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Monday, November 09, 2015

Perennial Real Estate Holdings - Growing contributions from rental income

5QFY15 earnings driven by recurrent income base 
●  Previous corresponding results are not comparable as PREH completed its RTO in Oct 2014. For 5QFY15, PREH’s revenue of S$22.9m came from rental income from CHIJMES, TripleOne Somerset, Perennial Jihua Mall, Perennial Qingyang Mall and associates AXA Tower, Capitol Singapore and Shenyang Summit. There was a small contribution from fee-based management income too. 

Singapore retail assets have obtained higher pre-leasing rates
 
●  Singapore assets generated c.65% of topline with China making up another 31%. CHIJMES continued to trade well with 88% of its space committed, of which 77% is already operational. The Capitol Piazza is over 80% pre-leased and most of the tenants have commenced operations including a number of new concept and new to Singapore fashion and F&B names. This should provide steady income to PREH. 

China malls stabilising
 
●  In China, H&M has opened its store at Shenyang Longemont Shopping Mall. Perennial Jihua and Qingyang malls have seen occupancy reaching 99.7% and 98.6% respectively. We expect the latter to perform better with the greater catchment pool from the partial opening of three office blocks nearby. 

Sale of office space could provide another earnings driver
 
●  This steady recurrent income base is expected to be lifted by the planned sale of strata office space at TripleOne Somerset and AXA Tower. Both properties have received planning permits and are awaiting other development approvals for its planned AEIs, scheduled to start in 1Q16. Show suites for the strata offices are also being set up. This would provide another income source for the group. 

Maintain Add
 
●  We leave our FY15-16 estimates unchanged and maintain our Add call with an RNAV-based target price of S$1.39. A potential catalyst is the monetisation of its strata office space in Singapore.

Tuesday, November 03, 2015

Singapore Post Ltd - Gaining traction in ecommerce logistics

2QFY16 results highlights 
●  2QFY16 core net profit of S$37.5m was down 6.8% qoq and 4.8% yoy. This was due to: 1) loss of hybrid mail revenue given the sale of DataPost in 2QFY16 and Novation Solutions in 1QFY16, 2) lower rental income at Singapore Post Centre (SPC) with the closure for redevelopment, and 3) lower margins as operating expenses (+4.4% qoq excluding M&A fees) grew faster than revenue (+3.4% qoq). 

Postage rate hike partially offsets loss in hybrid mail contributions
 
●  Mail revenue fell 6.9% qoq and 5.6% yoy to S$116.5m on lower hybrid mail contributions. Excluding hybrid mail, overall revenue for the mail segment would have fallen by a smaller 3.4% qoq and grown 1.1% yoy, partially helped by the postage rate hike. Excluding one-off gains from the sale of Novation Solutions in 1Q (S$8.4m) and DataPost in 2Q (S$24.9m), mail operating profit fell 10.1% qoq but grew 2.5% yoy. 

Logistics M&A bearing fruit
 
●  Logistics revenue rose 11.4% qoq and 43.3% yoy to S$156.1m, largely driven by the acquisition of an 80% interest in Rotterdam Harbor Holding B.V. by Famous Holdings during the quarter. As a result, logistics operating profit improved 10.6% qoq and 26.2% yoy to S$7.4m. Logistics operating margin stayed flat at 4.7% in 2Q which was notable given the larger mix of lower-margin freight forwarding contributions. 

Growing ecommerce contributions
 
●  In 1HFY16, ecommerce accounted for 29.0% of group revenue. This compares with 28.0% in FY15 and 26.9% in 1HFY15. On a yoy basis, total ecommerce revenue grew 29% in 1HFY16 to S$150.1m, led by logistics (S$66.1m, +90% yoy) due to M&A activities. This was followed by Retail & eCommerce (S$15.9m, +33% yoy) on higher contributions from front-end services at SP eCommerce. eCommerce mail revenue fell 2% yoy to S$68.1m, likely due to lower transshipment volumes.   

Lower net cash
 
●  SPOST ended 2Q with S$87.8m in net cash, down from S$329.0m in 1Q. This was due to: 1) construction of the eCommerce Logistics Hub, 2) acquisition of Toh Guan building, 3) redevelopment of SPC, 4) dividends, and 5) M&A. As of Sep, SPOST had commitments of S$305.5m not provided for, as well as S$258.5m for the acquisitions of Jagged Peak and TradeGlobal. This can be partially funded by the S$229.4m in net proceeds from issuance of shares and sale of 34% stake in Quantium to Alibaba. 

Thursday, October 29, 2015

Mapletree Greater China Commercial Trust - Robust showing

Boosted by better asset performance and positive currency effect 
MAGIC reported a 12.6% rise in DPU to 1.81 Scts, accounting for 25% of our FY16 forecast. This was supported by a 25% rise in topline, thanks to improvement across all assets, a full quarter’s income from Sandhill Plaza (SP) and a stronger HK$ and Rmb. To date, 81% of leases expiring in FY16 have been re-contracted. Portfolio occupancy remained robust at 98.4%. The slower uplift in DPU was due to higher interest charges as the acquisition of SP was fully funded by debt. Gearing rose to 41% as at Sep 15. 

