DBS Equity Research: Wired Daily 2 July 2015

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DBS Equity Research: Wired Daily 2 July 2015

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Publish date: Thu, 02 Jul 2015, 04:10 PM

Del Monte Pacific - Earnings at inflexion point; projecting strong turnaround in FY16. Upgrade to BUY,

TP S$0.50

Mapletree Logistics Trust - Beating our acquisition estimates; upgrade to BUY, TP raised to S$1.31

We upgrade Del Monte Pacific to BUY, from HOLD, with a 31% upside to our TP of S$0.50. Following the acquisition of US-based Del Monte Foods Inc. (DMFI), DMPL has posted two consecutive years of losses arising from transaction charges, acquisition-related expenses, and high interest expenses amid a softening US business. These are now behind us and we expect DMPL to post a turnaround in FY16F to register a net profit of US$52m. We expect rerating and valuation discount gap against peers to narrow as performance materialises. We currently only pegging to a conservative 12x PE target. Risks exist but low valuation for a well-known brand seems too attractive to ignore.

We upgrade our Call on Mapletree Logistics Trust to BUY from HOLD and raised TP to S$1.31 (Prev S$1.29). Recent acquisitions have placed the trust back on a growth path with more to follow. Yields are attractive at >6.5%, with upside of 16%. Australia is a new growth market, with the recent acquisition of a cold warehouse in Sydney. MLT has demostrated the ability to divest lower yield properties in Singapore and Japan. Proceeds from these divestments can be redeployed to higher yielding and acquisitions with brighter growth prospects.

Ascott Residence Trustis expanding its footprint to the US by acquiring the 411-key Element New York Times Square West hotel located in Midtown Manhattan for US$163.5m (approximately S$220.7m). The accretive acquisition at an EBITDA yield of 6.2% is expected to increase Ascott Reit's distribution income in FY 2014 by US$0.8m, translating to a rise in distribution per unit from 8.44 cents to 8.51 cents on a pro forma basis. This acquisition comes hot on the heels of Ascott Reit's purchase of three quality serviced residences and four rental housing properties in Australia and Japan.

JTC Corporation has awarded, via an open tender, a S$277.3m building contract for the development of JTC Space @ Tuas to Tiong Seng. JTC Space @ Tuas will be a firstof-its-kind integrated industrial facility comprising a multiuser industrial facility, amenity centre, heavy vehicle parking facilities and workers' dormitory at Tuas Avenue 1. Tiong Seng's new contract win updates order book to approximately S$1.5bn, extending to 2020.

Figtree Holdings has secured a S$65m contract to design and build a state-of-the-art logistics hub in Singapore. With this contract, its design and build order book will be increased to approximately S$142m.

In property news, prices of both private and public housing continued their slide in the second quarter of this year, albeit at smaller magnitudes compared to a quarter ago. The second-quarter flash index of the Urban Redevelopment Authority (URA) showed an overall 0.9% drop for private homes after a one per cent decline in the first quarter; the flash index of the Housing & Development Board (HDB) showed HDB resale prices slipping 0.4% in the second quarter, after a one per cent drop in the first quarter. This marked a seventh straight quarter of decline for private homes and an eighth for HDB resale flats. But the consensus among consultants is that it is too early to conclude that prices have stabilised.

The price falls in non-landed private homes were seen across all regions in the second quarter. In Core Central Region (CCR), prices slipped 0.5%, higher than the 0.4% decline in the previous quarter. Prices of non-landed private homes in city fringes or Rest of Central Region (RCR) fell 0.5%, smaller than the 1.7% fall in the previous quarter. In the suburban areas or Outside Central Region (OCR), prices slipped 1.2%, after a 1.1% decline in the first quarter.

China's manufacturing sector showed some sign of stabilising in June. The official manufacturing purchasing managers' index (PMI) stood at 50.2 in June, unchanged from the previous month. The final HSBC PMI came in at 49.4 last month, below a preliminary reading of 49.6 and slightly above the 49.2 recorded in May. However, the contraction was slower than in previous months, offering some signs that the economy could well be slowly levelling out.

U.S. stocks rose and bond yields rose amid optimism that Greece will work out a solution to its debt crisis. Ahead of its referendum on creditors' demands this Sunday, Greece offered to accept certain terms needed to end its standoff with creditors. A better-than-expected June ADP employment change (actual 237k, consensus 218k) lifted optimism about the official employment numbers scheduled for release later tonight. Consensus expects June non-farm payrolls to register 233k. WTI crude fell after data showed crude stockpiles increased.

Source: DBS

Del Monte Pac (D03)Mapletree Log Tr (M44U)Figtree (5F4)

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