Ada Lim of OCBC Investment Research has kept her “buy” call and raised her fair value for China Aviation Oil (CAO) to $1.40 from $1.10, on expectations that the Shanghai-based jet fuel supplier remains firmly buckled on China’s growing aviation traffic volume despite lacklustre consumer sentiment.
Lim, in her July 25 note, points out that 38.14 million passengers passed through international routes in the first six months of the year, up 28.5% y-o-y.
“This should support jet fuel volume growth and profits at Shanghai Pudong International Airport,” says Lim, referring to CAO’s main operating base.
“Higher oil price volatility might have also presented trading and arbitrage opportunities for the company, in our view,” she adds.
See also: OCBC's Lim cuts fair value for SingPost to 49.5 cents
Ahead of CAO’s 1HFY2025 results on Aug 14, Lim has raised her growth assumptions for this company. She has also raised her target P/E valuation multiple from 8.8 times to 11 times, just a shade below CAO’s five-year average.
Lim believes that CAO, which is in a net cash position of around US$500 million ($644 million), is also one of the small and mid-cap names that might benefit from the $5 billion market rejuvenation fund.
“A key catalyst to watch out for would be management’s commitment to a higher dividend payout ratio, especially amid China’s ongoing reform of state-owned enterprises (SOEs) to boost shareholder returns and capital efficiency,” she adds. — The Edge Singapore
See also: CGSI's Ong raises target price for BRC Asia to $4.30 on healthy industry fundamentals
ESR REIT
Price target:
DBS Group Research ‘buy’ $3.20
Earnings growth ahead following asset enhancements
DBS Group Research has kept its “buy” call on ESR REIT on expectations of earnings and net asset value growth, given how its portfolio is repositioning and rejuvenating.
In addition, analysts Dale Lai and Derak Tan have raised their target price for this counter from $3.10 to $3.20 to take into account recent acquisitions and divestments.
In 1HFY2025 ended June 30, ESR REIT reported a distribution per unit (DPU) of 11.239 cents, which is in line with estimates.
Gross revenue increased by 23.2% y-o-y to $222.9 million, after adding full-period contributions from the Yatomi Kisosaki Distribution Centre in Japan and the 51% stake in 20 Tuas South Avenue 14 in Singapore. The REIT enjoyed higher rentals from 7002 Ang Mo Kio Avenue 5 and 21B Senoko Loop, too, following asset enhancement works.
Net property income (NPI) in the same period was up 30.1% y-o-y to $166.3 million, thanks to lower utility costs and higher service charges.
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NPI margins, having improved to around 75% in 1HFY2025, can likely be maintained at this level, according to Lai and Tan.
The REIT’s portfolio occupancy was down marginally by 0.2 percentage points to 91.2%, but it managed to enjoy continued positive rental reversions of 9.7% in 1HFY2025.
“We have been positively surprised by ESR REIT’s strong underlying portfolio performance, which has driven robust growth in core DPU. With the majority of EREIT’s portfolio rejuvenation efforts largely completed, we anticipate a rebound in profits that will be increasingly driven by core operational earnings,” state Lai and Tan.
They expect further earnings growth from completed asset enhancement works and redevelopments, including two that are underway, and that rental reversions of between 6 and 7% can be achieved in the current 2HFY2025.
“While there are currently some transitional vacancies within the portfolio, management remains confident in their ability to backfill these spaces,” they add.
With rates poised to go lower, the DBS analysts have also assumed lower financing costs in FY2025 of 40 basis points y-o-y.
The REIT is now trading at around its NAV, but with an “attractive” forward yield of over 8%, it is deemed a “buy” by the DBS analysts. — The Edge Singapore
OUE REIT
Price targets:
CGS International ‘add’ 33 cents
Maybank Securities ‘hold’ 30 cents
OCBC Investment Research ‘buy’ 33.5 cents
Phillip Securities ‘buy’ 40 cents
Interest cost savings, but market headwinds
OUE REIT is benefitting from interest cost savings, say Lock Mun Yee and Li Jialin of CGS International (CGSI), in a relatively upbeat report following the release of the REIT’s results for 1HFY2025 ended June 30.