Strong showing from Festival Walk
 
Festival Walk (FW) saw a 21% rise in 2Q revenue and NPI due to a strong 20% rental uplift on retail lease renewals. This was despite a marginal yoy drop in tenant sales while shopper traffic grew positively. The robust demand for space at FW bodes well for renewal of the remaining 6.2% and 18.9% of lease income expiring in 2HFY16 and FY17, respectively. Ongoing tenant remixing, such as introducing more family-focused offerings to appeal to a wider shopper pool, is expected to continue to draw traffic. 

Bulk of China lease renewals in FY16 locked in
 
In China, GW achieved 25% upside on re-leasing activities in 2Q while occupancy remained at 96.3%. While the spread between passing and market rents has narrowed, we expect this property to remain stable as there is only a minimal 0.8% and 5.9% of rental income due to be re-contracted in 2HFY16 and FY17, respectively. In SP, we expect the renewal of the 4.3% of rental income in FY17 to be positive given the 15-20% gap in current and passing rents. 

Organic and inorganic growth to drive outlook
 
Looking ahead, positive rental reversions, particularly at FW and SP, are expected to continue to drive bottomline growth. The trust will also continue to look for inorganic growth via acquisitions, especially in China. Based on a gearing of 45%, it has remaining debt headroom of c.S$430m. 

Maintain Add
 
We continue to like MAGIC for its resilient portfolio. Its earnings stream is visible, with 81% of FY16 distributable income hedged and 86% of debt cost fixed for FY16. Our FY16 and FY17 DPU of 7.4 Scts and 7.7 Scts, respectively, are unchanged, as is our DDM-based target price of S$1.20. We also retain our Add rating. 

Friday, October 23, 2015

Sheng Siong Group - Bumper year for new stores

Topline growth mostly from new stores 
●  Sales from five new stores (6.2%) drove overall topline growth (+7.3% yoy). Given that one store opened in Dec-14 and the other four opened in 1H15, we can expect these stores to continue to drive topline growth in 4Q.
●  Against a backdrop of weak retail sales in Singapore, same-store sales remained sluggish at +1.1% yoy, but did improve qoq (2Q15: +0.3%; 1Q15: +2.9%). Other factors that impacted sales include 1) liquor sale ban, 2) weaker ringgit impacting sales at Woodlands, and 3) lower footfall at stores due to renovation works in the vicinity.
 

Gross margins still healthy
 
●  Gross margin remained healthy at 24.3% (3Q14: 24.2%; 2Q15: 25.2%), but dipped slightly qoq due to seasonal factors (push for higher volumes in Lunar Seventh Month) and higher input costs from a strong US$. Keener competition from SG50 celebrations also resulted in slightly lower selling prices, a trend that is likely to continue into 4Q. 

Tight control over operating expenses
 
●  Management has always maintained that it is able to consistently keep opex in check; it has not disappointed and the company continues to benefit from lower utilities due to lower oil prices. Opex as a % of sales in 3Q was 16.9% (vs. average of 17.2% over the past four quarters). 

Secured one new store
 
●  The group secured a new store at Dawson Road (~4,300 sf, expected opening in Nov 15). This will be SSG’s fifth new store this year. Whilst this is not as big as the 10,000 sf Tampines new store that they bought (potential to expand to 40,000 sf), the positive is the Dawson store is a lease and not a store purchase. This should add some relief to the concern that Sheng Siong cannot grow without buying new stores. In total, the five new stores for the year adds 26,000 sf of additional GFA (or 6.5% increase in total GFA). These five stores will provide the engine for growth through 2016. 

Thursday, October 22, 2015

IHH Healthcare - Turning upbeat on Hong Kong

Singapore’s success to be replicated in Hong Kong 
Excluding IHH’s international operations, Singapore only contributes ~920 beds or 16% of total bed capacity. However, Singapore made up 45% of 1H15 core net profit. The similarities in terms of demographics and economic prosperity between Singapore and Hong Kong lead us to believe that the 500-bed Gleneagles HK will form a significant portion of group earnings going forward. 

Hong Kong’s population is older than Singapore
 
15% of Hong Kong’s population is above 65 years old (compared to 11% in Singapore). The significance of an elderly population should not be discounted, as on average, a person aged 65 and above has a 42% probability of being admitted into a hospital and is 5x more likely to be hospitalised than one aged between 15 and 64. Case intensity is also higher among the elderly. In this respect, the demographics in Hong Kong should translate to heightened demand for healthcare. 

