Friday, November 29, 2013

Mapletree Commercial Trust - Growth engine sputters

What Happened 
As VivoCity undergoes space reconfiguration to cater to several smaller anchor-tenants, we expect continual positive rental reversion to come through from this mall. During 2QFY14, MCT renewed/re-let 87% of the leases expiring in FY14, with a positive rental reversion of 37.1% and 23.4% for retail and office space, respectively. These leases are expected to underpin the growth of VivoCity in FY14. Looking ahead, with only 1.6% of retail leases to be renewed in FY14 (and 16% in FY15), coupled with a high portfolio occupancy rate of 98.9%, the mid- to long-term outlook for VivoCity remains clear.   
What We Think 
With its gearing of 40.8%, coupled with compressed cap rates within the commercial property space, we believe that it will be a challenge to find yield-accretive acquisitions in the near term. As the acquisition date of Mapletree Business City (MBC) is uncertain, we see MCT’s near-term growth as being limited to organic growth only.   
What You Should Do 
On the back of limited room to grow through further acquisitions, we believe MCT’s growth potential will be constrained. At this current level, we believe MCT is priced fairly given its resilient and stable portfolio. Upgrade to Neutral as we await meaningful catalysts.

Wednesday, November 27, 2013

IHH Healthcare - The good, the bad and the ugly

Charges peaking in S’pore 
3Q13’s core net profit was driven by growth at its new hospitals and savings in finance costs despite seasonal effects. The better numbers were offset by depreciation and finance costs relating to new hospitals that had to be recognised in the P&L after completion. The good news is that Acibadem Bodrum has achieved EBITDA breakeven.Last week, we mentioned that there was a bigger issue with peaking charges and revenue intensity in Singapore, rather than the decline in Indonesian patients. Indeed, Indonesian patient admissions jumped by 9% yoy in 3Q13, allaying fears of a weaker rupiah. The average revenue per inpatient in Singapore grew by only 1% from 2Q13, despite favouring S$-to-RM translation.  
Translational FX issue 
The balance sheet is still healthy given its savvy cashflow management and structured capex programme. Our main gripe is the uncertainties in FX translational differences in the income statement and balance sheet, which further blurred any meaningful comparisons across its markets.  
Maintain Neutral 
Although IHH should continue to benefit from growing private healthcare consumption and revenue intensity in all its three markets, improving entry points and fundamentals for its regional peers may provide investors with better short- to mid-term returns. As such, we keep IHH at Neutral. 

Tuesday, November 19, 2013

Monday, November 18, 2013

Suntec REIT - Maiden voyage

What Happened 
Suntec REIT announced recently, that it will acquire a 31-storey, A-grade commercial tower, located in the North Sydney’s CBD area, for a total price of A$413.19m (S$481.3m). The property, targeted for completion in early 2016, is expected to have a NLA of 423,915 sqft, 100% pre-commitment, with Leighton Group - one of Australia’s largest property development group, taking a head lease of 76% of property’s NLA with a weighted average lease to expiry of c.10 years. Concurrently, Leighton Holdings will also provide a four-year rental guarantee for any vacant space upon completion of the property. During the construction phase, the property will be underpinned by a coupon payment of 6.32% yield p.a and an initial yield of 6.89% upon completion. With the acquisition being funded via a S$500m facility management guided this transaction to be yield accretive, and will increase DPU by c.4.7%.   
What We Think 
Although we like this acquisition for its high yield, with SUN’s net gearing currently at 37.2%, we believe it could potentially rise to c.41.0% post acquisition (42.5% post-Phase 3 AEI at Suntec City). A higher net gearing and foreign exchange fluctuation exposure could potentially mitigate the uplift in DPU. In addition, based on our estimates, an initial yield of 6.89% translates to an expected rental rate of A$7psf/mth – higher than the average A$5-6psf/mth in downtown Sydney. Having said that, the true impact on risks and DPU will be clearer after the upcoming briefing. 

