SPH REIT: 1QFY16 results in line. DPU was flat at 1.33¢, while distributable income rose 3.8% to $35.3m.
Revenue increased 2.9% to $52.1m, while NPI climbed 5.9% to $40.1m, driven by rental uplifts at both Paragon (+3.2%) and Clementi Mall (+5.4%).
As a portfolio, rental reversions fell to 3.2% (4QFY15: 8.6%), revealing a challenging a market. Nevertheless, management cited that shopper traffic remained steady.
Occupancy dipped 0.2ppt q/q to 99.8% due to reorganisation of space, while WALE stood at 2.2 years.
Aggregate leverage stood at 25.7% with weighted average cost of debt of 2.84%.
While SPH REIT will likely see a stable FY16 given only ~4% of leases are up for renewal. The challenge will likely come in 2017, as SPH REIT’s renewal cycle meets a year where Maybank-KE expects a 1.9x net oversupply of retail space. In 2017, 85.2% of Clementi Mall and 18.8% Paragon leases are up for renewal.
SPH REIT will likely have to pursue growth inorganically amid a weak rental market. The ongoing work to reclaim space by switching air handling units into fan coil units is progressing on track and Emporio Armani has pre-committed to take up part of the reconfigured space.
Meanwhile, SPH REIT plans to reconfigure the layout of the Clementi mall and increase the range of products to boost sales. Further details on AEI will be announced in due course.
SPH REIT also has a right of first refusal for Seletar Mall, which could be a medium term catalyst.
SPH REIT is currently trading at 1x P/B and annualized 1QFY16 yield of 5.5%.
Latest broker ratings:
CLSA maintains Underperform with TP of $0.96
CIMB maintains Hold, cuts TP to $1.05 from $1.07
Wednesday, January 6, 2016
SG Market (06 Jan 16)
Singapore market: Singapore market is likely to see some swings today as investors continue to grapple with indecision and volatility as the early theme in 2016.
A slew of economic data will be released today, which includes the services PMI for Japan and China before noon, followed by US ISM non-manufacturing data and factory orders in the evening.
Regional bourses opened generally lower in Japan (-0.02%), Korea (-0.3%) and Australia (-0.8%).
From a chart perspective, the STI sees immediate resistance at 2,860 (20-dma), with support at the 2,810 region.
Stocks to watch
*SPH Reit. 1QFY16 results came in line with estimates. DPU was stable at 1.33¢, despite a climb in distributable income to $35.3m (+3.8% y/y), due to a reduction in income distributed to 95.4% (1QFY15: 98.4%). Gross revenue and NPI grew 2.9% and 5.9% to $52.1m and $40.1m respectively, driven by rental uplifts at both Paragon and Clementi Mall, as well as savings from property expenses. Occupancy dipped to 99.8% (-0.2ppt), while aggregate leverage was maintained at 25.7%. NAV/unit at $0.94.
*Ascendas Hospitality Trust: Market observers cited a handful of interested parties keen on a buy out of the REIT, comprising a mixture of funds and companies. Market watchers expect a potential deal pricing at ~1.1x P/B, which translates to $0.792/unit, based on end-3Q15.
*SGX: Intends to introduce sustainability reporting on the environmental, social, and governance aspects of business on a comply or explain basis. It is currently seeking public opinion till Feb ‘16 with the new set of rules and guides to apply to reports published in CY18 onwards.
*QT Vascular: Disclosed that the first-in-human study of its drug-coated balloon, Chocolate Heart, has demonstrated promising early results for the treatment of patients with de novo coronary disease.
*Cordlife: Received valid acceptances of an aggregate 82.24% for its proposed acquisition of remaining shares in Bursa-listed Stemlife.
*Spackman Entertainment: To release its action-comedy movie, Chasing, in Korea on 7 Jan.
*OKH GLOBAL: Disclosed that CEO and Executive Chairman Bon Ween Foong was issued an Interpol Red Notice, citing that he is wanted by Indonesian authorities in connection with a charge of “providing false statement for official document". Bon has vehemently denied the charge.
*Polaris: Indonesian associate Trikomsel has launched Osmo smartphone, which is a locally produced smartphone in collaboration with Advan, in a bid to expand market share in the country.
*New Silkroutes Group: Extended the long stop date for the proposed disposal of Digiland (Thailand) and Infonet Systems and Services from 31 Dec 2015 to 30 Jun 2016.