Wealth and pent-up demand should drive patient volumes
 
The affluence of the Hong Kong population also augurs well for premium private healthcare demand. Adjusting for purchasing power, per capita income in Hong Kong is among the highest in Asia and 42-44% above the OECD average. 

Severe bed shortage situation in Hong Kong is two-fold
 
On one hand, total bed capacity in Hong Kong has stayed stagnant (-0.3% CAGR over 2003-14). On the other hand, its population has been rapidly ageing and growing (0.7% CAGR over 2003-14). In numbers, one Hong Kong bed sees an average of 62 inpatients p.a. (this is 40% higher than the average of 44 inpatients in Singapore). Put together, stress on bed supply and pent-up demand should translate to higher medical costs. 

Maintain Add with 23% EPS CAGR over FY14-17
 
IHH is a premium healthcare brand and our top hospital pick. It is currently trading at an undeserved discount to RFMD and other single country operators. We raise FY16-17 EPS by 5% on a stronger S$ and raise our SOP-based target price to S$2.52, as we roll forward to CY17 and turn upbeat on Hong Kong. A strong S$ provides further support. We expect longer-term catalysts to come from China/India via greenfield/brownfield acquisitions. 

Friday, October 16, 2015

Singapore Post Ltd - Going global

TradeGlobal acquisition at a glance 
At US$168.6m (S$236m), the acquisition of TradeGlobal is the biggest SPOST has made to date. TradeGlobal is one of the top five end-to-end ecommerce players in the US based in Cincinnati, OH that services 50 leading brands in fashion, beauty and lifestyle (Tory Burch, Hugo Boss). While no financials were released, guidance is that it is loss-making but generating positive EBITDA and free cashflows, and the purchase price implies a cash flow multiple on par with peers’. 

Acquiring Jagged Peak at 18.8x TTM P/E and 7.1x EV/EBITDA
 
Jagged Peak is headquartered in Tampa, FL and provides cloud-based enterprise e-commerce software to support end-to-end ecommerce operations. It focuses on high-velocity consumer goods with clients such as NestlĂ©, Kimberly-Clark and LVMH. At US$15.8m for a 71.1% stake, we estimate that SPOST will pay 18.8x trailing 12-months (TTM) P/E and 7.1x EV/EBITDA which we view as reasonable. 

Synergy #1: Going global
 
With the two acquisitions, SPOST’s portfolio will expand from 15 monobrand clients to more than 100, of which >60 are international fashion brands. It will also handle a total gross merchandise value (GMV) of >US$3bn. There are vast opportunities to help clients expand internationally –  SPOST’s Asian clients are becoming increasingly global and want to expand to the US, while most of TradeGlobal’s clients lack online presence and the supporting fulfillment centres in ASEAN, Australia and New Zealand. 

Synergy #2: Technology
 
Both acquisition targets offer omni-channel SaaS technology which provides a one-stop order management solution across multiple retail channels. TradeGlobal’s expertise is in handling a large number of SKUs in a consolidated fulfillment centre, while Jagged Peak focuses on handling a few SKUs that have a high order rate (e.g. mobile phones). Access to both would equip SPOST with the capability to handle orders across multiple industries, especially apparel which is the fastest-growing segment globally. 

Reiterate Add, potential 8-15% upside to EBITDA
 
We keep our estimates intact pending the completion of both acquisitions. Jagged Peak generated c.S$5.3m in TTM EBTIDA. Based on peers’ EV/EBITDA multiples of 7-15x, we estimate that TradeGlobal could contribute S$16m-35m to EBITDA. Together, this represents potential 8-15% upside to our FY17 EBITDA forecast. Even after the two acquisitions, we estimate that SPOST would still have net cash of S$71m. We reiterate our Add call and DCF-based target price, with M&A to spur expansion and growth. 

Tuesday, September 01, 2015

IHH Healthcare - India to be the next core market

What Happened 
On the heels of IHH’s first Indian acquisition (Continental Hospital) in Mar 15, IHH has acquired 73.4% of Global Hospitals for Rs12.8bn (which will be diluted to 64.4% over five years due to employee performance incentives), of which Rs2.65bn is an equity injection, Rs300m-400m will be used to pare down debt and the remainder for capex to increase the number of beds from 1,100 currently to ~1,900 (over five years). The deal is expected to be completed in three months. 
    
What We Think 
Minimal financial impact now. We do not expect this deal to contribute significantly to the group’s FY15-17 bottomline. In FY15, Global Hospitals recorded revenue of Rs6.5bn (+25% yoy, ~6% of IHH’s FY14) and average revenue per inpatient of Rs116k (+22% yoy, ~32% of Singapore’s FY14 average inpatient revenue, ~150% of Malaysia’s, ~79% of Turkey’s). We understand that its EBITDA margins are in the low-teens (Singapore: 23%, Malaysia: 32%, Turkey: 19%), and it is currently loss making, with interest costs (FY15 net debt: Rs3.9bn, with effective interest rates of ~15%) being the biggest drag. 
           
