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Saturday, April 29, 2017

Mapletree Greater China Commercial Trust - FY17: Marginal boost from reversal of VAT payable

One-off boost from reversal of VAT payable 
MAGIC reported a 7.9% yoy rise in 4QFY17 revenue to S$94.8m on the back of higher rental across all three properties and reversal of VAT payable for Gateway Plaza (GW). 4QFY17 DPU of 1.959 Scts was 1.9% higher yoy, accounting for 26% of FY17 forecast. Full-year DPU of 7.32 Scts (+1% yoy) was slightly below expectation at c.98% of our forecast. The trust revalued its properties up by 5.1% yoy, translating to a book NAV of S$1.30/unit.   
  
High portfolio occupancy maintained 
Portfolio occupancy was unchanged at 98.6% as at end-4QFY17, with Festival Walk (FW) and Sandhill Plaza (SP) remaining fully occupied. FW enjoyed a 12% average rental reversion despite lower tenant sales. We believe management would continue to conduct asset enhancement initiatives (AEIs) to drive tenant sales and shopper traffic to enable it to enjoy continued positive rental reversions going forward.   
  
Excluding forex impact, GW revenue delivered growth yoy 
4QFY17 revenue was boosted by a one-off reversal of VAT payable (estimated at S$1.2m per quarter). Although on a full-year basis, GW revenue saw a 3.9% yoy decline to S$79.1m; excluding forex impact in Rmb terms, revenue is a little higher yoy. GW's occupancy was stable at 96.9% with lease reversions re-contracted at 10% higher than preceding levels, the demand coming largely from domestic companies. Sandhill Plaza continues to trade well, with a 16% rental uplift for its expiring leases.   
  
More than one-third of FY18 expiries already locked-in 
Looking ahead, MAGIC has 38% of gross rental income to be renewed in FY18 and a further 23.4% in FY19. An estimated 14% pts of FY18 expiries have already been renewed and extended to FY21/FY22. We expect forward rental uplift to moderate from the present double-digit quantums given the more challenging economic climate. Gearing is healthy at 39.3% as at end-4QFY17. As such, we believe MAGIC continues to explore inorganic growth prospects, largely in China. 
  
Maintain Add 
We lower our FY18F/19F DPU by 2.8/5.1% and introduce our FY20 estimates as we moderate our rental assumption growth for HK and China. We continue to like MAGIC for its largely resilient portfolio, backed by FW. c.65% of its 1HFY18 distribution income has been hedged to S$. Our DDM-based target price rises slightly to S$1.14 as we roll forward our valuation. Maintain Add given the potential total return of 16%. Downside risks include weaker-than-expected Beijing office market, which could affect earnings. 

Wednesday, April 26, 2017

Mapletree Commercial Trust - Strong performer

4Q/FY17 results came in slightly ahead of our expectations 
MCT reported 4QFY17 DPU of 2.26 Scts, coming in slightly ahead of our projections, representing 12% yoy growth. The better results were supported by a 47% yoy jump in revenue, thanks to the acquisition of MBC1. Additionally, all the properties across the portfolio also reported an improvement in contributions. FY17 DPU of 8.62 Scts exceeded our estimates by 3.4%. The better asset performance led to a 2.2% valuation uplift, with no change in cap rates, translating to a book NAV of S$1.38. 
  
Vivocity continues to perform well 
FY17 gross revenue and NPI from Vivocity rose 5%/3.4% yoy while occupancy remained high at 99%. Shopper traffic grew by a stronger 4.8% yoy to 55.8m while tenant sales crept up 1.3% yoy to S$952m. Retail rents saw a 13.5% upward revision on renewal. Going into FY18-19, MCT has 8.2% and 18% of retail leases to recontract. We expect rent renewals to be more muted, but positive, going forward as the retail climate remains challenging.   
  
Office/business parks component offers stability 
The office/business parks portfolio enjoyed an 8.5% rental uplift on renewals while occupancy at MBC1 and PSA Building held steady at 99% and 98.3%, respectively. Committed occupancy at MLHF rose to 91.6% as part of the vacated space was re-leased. The trust has 4.5% and 7.8% of office leases to be renewed in FY18-19. A lack of new business parks supply should support business park rents. 
  
