Highlights

SGX Stocks and Warrants

Author: kimeng   |   Latest post: Wed, 19 Sep 2018, 09:34 AM

 

CapitaLand Limited: Acquisition of 16 Multifamily Properties in the US for US$835m

Author: kimeng   |  Publish date: Wed, 19 Sep 2018, 09:34 AM


CapitaLand has acquired a portfolio of 16 freehold multifamily properties in the US for US$835m (~US$220k per unit), comprising of 3.8k apartment units in suburban communities around Seattle, Portland, Greater Los Angeles, and Denver. These Class B properties have an average occupancy of 90% with an average length of stay of two years and a 50-60% tenant retention rate.

Management guided that they intend to renovate two-thirds of the units (requiring a capital expenditure of ~US$50m) and thereby charge higher rates in the future. We see this diversification into a new asset class as being in line with CapitaLand’s strategy to build a resilient portfolio.

Maintain BUY with a fair value of S$4.09.

Source: OCBC Research - 19 Sept 2018

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China Property: Not So “tarrifying”!

Author: kimeng   |  Publish date: Wed, 19 Sep 2018, 09:33 AM


  • Opportunities from tighter credit
  • Real estate still a bastion of the economy
  • Limited impact from trade tensions

Market Consolidation Still Afoot

Looking at the latest numbers from the National Bureau of Statistics (NBS), the sales value growth of commercial buildings in Aug18 slowed to 15.2% YoY, easing off from the 17.1% and 22.0% YoY growth registered in Jun18 and Jul18, respectively. Looking more broadly at 8M18, the sales value growth was at 16.4% YoY, which was notably lower than the 34.9% YoY growth achieved by the listed developers that we track. This is unsurprising, as we continue to expect that the bigger (listed) players will grow at the expense of the smaller (unlisted) ones.

Interestingly, based on our channel checks, we understand that a number of public land auctions have either failed or have seen significantly fewer bids, as small developers face tighter credit constraints. In 2H18, as auction prices become more palatable, we believe land banking opportunities, through such an avenue, should now present themselves to the developers under our coverage.

Big Sector Crackdown Coming? Just a Moment…

Destocking remains apparent, with inventory down 13.6% YoY on a 8M18 basis. Separately, implied average selling prices (ASP) continue to remain on the ascent, growing 10.1% YoY. In our opinion, while a large-scale roll-back of the current restrictive housing policies would be unlikely, we could see selective policy adjustments on a city-by-city basis.

A sharp drop in ASP would, in our opinion, be negative towards buyer sentiment, thereby putting a dampener on new starts and consequently, reducing real estate investments. Given the broader macro concerns, we believe that the central government would want to avoid such a scenario.

As for the much talked-about tax laws, we note that in the Standing Committee of the 13th National People’s Congress’ (NPC) 5-year legislative plan, the real estate tax law has been listed as one of the 69 Class I projects which are planned to be submitted for deliberation. We would not rush to conclude that the property tax law is a done deal, as this was also listed as a Class I project under the Standing Committee of the 12th NPC.

Trade War Impact Overblown

We think that concerns stemming from the RMB depreciation are probably overdone. Based on our estimates, we think that a 5% RMB depreciation against the USD should result in a 0.4% - 1.2% drop in blended FY18F/FY19F earnings arising from an increase in interest servicing burden, excluding any FX losses, for the HK-listed developers under coverage.

The sector is trading at 5.0x forward P/E based on Bloomberg consensus, near the troughs of 2011 and 2014 which had headwinds (declining housing prices, supply glut) that are absent in this cycle. We continue to reiterate our top picks of KWG Group (1813 HK) [BUY, HK$12.50] and Longfor Properties (960 HK) [BUY, HK$26.17].

Source: OCBC Research - 19 Sept 2018

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SATS Ltd: Embracing Technology and Innovation

Author: kimeng   |  Publish date: Tue, 18 Sep 2018, 11:15 AM


  • Price correction in line with market
  • Investing for the future
  • Increasing dividends over the years

Share Price Has Corrected Along With Broader Market

Amidst all the concerns about trade tensions between the US and China, investors have been wary and this has been reflected in the share market. Indeed, along with the weakness in the broader market, the share price of SATS Ltd has dropped by about 7% from its recent peak in end Jul compared to the STI’s 6% drop over the same period. Its gains of as high as 13% in the earlier part of this year have been erased and the stock is now down about 5% YTD.

Systematically Automating More of Its Business Areas

Business strategies are for the longer term, and SATS is poised to benefit from growth in global air passenger and cargo volumes along with increasing demand for travel and related services. With regards to this, SATS has been turning to automation and technology to increase productivity and reduce reliance on manpower costs.

In Aug 2016, the group announced that it was investing in a new production line that would enable mechanisation of up to 50% of certain kitchen operations in anticipation of increased regional demand. In Apr 2017, SATS unveiled a new eCommerce AirHub, a S$21m facility cofunded by CAAS to enhance Changi’s eCommerce mail sorting capability to support the growing eCommerce market.

The group has been systematically deploying technology to different parts of its business and is now focusing on gateway services and ground handling services. For instance, SATS is testing a remote-controlled vehicle that can collect luggage from a plane and transport it to the baggage handling area in as little as 10 minutes.

Good Track Record Instils Confidence

The stock is currently trading at about 20.5x forward P/E and we note that 20x is the lowest the stock has traded since Aug 2016; the peak was 24.5x in Jan this year.

Meanwhile, the group’s ROE has increased from 12.8% in FY14 to 16.2% in FY18 and its dividend has also increased by S$0.01/share each year from S$0.13/share in FY13 to S$0.18/share in FY18.

