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Ascott Residence (BUY; Target Price: S$1.29)

CapitaLand (BUY; Target Price: S$3.39)

ART and Capitaland have announced a series of transactions that will boost ART’s exposure in Asia while unlocking value from its asset in Singapore. ART will sell the Somerset Grand Cairnhill site to Capitaland for redevelopment, with a put and call option to buy the new redeveloped serviced component upon completion as well as purchase two properties in China and Singapore from its parent. The deal worth S$688 million would boost ART’s exposure in the higher growth Asian markets of Singapore and China to close to 40 per cent, as well as offer immediate positive earnings impact from the stabilised properties. From Capitaland’s perspective, it will add 25,999 square feet GFA in the prime Orchard Road location to its Singapore residential landbank. In terms of impact on earnings and target price, the transaction will lift ART’s FY12-13 DPU by 1 per cent initially with more earnings upside from the new serviced residence component when completed in 2017. In all, we reckon this exercise will lift ART’s book NAV by 4.4 per cent to S$1.42 and raise target price from S$1.14 to S$1.29. Post transaction and a small proposed perpetual security issue, ART’s gearing would be still manageable at 43.2 per cent. With Capitaland’s larger asset base, the deal should boost FY12 earnings estimates to S$684.4 million and raise target price marginally to S$3.39, premised on a 35 per cent discount to its asset backing. We are upgrading our recommendation on ART to BUY as we like the portfolio’s increase into the faster growing Asian region. The deal also provides earnings downside protection through the fixed rent component as well as earnings upside from the variable rent formula. We maintain our BUY call on Capitaland for its diversified business exposure. – DBS Vickers

 

ComfortDelGro (BUY; Target Price: S$1.75)

SBST has announced that they will be adding 1,000 new buses from January 2013 to 2015 at a cost of S$433 million. SBST has also commented that close to 90 per cent of its bus fleet will be new by 2015, and its fleet size is expected to increase by about 13 per cent to 3,400 buses, which will be its largest to date. Out of the 1,000 new buses, 260 of them will be funded under the Bus Services Enhancement Programme (BSEP), while SBST will fund the remaining 740. During the Singapore Budget in February 2012, it was announced that the government will increase public bus fleet by 800 buses over the next five years, and of the total 800 buses, 550 (69 per cent) will be funded by the government while the remaining 250 (31 per cent) will be provided by the public transport operators. This announcement does not come as a surprise as the additions to the fleet are part of CD’s fleet renewal programme which started in 2006. Our capex assumption of S$500 million for FY12 has factored in this increase in bus fleet. We think near term earnings impact could be minimal as current bus operation losses for CD accounts for about 1.5 per cent of overall EBIT. Moreover, this scheme will be rolled out over a span of a few years therefore any earnings impact is expected to be spread out. – OSK-DMG

 

CWT Limited (BUY; Target Price: S$1.90)

With its commodity trading business gathering steam, we now believe net profit may well break through the S$100 million mark this year. This is excluding a S$22.5 million gain from the sale-leaseback of Pandan Logistics Hub which was recently completed. This will mark a breakthrough year for CWT. This paradigm shift in profitability is largely driven by new commodity trading arm – MRI, which we estimate will contribute in excess of S$50 million this year, in its first full year of consolidation. As part of the original purchase agreement, CWT’s effective interest recently increased to 82 per cent. Through further share buy-backs over the next three years, MRI will eventually be 100 per cent owned. The company made several low-key announcements related to its commodity trading business recently, incorporating several new companies in Uruguay, Argentina, Switzerland and China. These companies will be used to expand the product scope beyond base metal into other metals; secure more of the trading supply chain by providing logistics service, extracting value and reducing risk. These will not contribute immediately, but represent the next leg of growth. Our channel checks suggest that ramp-up warehouses in Singapore continue to be in high demand from MNCs, with CWT-operated warehouses at full occupancy. We would like to highlight that demand tend to be anti-cyclical, as inventory moves at a slower pace during periods of weak demand. With a S$500 million MTN programme recently established, we expect asset-recycling to continue. CWT has booked-in “one-off” divestment gains for 6 of the last 7 years. In the current risk environment, we find even more favour in CWT’s structural growth story, which is not macro/ volume-driven, but rather a deployment of latent capital into new businesses. We believe consensus estimates do not fully-reflect earnings potential of MRI but will have to adjust following 2Q12 results. We see multi-year growth potential and urge investors to get on the gravy-train. – Maybank Kim Eng Research

 

Hotel Properties Limited (BUY; Target Price: S$2.75)

Hotel Properties Limited (HPL) holds a prime global portfolio of hotels, investment and residential properties. Based on the current market value of just its Singapore hotel assets, which include the Hilton, Four Seasons and Concorde hotels, as well as its investment properties, HPL is worth S$4.58 a share or more than twice its current share price. Orchard Parade Holding’s spin-off of Orchard Parade Hotel into a Far East hospitality REIT highlights the undervaluation of HPL’s assets in the Orchard Road area. With the latest valuation of the Orchard Parade Hotel providing a benchmark of almost S$1.1 million per key, similar valuations for the Hilton Singapore and the Four Seasons hotel would mean these assets alone are worth S$1.47/share (or 74 per cent of the current market cap). To unlock this deep value, HPL should explore a similar restructuring exercise. We explore possible redevelopment scenarios of HPL’s combined landbank (site area only) along Orchard Road of nearly 20,000 sqm. To encourage redevelopment, the URA has provided incentives such as higher plot ratios and extensions to boundaries. HPL could enjoy a boost in its plot ratios for these sites along Orchard Road if it were to embark on a redevelopment programme. HPL might have disappointed some value investors in the past due to its lack of proactive moves on improving shareholder value. Although we still do not know if this attitude will change soon, the recent events surrounding Orchard Parade may put some pressure on management to review its strategy. – Maybank Kim Eng Research

