(Oct 23: $2.63)
MAINTAIN HOLD. CapitaLand Mall Trust’s (CMT) reported its 3Q19 results which were in-line with our expectations. DPU grew at a healthy clip of 4.8% y-o-y to 3.06 cents. If we take into account the $1.5 million and $4.0 million of taxable income available for distribution which was released in 3Q19 and 3Q18, respectively, we estimate that 3Q19 adjusted DPU would have increased at a stronger magnitude of 7.6% y-o-y. 3Q19 saw the maiden positive NPI contribution from Funan. Overall portfolio occupancy improved 0.6 ppt q-o-q to 98.9%. However, rental reversions, shopper traffic and tenants’ sales moderated in 3Q19, in-line with the soft retail sales index in Singapore. That said, we believe CMT’s performance has been more resilient than the overall market. We lower our cost of equity assumption to 6.1% from 6.5% to better align with our assumptions used for Mapletree Commercial Trust and Frasers Centrepoint Trust (both 6.2%), coupled with expected continued resiliency in CMT’s operations and robust DPU growth projected in FY2020. Fair value is bumped up from $2.51 to $2.73. — OCBC Investment Research (Oct 22)
Frasers Commercial Trust
(Oct 23: $1.65)
MAINTAIN HOLD. 4Q19 DPU was flat y-o-y at 2.40 cents, in line with our expectations. Excluding capital distributions, the underlying 4Q19 DPU fell 22% y-o-y to 1.67 cents while FY2019 DPU fell 11% y-o-y to 7.21 cents, mainly due to weaker AUD and GBP, and lower occupancy at Alexandra Technopark (ATP). Key highlights (i) 18 Cross Street (CSC) retail podium TOP with 80% pre-committed lease; (ii) 72% Microsoft lease backfilled; (iii) limited exposure to co-working. Frasers Commercial Trust (FCOT) on average has historically traded at 1.2% higher yield than its large-cap office peers given its Grade B, business park and overseas exposure. FCOT’s earnings are expected to recover in FY2021 when full-year contribution from Google kicks in and FCOT no longer needs to rely on capital distributions to support its DPU. Then, its estimated forward yield of c.6% would be close to its average historical spread. We maintain our DCF-based price targert of $1.70. In our numbers, we have priced in a $250 million UK acquisition at an initial NPI yield of 6% in 3QFY20. — DBS Group Research (Oct 23)
Keppel Corp
(Oct 23: $6.73)
MAINTAIN BUY. Keppel Corp (Keppel) reported 9M19 revenue of $5.38 billion (+26% y-o-y) that met our expectations. However, 9M19 net profit of $516 million (-37% y-o-y) missed our and consensus expectations due to the property segment which saw lumpy enbloc sales in China and Vietnam in 9M18. 3Q19 net profit fell 29% y-o-y to $159 million, however, this was again due to a high base in 3Q18 which saw $100 million gains from the divestment of Beijing Aether property. The two highlights were the offshore marine segment, which witnessed higher profits and margins, and the infrastructure segment where prior investments in data centres is now paying off handsomely. Operating profit was up three-fold q-o-q to $33 million. Operating margin more than doubled to 5.2% (2Q19: 2.4%), the highest since 4Q17. Price target of $7.61, based on SOTP valuation. Keppel’s current one-year forward PE of 12.6x based on our 2020 forecasts appears inexpensive as it is below its 5-year average of 14.5x. — UOB Kay Hian (Oct 18)
Keppel Reit
(Oct 23: $1.23)
MAINTAIN NEUTRAL. Keppel REIT’s 3Q19/9M19 results are in line. Key positives (3Q) are continued positive rental rate growth and divestment of BJT at a premium to book value. Key points to look out for are how quickly it can redeploy proceeds into higher-yielding assets, and its management of transitional vacancies and downtime arising from tenant movements in its properties (FY2020). Rental reversions for 3Q19/9M19 remained strong at 14%/14.8%. With average expiring rental rates for FY2020-2022 at $9.59/9.53/10.00psf – well below the current market average – management is confident of achieving double-digit rental reversions in the near term. KREIT currently has minimal exposure to co-working tenants, at 0.2% of total portfolio cash rental income (post Bugis Junction Towers (BJT) divestment). Management is actively looking at acquisitions in the near term, with Melbourne and Sydney being potential target destinations. Price target of $1.23. Current valuations are fair, with the stock offering a 4.5% FY2019F yield. — RHB Research (Oct 17)
