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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. 30 Teban Gardens Crescent 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 2-storey showroom with ancillary office is constructed. As this acquisition is expected to be completed only in 4Q13, no announcement has been made with regards to the method of financing this acquisition at the moment. 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 6 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 prior to the acquisition. The gross floor area of 30 Teban Gardens Crescent is expected to be approximately 12,922 square meters upon completion of the construction works. Given a forecasted annual NPI of S$3.2 million, the cap rate of this property is estimated at 7.8 per cent. Although the lease on this piece of land is comparatively shorter than CIT’s portfolio (38 years), we view this acquisition as an effort by the manager to diversify the income stream while at the same time enlarging their tenant base. As indicated by management, with this acquisition, CIT’s WALE will be extended to 3.3 years from the current 3.2 years. – OSK-DMG

 

Genting Singapore (HOLD; Target Price: S$1.40)

Last Friday saw two Chinese banks getting full banking licenses to operate in Singapore, one of which will clear CNY (yuan) transactions. Experience from Hong Kong-Macau shows a positive flow through to Macau’s gross gaming revenue (GGR) when HK was established as a CNY trading hub back in June 2010. That said, the Singapore government on the same day proposed three amendments to the Casino Control Act which we deem onerous. Public consultation will start July 9 and end on August 6. The government hopes to pass the amendments by year-end. Our concerns: if financial penalties are raised to less than 10 per cent of GGR from S$1 million currently, they will erode GENS’ profits; we estimate that the penalties may amount up to S$370 million or 25 per cent of EBITDA (versus <1 per cent in 2011); if IMA commissions, which the CRA may be empowered to cap, are set below regional averages, IMAs will encourage their VIPs to gamble elsewhere; if VIPs have to draw down their S$100,000 deposits first before the casinos can extend credit, VIPs will likely reduce length of play. We retain our below consensus earnings estimates pending further clarity on the proposed amendments. In light of this near-term uncertainty, we migrate our valuation basis for GENS from DCF to 11x current year EV/EBITDA (Macau average), and slash our target price from S$2.00 to S$1.40. Investors will be more concerned with this near-term uncertainty rather than its long-term prospects for now. – Maybank Kim Eng Research

 

Keppel Corporation (BUY; Target Price: S$13.38)

According to Upstream, a shortage of vessels equipped to work in the renewable offshore sector has spurred new building programmes, and green energy ventures in the US are turning to the offshore industry to acquire expertise needed to execute marine projects. This has resulted in opportunities for yards such as Keppel Corporation (KEP) which has a significant presence in the US Gulf coast. KEP first entered the offshore wind energy sector in 2010 when its Netherlands subsidiary Keppel Verolme won a contract to build an electrical transformer and maintenance platform for a German offshore wind farm. Since then it has constructed a wind turbine installation vessel of its own design that has practical advantages over existing vessels in the market. The unit secured its first contract last year.  In January this year, KEP also announced that one of its subsidiaries will acquire a 49.9 per cent stake in OWEC Tower (AS) for about S$61 million. The latter is the only company with a track record of having its jacket foundation design installed for offshore wind farms. This move enables KEP to tap on OWEC’s expertise to develop its business in the design and construction of offshore wind turbine foundations as well as installation and support vessels. Though development of offshore wind farms seems to be gaining traction in parts of Europe like Germany, and the US also has plans to develop its own farms, some Chinese offshore wind projects have been delayed due to red tape. The sector is still a relatively new frontier for most countries and time would be needed for more orders to come. However, we appreciate KEP’s steady efforts to build up its capabilities to service the offshore wind industry which also has synergies with the offshore oil and gas sector. – OCBC Investment Research

 

Midas Holdings (HOLD; Target Price: S$0.30)

We review our forecasts on Midas Holdings prior to its upcoming 2Q12 results, and opine that cost pressures faced by the group could be higher than previously estimated. We thus lower our PATMI estimates for FY12 and FY13 by 14.9 per cent and 6.8 per cent respectively, on lower margin assumptions. We expect Midas to report a set of lackadaisical 2Q12 results. However, 2H12 could possibly show an improvement on a YoY basis, due largely to a low-base effect as woes surrounding the Chinese Minister of Railways’ corruption scandal and high-speed train crash manifested in Midas’ weak 2H11 performance. Midas’ 32.5 per cent-owned JV company, Nanjing SR Puzhen Rail Transport (NPRT) recently clinched a RMB860 million metro contract for a Dongguan project. We estimate that this would boost NPRT’s orderbook to RMB7.4 billion. Delivery is scheduled from 2013 to 2015. The possible contract flow-through for aluminium extrusion profiles to Midas could range from RMB25-34 million, based on our estimates. Despite NPRT’s strong order book, its contribution to Midas’ earnings has been lumpy. We had already previously factored in a higher share of profits from NPRT in FY12 versus FY11. Meanwhile, high-speed railway (HSR) contracts remain an integral element to Midas’ recovery, but there is still an impasse on this front currently. We believe that the resumption of high-speed passenger train car orders by China’s Ministry of Railways could occur in late 2012 or 1Q13. We believe that Midas’ fundamentals in the near-term remain weak. Management would actively seek to secure new metro train orders in the coming months to assuage the current dearth of HSR contracts, which is not within Midas’ control. We lower our fair value estimate from S$0.33 to S$0.30 (11x blended FY12/13F EPS) on account of our reduced projections, but maintain our HOLD rating. In our view, a more favourable entry point would be around S$0.28 or lower. – OCBC Investment Research