 

M1 Limited (BUY; Target Price: S$2.81)

M1 Ltd is due to report its 2Q12 results on July 16, where we expect the telco to put in a relatively stable showing. We forecast for revenue to come in around S$250 million, up 1.9 per cent YoY, but net profit to fall 2.8 per cent YoY to S$41.6 million. On a sequential basis, revenue is likely to fall 4.8 per cent, but net profit should climb 3.2 per cent. On the NBN front, IDA (Infocomm Development Authority) now requires OpenNet to, starting from August, increase its weekly customer connection by nearly 30 per cent to 3,100 from a revised 2,400. This is to reduce the waiting time, which was reported to be as long as six weeks. In addition, IDA has asked OpenNet to put in place a process to cater for sudden spikes in demand, especially during the quarterly computer trade shows. We believe that the increased connection rate would benefit M1 most. This is because M1 has a small base, does not have much of a legacy system issue since its current cable modem bandwidth is leased from StarHub, and could further penetrate into the corporate segment, especially in the more price-sensitive SME space. Year-to-date, M1’s share price has only risen 2.4 per cent, as compared to SingTel’s 11.0 per cent climb and StarHub’s 24.4 per cent increase over the same period. One reason for M1’s underperformance is probably linked to its lack of bundling of services. But we think this concern is probably overdone, given that M1 has been able to defend its mobile market share, despite it having the highest churn rate among the three telcos. And because M1 is not involved in the highly competitive Pay TV arena, it does not have to deal with rising content costs. As a result, M1 is experiencing less pressure on margins. We continue to like M1 for its defensive earnings and relatively attractive dividend yield of 5.7 per cent. – OCBC Investment Research

 

Mapletree Logistics Trust (BUY; Target Price: S$1.19)

Mapletree Logistics Trust’s (MLT) financial performance for the trailing four quarters ending 31 March 2012 had been outstanding, buoyed by a slew of yield-accretive acquisitions and healthy organic growth from its existing portfolio. In the year ahead, we expect MLT to deliver again, as it continues to optimize its portfolio yield and invest in quality assets. YTD, we note that MLT has acquired close to S$390 million worth of properties with initial NPI yields of 6.2-9.9 per cent. The last of the announced acquisitions (Fuji warehouse and Celestica Hub in Malaysia) was completed in May, and is expected to contribute positively to its distributable income going forward. As at March 31, MLT’s aggregate leverage was at a comfortable 35.2 per cent mark, bolstered by the issuance of S$350 million perpetual securities and asset revaluation gain of S$113.0 million. Even with the completion of all committed acquisitions, we estimate its gearing ratio to inch up to only 37 per cent – a level we deem is still healthy. Notably, its weighted average debt duration has also been extended from 2.2 years in prior year to 4.2 years as a result of management’s proactive capital management initiatives. Hence, we believe MLT is well positioned to pursue its growth strategy, with minimal refinancing baggage to carry through the coming year. MLT’s unit price has also performed well, raking up a return of 17.2 per cent YTD as opposed to 13.0 per cent gain in the benchmark index. While the REIT was sold down by as much as 4.9 per cent from its peak on July 10, we note that it was due to a sale in Alliance Global Properties’ 5.7 per cent stake in MLT via a block trade, and not a drastic change in its fundamentals. At current price, MLT still offers an attractive upside potential and respectable FY13F yield of 7.1 per cent. – OCBC Investment Research

 

Viz Branz (HOLD; Target Price: S$0.69)

Two days ago, Viz Branz (VB) announced that a third party (offeror) approached a substantial VB shareholder for preliminary discussions on the possibility of acquiring his stake. Although nothing concrete has been agreed upon – and VB made an additional SGX announcement to further emphasize the non-binding nature of the news – VB’s share price gained an additional 6.3 per cent Wednesday to bring its YTD gain to 116 per cent. While this recent news has clearly provided a strong catalyst for the counter, is this share appreciation warranted? Going forward, we expect VB to continue posting healthy growth on the back of support from its cereal mix business and lower costs. We project revenue growth of about 8-9 per cent over the next three years with demand stability in its core markets of China and Indochina. Coupled with a gradual change to its cost structure from the benefits from economies of scale and scope in VB’s operations, we expect operating margins to continuously improve. As such, we raised our valuation to S$0.69 for Viz Branz, which represents an upside potential of 3 per cent over its last transacted price, and reiterate our HOLD rating. We assessed the possibility of a takeover occurring and determined it to be highly probably. However, after evaluating previous takeovers/privatisations over the past few years, we found that only a small premium of 2 per cent would be applied in VB’s instance. Applying this small premium to our revised fair value of S$0.69, we attain a takeover estimated price of S$0.70/share. Therefore, as the difference between our derived fair values is small, we urge investors to exercise caution. – OCBC Investment Research