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Cambridge Industrial Trust (BUY; Target Price: S$0.605)

The management of Cambridge Industrial Trust (CIT) just announced the proposed acquisition of the property at 30 Teban Gardens Crescent for a purchase consideration of S$41.0 million. 30 Teban Gardens Crescent is a purpose built 3-storey industrial building with a single storey factory cum car showroom. Upon completion of the acquisition, the building will be let out to Eurosports Auto Pte Ltd, a representative of luxury European automotive brands such as Lamborghini and Lotus, for a period of six years. Under the terms of the contract, a brand new annex block of a 2-storey showroom with ancillary office is to be built by Eurosports Auto. The gross floor area of 30 Teban Gardens Crescent is expected to be approximately 12,922 square meters upon completion of the construction works. Currently, this piece of land has an initial lease term of 10 years, commencing from 1 June 2007. A further lease term of 22 years will be granted by JTC on the condition that the proposed building is constructed. As this acquisition is expected to be completed only in 4Q13 on the condition that the additional lease term can be secured, no announcement has been made with regards to the method of financing this acquisition. Given a forecasted annual NPI of S$3.2 million, the yield for 30 Teban Gardens Crescent is estimated at 7.8 per cent. – OSK-DMG


CapitaMall Trust (NEUTRAL; Target Price: S$2.03)

Since our report in January, CapitaMall Trust’s (CMT) share price has risen by 10.3 per cent. Together with the dividend paid out since then, total return has reached a respectable 31.1 per cent over the last six months. As the AEI for Bugis+, which is scheduled to be completed by July 2012, continues to remain on track, we expect CMT to book in new contributions from this mall in 2H12. Since the beginning of June, UNIQLO, a major anchor tenant has launched its 20,000 sq ft duplex flagship store in Bugis+. Due to the close proximity of Bugis+ with Bugis Junction, we expect this mall to enjoy synergies with its neighbour as big brands such as Sephora, Bershka and Filmgarde begin their operations here in the coming months. CMT’s management indicated a yield on cost of 5.8 per cent on this mall; significantly higher than the previous 3.8 per cent when this mall was acquired as Illuma. Apart from Bugis+ and JCube (which was opened in April), Clarke Quay and Orchard Atrium are scheduled to be completed in 3Q and 4Q12 respectively. These projects are expected to have ROIs of 10.4 per cent and 13.0 per cent respectively. Together with new contributions from the completion of various AEIs, we expect CMT’s DPU to grow by 8.0 per cent this year vs an increase of 1.4 per cent a year ago. Despite our liking for CMT’s growing yet defensive portfolio, we believe this counter is fairly priced at the moment. Currently, CMT is trading at 1.1x forecasted price to book and 3.7 per cent spread vs the historical mean of 3.1 per cent. Our target price of S$2.03represents a spread of 3.4 per cent indicating limited upside. Given these fundamentals, despite the attractive business model of CMT, particularly for its defensiveness during a volatile market, we believe this counter is currently fairly priced as we downgrade our call to NEUTRAL while maintaining the target price of S$2.03. – OSK-DMG


CapitaMalls Asia (BUY; Target Price: S$2.06)

CMA has established a new private equity fund CapitaMalls China Development Fund III (CMCDF III) with a fund size of US$1 billion. CMA will take a 50 per cent share in the fund with the remaining held by institutional investors from Asia and North America. CMCDF III will invest in the development of shopping malls in China and has a fund life of eight years. CMCDF III is CMA’s largest private equity fund established to date and will strengthen the group’s fee income model. Once fully deployed, it will increase CMA’s total AUM to S$21 billion. The fund will be seeded with three assets valued at S$749.4 million from CMA, namely CapitaMall Tianfu, CapitaMall Meilicheng, both in Chengdu, and its entire 66 per cent share in an integrated retail/office development in Luwan, Shanghai. Post divestment, CMA will have an effective 75 per cent stake in Meilicheng and Tianfu and a 33 per cent share of Luwan. Currently under various stages of construction, these properties have a relatively short gestation period and are expected to be operational between 2013 and 2015. In terms of impact, CMA will recognise a net gain of S$71.8 million from the divestment of a partial stake as well as fair value gain from its retained share. This is likely to be reflected in FY12 results. In addition, the group would also be able to generate fee income from managing the fund, in the medium term. With the divestment, its debt-to-asset ratio is expected to decline marginally, by .3 per cent pt to mid 30 per cent. This leaves more headroom for further capital recycling into new investments. – DBS Vickers


Dyna-Mac Holdings (BUY; Target Price: S$0.45)

We met up with the management of Dyna-Mac Holdings Ltd (DMH) for an update on its proposed acquisition of Paliy Marine Fabricator (Guangzhou) Ltd (PMF). On 29 June 2012, the group announced that it intends to purchase a 70 per cent stake in PMF, from its controlling shareholder – Paliy Marine Engineering Pte Ltd – for S$3.8 million. PMF operates a 100,000 sqm fabrication yard in Guangzhou and has been engaged in the fabrication of structural blocks for semi-submersibles for the past three years. Assuming full utilisation and productivity level similar to its yards in Singapore, we believe this acquisition could potentially increase DMH’s maximum output by 70 per cent. We expect DMH to ramp up operations at its new yard progressively over the next 12 months. The group is already restructuring the PMF’s management team (although most of the existing workforce will be retained). Capital expenditure for upgrading of yard facilities should be modest (est. S$1 million). Looking ahead, DMH is confident of getting sufficient new orders to fill the newly acquired yard, by leveraging on its good track record and close working relationships with its global clients. Besides its traditional FPSO topside module business, DMH now takes on other jobs such as turrets and land-based modules. Over time, this should help DMH diversify its product offerings and lower its risk profile. – OCBC Investment Research