Friday, November 15, 2013

Global Logistic Properties - Start of China recycling engine

Rebound in China leasing 
Rental revenue from China warehouses rose 39% yoy in 2Q14, underpinned by a 6.9% increase in renewal rents. This drove overall revenues up 15% yoy in 1H14, excluding the effect of recent divestments in Japan and exchange rate movements. Same-store NOI growth moderated but stayed a respectable 7.8% yoy. The key positive from this set of results was the strong leasing in China, up 60% yoy and 2.8x qoq to 575k sm. 1H14 new leases of 775k sm are keeping pace with the 1.1m sm of development starts in the period. GLP is confident of meeting its 2.5m sm development starts target for FY14.   
Japan rents up 3% yoy 
Occupancy in Japan remains stable at 99%, with renewal rents up 3% yoy, the highest rate seen in years. Japan still accounts for 29% of its GAV.   
CLF1 the start of recycling engine in China 
CLF1 will have an investment capacity of US$3bn at 50% LTV and will be GLP’s vehicle for new logistics development projects in China. GLP will manage the fund and retain 56% stake, allowing it to enjoy development and fee upside (AUM now at US$11.4bn). Asset values in its China portfolio can be crystallised too. GLP will provide a seed portfolio of US$350m (NAV of US$339m). In modern warehouses, GLP is 8x the size of its next competitor. This move should help it pull away from the pack. We expect more funds to come. China makes up 60% of GLP’s GAV. 

Thursday, November 07, 2013

Singapore Announces Lofty Ambition to Become Insurance Hub

Singapore aims to become a global insurance marketplace by 2020, said Monetary Authority of Singapore (MAS) managing director Ravi Menon in his keynote speech at the 12th Singapore International Reinsurance Conference on today.
This is an interesting time for the insurance industry, noted Mr Menon.
“Underwriting results are being pressured by a combination of sluggish economic growth, softening rates, and rising claims,” commented Mr Menon. “Investment returns are being depressed by the low interest-rate environment. Regulatory and capital requirements are being tightened as the world shifts toward risk-based regimes like Solvency II.”
At the same time, there are opportunities as much of the world remains under-insured.
By 2020, Asia is likely to account for almost 40 per cent of the global insurance market.
The factors driving Asia’ demand are an ageing population; a geographical area that is highly prone to natural catastrophes; and a growing economy.
Presently, Singapore is recognised as the leading reinsurance hub in Asia. Among the top 25 reinsurers in the world, 16 have regional hubs here.
Since 2000, offshore business has been on a steady uptrend, growing an average of 13 per cent per annum to US$5.4bn in 2012.  The share of offshore non-life business has increased from 50 per cent in 2000 to 65 per cent in 2012.
In addition, “the market has built up significant expertise in specialty insurance, namely marine, energy, catastrophe, credit and political risks,” he said. “For example, Singapore is the second-largest market for structured credit and political risk worldwide after London.”
Most Asian risks, including entire large reinsurance programmes and specialty risks, can now be fully placed in Singapore.
“Our vision is for Singapore’s insurance industry to become a global marketplace by 2020, with the ability to accept not just regional, but global risks,” he said.
MAS is pursuing four strategies to achieve that 2020 goal, Mr Menon said. They are to increase supply-side capacity; to promote insurance demand, both locally and in the Asia-Pacific; to develop a true marketplace, where sellers and buyers come together to negotiate and trade risks; and to foster a conducive business environment.

Tuesday, November 05, 2013

Sarin Tech - Commendable results

A good 3Q despite rupee fears 
Sarin put up a commendable performance in 3Q13 despite challenges such as 1) the rapid depreciation of the Indian rupee against the US dollar, 2) tight credit conditions in the Indian economy and 3) higher rough diamond prices. As warned by the company earlier, sales fell 21.4% qoq and recurring net profit which excludes a one-off tax expense declined by 31.5% qoq. On a yoy basis, recurring net profit growth of 124.4% was driven by a 50% increase in recurring revenue, leading to a margin expansion to 72.6% in 3Q13 (2Q13 - 70.4%, 3Q12 - 63.3%).   
One-off tax in 3Q13 
As highlighted in its previous announcement, Sarin recorded a US$2.6m additional tax expense in respect of prior period profits in its 3Q13 results.   
A lot to look forward to 
We believe the worst of the Indian currency crisis is likely over and the operating environment for Indian manufacturers will improve. On prospects, CY14 will see 1) Galaxy Ultra’s commercial 2) Sarin Light will be launched in HK, Taiwan, Korea and the US and 3) Sarin Loupe may also see commercial launch.