Mapletree Industrial Trust
(Oct 23: $2.52)
HOLD. Mapletree Industrial Trust (MIT) reported its 2QFY20 results which met our expectations. DPU rose 4.0% y-o-y to 3.13 cents. Gross revenue and NPI saw an improvement of 10.5% and 13.3% to $101.9 million and $80.0 million. Operationally, rental reversions for MIT’s renewal leases remained subdued in 2QFY20. Only the Hi-Tech Buildings space saw positive rental reversions (+2.6%) in 2QFY20. Its Business Park Buildings fared the worst (-9.2%). Portfolio occupancy in Singapore saw a slight decline of 0.3 ppt q-o-q to 90.2%, due largely to a dip in Light Industrial Buildings (-10.3 ppt). In terms of financial position, MIT’s aggregate leverage declined from 33.4% (end-1QFY20) to 29.2%, as management utilised a portion of its recent private placement proceeds to pare down some debt first. Once MIT completes the proposed acquisition of a portfolio of 13 data centres in North America (JV with its sponsor), its aggregate leverage is expected to increase to 37-38%. After some minor tweaks, our fair value remains at $2.55. — OCBC Investment Research (Oct 23)
Singapore Airlines
(Oct 23: $9.12)
MAINTAIN HOLD. 2QFY20 pax load factor improved across the group and this suggests that operating profit could improve q-o-q and y-o-y even after factoring in weak cargo traffic for the period. However, bottom-line could still be dragged by weak associate earnings. We expect Singapore Airlines (SIA) to trade in a narrow range at $9.00-10.00 over the next three months. In 1QFY20, the parent airline recorded operating profit of $232 million (+28.2% y-o-y) despite a 4.4% y-o-y decline in cargo traffic and a 4.2% y-o-y decline in cargo yield. For 2QFY20, the parent airline’s load factor improved 2.7ppt q-o-q. Thus, there is a strong possibility that the parent airline’s 2QFY20 operating profit could improve y-o-y (1QFY20: $181 million) and q-o-q. In 1QFY20, SIA recognised $31 million in losses from Virgin Australia (VA). We believe SIA recapitalised VA in 1QFY20 and thus is likely to recognise any incremental losses. Air Vistara, (49% owned by SIA) which commenced international operations in August, could similarly be in the red. Fair value of $9.50. — UOB Kay Hian (Oct 17)
Singapore Press Holdings
(Oct 23: $2.21)
MAINTAIN HOLD. Our FY2020F earnings estimate is below consensus as we see a slower earnings recovery after our economics desk further downgraded 2019 and 2020 GDP growth outlook to 0.4% and 1.4% respectively. Core FY2019 earnings was in line with our estimate. We expect earnings growth outlook to be more challenging as our economist now expects 2020 GDP growth to be slower at 1.4% from 1.8% previously. In addition, we expect declining adspend revenue to continue putting pressure on earnings growth. We note that FY2019 dividend was lower than expected at 12 cents, vs our 12.5 cents expectation. Final DPS of 5.5 cents and special DPS of 1 cent. With a less optimistic earnings outlook, we lower our SOTP-based price target to $2.19, to reflect our lower earnings projection on the back of a weaker macro outlook. We value SPH's core newspaper and magazine operations at 7 cents per share based on discounted cash flow model, SPH’s property business at $2.18, and net cash and investments at -6 cents. — DBS Group Research (Oct 21)
Soilbuild Business Space REIT
(Oct 23: 51.5 cents)
