Wednesday, March 26, 2014

Singapore Post Ltd - More than just a mailman

The mailman finds a new job 
SingPost has all the last-mile assets to deliver mail anywhere in Singapore. Mail delivery is a sunset industry but SingPost’s assets are still good for delivering a variety of goods in the world of e-commerce. The business only requires tweaks to 1) refine its infrastructure to deliver parcels, in addition to mail; 2) add last-mile delivery capabilities in Asia; and 3) add end-to-end e-commerce logistics solutions – all of which SingPost is doing via investments or M&A.   
Filling the gap in e-commerce logistics 
SingPost’s competitive advantage over its postal peers and other 3PL (third-party logistics) players is its ability to provide a full spectrum of e-commerce logistics solutions at low costs. This is made possible by its access to: 1) postal-to-postal rates (governed by the Universal Postal Union); 2) bilateral agreements with other countries; and 3) partnerships with low-cost couriers. It also constantly enhances its capabilities with acquisitions. As no other postal player in Asia has moved into e- commerce (due to government mandates) and 3PL providers do not have access to such low delivery costs, SingPost has a clear advantage in costs and service offerings.   
Paid to wait 
SingPost used to be one of Singapore’s high yield stocks although it was operating in a sunset industry. With its new push into e-fulfilment, it will have a unique blend of growth and yield. The old business will still fund its dividends, while its net cash of S$135m will allow for earnings-accretive acquisitions that can aid its strategic repositioning. Our estimates have not factored in complementary assets and acquired earnings from its S$135m net cash pile. In the meantime, investors are receiving an attractive dividend yield of 4.7% while waiting for SingPost to turn into a swan.

Friday, March 07, 2014

OUE Hospitality Trust - A more stable hospitality play

Stability anchors 
The stability of OUEHT is anchored by the Mandarin Orchard Singapore (MOS) master lease and Mandarin Gallery (MG) retail segment. We estimate that c.70% of OUEHT’s FY14 revenue is fixed through its retail rent and fixed rent from a hotel master lease. This is higher than hotel peers such as CDLHT and FEHT, which has a near 50:50 split between hotel fixed and variable revenue, and a lesser proportion of retail. Additionally, it has minimal forex and interest-rate risks as all its assets are based in Singapore and it has hedged 100% of its debt (set to expire in 2016 and 2018).   
Embedded organic growth 
We expect revenue to grow organically by c.3% in FY14. This is largely led by MOS’s S$23.1m AEI, which will yield an additional 26 rooms and refurbish 430 rooms. The AEI will be sponsor-funded and completed in phases during FY14-15. So far, renovated rooms have registered 15% increment in room rates. We expect this to lead to 2% growth in RevPAR for FY14-15. There is embedded growth in MG’s rent as about 50% of the leases by NLA have step-up structures with annual step-up of c.4.7%.   
Supply risk manageable 
The upcoming supply of hotel rooms is a risk, but a manageable one, in our view, because 1) historical growth in supply has lagged behind demand, 2) upcoming supply is largely in the mid-tier segment and 3) supply is supported in the mid- to long-term by tourist arrivals . We have factored in 1% drop in occupancy for 2014 and 2015, which will be more than offset by an estimated 3% increment in average room rates.

Thursday, March 06, 2014

Global Logistic Properties - Second portfolio in Brazil

What Happened 
GLP announced that it plans to acquire a portfolio of 34 completed assets (1.2m sq m in GLA) in Brazil from BR Properties S.A (BRPR) for c.US$1.36bn or BRL3.18bn. This transaction is subject to due diligence and if successful, will be funded through internal funds. The portfolio is 99% occupied with 86% of the total area located in Sao Paulo and Rio de Janeiro.   
What We Think 
We understand that BRPR is a motivated seller, with plans to reduce its high debt obligations through this sale. This portfolio was initially to be sold to WTGoodman, a JV between Goodman Group and WTorre (Brazil-based developer) for the same BRL3.18bn price. We understand that the exclusivity agreement has expired and BRPR has chosen to enter into the transaction with GLP instead. We are unsure of the reasons that the sale to WTGoodman fell through. The sale price implies a 5% discount to its Nov 2013 appraised value (reflected in BRPR’s latest 4Q13 results) or at a c.9% cap rate, which looks reasonable. We understand that the leases are structured on a triple net basis (NOI margins of 95-97%), with yearly inflation-linked step-ups that will provide surety of cash flows. Strategically, we would prefer GLP to deploy its excess capital to China, a region with clearer growth trends. That said, we expect GLP to inject a portion of the Brazil assets into its existing fund platform (or create new funds), with the ultimate goal of growing its AUM fee income. GLP guides that its optimal target for Brazil remains below 10% of total assets. China will remain its core market, with GLP still having the firepower to increase its China investments by 40% yoy in FY15.   
What You Should Do 
If the deal materialises, the assets that are eventually injected into its funds are likely to result in upsides to GLP’s RNAV. We maintain our Add rating. 

Saturday, March 01, 2014

Sarine Technologies Ltd - More to come

In line 
Sarine’s FY13 results were in line. On a recurring basis, net profit rose 28% yoy. After factoring in the non-recurring income tax expense, net profit growth was still a respectable 15% yoy. Revenue growth was driven by the accelerated Galaxy penetration and usage during the year. Sarine delivered 15 Galaxy units in 4Q13 and a total 46 in FY13. There were 140 cumulative installed bases at end-FY13. A final DPS of 2.0 UScts was declared.   
Another busy year ahead 
The economic conditions in India, Sarine’s key market (77% of sales in FY13), appear more positive in FY14 as the Indian rupee has stabilised against the US dollar and the credit shortage has eased. Sarine’s Galaxy system remains the leading established product as its rivals struggle to demonstrate the reliability of their competing systems. Based on indicative customer queries, Sarine expects to accelerate the delivery of its Galaxy systems.   
Maintain Add 
Maintain Add rating as another growth chapter unfolds for Sarine, likely driven by the new Sarine Light and Sarine Loupe products. The products may make stronger FY15 sales contributions as they adopt the recurring usage charge model. There will also be a significant software upgrade for Sarine’s products in FY14. Sarine is carrying out R&D efforts to create a platform for the efficient trading of polished diamonds and extending its product scope to cater to manufacturers of semi-precious gemstones. There is more good news for investors as Sarine raises its dividend policy to 2.0 UScts every six months from 1.5 UScts.