Strong balance sheet with no near-term refinancing needs 
Its balance sheet remains healthy with gearing dipping slightly to 36.3% with a higher portfolio value. 81.2% of its debt cost has been hedged and there is no refinancing needed until FY19.   
  
Upgrade to Add 
We tweak our FY18-19 DPU up by 0.5-1.6% to adjust for the better-than-expected performance and introduce our FY20 estimates. We raise our DDM-based target price to S$1.70 as we roll forward our projections as well as lower our Singapore discount rate. Upgrade to Add from Hold. We like MCT’s portfolio which has a good blend of resilience (through the more stable business park rents) as well as growth coming from Vivocity. MCT offers total return of c.14%. Risks include slower-than-projected rental uplift.   

Sunday, April 23, 2017

Frasers Logistics & Industrial Trust - All shiny and chrome

Largest pure-play exposure to favourable Australian industrial 
FLT is the first S-REIT with an initial pure-play Australian industrial portfolio of A$1.74bn, making it the fourth largest industrial owner in Australia. Its portfolio comprises 54 industrial properties located across the major cities of Melbourne, Sydney, Brisbane, Perth and Adelaide, with an aggregate GLA of 1.23m sqm. 96.9% of its portfolio value is concentrated on the eastern seaboard. Unlike other S-REITs with Australian exposure, FLT has minimised carry trade concerns by funding fully in 100% A$-debt.   
  
Why Australia? 
Australia has sustained 25 years of uninterrupted growth, with domestic consumption emerging as an engine of economic growth. Our economist at Morgans (our Australian JV partner) expects GDP growth to accelerate moderately at 3% for 2017. Rising consumption, e-commerce and internalisation of the retail sector is driving demand for 3PLs and logistics facilities. This has led to favourable supply-demand dynamics where cap rate compression, tightening occupancy and rental growth have been observed. 
  
All shiny and chrome 
FLT has a prime portfolio which ticks all the checkboxes: i) properties which are located in core markets with strong connectivity to key infrastructure, ii) a predominantly freehold/long leasehold and young portfolio, iii) a quality tenant base which accords the trust a high portfolio occupancy of 99.3% and long WALE of 6.9 years with built-in step-ups averaging 3.2% p.a. and lastly, iv) one of the largest Green Star performance rated industrial portfolios in Australia. 
  
Strong sponsor with an established track record 
Unlike the other industrial S-REITs with exposure in Australia, FLT is backed by sponsor FCL, which through FPA, has an end-to-end development platform and is a market leader in Australia’s industrial sector (15-25% market share over 2001-15). In fact, 100% of FLT’s portfolio was developed by FPA. Further, FPA has a development pipeline with an estimated completed value of A$850m, which offers FLT a strategic avenue to pursue inorganic growth, especially with an increasingly low availability of prime assets. 
  
Forecast FY17 DPU of 6.87 Scts; 3.4% yoy DPU growth for FY18 
Factoring in rental step-up of 3.2% p.a. and full-year contributions from the call option and development properties, we project FLT to achieve 6.87 Scts for FY17. We project muted underlying A$-distribution growth as negative rental reversions offset annual step-ups. FLT’s portfolio is slightly over-rented. However, as the A$ is appreciating against the S$, we expect FY18 distributions to be hedged at more favourable rates vs. FY17 distributions, which were hedged pre-Brexit, at an average A$:S$ of 1.0. 
  
Initiate FLT as one of our sector preferred picks 
We initiate FLT with an Add and DDM TP of S$1.10, translating into total returns of 18%, one of the meatiest in our coverage. Given CDREIT’s YTD 10% outperformance (one of the better performing S-REITs), we replace the former with FLT as one of our sector preferred picks (the other being MAGIC). Key downside risk is a turn in Australia’s industrial market. FX risk is mitigated as FLT’s units are traded in both A$ and S$ (the units are fungible), and investors can elect to receive dividends in A$ or S$.

Monday, February 13, 2017

Singapore Post Ltd - Decent ops marred by unfortunate circumstances

Results missed on poorer US operations 
3QFY3/17 core net profit of S$31.4m (+16% qoq, -29% yoy) was a disappointment amid seasonally stronger volumes (Singles Day, Black Friday, Christmas). Revenue fell slightly short of expectations on lower contributions from the ecommerce segment, especially at TradeGlobal (TG). While operating profit at the postal/logistics segments performed in line/exceeded expectations, S$8.4m in operating losses at the ecommerce segment brought overall operating profit down to S$37.3m (-2% qoq, -32% yoy). 
 