K-REIT Asia (HOLD; Target Price: S$0.99)

In a space of two weeks, K-REIT announced that it had obtained tax transparency for rental income from MBFC Phase 1, and that it had acquired another 12.39 per cent stake in Ocean Financial Centre (OFC). One of the advantages of investing in a REIT for individual unitholders is the tax transparency. However, K-REIT’s one-third stake in MBFC Phase 1 was previously held by a private limited company, which meant that the rental income attracted corporate income tax of 17 per cent. The vehicle was recently converted to a limited liability partnership (LLP), which is tax exempt. This should result in estimated annual tax savings of S$2.2-5.2 million for FY12-15F, leading to higher distributions to unitholders. K-REIT also acquired an additional 12.39 per cent stake in Ocean Properties LLP, taking its 99-year interest in OFC to 99.9 per cent. Including rental support of S$24.1 million, the stake is valued at S$285.7 million, or S$2,600 psf – in line with what K-REIT had paid for the original 87.51 per cent in October 2011. The acquisition will be partly funded by a placement of 60 million new units to the Vendor, pegged at a price of S$1.17 per unit, which was at a 14.6 per cent premium to the VWAP then. With the remainder funded by borrowings, K-REIT’s look-through gearing is expected to increase to 43.9 per cent from 41.8 per cent as at 1Q12. On the back of these corporate actions, we have raised our DPU estimates by between 6 per cent and 12 per cent for FY12-14F respectively. DPUs are expected to remain fairly stable up till FY15, with further upside possible if the vehicle holding its one-third stake in One Raffles Quay is also converted to an LLP for tax transparency. With a long WALE of 6.4 years as at 1Q12 (peers average at 3-4 years), K-REIT will be able to weather the near-term market volatilities. – Maybank Kim Eng Research


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

Olam International Limited recently held a luncheon for analysts to meet Shekhar Anantharaman who has just moved into a new and enhanced role as Executive Director – Finance and Business. This development came after the resignation of CFO Krishnan Ravi Kumar, who is leaving for new opportunities outside the agri-commodity sector. As part of Shekhar’s expanded role, he will lead the group’s overall strategy and new business development activities, as well as overseeing Olam’s corporate finance & accounts, and investor relations. We also had the opportunity to meet with several members of Olam’s finance team, most of whom have been with Olam for many years. Thus, we believe that it should be “business as usual” for the company, where management remains confident of achieving its target of recording US$1 billion net profit by FY16. Olam added it is likely to focus its future growth on markets like Africa, but is understandably less keen on Europe at the moment. Management also shared more insights on its share buyback scheme, which has a mandate to buy back up to 10 per cent of its outstanding shares. To date, Olam has bought back 52.2 million shares, or 2.1 per cent of outstanding shares, after its last purchase of 4.7 million shares at an average price of S$1.86 on June 26. Management revealed that it will continue to buy back shares as long as the implied return to existing shareholders is higher than the expected IRR of any new projects. – OCBC Investment Research


Orchard Parade Holdings (HOLD; Target Price: S$2.37)

At S$1 million per room (pr), we think the valuation of OPH may be on the high side, given that the recently-refurbished Orchard Hotel (owned by CDL Hospitality Trusts), just across the street, is valued at S$686,000 pr (35.4 per cent discount). Since this amount is earmarked as the minimum sale consideration, we think risks to the reservation price remain firmly on the upside for OPHL shareholders. Similar to KepLand’s 99-year injection of Ocean Financial Centre (OFC) (located on a site on a 999-year leasehold) into K-REIT Asia, only a 50-year leasehold of OPH (located on a site that is almost freehold) will be sold to Far East H-REIT. Thus, OPHL will be able to recover the asset after 50 years for redevelopment, or land sale, thereafter. OPHL has always been a passive investor of YHS and considers this investment to be non-core. The asset swap transaction provides OPHL with an opportunity to divest its 35 per cent stake in YHS at S$1.80 — a 63.6 per cent premium to its 31 March 2012 NAV per share. Since the restructuring announcement, YHS has risen in value by 16 per cent. We think OPHL shareholders stand to benefit from the ensuing upside with the allotment of dividend in specie of 0.229 YHS share per OPHL share. Moreover, if YHS does attract the interest of bigger players, such as Danone, Kraft, or Unilever, the subsequent buyout may generate even higher returns for OPHL shareholders. The acquisition of medical units, a hospitality management business, and a 33 per cent interest in the REIT manager and Trustee-Manager (Far East H-Trust) will enhance the recurring income stream of OPHL, not to mention the returns from existing property development and investment business. The restructuring also allows OPHL to expand its business to cover all aspects of the hospitality industry. In our view, the proposed restructuring is a good deal for OPHL, based on the favourable selling prices of the hospitality assets/YHS stake and the higher recurring income streams (downside protection in an economic slowdown), which OPHL will receive, after the restructuring. We advise existing investors to vote in favour of the proposed restructuring on 11 July 2012 EGM. – Maybank Kim Eng Research