MAINTAIN HOLD. Soilbuild Business Space REIT's (SBREIT) 3QFY19 results were below expectations. Gross revenue and net property income increased by 7.0% and 4.5% y-o-y respectively, mainly due to the conversion of Solaris into a multi-tenanted property and the contribution from two Australia properties. However, 3QFY19 DPU fell 26.3% y-o-y, following the preferential offering and the cessation of revenue recognition from NK Ingredients (NKI). Stripping off the impact of the preferential offering, 3QFY19 DPU would have dropped 12.9% y-o-y. Portfolio occupancy remained stable at 88.4%. Rental reversion came in at +1.0%, and can be broken down by +8.5% for renewals and -9.3% for new leases, driven by Business Park. On NKI, the judicial manager would provide more clarity at the end of October. Meanwhile, SBREIT is exploring a potential redevelopment option with capex of ~$55-60 million to maximise NKI’s plot ratio from 0.55x to 1x. After adjustments, our fair value decreases from 58 cents to 52 cents. — OCBC Investment Research (Oct 18)
Suntec Reit
(Oct 23: $1.85)
BUY. Suntec REIT reported its 3Q19 results which met our expectations. Gross revenue and NPI grew 3.5% y-o-y and 3.2% y-o-y to $91.9 million and $58.4 million, respectively. The main growth driver came from the Suntec City and Retail segments, but partially offset by weaker Convention contribution. DPU fell 5.1% y-o-y to 2.365 cents, but this was due once again to a lower distribution from capital (-38.0% to 0.232 cents). DPU from operations rose 0.8% y-o-y to 2.133 cents. Committed occupancy for Suntec City Office came in almost full at 99.9% (+0.8 ppt q-o-q). Suntec REIT highlighted that it has achieved six consecutive quarters of positive rental reversions for its Suntec City Office property, while there were also good rent reversions for leases signed at One Raffles Quay and the MBFC Properties in 3Q19. 9M19 rental reversions were positive at 4.4%, as compared to +5.3% in 1H19. Tenants’ sales psf rose 0.8% in 9M19, softer than the 1.7% growth registered in 1H19. Footfall was stable (+3.8% in 9M19 versus +3.9% in 1H19). Fair value of $2.07. — OCBC Investment Research (Oct 23)
FOREIGN
Bangkok Bank
(Oct 22: THB168.50)
MAINTAIN OUTPERFORM. Bangkok Bank (BBL) reported its 3Q19 earnings with net profit of THB9.4 billion, representing an increase of 4.5% y-o-y and 1% q-o-q. PPOP of THB15 billion was up 1% y-o-y and 7% q-o-q. 9M19 net profit represents 75% of our full-year earnings forecast and 76% of consensus numbers. PPOP accounts for 77% of our FY2019E number. We are satisfied with the results, and note that they come slightly ahead of our expectations. PPOP was clearly a beat, largely driven by lower-than-expected opex. Net interest income was in line, and NIM held up better than what the market had anticipated. Asset quality indicators for BBL are difficult to read, although it appears mixed. NPLs were up 5% and special mention loans down 1% on a q-o-q basis. Credit costs were slightly higher as compared to our full-year forecast, possibly because of investment gains of THB2.6 billion recorded during the quarter. Based on banks that have reported their earnings thus far, BBL's results appear to be a relative bright spot so far in 3Q19. Price target of THB219. — Credit Suisse (Oct 18)
BOC Aviation
(Oct 23: HK$71.85)
MAINTAIN HOLD. BOC Aviation’s (BOCAV) stock price has risen 28% year-to-date on investor confidence in the lessor’s ability to create value from its stable lease portfolio and strong cash generation. In July, BOCAV announced an ABS structure, which would lower transaction costs, offer better margins and provide service income from the managed aircraft. The popularity of the structure reduces BOCAV’s residual fleet value risk. While there is some certainty in fleet delivery in 2H19, we expect 2020 fleet delivery to be substantially higher than in 2019. As such, we believe it is prudent to factor in forward earnings and book value at this juncture. We roll our P/B-based valuation to 2020, factoring in 2019-20F average book value of 1.32x. Our fair value is thus raised by 6.5% to HK$73.50. However, there is some uncertainty as to when the B737 Max will be recertified although the general expectation is that it will be re-certified in early-20. Our price target implies 2019F dividend yield of 3.7% and 9.5x 2019F PE. — UOB Kay Hian (Oct 17)
