Towards Financial Freedom
DBS Equity Research: Wired Daily 30 June 2015
Asian markets calmer today taking lead from the Euro STOXX indices and Euro
STI - 3270 held intact yesterday, July rebound remains possible, 3320 immediate resistance to overcome in
days/week
Frasers Centrepoint Trust - One of our top picks in the retail sector. Maintain BUY, TP S$2.20
Frasers Commercial Trust - Secure earnings with steady growth. Maintain BUY, TP raised to S$1.79
Asian equities are calmer this morning despite the nearly 2% decline in US equity indices last night in reaction to developments in Greece. The Nikkei, KOSPI and All-Ordinaries are currently modestly higher. Heightened uncertainty of a 'Grexit' affects the European region much more so than the rest of the world. Naturally, the equity indices to watch will be the Euro STOXX 50 or the STOXX Europe 600 and the currency to track is the Euro.
The Euro has been very calm, ending marginally higher against the USD at 1.1236. The European STOXX Indices, although down, held above their respective mid-June lows. In Asia yesterday, besides Greece, the continued decline in China's A-share market further dampened sentiment here. Although the SSEC fell below 4050 yesterday, there is a good chance it may have found support at the 3800 level. We peg a range from 3800 to 4500 in coming weeks.
The STI stayed above our stated 3270 level yesterday despite Greece. While investors sentiment over the next one week remains uneasy pending the outcome of the referendum in Greece, a rebound in July is definitely still possible. The situation in Greece remains fluid but the thinking is that financial markets are much better prepared now to handle a 'Grexit' compared to a few years ago. We had pegged 3220-3240 as the next support level for the STI should the 3270 level fails. The 3270 level remains intact so far, which is a good sign. The 3320 level is the immediate resistance to overcome. Technically, the ability to turn above the 3320 level in the days/week ahead will be another sign that calm has returned, pointing to a July rebound. We stay watch.
Frasers Centrepoint Trust is one of our top picks in the retail sector. We maintain our BUY recommendation, with TP of S$2.20. We believe that Causeway Point, which accounts for 46% of the Trust's net profit income, will continue to surprise on the upside and support price performance. FCT has near-monopoly of shopping malls in the north. Northpoint and Causeway Point together contribute c.75% of FCT's net property income. Despite slower reversions of 3.8% for 2QFY15, we are positive about underlying mall performance, and expect to see overall FY15 reversions of 6-7%. At its current price, FCT offers investors a dividend yield of 5.7% and 13% total return.
We have raised our DCF-backed target price for Frasers Commercial Trust to S$1.79 (Prev S$ 1.74) to account for earnings accretion from the acquisition of 257 Collins Street, and interest savings as the Trust pares down debt using its S$44.3m proceeds from the sale of the CSC hotel. At its current price, FCOT offers investors a dividend yield of 6.7-6.9%, which is compelling in our view. FCOT's portfolio enjoys a high occupancy of 96.5% and a long WALE of 3.9 years. In addition, >30% of leases have annual rental escalations of c.3%, which provides in-built income growth. With no debt expiring until FY17, and close to 80% of interest costs hedged into fixed rates, the Trust is well positioned to ride out the economic downturn in Australia, as well as near-term interest rate volatility. Maintain BUY.
Jardine Cycle & Carriage announced 1-for-9 rights issue at S$26 per share to raise US$768m. The rationale given for the rights issue is to repay loans of US$626m previously drawn down to fund its 24.9% stake in Siam City Cement in April this year, and for general corporate purposes including making strategic investments and/or acquisitions. A stronger balance sheet could pave the way for more acquisitions to boost its earnings streams. However, weak outlook for Astra International remains the key challenge for JC&C's near-term prospects. Upgrade to HOLD with adjusted TP of S$34.50 (Prev S$37.70).
We cut earnings and target price for Starburstto S$0.56 (Prev S$ 0.77). Delay in the award of contracts has led Starburst reporting a net loss of S$0.5m for 1Q15. We see another set of weak results in 2Q15, as contract flow in 1H15 has been slow. But 2H15 should be better, with the recent signing of LOI for a S$16.1m contract. We expect a strong recovery in FY16 and FY17 with the expected award of a few big contracts in the range of S$20m to S$60m. Maintain BUY.
Suntec REIT has entered into an agreement to divest Park Mall for $411.8m. Currently the property has an NLA of 247,148 sqft, and permission to develop an additional ~6,300 sqm (65,454 sqft) of GFA. Based on FY14 net property income (NPI) of $18.9m, this translates to NPI yield of 4.6%, and transaction price of $1,541 psf NLA. According to the Manager, estimated DPU impact based on pro forma FY14 numbers will be c.6%. Suntec REIT will subsequently take a 30% stake in a JV Co which will redevelop the property to a commercial development comprising two office towers with an ancillary retail podium. The remaining 70% stake will be equally divided between Singhaiyi Group and Haiyi Group (which is controlled by Gordon Tang).
Singapore's total value of completed merger and acquisition (M&A) deals may fall this year on the back of sluggish world trade volumes and China's economic slowdown, according to Baker & McKenzie. The Global Transactions Forecast report, conducted by the global law firm and Oxford Economics, predicts that Singapore's total value of completed M&A deals will dip from US$25.2bn in 2014 to around US$21bn in 2015 before peaking at US$25.5bn in 2018.
Source: DBS
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