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Investors’ Corner (CapitaLand, GLP, Pacific Andes, Noble, Suntec REIT, UOB, ARA Asset, Genting Singapore)
Investors' Corner | 02 December 2011
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By: Simeon Ang
Articles (125) Profile

Price – $2.49
Target – $3.50

A joint venture by CapitaLand (25%), CapitaMalls Asia (25%) and Singbridge (30%) has been awarded the tender for a 0.817m square metre (sqm) mixed use site in Yuzhong District, Chongqing, China. The tender is worth Rmb6.536b ($1.283b), which translates into Rmb8,000/sqm ($1,570/sqm). Total development cost is said to be in the region of Rmb21.1b ($4.1b) or Rmb25,826/sqm ($5,108/sqm). The top specs development is planned to be iconic with few comparables. CapitaLand expects an internal rate of return in the region of 13%-14% and yield on cost of 8-9%. While the development is not cheap, we believe the development risk will be slightly mitigated by, 1)CapitaLand’s experience and previous success in the Raffles City mixed development, 2) partnering Singbridge, Temasek’s townships and integrated projects construction arm in Asia. Maintain our forecasts of OUTPERFORM.
– Credit Suisse (29 Nov)

Global Logistics Properties
Price – $1.79
Target – $2.24

Global Logistics Properties (GLP) is the largest modern logistics provider in Asia, with the largest gross floor average area in China and Japan. We feel that GLP has the size and network to multiply its tenant base, given its ability to house large multinational businesses in key cities under one landlord. Likely tenants tend to be loyal, with take-up typically being exponential. Being a “partner” of the Chinese government, GLP is able to procure quality sites under its land bank. This provides a development pipeline of 8.9m square metres (sqm) on top of its 5.1m sqm of China inventory. We estimate its China portfolio of completed assets to rise 38% in FY15 to 6.7m sqm. Japan, meanwhile, looks to be consolidated as GLP realises its leadership through various development funds and asset management. We thus initiate coverage with an OUTPERFORM. We note that it currently trades at a 20% discount to real NAV and at more attractive multiples than its logistics peers.
– CIMB-GK (29 Nov)

Pacific Andes Resources Devt
Price – $0.205
Target – $0.263

Pacific Andes Resources Development registered a below expectation FY11 report card. Net earnings came in at HK$690.3m which was still below market expectations of HK$790m, despite higher revenue growth of 30.7% to HK$9716m. As a result, margins fell from 24.6% in FY10 to 21.5% in FY11. China remained key to the firm’s performance, benefitting from higher demand from the Chinese market, growing 35.3% to HK$3228m, thus contributing some 65% of total revenue. While fish demand is fairly resilient, we expect the weak market sentiments to adversely affect the Pacific Andes through lower average selling prices. Amidst this deteriorating outlook, we cut our projections for FY12 earnings by 17.6% to HK$705m. In addition, the firm recently announced a dividend of $0.018 per share thus translating into a 5.3% yield. As the share price has already been sharply corrected this year, at current price and with an upside potential of around 28%, we maintain our BUY call.
– OCBC Investment (29 Nov)

Noble Group
Price – $1.06
Target – $1.50

Noble reported an unexpected loss for 3Q11 which caught us off guard, as we assumed earnings would not be lower than the bottom of the financial crisis in 1H09. In fact, the 3Q11 loss was the first reported loss by the company in 14 years. We had previously underestimated the volatile macro environment’s effect on global commodities trading. While we do not attribute the bulk of Noble’s losses to cotton and carbon trading, we believe the loss was mainly due to reduced trading activity given abnormal risk. Coupled with the significant growth in traded volume, the current business environment highlights the much smaller profit margin opportunities throughout all of Noble’s segments for 3Q11. Nevertheless, we maintain our BUY rating, as we believe the stock has over-corrected post the quarterly loss and expect 4Q11 to record a marginal improvement in earnings back into positive territory.
– UBS Investment (28 Nov)

