Tuesday, November 29, 2016

Perennial Real Estate Holdings - Increases stake in Chinatown Point

Raises stake in Chinatown Point 
●   PREH announced that it has, together with SPH, acquired 60% of Chinatown Point for a consideration of S$92.6m. PREH’s 40% share will raise its existing stake to 45.15%, making it the largest owner of the property. Chinatown Point has a 208,798sf retail podium and 4,230sf of strata office space. It has a committed occupancy of 97% and enjoys a strong shopper traffic of 2.4m/mth.   

Price translates to a 5.2% NPI yield
●   The price was based on an agreed property value of S$442.5m or S$2,077psf and translates to a NPI yield of circa 5.2% in 2016. This valuation is close to our current assumption of S$2,066psf. 

Adding another income stream to Singapore portfolio
●   We think this transaction will provide another recurrent income stream to PREH’s Singapore portfolio.  PREH will fund its outlay of S$61.8m with borrowings. This will raise the current debt/equity ratio to 0.64x, from 0.63x as at 3Q16. We estimate the additional rental income could boost FY17F net profit projection by 5-6% on a full- year basis. 

Maintain Add
●   Our target price remains unchanged at S$1.11, based on a 40% discount to RNAV of S$1.85, after factoring in this acquisition and the additional debt funding. We maintain our Add call with potential catalysts in FY17 from a further roll-out of its healthcare business and additional income from the Perennial Dongzhan Mall. Key risk is a delay or slower-than-expected completion of its China projects.

Sunday, October 30, 2016

Mapletree Greater China Commercial Trust - Impacted by margin erosion at GW

2QFY17 results summary 
MAGIC reported a 2% yoy dip in 2QFY17 revenue to S$83m while distributable income ticked down 1% yoy to S$49.1m. 2Q/1HFY17 DPU of 1.77/3.62 Scts remain broadly in line with expectations at 23%/48% of our full-year forecast. The dip in topline was due to the depreciation of the HK$ and Rmb vs. S$, and additional property tax payable for Gateway Plaza (GW), partly offset by higher rental income from Festival Walk (FW). 
FW continues to outperform
FW continued to enjoy full occupancy and rental uplift of 15%/7% over preceding levels for its retail and office spaces. Whilst shopper traffic fell 8.4% yoy in 2Q, tenant sales remained relatively stable. To date, 86% of its expiring leases have been renewed/ leased. FW has a remaining 10.6% of its leases due to be re-leased in 2HFY17 and another 21% in FY18. Whilst rental growth momentum is likely to moderate due to the overall weaker HK retail scene, we think it would still remain in positive territory. 
Margin erosion at GW from higher taxes
2QFY17 revenue and NPI from GW fell 10.9%/16.3% yoy to S$36.4m/S$30.7m due to 1) higher property taxes wef Jul 16, and 2) transition from business tax to value added tax from May 16. GW was also impacted by frictional vacancy; occupancy slipped to 90.5% while renewals were done at 8% above previous levels. Take up rate has since improved. 
Expect modest uplift from office reversions
Sandhill Plaza (SP) continued to perform well, with 99.6% of its space occupied and positive rental reversions of 23% over previous rates. Looking ahead, the weaker economic climate and higher incoming supply are likely to weigh on office rental trend and we anticipate the remaining office lease expiries at GW of 2.6% in 2HFY17 and 12.4% in FY18 to be re-contracted at modest uplifts, while SP should see higher positive reversions due to the under-rented average passing rates vs. market levels. 
80% of FY17F distributable income hedged
In terms of capital management, MAGIC has extended its debt maturity to 3.1 years with 85% of its debt in fixed rate loans. All-in cost of debt remained low at 2.89%. Income visibility is sustained with about 80% of its FY17F distributable income hedged.   
Maintain Add
We cut our FY17-19F DPU by 0.6-0.7% to factor in a higher property tax assumption for GW. Our DDM-based TP is tweaked slightly to S$1.13. We continue to like MAGIC for its largely resilient portfolio, backed by FW which makes up 71% of revenue. With gearing at 39.9%, we think there could be scope for new acquisitions in the medium term to lift earnings. Downside risks include a weaker-than-expected Beijing office leasing market, which could affect earnings and capital values of this property segment. 