What You Should Do 
Reiterate Add. Our SOP-based target price rises to account for the acquisition.

Wednesday, August 05, 2015

Mapletree Greater China Commercial Trust - Still forging ahead

Boosted by portfolio-wide improvements 
MAGIC reported a 19% rise in revenue to S$76m while distribution income came in 10% higher at S$46.3m (DPU 1.696 Scts). The better results were due to positive rental reversions at Festival Walk and Gateway Plaza as well as a small c.2-week maiden contribution from Sandhill Plaza, which helped to offset higher operating expenses, largely from Festival Walk, and increased interest costs. Portfolio occupancy inched up to 99%. Festival Walk, which enjoyed continued resilience, saw a 16% rental uplift for renewal leases, supported by a 6.5% and 5.9% yoy rise in tenant sales and shopper traffic, respectively. At Gateway Plaza, there was a 29% rise in re-contracted rents for 59% of the leases due for reversion in FY16. 

Full-quarter impact from Sandhill Plaza from 2Q onwards
 
Looking ahead, we expect MAGIC to benefit from a full quarter’s contribution from Sandhill Plaza from 2Q onwards while the continued resilience of Festival Walk and limited new office supply in Beijing should bolster MAGIC’s bottomline when leases are re-contracted. There is a remaining 13.6% and 29% of FY16 and FY17 gross rental income due to expire over this period. We believe renewal rates at Festival Walk would continue to be positive. While the spread between passing rents and market rents at Gateway Plaza have narrowed, we think renewal of some of the under-rented spaces could provide positive upside at this property. Although gearing of 41.2% is higher relative to its peers, the trust has locked in 86% of its interest cost and is looking to extend its debt maturity profile. Meanwhile, about 63% of its FY16 distributable income has been hedged. 

Retain Add
 
We continue to like MAGIC for its resilient portfolio and leave our FY16-17 DPU estimates of 7.4 Scts and 7.7 Scts unchanged. Our DDM-backed target price of S$1.20 and Add rating are maintained. 

Thursday, July 30, 2015

Global Logistic Properties - Planting a bigger footprint in US

What Happened 
GLP announced that it has entered into an agreement to acquire a US$4.55bn US logistics portfolio from Industrial Income Trust at a 5.6% cap rate. This portfolio comprises 58msf of in-fill logistics assets spread across 20 major markets including Los Angeles, Metro D.C. and Pennsylvania. The portfolio has a weighted average lease expiry of 5.5 years and is 93% leased currently to about 600 tenants including notable names such as Amazon, Home Depot, CEVA Logistics and HanesBrands. Based on a 60% LTV, the initial financing structure will comprise US$1.9bn equity and US$2.9bn debt. GLP will initially hold a 100% stake when the deal is completed in Nov 2015 (to be funded with existing cash resources and credit facilities) and intends to pare down its share to 10% by Apr 2016. GLP's share of equity equates to US$190m, based on a 10% stake. 

What We Think
 
This will be GLP’s second purchase in the US and will expand its US footprint to 173msf, making the group the second largest property owner and operator in the country. Post transaction, the US will account for 6% of GLP's NAV. This purchase is expected to be both earnings- and RNAV-accretive. Apart from its share of rental income from the portfolio, GLP will also be able to grow its fee income base as total AUM will expand to US$33bn. In terms of impact, this purchase, including fee income, could raise net profit by c.US$28m or about 10% of bottomline. Furthermore, the combined portfolio is expected to generate more synergies through economies of scale with minimal additional G&A expenses and upside potential from increasing occupancy and rents in the medium term. 

What You Should Do
 
We raise our FY17/18 earnings forecasts by 3.9%/3.3% and lift our RNAV estimate to S$3.34 to factor in this transaction. We continue to like GLP for its value creation in China and expansion of its fee income platform, which should enhance ROE in the longer run. We retain our Add call with a higher target price of S$3.34, based on parity with RNAV.

Monday, July 27, 2015

Sheng Siong Group - Upside from gross margins

Tepid same store sales growth 
2Q15 sales expanded 4.3% yoy to S$179m, driven by five new stores (+4%) and same-store sales (+0.3%). Looking ahead, there is cause to be more positive on the growth from the new stores, given that three of the five new stores were only open for about half of 2Q. However, lacklustre local economic conditions coupled with tepid demand post Chinese New Year caused a drag on same store sales growth (SSSG). 2Q15’s flat SSSG (vs. +2.9% in 1Q15) also reflects intensified competition from retailers offering special “SG50” discounts. For example, NTUC FairPrice announced an initiative providing a 10% discount on its range of housebrand products. 