The REIT’s net property income (NPI) and revenue fell 10.6% y-o-y and 10.1% y-o-y, respectively, in 1HFY2025 due to the absence of revenue contributions from Lippo Plaza Shanghai, which was divested in December 2024.
OUE REIT’s portfolio now comprises six assets located in Singapore: three office assets — OUE Bayfront, One Raffles Place and OUE Downtown Office; two hotels — Hilton Singapore Orchard and Crowne Plaza Changi Airport; and a retail mall, Mandarin Gallery.
On a same-store basis, 1HFY2025 net property income (NPI) and revenue declined 2.0% and 2.7% year-over-year (y-o-y), respectively, due to lower contributions from Hilton Singapore Orchard, but were partially cushioned by continued strength in the office segment.
OUE REIT’s commercial segment reported 5.1% NPI and 3.6% higher revenue y-o-y in 1HFY2025 on a same-store basis, while rental reversion came in at +9.1% while occupancy remained high at 95.5%.
OUE REIT has 36.8% of its leases expiring in FY2026, including those from top 10 tenants such as Deloitte, Bank of America and Allen & Overy. Management indicates that negotiations are at various stages of progress.
While gearing of 40.3% and cost of debt of 4.2% were largely stable q-o-q, cost of debt has declined since 1QFY2025, resulting in finance cost savings of some $9.4 million y-o-y, say Lock and Li in a July 25 report.
“Notably, according to management, its share of OUE Allianz Bayfront borrowing of $311 million will be refinanced early in 3QFY2025 at a lower cost and contribute positively to interest cost savings in FY2026,” they add.
Hence, the CGSI analysts are staying “add” on OUE REIT with an unchanged target price of 33 cents, above most peers.
The only brokerage with a higher target price is Phillip Securities, at 40 cents.
OCBC Investment Research’s Ada Lim says the 1HFY2025 results met her expectations, though the REIT’s commercial and hospitality segments continue to diverge in performance.
The hospitality segment was a drag on the portfolio during the period, with 1HFY2025 revenue and NPI down 12.9% and 11.7% y-o-y, respectively.
Revenue per available room (RevPAR) fell 13.4% y-o-y at $233, weighed down by high base effects at Hilton Singapore Orchard, recent new supply along Orchard Road and cautious travel spending in 1H2025.
Still, OCBC’s Lim concurs with CGSI on OUE REIT’s improved capital management metrics.
“Management shared that a 25-basis point (bp) decline in interest rates would improve distribution per unit (DPU) by 0.03 cents. All things considered, we fine-tune our forecasts and raise our FY2025 and FY2026 DPU forecasts by 6.2% and 1.1%, respectively. There could be upside risk to our forecasts if rental reversions for the commercial segment continue to come in stronger than expected,” writes Lim.
In a July 24 note, Lim maintains a “buy” rating on OUE REIT, with a higher target price of 33.5 cents, up from 31.5 cents previously.
Maybank Securities analyst Krishna Guha is relatively conservative on OUE REIT’s latest set of results, noting that the REIT faces “hotel headwinds” and high gearing.
In a July 25 report, Guha maintains a “hold” on OUE REIT, but with a higher target price of 30 cents, up from 28 cents previously.
Guha notes that Hilton Singapore Orchard’s RevPAR fell 21% y-o-y, while Crowne Plaza Changi Airport “continued to track well” with 4.8% y-o-y RevPAR growth.
According to him, management’s focus is on securing more group business for Hilton Singapore Orchard and more proactive booking management. — Jovi Ho
Venture Corp
Price target:
CGS International ‘hold’ $12.14
Earnings outlook remains ‘challenging’ in 2H2025
CGS International (CGSI) analysts William Tng and Tan Jie Hui are maintaining their “hold” call on Venture Corporation ahead of its results for the 1HFY2025 ended June 30. Venture will release its results after the market closes on Aug 6.