Friday, October 28, 2016

Mapletree Commercial Trust - Still going strong

Strong growth from organic and acquisition drivers 
MCT delivered a 23.6% yoy increase in 2QFY17 revenue to S$88.1m (US$63.4m) while distribution income rose 25.4% yoy to S$53.6m (US$38.6m), thanks to better performance across all its assets and maiden contributions from MBC1. However, DPU only inched up a marginal 1.5% yoy to 2.05 Scts due to dilution from new units issued as well as a timing difference between income recognition of MBC1 and issuance of private placement and preference units. Excluding the latter, DPU would have been up 9% yoy. 
VivoCity continued to deliver strong showing
1HFY17 rental revenue at VivoCity rose 5% yoy to S$98.2m (2QFY17: S$49.8m), with reversions 13.8% higher over preceding levels (including tenant space renewals) and higher occupancy of 99.3%. Underlying operating conditions remained fairly robust, with tenant sales up 1.5% yoy and shopper traffic up 1.8% yoy (2QFY17: +2.7%/6.6%). Its asset enhancement initiative (AEI), at B2 and L3 to increase space utilisation and F&B kiosks, is completed; we expect ROI in excess of 20% on a stabilised basis.   
Office rents benefited from higher occupancy and positive uplift
Office rental revenue from MLHF, PSAB and Mapletree Anson rose 7% yoy to S$50.7m in 1HFY17 while MBC1 generated an additional S$12.6m, based on slightly more than a month's recognition. This was due to positive average rental reversions of 14% for office space and higher occupancy of 98.5-100%. MBC1 achieved an 8.5% increase in rents for its renewals. 
Manageable office reversions in 2HFY17-18F
MCT has 0.8% of retail and 3.8% of office leases to be re-contracted in 2HFY17, and a further 10.9% and 6.1%, respectively, in FY18. We believe VivoCity would be able to continue delivering positive showing for its renewals due to its niche location. Meanwhile, a lack of new business park supply post 2017 would be supportive of business parks rents and would have a positive knock-on impact on MBC1’s renewals, in our view. Post fund-raising gearing is higher but still healthy at 37.3% 
Maintain Add
We tweak our FY16-18 DPU estimates by -0.3% to 0.4% as we fine-tune the number of new units issued as well as the timing of completing the purchase of MBC1. However, our DDM-based target price remains unchanged at S$1.62. We believe the addition of MBC1 to MCT’s portfolio will strategically enhance the trust’s size and stability. Downside risks include a weaker-than-expected office rental market.   

Thursday, August 25, 2016

MQ reiterates ‘Outperform’ rating on SingPost

Tapping into ASEAN e-commerce growth
E-commerce still underpenetrated in ASEAN: MQ estimates that ASEAN e-commerce could grow to $88bn by 2025 (32% CAGR), as penetration is still low at 0.8% (vs. 6-8% in China, Europe and US), per Google/Temasek. MQ believes that SingPost will stand to benefit given the high barriers to entry and scale of operations.
Alibaba the key growth driver: SingPost is Alibaba/Cainiao’s preferred logistics partner in ASEAN, especially since Alibaba purchased a 10% stake. Cainiao is Alibaba’s logistics arm, which was set up in 2013 due to the large volumes it had to handle. SingPost saw ~20-30% revenue growth in international mail (20% of revenue) in 3Q-1Q17 from this partnership, and MQ believes that this trend will continue.
Unique end-to-end e-commerce strategy: In addition to its deal with Alibaba, SingPost’s strategy to be the end-to-end e-commerce logistics provider for monobrand customers sets it apart from other, smaller courier players and slow-moving national postal sectors. It currently has sticky partnerships with 120 brands globally, including Hugo Boss and Tory Burch post the Trade Global acquisition, which will play a part in driving logistics revenue.
MQ’s earnings and target price revision
Post model revision, MQ lowers EPS by 15.1% in FY17E and 13.5% in FY18E to factor in lower operating profit margin before achieving economies of scale, and hence also revise its profit taking down to S$1.75 from S$2.15.
Price catalyst
12-month price target: S$1.75 based on a Sum of Parts methodology.
Catalyst: Appointment of new CEO, e-commerce growth in the region

