OUE

OUE: CIMB maintains O/p with $3.53 TP. With fears of OUE overpaying for F&N now removed, its share price which has lagged behind the sector should catch up. The key takeaway from this failed M&A is that OUE is serious about growing its asset base but with financial discipline. House expect more recycling moves &expect OUE to remain on the acquisition hunt and possibly recycle existing assets along the way to enhance its portfolio. Of the lot, Mandarin Orchard/Gallery and DBST have older tenures and could be candidates. So far, mgt’s track record in asset acquisitions has been good, with additions seeing substantial revaluation uplifts in recent years Lower RNAV and cut FY12-14 core EPS by 7-10% for lower prices for Twin Peaks. But TP is raised slightly for 1) compressed cap rates for its office assets and 2) a tighter 20% discount to RNAV (prev. 25%) as house benchmark to market averages. Estimate a healthy 0.45x net gearing on a revalued asset base, with the potential encumbering of assets allowing for S$1bn additional debt capital for acquisitions.