China Mobile
(Oct 23: HK$64.95)
MAINTAIN OUTPERFORM. The decline in China Mobile’s cellular service revenue slowed to 3.3% y-o-y in 3Q19, in a clear improvement versus 2Q19’s 8.8% y-o-y decline (abolition of roaming in July 2018 is now included in the y-o-y comparative figures). Across 9M19, cellular revenue, therefore, fell 6.2% y-o-y. Once again ‘fixed and other’ service revenue provided support, growing by 34.2% y-o-y in 9M19, and so total service revenue declined just 1.0% y-o-y. EBITDA grew by 5.3% y-o-y in 9M19, largely due to the implementation of IFRS 16; tower lease payments are no longer being charged at the EBITDA level. Given that the costs simply shifted down the P&L account, headline earnings declined by 13.9% y-o-y in 9M19, but this was still an improvement versus 1H19’s 14.6% y-o-y decline. Nevertheless, we trim our FY2019 service revenue, EBITDA and net profit forecasts by 1.7%, 2.2%, and 4.6%, respectively, and our DCF-based target price declines by 1.8% to HK$83.50 (from HK$85.00). Against this, management confirmed that the company will maintain a ‘stable’ dividend per share y-o-y across the full year, and the upside risk to total capex is now capped. — Credit Suisse (Oct 21)
China Unicom Hong Kong
(Oct 23: HK$8.01)
DOWNGRADE TO NEUTRAL. The decline in Unicom’s cellular service revenue slowed to 5.1% in 3Q19, in an improvement versus 2Q19’s 8.1% y-o-y decline—the July 2018 abolition of data roaming is now included in the y-o-y comparatives. Across 9M19, cellular service revenue fell by 6.1% y-o-y, but fixed line revenue grew by 8.3% y-o-y, thanks to the ‘industrial internet’ (i.e. data centres and cloud). EBITDA grew by 10.4% y-o-y in 9M19, largely due to the implementation of IFRS 16; tower lease payments are no longer being charged at the EBITDA level, but instead are being booked as depreciation and interest under finance leases. Headline net profit rose by 11.9% y-o-y, as Unicom’s earnings recovery continued. We revise down our FY2019 service revenue, EBITDA, and net profit forecasts by 1.9%, 2.3% and 1.4% respectively, but maintain our price target of HK$8.55. However, after a share price rally following the announcement of ‘co-build co-share’ we see limited upside, particularly given the weak core results. — Credit Suisse (Oct 21)
Econpile Holdings
(Oct 23: 70.5 sen)
MAINTAIN UNDERWEIGHT. Econpile Holdings has secured a RM44 million contract for piling and substructure works for Tropicana Gardens’ mixed development in Kota Damansara. The latest contract has boosted its YTD (FY June) contracts secured to RM72.7 million and its outstanding order book to RM850 million. We are keeping our forecasts which assume Econpile will secure RM500 million worth of new jobs annually in FY2020–2022F. Econpile has set itself a target for new job wins of RM600 million in FY2020F (vs. RM643.7 million achieved in FY2019). During a recent analyst briefing, it guided for about RM100–200 million new contracts to come from piling jobs for property projects. We raise our fair value to 34 sen based on 8x FD CY20F EPS of 4.25 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks (from 25 sen previously based on an asset-based valuation method). Its valuation are unattractive at 15-19x forward earnings on muted earnings growth prospects. — AmBank Research (Oct 21)
Hongfa Technology
(Oct 23: RMB24.66)