Monday, August 15, 2016

Global Logistic Properties - Strong development profit and fee income

Results in line, accounting for 25% of our FY17 core net profit 
1Q17 revenue rose 9% yoy to US$207m, net profit fell 24% yoy to US$203m on lower revaluation surplus, forex impact, partly offset by better operating results. Excluding revaluations, bottomline of US$69m, +23% yoy, is in line with our expectations. Although portfolio occupancy fell on slower leasing in China and Brazil, same-store NOI and rent growth rose c.8% and 9.6% on higher leasing demand of 2.5m sq m. There was higher development profit of US$65m, largely from Japan and increased fee income. 
Strong performance from Japan and the US
Japan and the US performed strongly with rent growth of 2.1%/20.7% while occupancy was high at 94-99%. There was added operating and fee income from its share of GLP US Income Partners II. Given the strong sector fundamentals in the US, we expect the strong performance to continue. In Japan, it has achieved 16%/58% of its development starts and completions and this will underpin rental and development income. 
China faces some near term headwinds
New and renewed leases in China totalled 0.92m sq m in 1Q with a 60% retention ratio. Domestic consumption remains the key driver of demand. However, occupancy dipped to 86% on slower leasing volumes. This was offset by effective rent growth of 6.2%, with stronger performance in Tier 1 cities. On outlook, there continues to be short term oversupply in Tier 2 cities with drags on rents and occupancy. Management expects this to be digested over the next 12-18 months.   
Expanding fee income platform
Fee income rose 17% yoy to US$42m, on higher asset and property management fees, led by higher AUM of US$36.5m. With an additional US$12bn of uncalled capital, we expect recurrent fee income to continue expanding as this capital is deployed. It is also looking at setting up a China income fund.   
Strong balance sheet
Balance sheet is healthy with look-through net debt to asset ratio of 0.28x. To date, GLP has commenced 20% of its US$2.1bn of development starts and completed 18% of its targeted completion of US$1.5bn. This funding headroom provides the group with deep capacity for development activities as well as to evaluate potential new acquisition opportunities such as in the US. 
Maintain Add
We tweak our FY17-19 estimates for the latest results and leave our RNAV-backed target price of S$2.72 unchanged. Given its position as a market leader in China, vast landbank, strong execution track record and expanding fund management platform, we believe GLP will continue to create value and earnings growth. Key catalysts are acceleration in fund management activity and improved rental outlook. Risk to call includes slower than expected China market.   

