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.