*Renewable Energy Asia: Its Phase 2 20MW power plant in China has been unable to reach optimum capacity due to the incomplete installation of cells, which could lead to potential losses of income and cancellation risk of the concession. Group intends to seek compensation from relevant contractors and suppliers.
*Advanced Integrated Manufacturing: Acquired a minimart in Hougang for $0.3m.
*Qian Hu: Issued profit warning for 4Q15.
A slew of economic data will be released today, which includes the services PMI for Japan and China before noon, followed by US ISM non-manufacturing data and factory orders in the evening.
Regional bourses opened generally lower in Japan (-0.02%), Korea (-0.3%) and Australia (-0.8%).
From a chart perspective, the STI sees immediate resistance at 2,860 (20-dma), with support at the 2,810 region.
Stocks to watch
*SPH Reit. 1QFY16 results came in line with estimates. DPU was stable at 1.33¢, despite a climb in distributable income to $35.3m (+3.8% y/y), due to a reduction in income distributed to 95.4% (1QFY15: 98.4%). Gross revenue and NPI grew 2.9% and 5.9% to $52.1m and $40.1m respectively, driven by rental uplifts at both Paragon and Clementi Mall, as well as savings from property expenses. Occupancy dipped to 99.8% (-0.2ppt), while aggregate leverage was maintained at 25.7%. NAV/unit at $0.94.
*Ascendas Hospitality Trust: Market observers cited a handful of interested parties keen on a buy out of the REIT, comprising a mixture of funds and companies. Market watchers expect a potential deal pricing at ~1.1x P/B, which translates to $0.792/unit, based on end-3Q15.
*SGX: Intends to introduce sustainability reporting on the environmental, social, and governance aspects of business on a comply or explain basis. It is currently seeking public opinion till Feb ‘16 with the new set of rules and guides to apply to reports published in CY18 onwards.
*QT Vascular: Disclosed that the first-in-human study of its drug-coated balloon, Chocolate Heart, has demonstrated promising early results for the treatment of patients with de novo coronary disease.
*Cordlife: Received valid acceptances of an aggregate 82.24% for its proposed acquisition of remaining shares in Bursa-listed Stemlife.
*Spackman Entertainment: To release its action-comedy movie, Chasing, in Korea on 7 Jan.
*OKH GLOBAL: Disclosed that CEO and Executive Chairman Bon Ween Foong was issued an Interpol Red Notice, citing that he is wanted by Indonesian authorities in connection with a charge of “providing false statement for official document". Bon has vehemently denied the charge.
*Polaris: Indonesian associate Trikomsel has launched Osmo smartphone, which is a locally produced smartphone in collaboration with Advan, in a bid to expand market share in the country.
*New Silkroutes Group: Extended the long stop date for the proposed disposal of Digiland (Thailand) and Infonet Systems and Services from 31 Dec 2015 to 30 Jun 2016.
*Renewable Energy Asia: Its Phase 2 20MW power plant in China has been unable to reach optimum capacity due to the incomplete installation of cells, which could lead to potential losses of income and cancellation risk of the concession. Group intends to seek compensation from relevant contractors and suppliers.
*Advanced Integrated Manufacturing: Acquired a minimart in Hougang for $0.3m.
*Qian Hu: Issued profit warning for 4Q15.
Tuesday, January 5, 2016
Riverstone
Riverstone(S$2.44): More capacity growth to come
DBS Vickers reiterated its Buy call on Riverstone and lifted its TP, as it sees more room for capacity growth.
The house touts that the glove maker may be able to grow capacity faster than expected amid its recent acquisition of a 9.4 acre land for the construction of a factory and worker hostels.
This comes on top of the group’s initial plan to double annual capacity from 4.2b gloves in 2014 to a minimum of 8.2b gloves by 2018, which could more than double its earnings to RM172m in FY17 from the RM71m in FY14.
Strong performance reported in most of 2015 is also expected to be sustained in the 4Q, as the group continued to enjoyed low raw material prices, robust demand, a strong USD against MYR, and a 13% boost in annual capacity to 5.2b gloves amid the commissioning of three additional production lines in 3Q.
Consequently, top and bottom line for the quarter ending Dec are expected to jump by 56% and 62% respectively, and this could elevate 2015’s net profit by 77% to RM 126m.
Valuation wise, the house raised its target valuation multiple to 20x of FY16/17 P/E from 18x previously, as it noted larger peers have re-rated to 31x 2015 forward P/E.