Tuesday, August 02, 2016

Mapletree Greater China Commercial Trust - Staying resilient

Buoyed by FW and SP 
MAGIC reported 1QFY17 revenue of S$85m and NPI of S$69.4m, up 12% and 11% yoy, respectively, as higher Festival Walk (FW) and Sandhill Plaza (SP) contributions offset lower Gateway Plaza (GW) performance. After netting off higher interest expense (from the acquisition of SP), distribution income grew 10.6% yoy to S$51.3m. 1QFY17 DPU of 1.85 Scts, +9.1% yoy, was in line with our expectations, making up 24.5% of our FY17 projection. There was little overall forex translation impact during the quarter. 
Reopening of cinema to boost entertainment and F&B businesses
FW’s revenue and NPI rose c.10%/9% yoy to S$60m/S$47.1m, thanks to positive rental reversion of 11-13% for its office and retail renewals. This was despite a 13% drop in tenant sales and shopper traffic with ongoing renovations of a new cinema tenant and a challenging HK retail environment. The cinema operator reopened in June; this should translate to higher entertainment and F&B contributions. With a remaining 23% of leases at the property to be re-contracted this year, we expect rental uplift to remain robust. 
More competitive operating environment for GW
The weaker showing at GW was offset by a full quarter’s contributions from SP. GW reported an 8% dip in NPI to S$16.9m due to i) a decline in occupancy to 95% owing to the more competitive leasing environment with high incoming supply, ii) impact of VAT implementation, and iii) a depreciation in RMB. 1QFY17 rental uplift was a modest 6% and we expect rental growth to remain moderate, although completion of the AEI which added 800 sqm of F&B space should enhance tenant experience. 
SP enjoyed strong occupancy with good rental uplift
On the other hand, SP reported a 28% improvement in renewal rents and full occupancy on healthy demand for business parks space during the quarter due to a decentralisation trend in Shanghai. With cost savings, favourable tax incentives and improved accessibility, we anticipate this segment of the market to continue to perform well. 
Strong income visibility
To ensure good income visibility, MAGIC has increased the proportion of fixed rate debt to 80% and hedged 62% of its FY17 distributable income. Gearing is steady at c.40%. It has about 14% of its debt to be refinanced for the remainder of FY17. 
Maintain Add
We continue to like MAGIC for its resilient portfolio, underpinned by FW, and good earnings visibility. With gearing at 40%, we think there could be scope for new acquisitions in the medium term. We tweaked our DDM-TP to S$1.14 following this set of results. Given the total return upside of 13% to our TP, we maintain our Add call. Downside risks to our call include weaker than expected Beijing office leasing market.

Wednesday, July 27, 2016

Sheng Siong Group - Record-high gross margins

Sales growth mostly driven by new stores 
2Q16 sales (+5.5% yoy) reflect 1) growth from new stores (+6.0%), 2) SSSG (+2.2%), but 3) mitigated by the temporary closure of Loyang (-2.7%). New store sales growth was driven mostly by the continued gestation of five stores opened in FY15, with some contribution from three new stores opened in 2Q16. We think new stores will continue to propel overall topline growth. New stores now make up c.20% of the group’s total store count, or c.8% of total GFA. 
SSSG (+2.2% yoy) surprised positively
We had expected SSSG to turn around, but not by this magnitude, especially after two consecutive quarters of declines. We note that this included the McNair store which was closed for a month in 2Q15 for refurbishment, but SSSG would still have been an impressive +1.3% nonetheless. Key reasons for the turnaround include: 1) subdued ringgit impact at the Woodlands store, 2) the no-longer-relevant alcohol ban that took effect in Apr 15, and 3) completion of renovation works at some of the stores. 
Record-high gross margin (26.1%)
In addition to SSSG, the other standout in this set of results was the vast improvement in 2Q16’s GPM to 26.1% (1Q16: 24.5%, 2Q15: 25.2%), driven by suppliers’ rebates, bulk handling and continued efficiency gains from its central distribution centre. Opex remained stable, as expected (2Q’s opex as a % of sales was 17.7%, similar to the 17.1% average over the past 3 years). We lift our FY17-18F EPS on higher GPM assumptions. 
Updates on new stores, Tampines and a new warehouse
1) Yishun J9 (18.9k sf) will be the group’s fourth new store this year and is due to open in Aug 16. 15.5k sf of the total space will be for the group’s own supermarket use while the remaining 3.4k sf will be leased to a food court operator. 2) Alteration works at Tampines (10k sf) is now postponed to commence in Mar 17 instead of Oct 16. It will open with a bigger store area (25k sf) in May 17. 3) The group entered into a long-term lease for a land adjacent to its central warehouse. Total construction cost is c.S$20m. 
Interim dividend of 1.90 Scts declared (90% payout)
We continue to like the stock’s highly cash generative business and high dividend yield (c.4%). We maintain our Add call and our target price rises to S$1.04 (still based on 22x CY17 P/E, historical mean) on higher EPS estimates. Catalysts could come from China, where renovation works are currently underway and operations are likely to commence in 4Q16. Risks include a drop in margins. 

