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CapitaMall Trust (BUY; Target Price: S$2.25)

CapitaMall Trust’s (CMT) distributable income rose by 5 per cent YoY in 1H12 to S$156.2 million, with DPU rising marginally by 1 per cent YoY to 4.68 S-cents. For 2Q12, DPU came in at 2.38 S-cents, a rise of 5 per cent YoY, largely in line with expectations. Excluding the assets that underwent or are undergoing AEIs, CMT’s malls experienced a marginal 3 per cent decrease in shopper traffic, but tenant sales nevertheless still managed to grow by 1.5 per cent YoY in 1H12, thanks in part to the Great Singapore Sale. Rental reversions during the period remained positive at 6.4 per cent while portfolio occupancy rate stood at a very healthy 98.6 per cent. JCube resumed operations in April, while Bugis+ was soft-opened only in early June. As a result, neither asset contributed significantly to CMT’s 1H12 earnings. Looking ahead, Bugis+ should complete its AEIs by end-July and as of now, 97 per cent of its NLA is already committed. The Atrium’s AEI works are also on track to complete in 4Q12 and close to 90 per cent of the total space is already committed, which will include American fashion retailer GAP’s largest store in Singapore. CMT has proven its ability to deliver consistent results, with a solid track record for yield enhancements via AEIs. We emphasise that the uplift from the recent and ongoing AEIs will flow in more strongly in FY13, which we forecast will translate to a decent DPU yield of 5.6 per cent – a 400 bps spread over the 10-year bond yield. – Maybank Kim Eng Research

 

K-REIT (BUY; Target Price: S$1.23)

K-REIT’s NPI and gross revenues more than doubled to S$31.3 million and S$39.3 million, respectively, led by its 88 per cent stake in Ocean Financial Centre (OFC) and improving occupancy rates at all properties. Meanwhile, the income vacuum left by the expiry of One Raffles Quay’s (ORQ) was partly mitigated by the GST rebates and positive rental reversions. Distributable income was S$49.8 million or 1.94 S-cents DPU (+86.5 per cent YoY). Although the eurozone crisis has created uncertainties in the global economic climate, KREIT’s portfolio continued to demonstrate resilience by outperforming the general office market. Occupancy is now 97 per cent with improvement at all its properties, while leases that were renewed in the quarter saw positive rental reversions. Meanwhile, OFC signing rents continued to hold up at S$11-13 psf supported by higher occupancy of 93 per cent vs 91 per cent a quarter ago. In Sydney, Apple has taken up additional space at 77 King Street, lifting occupancy by 5 ppt to 93 per cent. Gearing has risen to 43.9 per cent following the acquisition of 12.4 per cent stake in OFC, but the trust is on track to refinance its S$598 million loan due at the end of the year with a 5-year term loan. This should mitigate refinancing risk and extend its debt expiry profile from 2.5 years to 3.6 years. The long-weighted lease expiry of 6.2 years with 48.2 per cent of its portfolio NLA tied to long leases (> 5 years) will help to mitigate leasing risk. Meanwhile, 2H earnings will continue to improve led by rising portfolio occupancy, the additional stake in OFC, and the tax savings from MBFC Phase 1 which was obtained recently. We raised FY12/13 DPU forecast by 1-3 per cent and target price by 1.6 per cent to account for better-than-expected portfolio occupancy. The stock now offers close to 20 per cent total return. – DBS Vickers

 

Keppel Land (BUY; Target Price: S$4.04)

1Q12 PATMI from property trading came in at S$199 million, or 85 per cent of total PATMI. Profits recognised from Reflections, which is already completed, accounted for nearly 70 per cent of that S$199 million. Nonetheless, actual residential pre-sales improved in 2Q12, particularly in China. KepLand sold 491 units there in 2Q12, a good improvement from the 187 units sold in 1Q12. These were mainly from The Botanica in Chengdu and Central Park City in Wuxi, where owner occupier demand remains strong. In Singapore, KepLand sold around 150 units at The Luxurie in 1H12, resulting in a total take-up rate of 64 per cent thus far for the project. KepLand announced that new tenants had been secured for MBFC Tower 3, raising total commitment to about 70 per cent from 67 per cent as of 1Q12. DBS Bank has just recently begun operations at Tower 3 and other tenants are in the process of moving in. We think that unless the commitment rate at Tower 3 crosses the 90 per cent mark, K-REIT is unlikely to make an approach to acquire KepLand’s one-third stake in Tower 3. With buyers’ interest seemingly picking up in China, we think that KepLand will benefit and continue to roll out more units from its mass market projects, such as The Botanica in Chengdu and Tianjin Eco-city. Its low net gearing of 0.2x also allows it to remain nimble while seeking out attractive acquisition opportunities. We raise our target price to S$4.04 mainly on the back of a narrower discount of 30 per cent ascribed to its RNAV. – Maybank Kim Eng Research

 

OCBC (HOLD; Target Price: S$8.80)

OCBC and 87.2 per cent-owned Great Eastern will dispose off their cumulative 8 per cent in APB to Kindest Place Groups for S$920.2 million and their cumulative 18.1 per cent shareholding in F&N to Thai Beverage Public Co Ltd for S$2.29 billion. The disposal at S$45/APB share and S$8.88/F&N share represents a premium of 18 per cent and 12 per cent to the closing share prices of the respective stocks. This also translates to a historical P/BV of 9.2x and 1.8x respectively. Against holding costs of just S$0.16/share for APB and S$0.27/share for F&N, the disposals will result in a sizeable exceptional gain of S$1.15 billion for the OCBC group. A point to note is that GE stands to realize a pretax gain of S$2.18 billion from its disposals. However, most of the gains will accrue to the insurance funds and the portion that will accrue to the shareholders’ funds is just S$421.6 million, of which OCBC’s 87.17 per cent share works out to be S$367.5 million. Adding on OCBC’s own post-tax gain of S$785.9 million translates to a total post-tax gain of S$1.15 billion for the group. We expect this gain to augment OCBC’s 2012 reported net profit forecast by 42 per cent and enhance book value by 5 per cent. We also expect it to raise our Tier-1 capital ratio estimate by 70 bps to 15.2 per cent from 14.4 per cent and our RWCR (risk-weighted capital ratio) to 16.6 per cent from 15.7 per cent. – Maybank Kim Eng Research