As a result, the broker maintained its Buy call on the counter, and bumped up its TP to $2.83 from $2.49.
DBS Vickers reiterated its Buy call on Riverstone and lifted its TP, as it sees more room for capacity growth.
The house touts that the glove maker may be able to grow capacity faster than expected amid its recent acquisition of a 9.4 acre land for the construction of a factory and worker hostels.
This comes on top of the group’s initial plan to double annual capacity from 4.2b gloves in 2014 to a minimum of 8.2b gloves by 2018, which could more than double its earnings to RM172m in FY17 from the RM71m in FY14.
Strong performance reported in most of 2015 is also expected to be sustained in the 4Q, as the group continued to enjoyed low raw material prices, robust demand, a strong USD against MYR, and a 13% boost in annual capacity to 5.2b gloves amid the commissioning of three additional production lines in 3Q.
Consequently, top and bottom line for the quarter ending Dec are expected to jump by 56% and 62% respectively, and this could elevate 2015’s net profit by 77% to RM 126m.
Valuation wise, the house raised its target valuation multiple to 20x of FY16/17 P/E from 18x previously, as it noted larger peers have re-rated to 31x 2015 forward P/E.
As a result, the broker maintained its Buy call on the counter, and bumped up its TP to $2.83 from $2.49.
Property
Property: 4Q15 URA private property prices fell 0.5% QoQ, representing a ninth consecutive quarter of decline and a total price decline of 8.4% from its 3Q13 peak. While prime (CCR) declined 0.4% QoQ, both mid-market (RCR) and mass-market (OCR) saw flat prices QoQ. CS also note transactions in 2015 continued to be soft, and prices may have also been affected by lack of activity.
HDB resale prices saw the first QoQ increase since 2Q13, at +0.2% QoQ, bringing 2015 prices at -1.5% YoY. Headwinds are expected, however, with HDB planning to launch 18,000 new BTO flats in 2016, 20% higher than the 15,000 flats launched in 2015.
In 2016, CS expects private property prices to soften by 5-10%, which could subsequently lead to a re-calibration in property cooling measures in 2H16, most likely starting with adjustments in stamp duty measures.
House top pick is CDL (TP: $12.00). Further capital recycling could be a key rerating catalyst, with CDL best positioned for a turnaround in the Singapore residential market sentiment. Valuations remain attractive at 0.79x P/B (-1.4 SD from historical average).
HDB resale prices saw the first QoQ increase since 2Q13, at +0.2% QoQ, bringing 2015 prices at -1.5% YoY. Headwinds are expected, however, with HDB planning to launch 18,000 new BTO flats in 2016, 20% higher than the 15,000 flats launched in 2015.
In 2016, CS expects private property prices to soften by 5-10%, which could subsequently lead to a re-calibration in property cooling measures in 2H16, most likely starting with adjustments in stamp duty measures.
House top pick is CDL (TP: $12.00). Further capital recycling could be a key rerating catalyst, with CDL best positioned for a turnaround in the Singapore residential market sentiment. Valuations remain attractive at 0.79x P/B (-1.4 SD from historical average).
Banks
Banks: Total system loan growth for YTD Nov 2015 came in at 1.4% (Nov 2014: 9.1%). Overall loan growth was dragged by the contraction in business loans, compensated by growth in property loans. YTD Nov 2015, business loans fell 2.3%, consumer loans rose 2.4%, while property loans increased 9.7%. CIMB expects loan growth in the low-single-digit range in 2015-16 due to weak loan demand.
House believes the banks’ consumer loan books remain sound. Mortgages continue to see benign credit quality. As of 3Q15, system mortgage NPL was at 0.4% (DBS: 0.2%, OCBC: 0.5%, UOB: 1.0%). CIMB is more concerned with the banks’ exposure to commodities, especially second-tier oil & gas services firms, and a slowing ASEAN.
For DBS and OCBC- even with CIMB's bearish assumptions for FY16 (3-5% below consensus)- House thinks that ROEs still justify COE, which makes them good value at the current 1x CY16 P/BV. OCBC remains its most preferred stock for potential synergies from its WHB acquisition and opportunities to monetise non-core assets.
House believes the banks’ consumer loan books remain sound. Mortgages continue to see benign credit quality. As of 3Q15, system mortgage NPL was at 0.4% (DBS: 0.2%, OCBC: 0.5%, UOB: 1.0%). CIMB is more concerned with the banks’ exposure to commodities, especially second-tier oil & gas services firms, and a slowing ASEAN.