Thursday, July 07, 2016

Mapletree Commercial Trust - Landmark acquisition

Buying Mapletree Business City P1 
MCT has proposed to acquire Mapletree Business City P1 (MBC) for S$1.78bn. This works out to be S$1,042psf or at a cap rate of 5.6%. MBC is a large-scale integrated business hub with 1.71m sf of office and business park NLA, with a high committed occupancy of 99% and remaining average lease expiry of 3.5 years. The property has a prominent frontage along Pasir Panjang Rd, and is well connected to public transport and located a short 10 minutes’ drive from the CBD. 
Strategic diversification into a stable asset class
We are optimistic about this acquisition as it offers MCT exposure to the stable business parks segment, as well as diversifies its portfolio concentration risk at Vivocity from 60% to 42% of AUM. The top 10 tenants account for 69.6% of the property’s GRI, and these include notable names like HSBC, IDA, Samsung, Unilever, SAP, Singapore Power and Mapletree Invts. Post purchase, MCT’s AUM and market cap will grow to c.S$6.2bn and >c.S$4bn, respectively, making it one of top 6 largest listed S-REITs. 
DPU accretive with more upside from forward renewals
In terms of impact, a full year’s contribution from the new property is expected to boost DPU by about 3% and lift book NAV to S$1.31/unit. Current blended rents average S$5.94psf/mth with inbuilt escalation clauses of 3%. About 10.8%/12.3% of the leases are due to expire in FY17/18. With office and business parks’ market rents of S$6-7psf/month, we expect to see positive rental reversions upon renewal, thus providing more earnings upside going forward. 
Funded by new equity raising and debt
The purchase is expected to be funded by a combination of debt (S$920m) and new equity. Up to 795m new units could be issued via a private placement and non-renounceable preferential offering exercise to existing unitholders. This will raise overall gearing to 39.4%, still within the S-REIT guideline ceiling of 45%. While details of the equity fundraising exercise are not yet available, our revised forecast assumes an issue price of S$1.40/unit for the new units. 
Upgrade to Add
We upgrade our recommendation to Add from Hold. We believe this purchase will not only be DPU accretive but will strategically enhance MCT’s portfolio in terms of size and stability. Our FY17-19 DPU estimates are raised by 1.1-3% to factor in income from this acquisition. Our DDM-based target price is lifted by a higher 9.5% to S$1.62 as we include the new contributions as well as tweak our cost of equity assumptions to 7.7% (from 8.1%) on the back of the slower interest rate growth outlook. 

Monday, June 27, 2016

Emirates Singapore Derby 2016 Roadshow

For the first time in Singapore Derby history, public roadshows will serve as curtain-raisers to this year’s Emirates Singapore Derby, touted as one of the most anticipated events on the local racing calendar.

I attended the event on 25 June 2016, Saturday at Outdoor Plaza @ Capitol Piazza. This is the first time I get up close to a real horse, feeding and patting it!

A few house rules to follow for Horse Patting and Feeding Session: 
- No flash photography 
- No balloons. No umbrellas. No loud noises. No food and drinks
- No running / playing- No sudden movement. No throwing of objects.
- All mobile phones to be switched to silent or vibration mode

I also had the opportunity to take part in the Horseshoe Pitching Competition with free unlimited tries but need to queue up. Attractive prizes are up for grabs!

By sharing your experience about the roadshow through Instagram with #EmiratesSGDerby, you will be able to redeem the Emirates cap gift immediately on the spot.