Gross margins continue to trend up
 
2Q15 gross margin improved to 25.2% (1Q15: 24.4%), driven by lower input costs from its direct purchasing initiatives and efficiency gains derived from its central distribution centre. In addition, we suspect 1) an improvement in sales mix in favour of higher-margin fresh produce (36% GPM vs. 18% for groceries), and 2) a weaker ringgit (40-50% of its grocery is sourced from Malaysian suppliers) also helped. With operating expenses remaining stable (2Q15’s opex as a % of sales was 17.6%, compared with 17.0-17.4% over the past four quarters), improvement in gross margins flowed straight to the group’s bottomline, boosting 2Q15 net margin to 7.6% (1Q15: 7.1%). 

Interim dividend of 1.75 Scts declared (95% payout)
 
We continue to like the stock’s high payout ratio (consistently >90%), which we think is sustainable given its strong operating cashflows and low capex requirements. The biggest remaining capex is for its Yishun Junction 9 store (S$34m outstanding to be spread across FY15-17). 

Tuesday, July 21, 2015

Global Logistic Properties - Establishing CLF II

What Happened 
GLP announced the setting up of its China Logistics Fund II (CLF II). GLP China will be the manager, and will own a 56% stake with the remaining shares held by seven institutional investors including five from Asia, one from North America and one from the Middle East. CLF II will have committed equity of US$3.7bn and investment capacity of US$7bn. CLF II will develop 13m sq m of GFA in China over the next four years. CLF II will start acquiring land later this year and commence construction in Apr 16. CLF II is GLP's exclusive vehicle for new, wholly-owned logistics development projects in China and does not have a seed portfolio. 

What We Think
 
This news is not entirely new as GLP had earlier signalled its intention of setting up CLF II, although the US$7bn AUM exceeds the earlier indication of US$6bn due to strong investor interest. We view this move positively as it will expand GLP’s fee income and allow the group to optimise its sources of third party capital as well as boost value creation. As a result of CLF II, total AUM is 36% higher at US$27.1bn. GLP will fund its share of equity with cash (US$1.4bn at end-FY15) and credit facilities. CLF II’s development activities will form part of the group’s targeted development starts growth of 30%, which we have factored into our existing forecast, while the impact of higher fee income on earnings and RNAV should gather pace from FY18 onwards. We reckon that the additional fee income from CLF II could add another 10-13Scts to RNAV when completed, assuming a 15x multiple. 

What You Should Do
 
We tweak our FY17 and FY18 earnings estimates upwards by 1.4-4.4% to factor in the increased fee income from CLF II. We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business. These activities should move the group closer to its medium-term ROE target of 12%.We retain our Add rating and maintain our existing RNAV and target price (parity to RNAV) at S$3.31.

Wednesday, July 08, 2015

Singapore Post Ltd - Overhang removed with JV

What Happened 
SPOST has entered into a conditional JV agreement with Alibaba, using SPOST’s wholly-owned subsidiary, Quantium Solutions (QS) as the vehicle for the JV. Alibaba will pay S$91.7m for a 34% stake in QS, while SPOST will retain the remaining 66% stake. SPOST also plans to issue 107.6m new ordinary shares at S$1.74/share (7.89% discount to the VWAP of S$1.889 on 7 Jul) to Alibaba, which will increase Alibaba’s stake in SPOST from 10.23% to 14.51% post-issuance. The net proceeds of S$183.6m will be used for expansion in e-commerce logistics (75%) and for general working capital (25%). 

What We Think
 
At S$91.7m, we estimate that Alibaba will pay 28x P/E for the 34% stake in QS. We view this positively as it establishes a floor for SPOST’s valuation. However, losing a 34% stake in its e-commerce logistics engine (QS) will likely lead to mild earnings dilution in the near term, and we cut our FY16 core net profit growth forecast to -2% (+5% previously). That said, the earnings shortfall can be mitigated with M&As using the S$229m proceeds (net of working capital). While we view the JV as a positive, we do not expect immediate volume growth as the biggest volumes are still in transhipments into/out of China, which SPOST already engages in. Within ASEAN, Indonesia is likely to be the key growth market, but infrastructure issues are likely to plague e-commerce growth in the near term. We are more positive on the medium-term impact, when SPOST capitalises on Alibaba’s volumes as they expand across Asia Pacific, which will lower the cost per parcel in a winner-takes-all market. 

What You Should Do
 
Upgrade to Add. Upon announcement of the JV, we believe that the biggest uncertainty on the stock has been removed. Though earnings growth may only accelerate in the medium term, investors are paid to wait with a 3.7% yield. 

