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Ascendas REIT (HOLD; Target Price: S$2.15)

Ascendas REIT (A-REIT) reported an 18 per cent and 14 per cent YoY growth in topline and net property income to S$142 million and S$101.1 million respectively. The strong performance was largely attributable to an expanded portfolio (102 properties as at end 1Q13 vs 93 properties a year ago) upon completion of its acquisitions and development projects, while underlying organic growth remained positive. Distributable income came in at S$76.5 million (+16 per cent), translating to a DPU of 3.53 S-cents (+10 per cent). 1Q13 results forms 26 per cent of our full year FY13F. Operationally, average occupancy levels continue to remain stable at 96.4 per cent (flat compared to a quarter ago) while rental reversions remained high at 11.6 per cent compared to previously contracted rates. An outperformer in our view is its Business Parks segment, which saw average positive reversions of close to 11 per cent. Looking ahead, we expect renewal activities to remain fairly stable, cushioned by expiring rental rates being 16-35 per cent below current market levels in the coming 2 financial years. Our earnings estimates are raised by 2.5-3.5 per cent as we tweak our occupancy and rental renewal assumptions going forward. Gearing remained at 32.7 per cent as of June 30 but should head up to 36 per cent (S$227.8 million yet to be funded) after taking into account its committed investments. These various developments and asset enhancement activities should complete progressively over 2HFY13-FY14, underpinning incremental earnings growth in the coming quarters. A-REIT currently trades at 1.15x P/BV, offering FY13-14F yields of 6.3-6.4 per cent, which we believe is fair. Our HOLD call is maintained given limited price upside to our revised target objective. – DBS Vickers


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

Bumitama Agri (BAL) announced that one of its subsidiaries PT. Bumitama Sawit Lestari (BSL), and PT. Karya Manunggal Sawitindo (KMS), an associate of BAL’s controlling shareholders, had on July 17 entered into a conditional SPA to acquire landbank through the acquisition of the entire equity interest in PT. Tanah Tani Lestari (TTL) – subject to relevant government approval(s). Upon completion of the acquisition, BSL and KMS will own 95 per cent and 5 per cent of the issued and paid-up shares capital in TTL respectively. The participation of KMS is necessary to satisfy local ownership law No. 25 of 2007 in Indonesia. TTL was incorporated on 29 June 2007 and obtained approval from the Ministry of Law and Human Rights on 28 August 2007. TTL has obtained a principle license (Izin Prinsip) for 1,415.34 hectares in Central Kalimantan designated for plasma area, based on Decree of Regent of Kotawaringin Timur district No. 525.26/349/VI/EK.SDA/2012 dated on 22 June 2012. Other than the above, TTL has also applied for another potential landbank of up to 16,000 hectares in Central Kalimantan province. TTL is currently owned by PT. Lestari Gemilang Agro (LGA) and PT. Makmur Langgeng Intisawit (MLI), who hold 80 per cent and 20 per cent of the issued and paid-up share capital of TTL, respectively. Neither LGA nor MLI is related to any controlling shareholder/Director of BAL and/or their associates. We are positive on the announcement, as this could potentially expand the group’s landbank area (net of plasma allocation and other non-plantable land) as well as maintain and extend the group’s strong volume growth prospects beyond 2014. The next step is for TTL to survey the land and to apply for Izin Lokasi and Izin Usaha Perkebunan (IUP) licenses to ascertain plantable land and obtain necessary regulatory prerequisites. There is no impact on the group’s near-term earnings, as the acquisition is yet to be completed; while land surveys have yet to be conducted. – DBS Vickers


China Fishery Group (BUY; Target Price: S$1.32)