The Emirates Singapore Derby Roadshow will be opened to the public from 1 July to 2 July 2016 at CHIJMES, The Lawn from 12pm to 10pm. The roadshows are open to all, and admission is free. Full details, including programme timings are available under

Wednesday, June 08, 2016

Sheng Siong Group - Overhang of store closures removed

Overhang of store closures removed 
Sheng Siong was due to lose three big stores in 1H17 - Woodlands (40k sf), Jurong Superbowl (16k sf), The Verge (45k sf), which combined formed 23% of end-1Q16 total GFA. There were concerns the store closures could negate the positives of new store openings. The Woodlands store will still be closed in Jun 17, but management said it will likely retain the other two stores. As such, our store growth assumptions remain intact. 
Three new stores opened in 2Q16 (store count as at end-1Q16: 39)
The three stores are: 1) Circuit Road, 2) Upper Boon Keng, and 3) Fernvale. A fourth store, Yishun J9 will open in mid-Aug. These stores add c.25k sf of retail space, or about 6% to end-1Q16 GFA. The latest update on the status of Yishun J9 is that 15.5k sf of the total 19k sf space has been approved for supermarket use, and the company intends to lease the remaining space to food operators. Even as competitors such as Dairy Farm are consolidating stores, Sheng Siong continues to be on the lookout for new stores. 
SSSG contracted for two consecutive quarters…
SSSG first turned negative in 4Q15 (-1.7% yoy) and continued being negative in 1Q16 (-0.5% yoy), although the contraction did improve sequentially. While a weak retail environment contributed to the contraction, store specific factors also played a part e.g. Loyang (ongoing renovation), Woodlands (weak RM), and Geylang (liquor sales ban). Ex-Woodlands, SSSG would be flattish (+0.1%), impressive given the industry’s -1.1%. 
…but outlook could be better
While we do not expect exciting growth, we think SSSG could return to a small positive. Management sounded cautiously optimistic when asked about its outlook, and we think the company will also be coming off a lower base as 2Q15 was impacted by SG50 promotional activities. Store specific factors would also have less of an impact with the liquor sales ban having come into effect in Apr 15. 
Maintain status quo on China strategy
There is no change to the slated 4Q16 opening of Sheng Siong’s first store in Kunming, a JV with the Kunming LuChen Group. The total retail area will be 54k sf, of which c.40k (c.75%) will be for own use as a supermarket and the remaining will be sub-let out. The recent transfer of 10% equity interest in the JV from Mr Tan Ling San to Xpress Holdings has no impact on the JV operations. Sheng Siong retains its 60% stake and will continue to spearhead operations. Kunming LuChen holds the balance 30%. 
Reiterate Add; our preferred pick over DFI
In the consumer space, we prefer Sheng Siong over Dairy Farm (DFI SP, Hold). Sheng Siong’s earnings growth continues to be driven by new stores and margin expansion, further helped by government grants. On the other hand, Dairy Farm is consolidating stores and faces margin pressure. Our target price is still pegged to 22x CY17F P/E (historical mean). The stock offers an attractive 4-5% yield. Maintain Add. 

Wednesday, May 11, 2016

Singapore Post Ltd - Synergies showing up in ecommerce revenue

Profit missed on higher costs and investments at SP Commerce 
4Q revenue grew 28% yoy to S$318m but core net profit fell 20% yoy to S$31.8m. This was partially due to the loss of rental income from SPC retail mall and hybrid mail contributions (divested in 1H16), which we had factored in. We were surprised by 1) higher volume-related expenses (+59% yoy) from larger ecommerce volumes, 2) higher admin expenses (+24% yoy) from warehouse rentals and M&A expenses and 3) investments in front-end ecommerce infrastructure at SP Commerce. 

Logistics was decent; losses for retail & ecommerce
Logistics revenue grew by 3% qoq, impressive after a seasonally strong 3Q. However, logistics operating profit fell by 5% qoq on less operating leverage vs. the peak shopping season in 3Q. Mail revenue fell by 2% qoq and operating profit fell 10% qoq as growth came from lower-margin transshipments while business mail volume fell 3%. The big miss came from retail & ecommerce; though TradeGlobal and Jagged Peak are profitable, investments in front-end infrastructure resulted in operating losses of S$3.2m. 

Gaining traction in ecommerce, now 42% of 4QFY16 revenue
eCommerce-related revenue grew 5% qoq to S$134m, and made up 42% of 4Q revenue (3Q: 40%). Growth came from the logistics and retail & ecommerce segments, which we think reflects the momentum in realising synergies from TradeGlobal and Jagged Peak. In Mar, SPOST rolled out end-to-end services for Jagged Peak’s client, Nestle, in Singapore. This is currently for one product line, which we think could be Nespresso, with opportunities to handle more products in the future. 