Monday, July 06, 2015

Perennial Real Estate Holdings - Diversifying into healthcare

What Happened 
PREH has entered into a strategic 40/60 JV with Guangdong Boai Medical Group (GBMG) to expand into the hospital/medical services business in China. GMBG is a subsidiary of China Boai Medical Group (BOAI), one of the largest private hospital/medical services operators in China. The JV will focus on 8 core medical fields including oncology, O&G, aesthetic surgery and medicine, orthopaedics, paediatrics, ENT, dentistry and cardiology. Its first acquisition is the Modern Hospital Guangzhou, one of BOAI’s more profitable leading tumour and cancer hospital operations in Guangzhou. The price tag for PREH’s 40% share works out to be Rmb286.7m (12x FY14 EV/EBITDA) and will be funded through internal funds and bank borrowings.   
                                              
What We Think 
The benefits of this transaction to PREH is two-fold. For one, it introduces a new asset class within its developments that would complement its existing real estate business as a source of additional demand for its commercial space, and encourage cross spending between other components of the development. As a start, the Perennial Dongzhan Mall will be repositioned as a health and medical hub with a hospital, medical suites and other healthcare and wellness-related services. In the medium term, the Xian HSR and Beijing Tongzhou integrated developments could also be repositioned as such. More importantly this change would enable the group to sustain a 6-8% yield on cost for its properties. In addition, this diversification would allow the group to ride on the growth of private healthcare in China. This sector is projected to grow since China began introducing new healthcare reforms in 2009 and lifted restrictions for foreign investment in China’s private hospitals in 2012. Moreover, the rapidly rising income of the middle class could also lead to greater demand for better healthcare services. 
                                        
What You Should Do 
We maintain our current profit estimates as the initial impact from this acquisition is not significant. Maintain Add, with a target price of S$1.39, based on a 35% discount to RNAV.

Tuesday, June 16, 2015

Mapletree Greater China Commercial Trust - Maiden foray into Shanghai

What Happened 
MAGIC has announced its maiden acquisition of Sandhill Plaza for Rmb1,840.3m (total acquisition cost of Rmb1,881.3m) or equivalent to a 5.75% cap rate. This price is 3.2% below the independent valuation of Rmb1,902m. The acquisition could expand the trust’s lettable area by 37% to 2.6msf and increase AUM by 7.7% to S$5.76bn, of which Shanghai will make up 7% of the latter. The 83,801.5sm GFA property is 96.2% committed. 40% of the 58 tenants are non-domestic companies such as ADI, Borouge, Broadcom, Disney, Univar and Wincor Nixdorf. It has good connectivity to the Metro Line 2 and is a 30-minute drive from Pudong Airport and Lujiazui CBD. The deal is expected to be funded entirely by RMB and HK$ debt and would increase MAGIC’s gearing from 36.2% to 40.6%. 

What We Think
 
The purchase represents the trust’s first diversification into decentralised business parks space in the Zhangjiang Hi-tech Park in Shanghai. This park is the largest and most established business park in Shanghai. Major tenants in Zhangjiang are largely from the IT and industrial R&D sectors and include names such as EBay, Lenovo, Sony, HP, SAP, Pfizer, Novartis, GE, Dupont and Honeywell. The purchase would also enable MAGIC to be leveraged to the office decentralisation trend as improved transportation conveniences, tax incentives and the relatively more affordable occupancy costs drive demand from hi-tech, IT, trading, R&D as well as regional HQ demand. While this appears to dilute the trust’s exposure to the HK retail property market, the accretive purchase could provide investors with higher forward DPU growth. The deal is expected to add to MAGIC’s bottomline and DPU. Further upside can be achieved as the property is currently under-rented with average rents of Rmb4.82psm/day vs. Rmb5.36psm/day of comparable peers. 

What You Should Do
 
We revise our FY16-18 DPU by 1.5-4.7% as we factor in contributions from this acquisition. Consequently, our DDM-backed target price is lifted by 1.7% to S$1.20. We continue to like MAGIC for its stable and resilient portfolio. Maintain Add. 

Friday, May 29, 2015

IHH Healthcare - Champ in ramping up leverage

Still a case of increased inpatient volumes and intensity 
1Q15 revenue was up 14% yoy, with increased operating leverage driving core net profit up to RM228m (+32% yoy). In addition to stronger inpatient volumes (+0.3% to 7.2% yoy in 1Q15), average revenue per inpatient in Acibadem and Malaysia saw healthy growth of 10.4% and 13.8% yoy, respectively, as there were price increases to compensate for cost inflation. Dousing these positives was the waning medical tourism in Singapore, where management noted that Indonesian patient volumes were falling. However, this was partially offset by the rising number of patients from non-traditional markets such as the Middle East. In contrast, Thai hospitals have seen mid-to high-teens growth in foreign patient revenues. 

Marginal negative impact of currency on Acibadem in 1Q15
 
The strong numbers from Acibadem demonstrated the group’s ability to ramp up operating leverage at new hospitals. Acibadem’s 1Q15 revenue grew 15% yoy, and EBITDA grew 27% to RM148.2m. Ex-currency, 1Q15 EBITDA grew 29% yoy. The strong growth was largely attributed to Acibadem Atakent Hospital (opened in 1Q14), which reduced its start-up EBITDA losses from RM9.9m in 1Q14 to RM0.8m in 1Q15. 

