DBS Equity Research: Wired Daily 30 Oct 2015

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Publish date: Fri, 30 Oct 2015, 04:29 PM

CITIC Envirotech - Earnings fell on drop in 3rd party EPC operation

Keppel DC REIT - Data centre acquisition an accretive deal with many positives

CITIC Envirotechreported a 17%/54% drop in net profit for 3M/6M ended Sept 2015. Drop in 3rd party EPC operation was the major reason for the disappointing results. Despite the disappointing quarterly results, we expect a rebound in the coming quarters. First, Chengdu Xingrong project has already started and the corresponding EPC revenue should kick in. Second, the internal restructuring and integration process is closed to complete and acceleration of deal flow should be expected. To reflect the above results and adjust for the change of year end (from Mar to Dec), we have cut our FY15 estimates by 49%. FY16 earnings projection is also lowered by 15%. TP is adjusted down to S$1.60, based on 15x FY16 3rd party EPC earnings (adjusted to strip out construction revenue of BOT projects), 40x for treatment services and 18x for membrane sales. Maintain Buy.

IndoAgri reported a 3Q15 net loss of Rp154bn - below Rp38bn expected. Sugar sales volume was half of our forecast due to timing issues. Earnings were also weighed down by 4% y-o-y drop in CPO sales volume, 16% yo-y lower CPO ASP; Rp322bn in FX losses, and losses from CMAA JV. Excluding translation FX losses, IndoAgri booked 3Q15 underlying earnings of Rp129bn (-49% y-o-y) - below Rp215bn expected. We raised our DCF estimate by 13% to S$0.52 and maintain our HOLD rating. We believe prospective drop in output, export levies, and export taxes would continue to weigh on earnings - despite potential recovery in 1Q16 CPO prices on reduced global inventory.

Keppel DC REITannounced the signing of a forward sale and purchase agreement with mainCubes One Immobilien GmbH & Co. KG to acquire a data centre (maincubes DC) that will be fitted out to Tier III specifications, which is expected to complete in 2018. The purchase consideration is EUR84m (S$130m), 2.5% discount to valuation. We see many positives in this acquisition with (i) an attractive initial yield of 7.15% which will be immediately accretive to distributions, (ii) substantially derisking any development risk to the vendor during construction period of which Keppel DC REIT will receive 7.15% coupon in return during the period, (iii) an increase in portfolio WALE from 8.9 to 10.0 years, offering increased income visibility. DPU is estimate to rise 2.7% on a proforma basis. Keppel DC REIT continues to utilise its under-geared balance sheet and deliver on the acquisition front and we see more earnings upside in the medium term upon the expected acquisition of its data centre in SG from its sponsor. Maintain BUY.

In the Fifth Plenary Session of 18th CPC Central Committee, China will allow all couples to have two children, to directly tackle China's aging population issue and bringing the onechild policy to an end. Our HK Research team says this is not surprising and has been highly anticipated by the market.While the policy relaxation should help birth rate, the impact should likely come gradually. In the last policy change in Nov-13, couples were allowed to have a second child if either of them is an only child nationwide (whereas previously if both parents are single-children, they are able to have one more). In 2014, c.11m couples met the requirements to have a second child, yet approximately 700k applied to do so. As economy expands, there are also more cost concerns on raising a second child in China.

Source: DBS

Keppel DC Reit (AJBU)Indofood Agri (5JS)

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