Net debt but could return to net cash; DPS reaffirmed at 7 Scts
A final DPS of 2.5 Scts was declared, bringing total DPS to 7 Scts. Management reaffirmed its commitment to maintain DPS at 7 Scts, barring unforeseen circumstances. SPOST ended FY16 with a net debt position of S$154m, a slight improvement from S$176m in 3Q. We think it could return to net cash when its JV agreement and 5% share issuance to Alibaba come through, which would raise S$91.7m and S$187.1m, respectively. The long-stop dates for both have been extended from 31 May to 31 Oct. 

Maintain Add
We maintain an Add call on SPOST, with a lower DCF-based target price of S$1.76 (7% WACC) as we roll forward to FY17 and cut FY17-18F EPS by 2-3% to factor in higher expenses. In the short term, we think the share price could react positively to the overhaul of corporate governance policies and procedures, and the appointment of a new CEO. In the longer term, we expect earnings to re-rate on opportunities for collaboration with Alibaba ‐ both in transshipments and through the potential JV. 

Friday, April 29, 2016

Sheng Siong Group - Wage credits were the icing on the cake

Growth primarily driven by maturing of new stores 
1Q16 revenue (+5.1% yoy) reflected the gradual gestation of new stores opened in 2015 (+5.6%), offset by a 0.5% contraction in SSSG. Over 2015, Sheng Siong added five stores (Punggol, Tampines, Dawson, Bukit Panjang, Pasir Ris) of which among the five, Dawson and Pasir Ris still have some distance to reach optimum sales level. Guidance of 5-6% sales growth in 2016, propelled by new stores, remained unchanged.     

Weak environment shows up in flat same-store-sales growth…
1Q and 3Q are traditional festive periods that have an element of discretionary spending. Weak SSSG was reflective of a pullback in discretionary consumption trends during Chinese New Year. The effects of a weak economy first showed up in 3Q15. Other store-specific factors were: Loyang (ongoing renovation), Woodlands (weak RM) and Geylang (lower liquor sales), but the weak economy seems to be the main factor. 

… but also in muted bidding for new stores by competitors
On the bright side, weak retail spending and labour cost pressures helped Sheng Siong sustain its recent trailblazing pace of store growth. Four more stores (Junction 9, Circuit Road, Upper Boon Keng, Fernvale) have been added YTD. This adds ~25k sq ft of retail space. The ability to get stores is due to the subdued presence of NTUC and Giant in bids. Our assumptions (~32-34k sq ft new GFA/year) are now 74% achieved for FY16.   

Margins were broadly maintained, down qoq on sales mix
1Q gross margins were 24.5%, up 0.1% pt yoy and down 0.5% pt qoq. Gross margins were lower qoq because CNY festivities usually bring about a higher mix of grocery sales; these have lower margins vs. fresh food. With productivity initiatives still in the works, margins are expected to be maintained at 25%, and gradually peak at 26%.   

Results beat primarily from government grants
1Q16 beat expectations primarily due to other income (S$3.8m vs. our expectations of S$2.2m). Sheng Siong does provide for government productivity incentives but realised it underprovided S$1m for 2015 when actual wage credits came in. Management raised guidance for productivity incentive contributions, as gradual expiry of wage credits will be replaced by productivity and innovation credits. Our EPS is raised 2-4% on this.     

Maintain Add, starting China in a cautious manner
Our higher estimates spur our target price slightly higher. In our opinion, its premium valuations reflect stable earnings in tough times. Sheng Siong has started a store in Kunming, but this is not expected to exert meaningful contributions in FY16-17. 