China Fishery announced that its wholly-owned subsidiary, CFG Investment S.A.C. (a company incorporated in Peru) is proposing to issue senior notes. We understand that the issue will be a “benchmark” size, which is likely to be around US$300 million and carry an interest rate of 8-9 per cent. Previously, the Group had issued 7-year senior notes totalling US$225 million in December 2006 with an interest rate of 9.25 per cent. According to the announcement, an international roadshow to market the notes will commence on July 18 and the terms of the proposed notes, including interest rate, aggregate principal amount, offer price and final terms and conditions will be determined by the issuer through a book building exercise. The use of proceeds will be intended for, amongst other things, to: fund the Group’s expansion in North Pacific Ocean, and including but not limited to prepayment of an existing long term supply agreement and entering into new long-term supply agreements; repay outstanding indebtedness; and/ or finance working capital and for general corporate purposes. We are surprised by this issue of senior notes. At this stage, we are neutral to this development. While we believe the proceeds will be used to prepay its long-term supply agreement in its North Pacific Ocean operations – which should lower its costs, we believe the funds needed should likely be in the region of US$150 million – US$200 million, assuming a 10-year agreement for six supertrawlers. This would leave about US$100 million (assuming an issue size of US$300 million) of funds to be deployed, which will accrue interest cost to the tune of US$9 million/ year. In our view, there is an uncertainty regarding the deployment of remaining funds at this stage. We are maintaining our forecasts for now, pending further information on interest costs, issue size, etc. However, in the absence of developments regarding the deployment of funds post the issuance of the notes, we expect our forecasts to be trimmed due to higher interest costs. – DBS Vickers


Frasers Centrepoint Trust (BUY; Target Price: S$1.89)

Frasers Centrepoint Trust (FCT) turned in a good set of 3QFY12 results. NPI was up 32.1 per cent YoY to S$24.6 million, while distributable income grew by 37.1 per cent to S$20.2 million. The strong performance was achieved mainly on the back of a 60.9 per cent NPI growth by Causeway Point (CWP) and S$2.0 million NPI contribution from newly-acquired Bedok Point. For the quarter, DPU came in at 2.6 S-cents (+33.3 per cent YoY), partially boosted by distribution of S$1.2 million which was retained in previous quarters. Together with 1HFY12 DPU of 4.7 S-cents, 9MFY12 DPU totalled 7.3 S-cents, forming 76.8 per cent of our and consensus FY12 DPU projections. After dipping 4.0ppt in prior quarter, FCT’s portfolio occupancy as at June 30 improved marginally to 93.7 per cent. The re-opening of the food court in May, we note, was the primary driver for the better number. This was somewhat offset by lower occupancy at CWP (down 3.6 ppt QoQ to 87.8 per cent) as refurbishment works commence on the fifth and seven floors. However, management reiterated that the asset enhancement initiative at CWP is in its final phase and that the mall is likely to be fully occupied when the project is completed in December 2012. Additionally, FCT continued to track positive rental reversions, where rental rates of new leases were 27.2 per cent higher than preceding leases on average. This reflects continued strong demand for suburban retail space, in our view. Due to the better-than-expected results, we now re-jig our FY12-13 forecasts to reflect better occupancy and rental rates. This in turn raises our fair value from S$1.74 to S$1.89. We continue to like FCT for its pure suburban exposure, strong execution and sturdy financial position. We believe the injection of Changi City Point may happen in the next fiscal year, as its leases appear to have stabilised (though business park segment has yet to obtain TOP). This may provide potential for further DPU expansion. – OCBC Investment Research


Keppel Corp (BUY; Target Price: S$13.34)