Strong AliExpress volumes lifted international mail contributions
 
Postal revenue grew 13% qoq and 10% yoy, lifted by higher international mail revenue (+24% qoq, +11% yoy) as SPOST handled more AliExpress shipments, helped by the Singles Day sales event. Postal operating margins rose slightly qoq to 26.9% (2QFY17: 26.2%) on better operating leverage, and operating profit rose 16% qoq to S$38.5m. SPOST continues to engage in conversations with Cainiao, Lazada and Redmart on future collaboration, and plans to increase outbound mail in addition to transshipments. 
 
Logistics saw strong qoq improvement
 
We were pleasantly surprised by the improvement in logistics operating profit to S$8.8m, which grew 78% qoq. All businesses saw higher revenue, with overall logistics revenue up 11% qoq and 6% yoy. While startup costs at the new ecommerce logistics hub continue to hurt margins and operating profit was still down 27% yoy, SPOST managed to improve utilisation from 10% to 18% at the facility, partially helped by the peak period. 
 
TradeGlobal missed expectations; risk of impairment but not news
 
TG was the key culprit for the group’s poor overall performance. It was expected to post positive profits but instead suffered losses due to: 1) high cost of seasonal fulfillment labour, 2) loss of a key client that filed for bankruptcy and 3) a client that insourced its freight operations. As TG is performing below its base case, it could face impairment in 4Q, which we had highlighted in an earlier note in Jul 2016. We expect cost pressures to ease following a restructuring of TG’s operations. Jagged Peak was profitable in 3Q. 
 
Maintain Add
 
We continue to like SPOST for its growth potential in ecommerce logistics following its JV with Alibaba. It also has the potential to divest non-core assets (e.g. self-storage, retail mall). The stock trades at 21x forward P/E, an attractive level for earnings recovery in FY18 following the re-opening of the SPC retail mall in mid-2017. Maintain Add, with a lower DCF-based target price of S$1.62 (7% WACC) as we cut FY17-19 EPS by 6-10% for lower ecommerce profits. Key risk is fierce competition displacing SPOST’s volumes. 

Thursday, February 09, 2017

Perennial Real Estate Holdings - Dragged by revaluations and impairment losses


FY16 results highlights 
PREH posted FY16 net profit of S$35.1m, -39.6% yoy on a 6.4% dip in revenue to S$110.2m. Although full-year revenue was slightly ahead of our estimate, net profit was below largely due to impairments and revaluation losses taken for the Shenyang Red Star Macalline Furniture Mall and Eden Residences in Singapore, partly offset by revaluation surplus from the Perennial International Health and Medical Hub. Stripping out exceptionals, core net profit would have been S$0.3m, 37% of our forecast. 
 
Singapore impacted by impairments and lower rental income
 
Singapore made up 54% of FY16 revenue and 16% of EBIT. Revenue fell 4.4% yoy due to lower rental income from TripleOne Somerset on lower occupancy after commencement of AEI. EBIT was adversely impacted by impairment provisions for Eden Singapore and revaluation deficit from Capitol Singapore. PREH recently monetised part of its stake in TripleOne Somerset to Shun Tak and this could create some income vacuum from FY17 onwards.   
 
China earnings growth likely to be 2H loaded
 
In China, committed occupancy at the Perennial International Health and Medical Hub has crept up to 60% and is scheduled to be operational from 3Q17. In addition, one tower at Chengdu Plot D is expected to be handed over to Chengdu Xiehe Eldercare Home and is expected to commence operations in 3Q17. P1 is expected to have a capacity of 960 beds and pre-marketing activities for these homes have started. 
 
Maintain Add
 
We think FY17 earnings would likely be back-end loaded with new contributions from Chengdu expected to be felt from 3Q17. Hence, we cut our FY17-18F EPS to factor in the reduced stake in TripleOne Somerset and push out the pace of contributions from Chengdu and Beijing projects as well as delay the sale of the remaining Eden Singapore units. Our RNAV falls to S$1.79, and our TP is cut to S$1.08 (a 40% discount to RNAV). Key risk is slower-than-expected roll-out of its property and healthcare business.   

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