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Investors’ Corner (SoundGlobal, Ascendasreit, MacqIntInfra, Noble Grp)
Investors' Corner | 08 June 2012
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By: Scott Lee
Articles (3) Profile

Sound Global
Price – $0.52
Target – $0.70

The 12th Five Year Plan on wastewater treatment sector has called for Rmb50b of investments in new treatment plants in designated towns and counties of China during 2011-15. Sound Global (SGL) is a first-mover in this space with proprietary technology. We believe SGL could potentially get 1.5% market share of these projects, resulting in new build-operate-transfer projects of Rmb750m per annum. These would add to SGL’s already strong orderbook of Rmb2.7b. The put options on SGL’s convertible bonds (CBs) will come into effect on 15 Sep-12, allowing bondholders to potentially force the company to buy back the CBs at par. We assume 60% of CBs will be repurchased in 2012, narrowing the potential dilution from the CBs to 9%. We upgrade SGL to OVERWEIGHT and raise our FY12E/13E EPS by 13%/27% after assuming an increase in new BOT projects being awarded during both years and that the CBs would not be converted to shares.
– JP Morgan (5 June)

Ascendas Real Estate Investment Trust
Price – $2.01
Target – $2.00

A-Reit announced its maiden divestment of a logistics asset in Jurong for $32m. It is a timely sale, and marginally positive at a gain of $8m (3% of FY12 distributions), in our view. The sale of single-tenanted Goldin Logistics Hub (24 years land tenure remaining) at 6 Pioneer Walk to Chasen is A-Reit’s first asset sale since listing in 2002. At its current scale and maturity, we believe A-Reit has scope to fund inorganic growth, at least partially, via asset recycling, and view its willingness to exploit this avenue as a longer-term positive. The gain on sale is 33% on book and 42% on purchase price in 2007. A-Reit is likely to use proceeds to pare down debt, so net earnings impact after loss income would be marginal, at -0.3% of DPU. We estimate gearing to be at 32% following the transaction and private placement. We expect industrial and business park spot rents to fall 5-10% this year, but A-Reit could still see positive rent reversions and earnings growth, since expiring rents are still some 20% below spot. However, the rental down cycle may remain a drag on valuations, and we think current levels are fair. Maintain EQUALWEIGHT.
– Morgan Stanley (4 June)

Macquarie International Infrastructure Fund
Price – $0.515
Target – $0.565

The Guangdong Transport Bureau and the Guangdong Price Bureau have, effective 1 Jun-12, standardised the toll rate and toll mechanism used to calculate the tolls on all highways in Guangdong Province, including Hua Nan Expressway (HNE) which MIIF has an 81% interest in. This change in methodology will adversely impact both HNE Phase 1 and Phase 2 as HNE is an urban toll road with numerous slip roads leading traffic to HNE. According to MIIF, the tolling revisions are estimated to reduce revenue from HNE by between 20% and 25%. The toll rate revision has previously been flagged by management and we have already factored this revision. The change in methodology, however, was unexpected and as a result, we further lower our distribution forecast from HNE by 6.2% to $19.6m (FY12E) and 14% to $17m (FY13E). In view of uncertainty pertaining to the legal outcome at HNE and forward dividend as well as slowing economic growth prospects in China, we raise our WACC and lower the terminal cap rate. Maintain NEUTRAL.
– NRA Capital (4 June)

Noble Group
Price – $1.05
Target – $1.68

99.98% of Gloucester Coal (64.5%-owned by Noble) shareholders have voted in favour of the scheme of arrangement for the proposed merger of Gloucester and Yancoal Australia, which will have Noble owning 13% of the merged firm. Gloucester shareholders have also voted in favour of the capital reduction resolution which will pay A$3.15 in total pending court’s approval. Assuming this cash is received at end-1Q12 would have increased Noble’s reported end-1Q12 cash position by approximately 37% to US$1.6b and reduced Noble’s end-1Q12 adjusted net gearing ratio (ex-marketable inventories) of 48% by about 9% points. We will also watch for the possible return of A$338m in inter-company loans which is part of an A$400m debt facility from Noble to Gloucester granted in Jul-11. We would highlight that Noble’s group gross margin per ton has been improving last 2 quarters — this key operating metric has continued to recover to US$8.70/ton in 1Q12, continuing on the trend from 4Q11 where it had registered a small recovery to US$5.50/t. BUY.
– Citigroup (4 June)

Ascendas REIT  3.110 +0.04 +1.30%   
Business: Co invests in the real estate markets of Singapore and Australia.

Insight: Apr-19, FY19 gross revenue and NPI inched up 2.8% ... Read More

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