Reiterate Add
 
The increases in nurses’ salaries and benefits caused staff costs to rise to 40% of sales (average over FY13-14 was 38%). This is an industry-wide pressure, as we continue to see a short supply of nurses. The mitigating factor is IHH’s operating leverage, as the group builds up capacity and improves its case mix. We are hopeful that the group will continue to ramp up operations at the hospitals opened in the past 2-3 years. To illustrate the significance of these hospitals to the group, Mount Elizabeth Novena’s (Novena) revenue increased by 34% yoy in 1Q15, and EBITDA rose by 73%. Novena currently operates ~180 beds and expects to add another 30 beds in 2Q15. Maintain Add.

Friday, May 15, 2015

Global Logistic Properties - Ending the year on a high note

Sturdy topline growth from China ops and fund management 
GLP reported a 6% hike in 4QFY15 revenue to US$167m while net profit came in 34.5% lower at US$105m. FY15 net profit of US$486m was achieved on the back of new and expansion leases of 3.7m sm, in line with its earlier stated target. China continued to shine on strong leasing momentum of 3.1m sm and higher rents averaging +5.5%. Existing tenants took up 72% of these leases. There was increased property management and acquisition fee income totalling US$108m. This helped to partially offset lower Japan earnings post asset sales, revaluation losses from Brazil due to cap rate expansion and one-time transaction related costs from the US portfolio acquisition as well as higher minority leakage. 

Projecting 30% growth in development starts
 
GLP plans to increase its development start target by 30% to US$3.4bn and its development completion target by 92% to US$2.3bn, of which China will account for US$2.2bn and US$1.4bn, respectively. With a demand backlog of 8m sm in China, the group is well placed to tap growth in this segment. To fund these development capex, GLP will continue to utilise its existing cash resources of US$1.4bn and is planning a second China logistics fund with an estimated AUM size of US$6bn. As the properties are completed and marked to market, these developments will boost GLP’s NAV and fee income platform value. It will continue to ride the active leasing market in Japan and Brazil, in our view. Plans to pare down its stake in the GLP US Income Partners fund to 10% are on track. 

Maintain Add
 
We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business. These activities should move the group closer to its medium-term ROE target of 15%. We tweak our FY16-17 estimates by 5-8% on expectation of a more 2H-loaded earnings profile.

Thursday, April 23, 2015

Rad Russel + Simon Carter Capsule Collection Official Launch - Media Invitation (200415)

I attended a special meet-and-greet media showcase with UK designer Simon Carter at Rad Russel flagship store in Plaza Singapura. 




Rad Russel shoes reflect a London stylish design philosophy that contributes timeless elegance and enduring styles. Founded by a businessman of the same name in 1980s, the Simon Carter label is stocked in most major British departmental outlets.




There are two styles of shoe in the collection: The Wholecut which takes its name from the outer being made of one whole piece of leather. The second is the Derby which has the eyelet's sitting above the upper on two separate pieces of leather. The upper of the shoe is calf leather. The lining is sheepskin leather. This allows the imprint of the foot to be taken quickly by the shoe for increased comfort. Fewer weeks of having to wear them in! The Heel inner is suede to increase grip and comfort. Durable and Soft latex cushions covered with sheepskin leather offer a supportive inner and help maintain comfort around the foot’s arches. Anti-slip rubber outer-sole in the signature Simon Carter house Paisley. Ideal for London weather as the rubber provides essential grip and durability as compared to a leather sole. The shoes are retailing at S$268.





At the end of the event, I also had a free shoe shining service by Mister Minit!




For more information about Rad Russel, check out https://www.facebook.com/RadRussel 

Friday, April 10, 2015

MER reiterates ‘Outperform’ on GLP

Misunderstood; Oversold
GLP is a consensus buy with 18 “Buys” and 2 “Holds”. However, a gap to the street’s fair value has persisted for over a year and the stock has underperformed the STI by 16ppt during this period. MER thinks the underperformance is due to a few misconceptions, which MER clarifies in this report:
  • GLP China stake sale at 1x P/B (vs. MER’s 1.19x target) destroyed value: Intangible benefits not priced in; new investors offer access to ~16m sqm of land bank (~60% of existing modern warehouse space in China).
  • Slowing development starts FY15 YTD: The risk is low, MER thinks. Over the last 3 years, management has met all development starts targets.
  • “Weak” headline profit growth FY15 YTD (-27%YoY): Comparable profits were up 12%YoY. Inevitably, a growing development business (higher proportion of pre-stabilised, inland China properties) slows recurring profit growth in the short run. MER urges investors to focus on the long term.
 
Modern warehouses in China at least 30% undersupplied
Based on the current development pipeline of 13 major developers/e-commerce players and inferring demand from comparable economies, MER estimates that modern warehouses in China will still be severely undersupplied in 2017 (37m sqm). GLP will continue to extend its market leadership position and capitalise on rising consumption/e-commerce activities.
 