Suntec REIT
Price – $1.13
Target – $1.45

Suntec REIT (Suntec) posted a 1.2% year-on-year revenue increase for 9M11, partly driven by consolidation of Suntec Singapore following the acquisition of an additional 40.8% interest on top of its original 20% effective interest. Excluding the consolidation, revenue would have fallen 1.3% owing to weaker office and retail performance. Occupancy rates mainly held firm with a drop in Suntec office towers and mall occupancy offset by a pickup in MBFC occupancy. Shortly after it announced results, Suntec unveiled the most significant asset enhancement initiative (AEI) with $400m revamp efforts for its flagship Suntec City Mall. The firm targets a 25% increase in average rents to $12.59 per square foot per month, yielding a 10.1% return on investment for this AEI. However, a less than desirable track record in the company’s AEI efforts raises the effectiveness of its execution. OUTPERFORM.
– CLSA (28 Nov)

United Overseas Bank
Price – $14.77
Target – $17.70

UOB’s current main focus appears to be addressing mismatches on its US$ books. UOB is currently extending its conservative run in its assets accumulation, with preferences for higher quality names, shorter terms and better loan spreads. However, this seems in contradiction with consumer needs for longer-term fixed rate loans to hedge against uncertainty of US$ liquidity. UOB’s chief financial officer (CFO) stressed that UOB was “aggressively” reducing its exposure to European securities. Exposure to European bank securities is currently below $1b (compared to $1.2b in Sep-11). UOB does not expect net interest margin to improve anytime soon as retail loan pricing remains highly competitive whilst funding costs across the region increases amid UOB’s efforts to shore up longer-term financing. UOB re-iterated that the 9% quarter-on-quarter increase in non-performing loans was driven by conservative downgrading of a few legacy accounts, with asset qualities remaining comfortable. Maintain UNDERPERFORM.
– Credit Suisse (28 Nov)

ARA Asset Management
Price – $1.17
Target – $1.90

ARA Asset Management (ARA) has secured commitments of US$300m for its private real estate fund, Asia Dragon Fund (ADF II), which has a target size of US$1b. ARA will look to commit about 10% of the fund’s size as seed capital, compared to ADF I (Pan-Asia), ADF II will likely have more investments in China to benefit from the greater momentum in new REIT listings in Hongkong relative to Singapore. Management is also committed to maintaining its $0.048 dividend payment per year complemented by bonus issues. Meanwhile, we forecast ARA’s assets under management to reach $24.4b by 2013. We continue to place emphasis on ARA’s scalable, asset-light business model as it generates a steady and defensive stream of revenue from management fees. The stock also offers an attractive return on equity of over 30%. We maintain BUY.
– Citigroup (25 Nov)

Genting Singapore PLC
Price – $1.46
Target – $1.41

The Ministry of Community Development, Youth and Sports (MCYS) as well as the Casino Regulatory Authority recently released a media communiqué, indicating that the local government will be tightening restrictions in place on the two casinos in Singapore by ensuring they do not target the domestic market. The new rules will apply to Singaporeans, PRs as well as foreigners living and working in the country. The scope of the new adjustments will now cover promotions such as membership drives, lucky draws and the like. Casino operators will now be required to seek prior approval from MCYS with regards to such promotional campaigns. The new ruling is likely to have a negative impact on Genting Singapore given that a substantial portion of its income is derived from frequent visitors. However, the latest development proves our view that the local government has no plans to make the country a gaming hub. Maintain REDUCE.
– Nomura (25 Nov)

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

CapitaLand  3.510 -0.03 -0.85%   
Business: Co develops, owns, and manages real estate properties. [FY18 Geographical] China (41.2%), S'pore (38.5%), Europe & others (18.6%), Vietnam & Others (1.7%).

Insight: Apr-19, 1Q19 revenue fell 23.8% while net profit d... Read More
Pacific Andes Resources Devt  -- -- --   
Business: Engages in industrial fishing & supply chain mgt of frozen seafood pdts. [FY14 Turnover] Fishery and fish supply (60.6%), frozen fish SCM (39.4%).

Insight: Mar-15, Co's 1Q15 revenue reported a 25.3% drop, w... Read More
Suntec REIT  1.930 +0.020 +1.05%   
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
United Overseas Bank  25.900 -0.35 -1.33%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More
Genting Singapore  0.895 -0.005 -0.56%   
Business: Develops, operates & mkts casinos & IRs globally, including Australia, M'sia, Philippines & UK. [FY18 Turnover] Gaming (66.1%), non-gaming (33.8%), others & invs (0.1%).

Insight: May-19, 1Q19, despite Co's non-gaming business reg... Read More

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