DBS Equity Research: Wired Daily 3 July 2015

kiasutrader

Publish date: Fri, 03 Jul 2015, 04:04 PM

Singapore REITs - Limited impact on REITs from the conclusions of consultation paper.

Ascott Residence Trust - Acquires New York hotel for US$163.5m. Maintain BUY, TP raised to S$1.38

The Monetary Authority of Singapore (MAS) has delivered a firm message in their latest update to the REIT consultation paper that corporate governance and transparency remains high priorities and in the meantime, ensures that interests between unitholders and REIT managers/sponsors are aligned. Key topics include: 1) No changes in fee structures. The 1% and 0.5% fees payable to the REIT managers are maintained, as the alternative proposal to peg on a "cost recovery" basis might be too hard to justify; 2) Gearing limits reduced to 45%. MAS has done away the need for a credit rating and settle for a standardised lower gearing limit of 45%, which might be a little low. S-REITs have on average maintained gearing at c.34%; 3) Higher development limits of 25% to spark more growth. Development limits are raised to 25% (vs 10% currently) but this allowance is subject to specific approvals from unitholders and 4) M&A; internalisation of REITs. MAS might allow REIT managers to manage two REITs and the internal managers might add in the consolidation/internalisations in Singapore.

We see limited impact on S-REITs from the conclusions of this consultation paper. We like SREITs with visible growth and ability to surprise through higher earnings growth potential. Top picks are Frasers Centrepoint Trust, Frasers Commercial Trust, Mapletree Industrial Trust andMapletree Greater China Commercial Trust.

Ascott Residence Trust(ART) announced its first foray into the US with the acquisition of 411-key Element New York Times Square West hotel for US$163.5m (S$220.7m). This maiden US deal provides exposure to growing New York hospitality market and USD strength. We expect 2-5% accretion to FY15-16F DPU. Maintain BUY, TP raised to S$1.38 (Prev S$1.34).

FY15F/16F earnings for Japfa were cut by 29%/37% on lowered expectations for both live broiler and day-old chick (DOC) prices YTD. We also tempered our expectations on FY16F sales volumes for both broilers (-2%) and DOC (-2%). We expect weaker y-o-y Indonesia contribution in 2H15 on oversupply concerns, but proposed cut among industry players is a first step in tackling DOC oversupply. HOLD call maintained with lower TP of S$0.46 (Prev S$0.54).

Perennial Real Estate Holdings has entered into a 40-60 joint venture with Guangdong Boai Medical Group to acquire, develop and manage hospital/medical services business in China. Guangdong Boai Medical Group is a subsidiary of the China Boai Medical Group, one of the largest private hospital/medical services operators in China. The Joint Venture will acquire its first operational business, Modern Hospital Guangzhou, one of the leading tumour and cancer hospitals in Guangzhou. Perennial Real Estate Holdings will acquire a 40% stake in the joint venture entity for RMB286.7m (approximately S$63m).

Global Logistic Properties has signed new lease agreements totaling 58,000 sqm (624,000 sq ft) with four leaders in the e-commerce, retail and automotive industries. All of the customers cater to domestic consumption and three are multi-location GLP customers including JD.com, RT-Mart and a leading global automotive manufacturer.

BBR Holdings secures PPVC contract to construct student hostel at Nanyang Technological University. The project is scheduled to be completed in the second quarter of 2017. This contract win will bolster the Group's net order book, which stood at S$555m as at 5 May 2015.

Chiwayland International, a property developer in China, sets up fund management business as its investment arm. Investors will get to participate in various real estate projects and assets through investment in the real estate funds. The foray into fund management allows the Group to seize and ride on opportunities in the real estate sector to strengthen its earnings.

Geo Energy Resources, an integrated Indonesian coal mining group, has entered into a sales contract to supply 1.5 million tonnes of coal to BTG Pactual Commodities for one year commencing August 2015. This contract win will provide a lift to the Group's financial performance with a stronger order book.

Chinese shipbuilder JES International could be taking legal action against its former CEO and chairman Jin Xin, after it uncovered possible financial irregularities related to him.

Singapore's June PMI marked a second straight month of expansion, up 0.2 point to 50.4, accompanied by the return of electronics PMI to growth with a 50.3 reading, following five months in the sub-50 contraction zone. This was thanks to increases in new orders, production and inventory. Muted electronic export orders cast a shadow on the return to growth suggested by the electronics PMI, which rose 0.5 point from May's contractionary 49.8 reading, to June's 50.3.

US stocks fell as trading took on a reserved tone ahead of the Greece referendum this weekend. According to Bloomberg, a survey showed 47% of Greeks were leaning toward a "yes" vote on the July 5 referendum, an endorsement of austerity and the international bailout. The "no" camp, the government's position rejecting those terms, was 43%. The margin of error in the survey of 1,000 people was 3.1% points. Meanwhile, US June non-farm payrolls rose a lesser than expected 223k versus consensus expectations for 233k while the unemployment rate dipped to 5.3%. Quarterly earnings season begins in the coming week with Alcoa Inc. scheduled to report on July 8.

Source: DBS

Frasers Cpt Tr (J69U)Mapletree Ind Tr (ME8U)Mapletree NAC Tr (RW0U)BBR (KJ5)Geo Energy Res (RE4)JES Intl (EG0)

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