Sunday, April 24, 2016

Suntec REIT - Unwavering against headwinds

1Q16: Higher yoy revenue and NPI 
Despite the absence of Park Mall, 1Q16 distributable income from operations was in line yoy at S$56m. This was mainly thanks to the higher revenue and NPI from the completion of Suntec City Phase 3 and Suntec City Office. Distributions were boosted by capital distribution of S$4m from the sale proceeds of Park Mall, which notched distributable income up by 7.2% yoy. 

1Q16 confirmed our view that SUN’s DPU profile should be stable
With this S$4m capital distribution plus the redemption of S$280m convertible bonds due in 2018 and the 30%-investment in the Park Mall JV (S$115m), we estimate that SUN has S$11m of sales proceeds left. Taking cue from 1Q16, we believe that the remaining sales proceeds would be utilised to ensure a steady and sustainable DPU profile. We have accordingly factored this into our FY16-17F distributable income.   

Retail: actively renewing leases for Suntec City Phase 1
Committed occupancy for its retail portfolio stood at 98.6% at end-1Q16 (4Q15: 98%, 1Q15: 93.5%). Suntec City’s committed occupancy stood at 98.7% at 1Q16 (4Q15: 98%, 1Q15: 92.5%). However, renewals are likely signed at lower rates. 1Q16 overall committed passing rent is S$12 psf (4Q15: S$12.04 psf, 1Q15: S$12.15 psf). It reduced leases expiring in FY16 (mostly for Suntec Phase 1) to 23.1% (end-15: 27%). The mall secured a large tenant which may bring down leases expiring to the high-teens in 2Q16.

Office operating metrics worse off than retail
Committed occupancy for SUN’s office portfolio stood at 98.3% as at end-1Q16 (4Q15: 99.3%, 1Q15: 99.6%). Suntec office’s committed occupancy stood at 97.5% as at 1Q16 (4Q15: 99.3%, 1Q15: 99.6%). Leases secured in 1Q16 averaged S$8.67 psf (-2% qoq, -6% yoy). SUN signed c.225,000 sq ft of renewal leases in the quarter and brought down its leases expiring in FY16 to 6% (end-15: 14.9%). One of the major off-takers was from the technology sector. 

Unwavering against headwinds, Hold maintained
We believe that the headwinds SUN faces (as gleaned from its deteriorating operating metrics) is counterbalanced by its resolution to keep DPU steady. Hence, we maintain a Hold on the stock. We update our FY16-18 DPU by 0.1-2.5%, leading to a higher DDM-based target price. SUN trades at 0.8x FY16 P/BV and offers an FY16 dividend yield of 5.9%. 

Monday, April 11, 2016

Sheng Siong Group - Store acquisition notionally negative, P&L positive

Acquiring an existing store 
●  Sheng Siong just announced the acquisition of a property (30.6k sf) for S$53m (c.S$1,732 psf). The property (located in Bedok Town Centre) is an existing store that the company has been operating for almost 10 years.
●  Sheng Siong is favoured for its asset light model, which puts this announcement as notionally negative even as our initial calculations suggest a net positive P&L impact. We note this is not the first property the group owns. Including its Junction 9 store (due to open in 2Q16), Sheng Siong will now own four out of the 41 stores that the group operates.

Rationale for store purchase
●  Important store in terms of revenue contribution. This is a big store (30.6k sf) and formed c.7% of end-FY15 total GFA. Given that the store likely enjoys higher footfall from being attractively located beside Bedok mall, the interchange and train station, we estimate the revenue contribution from this store to be 5-10%. We therefore read the acquisition as the company not wanting to risk losing an important store.
●  Potential positive P&L impact. Our back-of-the-envelope calculations suggest the P&L impact could be positive. 

Balance sheet still strong
●  This property purchase does little to dent the group’s balance sheet (net cash of S$126m as at end FY15). Ex final dividend and this property purchase, the group will still have net cash of S$47m. The group also generates strong operating CF (S$73m in FY15). 

Maintain Add, no change to estimates
●  We maintain our forecasts for now, even as we suspect a slight positive P&L impact. Our target price is kept at S$0.95 (still based on 22x CY17 P/E, historical mean). Maintain Add. The stock offers an attractive yield of 4%.