For DBS and OCBC- even with CIMB's bearish assumptions for FY16 (3-5% below consensus)- House thinks that ROEs still justify COE, which makes them good value at the current 1x CY16 P/BV. OCBC remains its most preferred stock for potential synergies from its WHB acquisition and opportunities to monetise non-core assets.
United Engineers
United Engineers: Unrated report by UOB Kay Hian on the counter, citing that divestment is underway but hurdles still remain.
Over the last two years, UE has completed or proposed the disposal of more than $750m in assets. Post-disposal of non-core assets, the company is more of a property play with the jewel in the crown being UE Square, a mixed retail, office and serviced apartment development close to River Valley Road. Norman Ip’s recent appointment as Group Managing Director further justifies the company’s intentions to focus on the property aspect of the business given his membership in the Building and Construction Authority and background in real estate.
Over the years, UE has steadily built up a portfolio of well-located properties across prime real estate in Singapore. The most recent acquisition of UE BizHub West is included in the Southern Waterfront City highlighted in the Singapore government’s 2030 Land Use Plan. Property rental formed about 7.5% of FY14 revenue.
Despite not having a formal dividend policy in place, UE has a good track record of paying dividends. From 2010 to 2014, the annual dividend yield ranged from 3.5% to 7.4%. For the same period, UEM consistently paid a first and final dividend of $0.05 per share with a special dividend declared each year.
In Aug 14, it was revealed that OCBC and Great Eastern Ltd were in talks to sell their stakes in UEM to Thai billionaire Charoen Sirivadhanabhakdi. During OCBC’s latest annual general meeting, the directors reiterated the intention to sell the stake in UE but only at the right price. OCBC and related companies own about 30% of UEM.
At the current price, UE is trading at 0.7x 2014A P/B with a dividend yield of 5%.
Over the last two years, UE has completed or proposed the disposal of more than $750m in assets. Post-disposal of non-core assets, the company is more of a property play with the jewel in the crown being UE Square, a mixed retail, office and serviced apartment development close to River Valley Road. Norman Ip’s recent appointment as Group Managing Director further justifies the company’s intentions to focus on the property aspect of the business given his membership in the Building and Construction Authority and background in real estate.
Over the years, UE has steadily built up a portfolio of well-located properties across prime real estate in Singapore. The most recent acquisition of UE BizHub West is included in the Southern Waterfront City highlighted in the Singapore government’s 2030 Land Use Plan. Property rental formed about 7.5% of FY14 revenue.
Despite not having a formal dividend policy in place, UE has a good track record of paying dividends. From 2010 to 2014, the annual dividend yield ranged from 3.5% to 7.4%. For the same period, UEM consistently paid a first and final dividend of $0.05 per share with a special dividend declared each year.
In Aug 14, it was revealed that OCBC and Great Eastern Ltd were in talks to sell their stakes in UEM to Thai billionaire Charoen Sirivadhanabhakdi. During OCBC’s latest annual general meeting, the directors reiterated the intention to sell the stake in UE but only at the right price. OCBC and related companies own about 30% of UEM.
At the current price, UE is trading at 0.7x 2014A P/B with a dividend yield of 5%.
SIA/Tigerair
SIA/Tigerair: In a bid to delist Tiger Airways, SIA is revising its initial offer price for Tigerair of $0.41/share to a final offer price of S$0.45/share. SIA also stated that it does not intend to revise the final offer price of $0.45/share. As such, the closing date for shareholders and PCCS (Perpetual Convertible Capital Securities) holders’ acceptances of its offer for Tigerair shares and PCCS is extended from 8 Jan 2016 to 22 Jan 2016, 5.30 pm.
As at market close yesterday, SIA has acceptances level for ~77.5% of Tigerair. While acceptance level must be more than 90% to be declared unconditional, SIA reserves the right to waive the condition or reduce to a level equal or less than 90%, subject to regulatory approval.
OCBC reiterates that sharesholders and PCCS holders should accept the offer, as it thinks the final offer price is attractive given the industry's muted outlook.
As at market close yesterday, SIA has acceptances level for ~77.5% of Tigerair. While acceptance level must be more than 90% to be declared unconditional, SIA reserves the right to waive the condition or reduce to a level equal or less than 90%, subject to regulatory approval.
OCBC reiterates that sharesholders and PCCS holders should accept the offer, as it thinks the final offer price is attractive given the industry's muted outlook.
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