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Investors’ Corner
Investors' Corner | 06 February 2009
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By: Lai Wyai Kay
Articles (53) Profile

CDL Hospitality Trusts
Price – $0.65 Target – $0.95

CDL Hospitality Trusts’ (CDL) 4Q08 DPU was 33% below our estimates, affected by taxes and a decision to pay out 90% (from 100%) of taxable income as of 2H08. CDL is currently trading at 57% below NAV: the market seems to be pricing in a 54% fall in hotel capital values. We believe this is overdone and expect hotel values to decline by up to 35%, implying the trust is trading at 36% discount to our RNAV estimate of $0.95/unit. With growth slowing in many Singapore’s key tourist markets, we expect tourist arrivals and RevPar to fall 5% and 26% in 2009 respectively. Refinancing of $273m by Jul-09 will not be difficult, given its low gearing, but interest costs should increase. We downgrade DPU by 30% for 2009-10E to account for the above; EPS to fall by 20% in 2009E and 2010E. If RevPar recovers by 20% in 2011 as we expect, CDL offers 12.8% DPU CAGR in 2009-11E, the best amongst SREITs with Singapore assets. Maintain BUY. – UBS Investment (2 Feb)

Chartered Semiconductor Manufacturing
Price – $0.24 Target – $0.20

The stock’s underperformance and cheap valuations do not change our fundamental view since the industry’s recovery prospects remain challenging. Chartered Semiconductor Manufacturing (CSM) is executing better than expected, via better sales guidance, but huge losses will continue due to higher operating leverage and lack of scale, based on our analysis. In addition, net gearing will rise from 77% (2008) to 134% (2009), increasing the possibility of capital raising. CSM has guided for revenue to post a 31-34% q-o-q decline and net loss to reach US$147m in 1Q09; gross margin to contract to –ve 27% (1Q09) from +3.9% (4Q08). We forecast FY09E losses to more than double and reach US$471m and FY10E losses to reach US$219m. We use P/BV as our primary valuation method due to the cyclicality of the industry, estimating a contraction of 40% by 10E. Our target price is based on 10E P/BV of 0.3-0.5x, below the previous historical trough of 0.6x P/B in 2003. Maintain SELL. – Citigroup (2 Feb)

Suntec REIT
Price – $0.66 Target – $0.65

Prime rents in 4Q08 fell 20% q-o-q; y-o-y, prime rents fell 14% while prime Grade-A rents fell 12.5%. We expect prime office rents to fall 30% this year with a further 12.5% decline in 2010. Suntec REIT (S-Reit) will still enjoy income support for One Raffles Quay over the next three years but its retail revenue faces some pressure as part of its retail exposure is leveraged to more discretionary spending. S-Reit has 44%, or $825m, of total debt due for refinancing this year, but as the bulk of $700m are collateralised against its Suntec City assets, which was revalued at $3.9b as at December 2008, we see little refinancing risks given the low 18% loan-to-value ratio. The impact on our near-term DPU forecasts is more muted as leases were renewed in 2008 at higher rates and average portfolio passing rents are still below our revised forecasts. Longer-term rents are 15–20% lower than previous estimates. We are cautious given a sharper-than-expected deterioration in rents. Downgrade to NEUTRAL. – Macquarie Research (2 Feb)

SIA Engineering Co
Price – $2.05 Target – $3.50

SIA Engineering Co (SIAE) should have little problem meeting expectations of flat profits for FY09. However, earnings looks set to weaken in FY10E as the industry downturn and SIA’s recent decision to trim flights impact workload. Global MRO rates will come under increasing pressure as more hangar capacity becomes available. Associates and JVs continued to provide a healthy inflow of dividends in 9MFY09. Even if these dividends halve next year, they should sufficiently fund SIAE’s maintenance capex and will likely sustain positive FCF position unless its core business turns loss-making, which we view as unlikely. We think its share price has priced in the prospective decline in earnings but should rebound with the airlines ahead of its own earnings recovery. Although there is significant upside to our DCF-based fair value, the low liquidity may deter investors. We believe that its falling trading turnover could possibly prompt SIA to revisit the issue of its free float. NEUTRAL. – JPMorgan (3 Feb)

CDL Hospitality Trusts  1.640 +0.010 +0.61%   
Business: A stapled group comprising CDL Hospitality REIT and CDL Hospitality Business Trust.

Insight: Apr-19, 1Q19 gross revenue and NPI dropped 10.6% a... Read More
Suntec REIT  1.920 -0.010 -0.52%   
Business: Real Estate Invs Trust. Ppties incl Suntec Office Towers, Suntec City Mall & Park Mall. [FY18 Turnover] Office (46.8%), Retail (34%), Others (Ad space, car park income , convention & exhibits) (19.2%).

Insight: Jan-19, FY18 gross revenue rose 2.6% to $363.5m du... Read More
SIA Engineering Co  2.540 -0.01 -0.39%   
Business: A leading aircraft maintenance, repair and overhaul (MRO) company providing total maintenance solutions to a client base of international airlines. [FY18 Turnover] Airframe and Line Maintenance (97.5%), Engine and Component (2.5%).

Insight: May-19, FY19 revenue was 6.8% lower at $1b largely... Read More

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