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Investors’ Corner (First REIT, AscottREIT, Ezra, KepLand, Wilmar)
Investors' Corner | 29 July 2011
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By: Choo Hao Xiang
Articles (151) Profile

First REIT
Price – $0.835
Target – $0.84

First REIT’s (FREIT) 2Q11 results were within expectations. Drawing contributions from its two Indonesian hospitals acquired in Dec-10, revenue surged 75.3% year-on-year to $13.2 million. Despite a 86.5% year-on-year jump in income available for distribution to $9.9 million, DPU declined 17.7% year-on-year to $0.0158, due to an enlarged unit base resulting from the 5-for-4 rights issue in Dec-10. This represented an annualised yield of 7.6%. With FREIT’s healthy gearing ratio of 12.7% as at 30 Jun-11 (long-term target range: 25-30%), we expect future acquisitions in the near term to be funded by debt. Current valuations appear fair, with positives like its resilient business model and proxy to Indonesia’s growing private healthcare sector already factored in. We note that firms with assets in overseas countries, which are economically and politically more risky than Singapore, typically trade at a discount to NAV. Downgrade to HOLD. – OCBC (25 Jul)

Ascott Residence Trust
Price – $1.21
Target – $1.35
In line with our projections, Ascott Residence Trust’s 1H11 results were boosted by stronger rents and better cost control. Operations in Singapore and UK led the charge, with net property income (NPI) rising 10% and 56% respectively. This had offset the drop in Japan’s NPI and revenue per available room (RevPAR), which has likely bottomed after the March earthquake. On the whole, RevPAR grew 13% year-on-year to $140, reaping the rewards of refurbishments in 3Q10. Going forward, Singapore operations will likely continue to benefit from record visitor arrivals while we expect to see a seasonally stronger 2H for the UK side. We expect full-year RevPAR to reach $143 and estimate full-year DPU to outperform by 12%. Accounting for 44% of 1H11 NPI, contracts with guarantees will help limit the downside risks to distributions. OVERWEIGHT. – Morgan Stanley (22 Jul)

Ezra Holdings
Price – $1.25
Target – $2.00
We expect Ezra’s subsea division to see further losses into 4Q11, as the utilisation of two of its vessels may remain below 60%. According to the firm, losses should reverse from 1Q12 as the division clinches more deals. Since being bought by Ezra, it has already bagged more than US$350 million in contracts. The firm believed its subsea arm can achieve the initial US$1 billion in contracts within its 12- to 15-month target. For the existing offshore support divisions, we expect FY12-13 earnings to grow 9-10% year-on-year on vessel additions while vessel utilisation of 90% currently, is expected to stay high. To reflect losses from the subsea unit, we lower our FY11 net profit by 62%. We also reduce our FY12/13 net profits by 19%/11%, to reflect higher interest charges. The stock appears undervalued at CY12 PE of 8x, trading at a discount to its regional peers under our coverage (average CY12 PE of 15x). Maintain BUY. – RBS (22 Jul)

Keppel Land
Price – $3.68
Target – $5.30
2Q data from URA showed slower pace of growth across all sectors, except the HDB market. On a quarter-on-quarter (q-o-q) basis, residential rents grew 1.3%, while new and secondary home sales rose 24% and 11% respectively. Total inventory was brought back to peak levels (17% above the long-term average). 2011/12/13 supplies have been revised up by 4%/18%/5%. On the retail front, capital values rose 1.1% and rents up 0.8% q-o-q despite a contraction in vacancy. Meanwhile, office rents grew 1.5% compared to 5.4% last quarter. Growth in office take-up was offset by an increase in vacancy. Office capital values rose 3.6% reflecting ongoing capitalisation rate compression. YTD office rental growth is in line with our forecasts and we expect a pick-up heading into 2012. The normalisation in policy intervention should help tighten NAV discounts too. Among the developers, we prefer Keppel Land. BUY. – Deutsche Bank (22 Jul)

Wilmar International
Price – $5.74
Target – $6.40
According to the 21st Century Business Herald, Wilmar’s subsidiary, Yihai Kerry Group, applied to the National Development and Reform Commission for a price increase of about 5% on its edible oil products. The proposed price hike is not excessive given that raw material cost has gone up by 13-19% since Wilmar’s last price adjustment of about 10% in Oct-10. We believe edible oil producers should be able to obtain approval from the authority (assuming the news report is correct) for a reasonable hike in price to relieve the increase in cost pressure. Generally, we expect the price control to ease in 2H with a possible ending of policy tightening measures in China. We estimate cooking oil business to account for less than 9% of Wilmar’s total profit. We upgraded Wilmar to a BUY in anticipation of higher processing margins and easing policy tightening in China. Our target price implies 16x forward PE. – Deutsche Bank (22 Jul)

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

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First REIT  1.080 +0.010 +0.93%   
Business: Co is a healthcare real estate investment trust. [FY18 Geographical] Indonesia (96%), Singapore (3.4%), Korea (0.6%).

Insight: Apr-19, 1Q19 gross revenue was slightly down by 0.... Read More
Ascott Residence Trust  1.310 +0.010 +0.77%   
Business: REIT invests in income-producing real estate assets which are used or predominantly used, as serviced residences, rental housing properties and other hospitality assets.

Insight: Apr-19, 1Q19 revenue increased 3% due to stronger ... Read More
Ezra Hldgs  -- -- --   
Business: Co is a provider of integrated offshore solutions to the oil & gas industry. [FY16 Turnover] Marine Services (68.9%), offshore support and production services (25.7%), subsea services (5.4%).

Insight: Oct-17, The US Bankruptcy Court approved the appli... Read More
Wilmar Int'l  3.840 -0.06 -1.54%   
Business: Co's integrated agribusiness model encompasses the entire value chain of the agricultural commodity processing biz, from origination and processing to branding, merchandising and distribution of a wide range of agricultural pdts.

Insight: May-19, 1Q19 revenue fell 6.2% to US$10.4b driven ... Read More

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