSICEC) for a major overhaul in October this year. The six-month closure, the first major renovation since 1997, aims to bring the 17-year-old venue up to date and will cost S$180 million. All seven floors will be spruced up, with a grand entrance added on Level Three, and restaurants and shops on Levels One and Two. The number of meeting rooms will increase from 31 to 46, and all will be fitted with Wi-Fi connection. Suntec will spend another S$230 million to remake Suntec City Mall (SCM). Work is scheduled to start in mid-2012 and will wrap up by mid-2015. It will increase SCM’s NLA to 980,000 sq ft from the current 855,000 sq ft. Tenant mix will also be revitalised with more higher-yield mini-anchor stores and F&B outlets. Upon completion, we expect the annual rental income of SCM to be uplifed by S$32 million, boosting from FY11’s S$103 million to S$135 million. After factoring in the tax savings, our target price for Suntec goes up by 6 per cent to S$1.37. The stock currently trades at 0.7x FY12F book and 7 per cent FY12F yield. Downside risks include worse-than-expected average rentals for SCM and concentration risk on Suntec City. – Maybank Kim Eng Research