The analysts are estimating the group to report a lower net profit of $106 million, 14% lower y-o-y. Revenue for the six-month period is likely to be down by 9% y-o-y to $1.26 billion. Venture’s management is also likely to guide for an “uncertain” 2HFY2025 outlook, the analysts predict.
“Note that in its 1QFY2025 business update, management said the broad consensus among its customers is that the ongoing tariff situation has created significant uncertainty in the global economic environment, with no clear visibility regarding the tariff landscape over the next 12 months,” Tng and Tan write in their July 28 report.
“Venture has been addressing this by creating competitive solutions for its customers and partners to mitigate any tariff impact through its US, Singapore and Malaysia factories,” they add.
Furthermore, Venture’s management team sees opportunities to expand its market share in the coming years in “at least three or four of [the] technology domains that the group participates in”.
According to Nasdaq-listed genetic testing firm Illumina’s 2QFY2025 earnings call, research funding constraints and inflationary pressures from tariffs are creating a challenging environment, particularly for academic and government customers, the analysts note.
Despite the “challenging” earnings outlook in 2HFY2025, the analysts see that the equity market development programme (EQDP), which has lifted tech stock valuations, could help lift Venture’s valuation as well.
“We believe Venture could see an upward re-rating to 14.5 times, its 20-year (FY2006–FY2025) average P/E, which lifts our target price to $12.14,” say Tng and Tan, who have a previous target price of $10.97, which was based on an FY2026 P/E of 13.1 times or 0.5 standard deviations. That valuation was due to continued tariff concerns.
The analysts’ “hold” call is due to its dividend yield of 6.01% and $1.32 billion net cash balance sheet as at the end of December 2024.
To this end, Tng and Tan believe Venture’s shares could find “support” at their FY2025 book value per share forecast of $10. — Felicia Tan
Hutchison Port Holdings Trust
Price target:
DBS Group Research ‘buy’ 21 US cents
Increasingly attractive yield
Paul Yong and Maggie Wang of DBS Group Research have kept their “buy” call on Hutchison Port Holdings Trust (HPHT), after first-half earnings that came in better than expected.
Along with assumptions of lower capital costs, they have raised their target price from 18 US cents (23.14 cents) to 22 US cents.
On July 22, HPHT reported earnings of HK$265.1 million ($43.42 million) for 1HFY2025 ended June 30, up 68% y-o-y. Revenue was up 6% y-o-y to HK$5.65 billion, thanks to a 7%y-o-y increase in overall throughput volume.
The strong results were also underpinned by effective cost control, with the cost of services up just 4% y-o-y and total operating costs down 1.5% y-o-y, the analysts note.
For the current 2HFY2025, HPHT is “cautious”, no thanks to the trade tensions and high base.
In the current 3QFY2025, volumes are expected to remain broadly flat y-o-y while the final quarter of the year may suffer from a high-base effect as many companies front-loaded volumes in 4QFY2024.
“To mitigate the decline in US-bound volumes, HPHT continues to diversify across trade lanes, with growing volumes in intra-Asia, EU, Latin America, and the Middle East,” state Yong and Wang.
The DBS analysts expect a 6% y-o-y drop in US-bound cargo volume in 2HFY2025, largely due to an estimated decline of more than 10% in 4QFY2025.
However, given HPHT’s strong 1HFY2025 performance and growth from alternative trade lanes, they have revised their full-year throughput forecast for Yantian, one of the key terminals under HPHT, to +3% y-o-y from –1.8% previously.
Overall, Yong and Wang have adjusted their FY2025 revenue and net profit forecasts by approximately 2% and 3%, respectively.
As an interim distribution, HPHT plans to pay 5 HK cents per unit, which is above the DBS forecast of 4 HK cents per unit.
As such, they have raised their FY2025 DPU forecast to 12 HK cents, which falls within management’s guidance of 11.5 to 12.5 HK cents, implying an attractive yield of around 8%.
“While tariff uncertainty persists, HPHT’s diversified trade exposure and Yantian’s strong regional connectivity and role in e-commerce logistics should support solid operating performance.
“In a lower interest rate environment, HPHT’s yield becomes more compelling, supporting a higher valuation,” the analysts add. — The Edge Singapore