OUTPERFORM (initiating coverage). Hongfa Technology (Hongfa) is the largest electric relay manufacturer in the world and we expect it to ride on the auto electrification trend. Its high voltage direct-current (HVDC) relays for new energy vehicles (NEVs) will be the largest top-line growth driver in the next 3-5 years, in our view. HVDC relays have much higher ASP than general auto relays, given the high voltage required for NEV power trains and their fast charging needs. The incremental relay cost per NEV is about RMB1,000, almost five times more vs ICE autos. We hold a positive outlook on Hongfa's top three products, general power relays, latching relays and auto relays in 2020 and 2021. China's home appliance and auto markets are bottoming, and Hongfa still has the potential to gain market share in the long term. Our DCF-based price target of RMB31.19 implies 25.6x 2020E P/E and 2.9x 2020E P/B. Trading at 20.3x 2020E P/E, near the low end of historical valuation range, we believe the stock is undervalued. — Credit Suisse (Oct 18)
Stella Int’l Holdings
(Oct 23: HK$12.68)
MAINTAIN BUY. Stella’s 3Q19 revenue declined 5% y-o-y to US$449.3 million, dragged by the downsizing of its retail branding business. The core OEM business remained in good shape with flattish shipment volume and ASP growth, and no material impact from the US-China trade war. 9M19 EBIT margin surpassed the company’s 8% target for 2019, with double-digit margin in 3Q19. In 2020, management expects adjusted EBIT margin to reach at least 9%. Management said the ramp-up at its Vietnam factory for Nike is making good progress with some high-end models such as Jordan and Airforce series being produced in smaller quantities than in China factories. We reduce our 2019-2021 profit forecasts by 5.8%, 5.5% and 5% respectively on lower top-line growth, mainly to reflect the rapid downsizing in the branding business and more conservative OEM shipment volume assumptions. A lower target price of HK$15.50, based on an unchanged 14.5x 2020F PE, which is around +1SD of Stella’s five-year historical mean. — UOB Kay Hian (Oct 18)
TMB Bank
(Oct 23: THB1.42)
HOLD. 3Q19 EPS beat our forecast on one-off investment gain but core EPS missed Street and our forecasts by 6% due to higher-than-expected opex and credit costs. 9M19 EPS accounted for 72% of our FY2019E forecast. Although we expect synergies of THB30-40 billion over the next 2-5 years from reduced combined marketing and advertising expenses and balance sheet optimisation, near-term earnings growth could be curbed by integration and rebranding expenses. The merged bank would have THB1.9 trillion assets and more than 10 million retail customers. It would be the sixth-largest commercial bank in Thailand with 12% market shares of loans and deposits. We estimate a loan mix of 30% HP loans, 26% corporate loans, 20% mortgages, 20% SME loans and 4% unsecured lending. CASAs should account for 44% of deposits, followed by 33% for fixed deposits and 23% for hybrid. GGM price target of THB1.60 (0.8x FY20E P/BV, 8.5% ROE). — Maybank Kim Eng (Oct 21)
Zhejiang Sanhua Intelligent Controls
(Oct 23: RMB13.94)
OUTPERFORM (initiating coverage). Zhejiang Sanhua Intelligent Controls (Sanhua) successfully expanded its business to NEV thermal management system and became the leading components supplier in the fast-growing industry. We expect the automotive revenue growth to accelerate with 14.3%/42.2%/39.1% growth y-o-y in 2019/2020/2021E. Sanhua has entered into the supply chain of global tier-1 OEMs. As of end July 2019, its adjusted backlog of NEV parts reached RMB13 billion. These orders will largely book into revenue in the next 4-5 years. Sanhua is the leading refrigeration parts supplier globally, and we see limited challenge from competitors. Although micro channel business and SANHUA AWECO Appliance Systems have been lower than expected over the past years, we think there is potential left and expect 10%-15% growth in 2020/2021. Our price target of RMB16.28 is derived from DCF model, implying 26.9x 2020E P/E and 4.2x 2020E P/B. — Credit Suisse (Oct 18)
