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Cambridge REIT (BUY; Target Price: S$0.65)

Cambridge REIT (CREIT) reported a 10 per cent and 9 per cent YoY rise in topline and net property income to S$21.5 million and S$18.4 million respectively. Growth was largely attributable to the additional income from the acquisition of six properties a year ago, organic growth from rental escalations (single tenanted buildings) and higher reversions from its multi-tenanted properties. Portfolio occupancy remained high at 99.1 per cent. This more than offset the loss of income from its divestments over the same period. Distributable income rose 15 per cent to S$14.1 million, translating to a DPU of 1.18 S-cents. With organic performance to remain stable, earnings growth will be driven by the recently acquired 16 Tai Seng Street (S$59.3 million) and the expected completion of development of Tuas View Circuit (BTS for Peter Polyethylene) in August 2012, while other development projects continue to remain on track for completion in the coming quarters up till 2013. The manager has 4 properties (worth S$198 million) for sale – amongst them are two properties, valued at S$101.6 million, which will be compulsorily acquired by SLA in January 2013. We understand that plans are underway to redeploy capital towards new acquisitions and we believe the manager is looking to acquire these targets before the end of FY12 in order to compensate for the expected loss of rental income. We tweak our estimates slightly to account for the redeployment of proceeds from the SLA acquisition into new acquisitions in 2013. Our target price is nudged up to S$0.65 after rolling forward our valuations and taking a lower discount rate with lower risk free assumptions. CREIT continues to offer attractive prospective FY12-13F yields of 8.0-8.3 per cent. Downside risk to our estimates hinges on the slower than projected deployment of divestment proceeds. – DBS Vickers

DBS Group Holdings (BUY; Target Price: S$15.94)

DBS Group Holdings Ltd posted 2Q12 net earnings of S$810 million, slightly above market expectations of S$807 million from a Bloomberg poll. This is up 10 per cent YoY, but down 13 per cent QoQ. Overall, 1H12 earnings amounted to S$1743 million, up 13 per cent. Net Interest Income rose 10 per cent YoY but was down 1 per cent QoQ to S$1,324 million in 2Q12. Non-interest Income fell 3 per cent YoY and 24 per cent QoQ to S$621 million. The QoQ decline was largely due to strong trading gains in 1Q12. Net Interest Margin (NIM) fell from 1.80 per cent in 2Q11 and 1.77 per cent in 1Q12 to 1.72 per cent in 2Q12. It declared an unchanged interim dividend of 28 S-cents. The stock will be quoted ex-dividend on 15 August 2012. While headwinds remain, especially from the US, Europe and China, management is cautiously optimistic about prospects for the rest of the year. They are not overly concerned about liquidity in the market and believe that DBS is still able to borrow cheaply from the market. However, margin compression has taken place, and there was margin pressure in China which led to a 2-bp impact on the group in 2Q12. Going forward, with the slowdown in the other key economies as well as in Asia, this is likely to impact overall loan growth and management is now expecting growth of about 10 per cent (down from 13 per cent) partly due to trade finance business slowdown and a general softening in manufacturing activities. We expect market conditions to remain challenging, but management is putting in place its strategy to continue to increase cross-sell, raise productivity, bring down its cost-to-income ratio, focus on further growing several of its key businesses (including SME and Wealth), manage its funding, etc. These measures should help to ensure a healthy 2H. We have adjusted our estimates and raised FY12 earnings from S$3,138 million to S$3,252 million. Based on the same unchanged 1.3x book, we increased our fair value estimate from S$15.40 to S$15.94. – OCBC Investment Research


Hi-P International (BUY; Target Price: S$0.91)

Excluding one-off charges, core profit was S$3 million, a steep 73 per cent YoY decline despite 10 per cent growth in sales to S$252 million. Sales were driven by lower value-add assembly for smartphones which caused severe margin compression because of higher material content on top of increased labour costs and overheads. Despite posting a net loss of S$0.6 million, Hi-P is guiding for higher sales and net profits in FY12 over FY11. This implies 2H12 net profit of over S$45 million or an average of S$22 million each for the next two quarters. We believe such optimistic guidance is driven by new tablets and smartphones for customers such as Apple, RIM and Amazon in addition to sports devices for Nike. While details are scarce from suppliers, we gather from industry checks that component suppliers are expected to ramp up production in July/August for the release of the new iPhone in October and Amazon’s new e-book in 2H12. In anticipation of this strong run-rate, FY12 capex of S$180 million is significantly higher than S$65 million in FY11.  At current valuations, Hi-P is cheaper than the average for its peers (16.6x FY12, 12x FY13). Hi-P’s meaningful engagement with Apple started with iPad and historically, share prices have rallied ahead of new iPad launches. Given that the company is growing bigger in its engagement in next generation smartphones, we urge investors to position in the stock ahead of the new launch. – DBS Vickers


Lippo Malls Indonesia Retail Trust (BUY; Target Price: S$0.45)