Keppel Corporation (KEP) reported a 52.2 per cent YoY rise in revenue to S$3.5 billion and a 35.4 per cent increase in net profit to S$520.9 million in 2Q12, such that 1H12 net profit accounted for 78 per cent and 80 per cent of ours and the street’s full year estimates, respectively. Lumpy earnings from the property division boosted net profit, mainly due to earnings recognition from homes sold under the deferred payment scheme at Reflections at Keppel Bay. However operating margin slipped from 20.1 per cent in 2Q11 to 18.8 per cent in 2Q12 as margins in the offshore marine division continue to normalise. Operating margin in the O&M division has more than halved from 24.2 per cent in 2Q11 to 12.0 per cent in 2Q12 as margins continue to normalize. Recall that margins were impressive around the 20+ per cent range from 4Q10 to 4Q11 as high profit margin contracts secured largely before the crisis were executed, along with productivity gains. This trend is within our expectations as management had earlier guided that a normalised level would be around 10-12 per cent. Management has stressed that the good showing in 1H12 is exceptional and will not be repeated in 2H12, as earnings were largely supported by one-time profits from the property division. We understand that contribution from Reflections accounted for more than three quarters of the property arm’s net profit in 1H12. The group’s net orderbook stands at S$7.6 billion, with deliveries extending to 2015. KEP remains optimistic about the return of semi-submersible orders, given the tight supply of deepwater rigs. Meanwhile management also shared that the earliest delivery for a jack-up order placed Friday is September 2014. We fine-tune our estimates and update the market values of KEP’s listed entities, such that our fair value estimate eases slightly from S$13.38 to S$13.34. In line with our expectations, an interim dividend of S$0.18 has been declared. – OCBC Investment Research


Suntec REIT (HOLD; Target Price: S$1.41)

Suntec REIT announced 2QFY12 DPU of 2.361 S-cents, down 6.8 per cent YoY. However, we feel that management has executed well, as this was achieved despite the loss of income from the divestment of Chijmes and commencement of asset enhancement works (AEI) at Suntec City on June 1. Together with 1Q distribution, DPU for 1HFY12 amounted to 4.814 S-cents, representing 51.8 per cent of both our and consensus FY12 DPU forecasts. Office segment was the star performer for the quarter, with gross revenue 5.5 per cent higher YoY due to positive rental reversions. Notably, Suntec City office achieved 100 per cent committed occupancy, the first since March 2008. However, gross retail revenue was down by 16.1 per cent YoY. On a positive note, occupancy of Suntec City Mall for area not affected by the AEI remained stable at 98.1 per cent. Suntec REIT announced that the Suntec City AEI is now projected to complete by end 2014, earlier than its last guidance for completion in 2015. Works on Phase 1 which encompasses Suntec Singapore and Galleria was said to progress smoothly and is on schedule for completion by 2QFY13. We understand that 193,000 sq ft NLA will be closed progressively and that a 58.5 per cent pre-commitment for the Phase 1 leases has been achieved to-date. Management also reiterated that it will consider utilising part of the proceeds from the sale of Chijmes to mitigate the temporary dip in DPU, if necessary. We now incorporate the stronger performance at Suntec REIT’s office portfolio and the revised completion schedule of Suntec City AEI into our model. We also fine-tune our GST refund assumptions for income support, which is expected to be end by 2012. This raises our fair value to S$1.41 from S$1.23 previously. While we are now fully convinced of management’s strong execution, we believe that all the positives have been factored in. – OCBC Investment Research


Technics Oil & Gas (BUY; Target Price: S$1.28)

3QFY12 net profit rose 1 per cent YoY to S$7.5 million. 9MFY12 net profit of S$17.8 million (+11 per cent YoY) was above expectations and accounted for 86 per cent of our estimates. 3QFY12 revenue fell 14 per cent YoY to S$39.5 million. We believe this could be attributed to timing of revenue recognition. 9MFY12 revenue is up +21 per cent YoY. 3QFY12 gross profit margins improved to 48 per cent (3QFY11: 37 per cent) due to higher mix of revenue from EPCC projects (higher margins than Contract Engineering). As of July 18, Technics has a backlog orderbook of S$85 million, with deliveries extending up to 1HFY13. Unlike the order book for rig builders, Technics’ orderbook has much shorter delivery timeline and the low book-to-bill ratio should not be taken negatively. Project duration ranges between two weeks to 18 months. We value the stock based on 12x P/E on blended FY12/13F EPS, at the top of its historical range. The stock is now trading at 10.2x FY12F P/E and 9.0x FY13F P/E. Since our initiation report on July 2, the stock has appreciated 9 per cent but we see more upside. Our target price implies 26 per cent upside from its last closing price. – OSK-DMG