DBS Equity Research: Wired Daily, 3 Oct 2014

kiasutrader

Publish date: Fri, 03 Oct 2014, 11:50 AM

ASEAN strategy - Go for defensive plays with yields, earnings visibility and near-term drivers. Our SGX-listed picks: Ascendas REIT, China Merchants Hldgs, Venture

In this month's ASEAN strategy piece, we prefer to go for defensive plays with yields, earnings visibility and near-term drivers. A confluence of macro events drive USD, bond yields and Fed rate hike expectations, some for and some against conventional wisdom, resulting in volatility as measured by VIX spiking from a low of 11.5 in August to 16.7 currently. ASEAN markets had held up better than the rest of the region, but appear vulnerable to the pricing of USD and US bond yields, and better US liquidity from QE and low interest rates. We expect volatility to persist into October, which is traditionally a vicious month for equity markets. Hence, we stay defensive. We are defensive in picking stocks with near-term drivers and yields to protect downside amid weak global sentiments.

Hence, we look for stocks with earnings visibility and find value in names supported by strong themes. For Singapore, our picks for the month are Ascendas REIT (BUY, TP $2.51), China Merchants Hldgs (BUY, TP: S$1.32) and Venture (BUY, TP: S$8.80).

Rex International has secured a first and ground-breaking contract with a reputed and large National Oil Company (NOC). The contract is expected to start in end 2014 and the contractual value is approximately US$10m if fully executed over the next 24 months. Rexonic will provide its unique environment-friendly, ultrasonic well stimulation technology on selected wells owned by the NOC.

Leading Thai investment conglomerates, Thoresen Thai Agencies (TTA) and PM Group to invest 9% and 3.77% respectively in Sino Grandness via private placement of 86m new shares at the placement price of S$0.61 per share. The placement price represents a discount of approximately 7.94% over the last volume weighted average price. Upon completion of the placement exercise, net proceeds of about S$50.5m will be used for capital expenditure, distribution network expansion and for general working capital purposes.

KS Energy had entered into a contract to provide drilling services and the charter of "KS Discoverer 1", the Group's 1,500HP onshore drilling rig. Work was expected to continue until the first quarter of 2015. However, due to the continuing unrest in Kurdistan and restricted/no access to the work-site for security reasons, the Client has recently issued a notice of termination of the contract. The Company will provide further updates in the event of any material developments.

Keppel Land is progressing into the next phase of developing a 37-storey office tower in Saigon Centre Phase Two, its landmark mixed-use development in Ho Chi Minh City (HCMC). Meanwhile, its retail podium, currently under construction, has achieved a pre-commitment of about 40%. Anchor tenant, Takashimaya, will house its first department store in Vietnam in the retail podium, taking up about 15,000 sm of retail space. Keppel Land holds a 45.3% stake in the development.

Sysma Holdings has secured a new contract to erect a two storey Detached Dwelling House at Maryland Drive. At a value of S$8.0m, construction is scheduled to take place over a period of 18 months starting from October 2014. With the inclusion of this new contract, current net order book stands at approximately S$78m.

In property news, close to one million sq ft of office space will become available next year when tenants move out of existing buildings to their new offices, according to DTZ. In addition, there is currently around 550,000 sq ft of shadow office space - space made available for subletting or reassignment by tenants - plus another 133,000 sq ft of shadow space expected to be released next year. All these supply sources will mitigate an anticipated supply gap next year. According to DTZ's calculations, there will be a net increase in office supply of only 159,000 sq ft next year. It arrived at the 159,000 sq ft figure based on the 826,000 sq ft of new office space expected to be completed in 2015 and factoring in the removal of existing stock from the office market at Equity Plaza (258,000 sq ft) and other buildings such as Keypoint in Beach Road (268,000 sq ft) and 2HR in Havelock Road (141,000 sq ft) for redevelopment or refurbishment.

Source: DBS

CapLand Ascendas REIT (A17U)Venture (V03)

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