The 3.85% dividend yield is also decent with growth prospects. We maintain our FV of S$5.39.

Source: OCBC Research - 18 Sept 2018

Labels: SATS
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Sino Biopharmaceutical Ltd (1177 HK): Succumbing to Uncertainties

Author: kimeng   |  Publish date: Mon, 17 Sep 2018, 01:05 PM


  • Price is down 20% YTD
  • Near term uncertainty
  • Initiate with HOLD with FV of HK$7.55

China Healthcare Shares Dived…

Healthcare-related companies have underperformed YTD despite stellar gains seen as recent as May 2018. The MSCI China All Shares Healthcare Index is down 13.0% YTD, and down 30.4% from this year’s high in end May. While this is in line with the MSCI China Index, down 13.1% YTD and 24.8% from year’s high, it fared worse than most markets and sectors. As an indication, the MSCI Asia Ex Japan index is down 10.3% and 18.0% from year’s high.

SBP Suffered Big Hit; Centralised Procurement Hurting Outlook

Sino Biopharmaceutical’s (SBP) shares erased all gains this year and are currently down for the year. At the peak, SBP’s shares were up 51%. Since June, heavy selling brought the shares to -20% YTD. Apart from broader market weakness, sector specific factors also affected the stock.

The main reason for last week’s sharp decline was news that 33 drugs that have passed the Quality Consistency Evaluation (QCE) have been placed under the Centralised Procurement Pilot Project. 11 cities will pilot this project. Under this proposed scheme, the winner(s) will have a 70% share of the total market for that drug in these cities. This could potentially mean that these drugs will become high volume, thin margin products.

Of the 33 drugs, SBP has 4 products in the list. While the outcome and financial impact on SBP is still unclear at this moment, the likelihood is that generic drugs are headed for more price cutting pressure ahead. This environment will favor companies with more innovative and patented drugs.

Valuation Reverting Back to Historical Average

At the recent high, valuation for the stock was as high as 53x. With the recent correction, it has come down to a more reasonable level of about 31x FY18 estimated earnings. Based on the 5- year average of 28x earnings, our fair value estimate for the stock is HK$7.55.

Source: OCBC Research - 17 Sept 2018

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CapitaLand Commercial Trust: Extends Lease With HSBC at 21 Collyer Quay by a Year

Author: kimeng   |  Publish date: Thu, 13 Sep 2018, 09:27 AM


CapitaLand Commercial Trust (CCT) announced yesterday that it has signed a one-year lease extension for its entire 21 Collyer Quay property with HSBC. The new lease will commence on 30 Apr 2019, with total rent payable by HSBC amounting to S$27.7m.

Although the extension is only for a year, we see this as a slight positive, as it removes the near-term uncertainty over whether HSBC would be vacating the building when its previous lease expires in Apr next year. Furthermore, based on our calculations, the new rental rate translates to ~S$11.51 psf/month, which is higher than the S$8.48 psf/month currently being paid by HSBC.

Looking further ahead, CCT highlighted that it is evaluating options for the property after 2020. This includes i) refurbishment and re-letting, and ii) redevelopment and divestment.

We see a third possibility, which is a further two-year lease extension closer to the expiration of this new lease, as HSBC may potentially consider moving its premises to the upcoming Central Boulevard site which is expected to come on-stream in 2022.

Maintain HOLD with a fair value estimate of S$1.69.

Source: OCBC Research - 13 Sept 2018

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SG Industrials: Stick With the Winners

Author: kimeng   |  Publish date: Thu, 13 Sep 2018, 09:27 AM


  • Conglos/yards – YZJ, SCI outperform
  • Transport – only CD is up YTD
  • Increasing dividends – CD and SATS

Conglos/yards Space – YZJ Rebounds From Trough

We are now reaching the third quarter mark of this year and it is worthwhile to take stock of companies under our coverage so far. In our local conglomerates/yards space, all stocks (Keppel Corp, Sembcorp Industries (SCI), Sembcorp Marine (SMM), Yangzijiang Shipbuilding (YZJ)) are down YTD, with more volatility seen for YZJ and SMM.

YZJ is down 22% YTD, underperforming the rest, but if we look at the stock’s performance since mid Jul (close to trough for the market and prior to most companies’ 3Q results release), it has appreciated by 34%, outperforming most local stocks by a wide margin.

At current levels, it is up 26% since our 8 Aug report, “All aboard!” and up 15% since our upgrade to BUY in mid Jun. That upgrade proved a little early, but likewise we have never professed to be perfect on market timing.

Still, at current levels, we see further upside for the stock with a weak RMB and confidence that it will hit its new order target for this year.

Another outperformer since mid Jul is SCI, Which Is Up 14%, Aided by a Turnaround in India Operations Amidst a Tightening Power Market.

Transport-related Names – Only ComfortDelgro Is Up YTD

Among transport-related names (ComfortDelgro (CD), SIA, SATS, SIA Eng), all are down YTD except for ComfortDelgro, which is up 14%, aided by a rally in Apr-May. Aviation names SIA and SIA Engineering are the main underperformers YTD, down 10% or less. In general, this has been a rather stable sub-sector with relatively less volatility.

Investors looking for names with good dividend yields and some growth prospects over the long term as well could consider ComfortDelgro which offers a 4.6% yield at current levels, as well as SATS which has been increasing its dividends by S$0.01 per year since FY13. Based on last year’s S$0.18/share, there is a 3.6% yield at current levels.

SIA and SIA Engineering also offer dividend yields of 4.2% and 4.4% based on last year’s dividend figures, but we note that there is relatively less consistency compared to ComfortDelgro and SATS which have been increasing their dividends over the years.

Source: OCBC Research - 13 Sept 2018

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