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Ascott Residence Trust (BUY; Target Price: S$1.14)

Despite ongoing uncertainty in Europe, we believe that income from ART’s European assets would be underpinned by master leases arrangements in the 17 properties in France and two in Germany, which contributed a total of 26 per cent of gross profit for 1Q12. In addition, management contracts with minimum guaranteed income are in place for seven properties in Belgium, Spain and the UK, which contributed 12 per cent of 1Q12 gross profit.  In terms of asset value exposure, 40 per cent is in Europe of which the bulk is split between France (21 per cent) and the UK (15 per cent). Four of 17 French properties in the prime regions of core Paris make up about half of total French exposure. Similarly, in the UK, all four properties are in prime London locations – South Kensington, Trafalgar Square, Convent Garden and the Barbican respectively. This being so, we believe their book values would be relatively resilient and unlikely to suffer long term capital value deterioration. The balance sheet remains healthy with gearing at 41.6 per cent of as end March 2012. In addition, the debt profile of ART is also relatively well spread-out, with 19 per cent, 9 per cent and 23 per cent of total debt (S$1,170.2 million) due in 2012, 2013 and 2014, respectively. Currency exposure is also balanced – with 26 per cent, 32 per cent and 29 per cent of total debt is denominated in SGD, EURO and the JPY, respectively, with the remainder in the Sterling Pound, USD and AUD. Interest coverage is at 3.6 times. With an attractive yield of 7.9 per cent, we continue to see value in the share price. Also, an undemanding P/B ratio of 0.8x would translate to a reasonable margin of safety for bear case write-downs. – OCBC Investment Research

 

Bumitama Agri (BUY; Target Price: S$1.35)

Bumitama Agri has been aggressively planting/acquiring estates since 2004. Among Indonesian planters in our coverage, the group’s FY12F own planted area of 98,581 ha is the fourth largest – 48 per cent of which is immature. It is poised to deliver 29.4 per cent FFB output (second only to JA Wattie) and 29 per cent earnings CAGR between FY11 and FY14F. Following conversion of shareholder loan and strong earnings growth this year, ROE is projected to be 28.4-23.8 per cent in CY12F-14F, translating to ROE-WACC spread of 14.1-9.5 per cent over the same period. Bumitama’s growth prospects and its position as a pure upstream planter make it an attractive stock to own for these reasons: the refining build up in Indonesia will lead to overcapacity in two years’ time; while its strong volume growth over the next three years should be able to offset any CPO price weakness better than peers. Unlike high-growth peers, its proportion of outside FFB is declining, which will help to improve margins as well. – DBS Vickers

 

CDL Hospitality Trusts (BUY; Target Price: S$1.99)

The value proposition in Singapore’s tourism sector has greatly changed (with the opening of the two integrated resorts, Universal Studios and various shopping destinations) since 2009. Before that, most of the country’s key attractions had not yet opened. Singapore’s main visitor market source remains largely within the Asia-Pacific region (contributing close to 88 per cent of total visitors in 2011 vs 85 per cent in 2010), enabling the country to leverage on the strong intra-regional demand for leisure and business travel. With a slew of new attractions and a strong line-up of MICE events in the coming months, we expect Singapore to remain one of the hot destinations to visit in 2012. We anticipate strong demand from the MICE sector, with a strong line-up of events in the coming quarters. In addition, the peak tourist periods of 2Q-3Q are fast approaching, and with the annual school holidays and the Formula One race in September, we expect CDL Hospitality Trusts (CDL HT) to continue to deliver sustained earnings growth on a QoQ and YoY basis, fueled by the already high average occupancies of close to 90 per cent. CDLHT’s low gearing of 26 per cent gives them debt-funded headroom to acquire. If any is made, this will be an earnings upside surprise as we, and the market, have not factored in any numbers. While the stock has been re-rated close to 5 per cent after our recent upgrade, we remain optimistic given the strong underlying fundamentals for the hotel sector in the coming quarters. With an attractive FY12-13F yield of close to 7 per cent, we maintain our BUY call with target price revised slightly as we raised our RevPAR assumptions slightly in the forward years. – DBS Vickers

 

SATS Limited (HOLD; Target Price: S$2.55)

In Changi Airport Group’s (CAG) recently-announced operating statistics for April 2012, passenger movements at the airport increased 13 per cent YoY to 4.2 million on the back of a 9 per cent YoY climb in aircraft movements to 26,410. However, air freight volume continues to slide, falling 5 per cent YoY to 148,243 tonnes. Despite CAG’s mixed operating statistics for April 2012, it bodes well for SATS Ltd going into the first month of FY13, since 70 per cent of its Gateway services revenue is derived from passenger and aircraft handling. Hong Kong International Airport (HKIA) also released lower freight volume in April 2012, with cargo handled at HKIA easing 1 per cent YoY to 327,000 tonnes. With the fall in SATS’ share of associates’ profit in FY12 primarily attributed to the fall in freight volumes in Hong Kong and Vietnam, the latest freight number from HKIA should mean SATS’ share of associates’ profit is likely to remain depressed. Separately, it was reported that the Marina Bay Cruise Centre Singapore (MBCCS), jointly operated by Creuers del Port de Barcelona S.A. and SATS, will welcome its first cruise ship, the Royal Caribbean International’s Voyager of the Seas, on 26 May 2012. An Oasis-class cruise ship, the Voyager of the Seas will be the largest ship to homeport in Asia in 2012 and, short of docking at a container port, it can only dock at MBCCS in Singapore due to its size. However, SATS expects revenue from MBCCS to grow to S$10 million only in FY16 or FY17. Thus, MBCCS is unlikely to see meaningful contribution to SATS’ financials in the foreseeable future. – OCBC Investment Research

 

SIA Engineering (HOLD; Target Price: S$4.00)

SIA Engineering (SIE) reported FY2012 NPATMI of S$269 million, representing a 4 per cent increase YoY that was in line with estimates. A substantial 18 per cent YoY increase (+S$ 12.4 million) in associate contributions helped to offset a 4 per cent dip in core operating profits. Operating margins have dipped to 11.1 per cent in FY2012 (from 12.3 per cent in FY2011), mainly due to the return of Line Maintenance margins to pre-FY2011 levels of approximately 21 per cent. Amidst margin concerns, we remain mindful that risks still remain in the midst of a delayed recovery in the aviation sector that is currently suffering from headwinds of elevated fuel prices and depressed yields. Healthy airline capacity growth forecasts and increased commercial aircraft traffic at Changi Airport should continue to support SIE’s steady earnings growth. Management, while reiterating prevailing challenges affecting the aviation industry, also maintains that demand for the Group’s core businesses will remain stable in the near term. SIE is holding a net cash position of almost S$500 million. Its combined cashflow from operations and associates/JVs should also comfortably cover dividend payments for the years ahead and sustain a dividend yield of 6 per cent. We are valuing SIE based on its historical P/E mean of 15.4x and have upgraded our target price to S$4.00. However, we are maintaining our HOLD call due to the recent share price run-up. Forward dividend yields of 6 per cent remain attractive for existing investors. – Maybank Kim Eng Research