DBS Equity Research: Wired Daily 13 Oct 2014

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Publish date: Tue, 14 Oct 2014, 09:56 AM

Preview of S-REITs' 3Q14 data-points - TP adjusted by +3% to -11% after incorporating new estimates. Picks: CMT, FCT, FCOT, Cache, Magic

United Envirotech - Near term operational weakness could cap share price; downgrade to HOLD, TP revised down to S$ 1.23

Stocks are expected to start the session lower amid rising worries the strength of the global recovery and the risk of yet another recession in Eurozone. Still, we maintain our view for STI to find support and sees bargain hunting opportunities at c.3200 (i.e. 3180-3220) heading into the 3Q results season, despite the current market whipsaws and volatility. STI currently trades below 13.7x (ave) 12-mth forward PE. At 3180, it would be at just 13.3x (-0.25SD) 12-mth forward PE. This is attractive based on the index's current EPS growth forecast of 8.4% for FY14F and 8.8% for FY15. With investors' 'flight to safety', yield and SREITs are expected to outperform.

SPH REIT will kick-start the 3Q14 results season for Singapore REITs on 13th Oct'14 and its results should remain consistent. Data-points that we are on the lookout for include:

(i) Retail REITs should continue to remain resilient despite headwinds for retail, driven by completed acquisitions/developments from the likes of FCT/CMT. Tenant occupancy costs trends will be key and might provide us with an insight into tenant health,

(ii) For office REITs, we are looking at reversions in the range of 10-15%, as the market rises on the back of limited competitive supply,

(iii) Industrial REITs are expected to continue reporting moderating positive rental reversions to the tune of 10-12%, as expiring rents catch up with market levels which have remained stagnant since last year. Retention rates will be a focus for industrial landlords among a deluge of competitive supply, and (iv) For hospitality SREITs, we expect a seasonal pick-up in volumes and occupancies in 3Q14 but remain cautious on a convincing turnaround in visitor arrivals and guidance for corporate RFP rates for 2015.

Our target prices are adjusted by +3% to -11% after incorporating new estimates (FX updates/valuations). Top picks are: Capitamall Trust (Upgrade to BUY, TP: S$2.12), Frasers Centrepoint Trust (TP: S$2.04), Frasers Commercial Trust (TP: S$1.42), Cache Logistics Trust (TP: S$1.37), Mapletree Greater China Commercial Trust (TP: S$1.04). We have also upgraded CDL Hospitality Trusts to BUY, TP: S$1.80.

United Envirotech (UENV) has set up a 49%/51% JV company with Chengdu Xingrong Investment, an SOE, to undertake EPC work for a MBR plant in Sichuan with 1m m3/day of water treatment capacity. EPC value for the first block is >Rmb1.5bn including Rmb300m worth of membrane sales from Memstar. This project which is expected to commence immediately, would add S$6-7m to UENV's bottomline. We have cut FY15/16F earnings by 27-30% on the back of weak membrane segment and higher finance costs. Near term operational weakness could cap share price; downgrade to HOLD on limited upside to revised target price of S$ 1.23 (Prev S$ 1.66). Upside risks are huge contract wins or completion of M&A deal.

SembCorp Marine has secured a US$696m contract to convert a shuttle tanker into a floating, production, storage and offloading (FPSO) vessel for OOGTK Libra GmbH & Co KG, a joint venture between Brazil's Odebrecht Oil & Gas and Teekay Offshore. Scheduled for completion in 3Q16, the FPSO will have the capacity to produce 50,000 barrels of oil per day and 4m cubic metres of natural gas per day. It has a 12-year back-to-back charter with Petrobras for work on the Libra field in the ultra-deepwater section of Brazil's Santos Basin. With this contract, SMM's YTD win is lifted to S$3.66bn, representing 73% of our full year assumption. No change to our BUY recommendation and target price S$4.82.

Yomaannounced that it will be Yum! Brands franchise partner to bring the first KFC restaurant to Myanmar in 2015. KFC is among the first handful of fast food restaurant chain with plans to enter the Myanmar market. Yoma did not disclose investment details nor earnings expectations of this franchise at this stage. But, we are positive that Myanmar's close to 6m urban population would contribute profitably to KFC outlets rather quickly. No change to our Buy recommendation and TP of S$0.88. Yoma's share price has drifted downwards along with the general market weakness. Investor with longer term horizon can consider buying on weakness. Catalysts for the stock includes 1-for-3 rights issue (we estimated conclusion by end of this year) and further positive development of its Landmark project or Myanmar's economic development, which lately has seen some progress with issuance of banking license to foreign banks.

For the month of September 2014, Tigerair Singapore recorded a 6.8% y-o-y increase in traffic to 759 million revenue passenger-kilometres (RPK), while capacity increased by 1.1% to 927 million available seat-kilometres (ASK). Consequently, y-o-y passenger load factor increased by 4.4 percentage points to 81.9%. The number of passengers carried grew by 1.8% y-o-y to 398,000. For the 12 months to September 2014, Tigerair Singapore recorded a 10.8% y-o-y increase in traffic to 9.8 billion RPK, while capacity increased by 15.8% to 12.3 billion ASK. Consequently, passenger load factor was 3.5 percentage points lower at 79.4%. The number of passengers carried grew by 10.8% to 5.3 million, compared to 4.8 million in the previous period.

Boustead Singapore has been awarded three design-andbuild contracts in Singapore recently. The total value of the contracts could potentially reach S$137m, with the final value to be determined based on provisional design and engineering options. The latest contracts will raise the Boustead Group's order book backlog (as at the end of June plus new orders since) to over S$452m.

Smartflex Holdings proposed to issue up to 30m Placement Shares at S$0.12 per share. The Placement Price represents a discount of 2.3% to the last volume-weighted price. Net proceeds of about US$2.7m will be solely and exclusively for its working capital requirements.

EuroSports Global is expected to report a loss for the half year ended 30 September 2014, mainly due to a decrease in the sales of automobiles as compared to the corresponding period last year. With core inflation stubbornly above the 2% mark - exacerbated by a tight labour market, which continues to push wages higher, the market is expecting the Monetary Authority of Singapore (MAS) to stick to its current policy stance of a "modest and gradual" appreciation of the Singapore dollar. If the MAS does keep to that position on Tuesday when it announces its half-yearly monetary policy statement, this would mark the fifth review in a row in which no change is made to the policy band's midpoint, slope, or width.

US stocks fell Friday as the global recovery is called into question on worries that the Eurozone could slip into yet another recession. FED officials suggested over the weekend that the global slowdown could delay interest-rate increases. Higher US rates could be delayed by slowdowns elsewhere, Fed Vice Chairman Stanley Fischer said during the IMF meetings. Growth uncertainties led to a 'flight to safety' as bond prices and gold rose while equities and commodities fell. US 10-yr bond yield dipped to just 2.28% while the price Brent slid to USD88.8pbl, re-testing the June 2012 low.

Source: DBS

CapLand IntCom T (C38U)Frasers Cpt Tr (J69U)ARA LOGOS Log Tr (K2LU)Mapletree NAC Tr (RW0U)CDL HTrust (J85)Sembcorp Marine (S51)Boustead (F9D)Asia Vets (5RE)EuroSports Gbl (5G1)

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