Lippo Malls Indonesia Retail Trust’s (LMIRT) reported 2Q12 NPI (net property income) of S$30.7 million and distributable income of S$17.1 million, up 36.2 per cent and 44.3 per cent YoY respectively. Expectedly, the strong performance was driven by full-quarter contribution from Pluit Village and Plaza Medan Fair that were acquired in December 2011. DPU for the quarter came in at 0.79 S-cents, down from 1.09 S-cents as a result of the 1-for-1 rights issue in 4Q11. However, this represents a 14.5 per cent QoQ improvement from DPU of 0.69 S-cents achieved in prior quarter. For 1H12, NPI grew 37.1 per cent YoY to S$61.6 million, meeting 51.1 per cent of full-year estimate. 1H12 DPU, on the other hand, was down 34.5 per cent to 1.48 S-cents, equivalent to 42.9 per cent of our DPU projection. This is slightly below our expectations, due to larger-than-expect impact from unfavourable forex movement. Nevertheless, the portfolio operating metrics and outlook remain buoyant, in our view. As at June 30, LMIRT’s overall occupancy rate remained steady at 94.7 per cent vs. 94.5 per cent in prior quarter. This is significantly higher than Indonesia’s retail industry average of 86.7 per cent, based on Jones Lang Lasalle’s 1Q12 market review report. Management reiterated that Jakarta remains ‘under-shopped’ and that the retail industry will continue from the robust domestic economy and burgeoning middle class population. This is likely to continue to drive the demand for LMIRT’s retail space. We also understand that LMIRT launched two bonds with an aggregate amount of S$250 million in early July. This leads us to believe that another round of acquisitions may be imminent, given that its financial position was already very strong. While finance expenses may be higher in the immediate term, LMIRT’s DPU is likely to be boosted going forward. Gearing post bond issue is expected to remain healthy at 21 per cent. – OCBC Investment Research


Sembcorp Industries (BUY; Target Price: S$6.40)

Sembcorp Industries (SCI) reported another good set of quarterly results, led by growing strength in the Utilities segment. Revenue for 2Q12 rose to S$2,668 million (+23 per cent YoY) with corresponding PATMI (net profit) coming in at S$190.7 million (+9 per cent YoY). Utilities contributed the largest share of both revenue (56 per cent) and PATMI (53 per cent) in 1H12, surpassing that of the Marine segment. Other than a weaker performance from the Marine segment due to timing issues, the former’s better relative performance was attributed mainly to additional gas sales and higher HSFO prices for its Singapore operations, as well as contribution from the Salalah IWPP in Oman which commenced operations in May 2012. While we expect to see more incremental contributions in 2H12 from Salalah IWPP and the Banyan IWT plant that started operating in August 2012, this would be offset by a 40-day scheduled major plant maintenance in the Singapore cogen plant. A sturdier showing is also expected for the Marine segment in the 2H12. Overall, we expect 2H12 to be slightly stronger. With several projects in the execution pipeline, we see a growing recurring revenue base for SCI. The company also aims to build a sizable renewable energy portfolio. The recently announced China Wind Farm assets acquisition should see approval in about a month’s time. SCI does not rule out making more acquisitions if an opportunity arises. Excluding S$1.2 billion of project finance loans, it has net cash of S$0.9 billion, which is mostly held under Sembcorp Marine. With positive outlook in both Marine and Utilities segments, we reiterate BUY on SCI with target price raised to S$6.40, mainly due to a 13 per cent increase in FY12F PATMI estimate for Utilities. – Maybank Kim Eng Research


Singapore Land Limited (HOLD; Target Price: S$5.36)

Due to the temporary closure of Pan Pacific Singapore hotel for renovation works, SingLand’s 2Q12 core PATMI (net profit) excluding revaluation gains came in at S$42.4 million – down 23 per cent YoY. 1H12 core PATMI of S$97.9 million is largely in line with expectations. Despite the weak office leasing market, SIngLand’s gross rental income remained stable, dipping marginally by just 1 per cent on a QoQ basis to S$59.1 million. The temporary closure of Pan Pacific Hotel has resulted in a S$7.9 million operating loss this quarter, which is likely to continue into 3Q12 as the hotel is expected to reopen in stages only from August. SingLand sold a further 12 units at The Trizon in 2Q12. As the project had already obtained its TOP in May, profits from the sales of the remaining 35 units can now be recognised immediately. The project’s ASP has climbed steadily from S$1,300 psf when it was launched in 2009 to S$1,800 psf now. This year, SingLand has acquired two residential sites from the Government Land Sales Programme. The first is a site at Jervois Road, purchased at S$118.9 million, with an estimated breakeven of S$1,325 psf. The other is a site off Farrer Road, acquired at S$113.2 million, with an estimated breakeven of SGD1,611 psf. RNAV accretion is however marginal at 5 S-cents/share and 3 S-cents/share respectively. We raise our target price to S$5.36, pegged to a 50 per cent discount to RNAV. However, we see very few reasons to turn too bullish in the near-term. – Maybank Kim Eng Research