Scaling up to boost ROE from 7.2% to 11.3% by 2017
GLP’s ROE has declined from 8% in FY14 to ~5% in 2/3QFY15 as proceeds from GLP China stake sale have not been fully invested. Based on MER’s gross development pipeline over the next 3 years (MER: US$7bn vs. Mgmt target: US$8bn), MER sees healthy completions (+15% compounded annual growth rate), which will accelerate recurring and revaluation profit growth (23% & 25%).
Capital recycling into GLP’s fund management platform (high ROE business) provides additional upside. Every US$1bn worth of assets recycled and reinvested at yields 4-9 Scts (1.3%-2.8% uplift to MER’s target price).
 
Attractive risk/reward proposition
Based on MER’s sum of the parts valuation, MER thinks the market is not pricing in GLP’s stake in GLP J-REIT (S$0.04/sh), the value of the fund management platform (S$0.24) and near term development pipeline (S$0.18).
Trading at 1.19x P/B vs. peer average at 1.39x and with a higher and improving ROE profile, MER thinks the current entry price level is very attractive.

Friday, March 13, 2015

OUE Hospitality Trust - More growth expected

What Happened 
We recently hosted OUE Hospitality Trust’s (OUEHT) NDR in KL. During the meetings, some of the issues addressed included 1) the thinking behind the acquisition of Crowne Plaza at Changi Airport (CPCA) and the upcoming Crowne Plaza Extension (CPEx), 2) operational risks to the REIT in a rising interest rate environment and 3) outlook for the hospitality sector in Singapore. 

What We Think
 
At S$290m for CPCA (320 rooms) and S$205m for CPEx (243 rooms), these prices translate to an initial yield of c.4.5%. On the back of high occupancy (c.90%) and an average room rate of S$265/night at CPCA, management is confident that CPEx will drive earnings when it is acquired in 4Q15-1Q16. An income support of S$7.5m to be drawn down over three years for CPEx will provide further stability to the REIT. Aside from offering diversity of assets within the portfolio, we view these acquisitions positively as the hotel is well positioned to reap growing demand in the vicinity when the surrounding projects (e.g., the upcoming mall at Changi Airport, Terminal 4 and Terminal 5) begin operations amid limited upcoming supply in the Changi airport area (currently only a 130-room hotel is planned for the area). With current leverage at c.41%, some capital is expected to be raised to fund CPEx. Having said that, the REIT manager reemphasised that the acquisition of both parts of the hotel will be yield accretive. Aside from CPEx, the serviced apartment at OUE Downtown could be the next acquisition target. Amid a more positive 2015 outlook for Singapore’s tourism landscape, Mandarin Orchard and Mandarin Gallery are expected to deliver stable earnings in FY15. Furthermore, with c.100% of debt at a fixed rate and only S$290m of interest swaps due in Jul 15, OUEHT’s debt management is stable with interest cost expected to rise marginally when the swaps are renewed. 

What You Should Do
 
On the basis of a stable outlook coupled with further room to grow inorganically, while being well-shielded from a potential hike in interest rates, we keep our Add call with an unchanged target price of S$1.01.

Friday, February 27, 2015

IHH Healthcare - Strong despite start-up losses

Strong underlying operations ex-currency 
4Q14 revenue was up 9% yoy and earnings rose 42% yoy. This was driven by 1) higher inpatient admissions and revenue intensity, and 2) a revaluation gain of RM52.7m for PLife REIT’s investment properties and a divestment gain of RM36.4m. Stripping out the effects of PLife REIT, 4Q14 underlying core earnings rose 26% yoy. Overall, FY14 core earnings on a constant currency basis increased by 25% yoy. 


Both Singapore and Malaysia remain strong 
Parkway Pantai’s FY14 EBITDA grew 16% yoy, and continues to benefit from operating leverage at its new hospitals (FY14 EBITDA margins of 25.5% vs. FY13’s 24.9%). Mount Elizabeth Novena’s FY14 EBITDA increased to RM87.1m (FY13: RM21.6m), which translates to margins comparable to its existing Singapore hospitals. Management highlighted stable medical tourism, with an increase in foreign patients from non-traditional markets such as the Middle East and Myanmar. Revenue per inpatient in Malaysia increased by a healthy 9.2% yoy, driven by higher revenue intensity and price increases to compensate for cost inflation. 

Acibadem impacted by weak currency
 
FY14 EBITDA rose 3% yoy on a depreciating Lira, which fell 9%. Ex-currency, FY14 EBITDA increased by 14% yoy. We can expect further margin expansion in Acibadem as Atakent builds up operating leverage (opened Jan 14). 

Strong expansion pipeline
 
IHH plans to deliver more than 9,000 (currently ~7,000) new beds by 2017. There is also upside potential from Gleneagles Hong Kong (target commissioning early 2017; 500 bed capacity) which we have yet to include in our numbers.

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