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Investors’ Corner (Frasers Commercial Trust, United Engineers, UOL Group, CapitaMalls Asia)
Investors' Corner | 21 December 2012
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By: Nicholas Tan
Articles (71) Profile

Frasers Commercial Trust
Price – $1.25
Target – $1.31

At the end of FY12, Frasers Commercial Trust (FCOT) announced the divestment of its Japan properties, which was anticipated but earlier than expected. We like the transaction for various reasons: 1) the Japan properties had been weak, 2) divestment would enhance the portfolio occupancy and weighted average lease to expiry, and 3) gearing ratio is expected to drop from 36.8% to 28.6% with no debt maturing until FY15 thus strengthening its financial position and flexibility. More recently, FCOT had successfully redeemed 47.6% of total outstanding convertible perpetual preferred units (CPPUs) – in cash, which was in line with our view. We deem this a positive development as we expect an improvement in the distribution income, since the funding costs of the CPPUs are relatively high at 5.5%. In addition, we expect FCOT to gain from interest savings due to lower average borrowing rate following the refinancing of its $500m loan facility and yield positive rental income contribution from an increased stake in Caroline Chisholm Centre and expected better performance at China Square Central. Maintain BUY. – OCBC Investment (17 Dec)

United Engineers
Price – $2.91
Target – $4.18

With an investment property portfolio worth $1.7b, United Engineers (UE), a long undervalued company, is on the brink of a major transformation to unlock value. The catalyst for change could come from its major shareholder, OCBC. In recent months, OCBC shareholders had given the nod for the sale of the group’s 2 long-term investments F&N and APB. On WBL Corporation, another of its investment, OCBC stood aside to allow the acquirers to hasten the unlocking of its value. All eyes are now on UE, the last remaining piece of the OCBC jigsaw. But we think more can be done to help UE realise its value. For one, the URA will be reviewing the master plan for Singapore next year, which could mean an increase in plot ratio. We think this offers UE a unique opportunity to redevelop UE Square, its key commercial asset in the area. In addition, with potential buyers in acquisitive mode, we do not rule out a sale of its hospitality assets – at the right price. Initiate BUY. – Maybank Kim Eng (17 Dec)

UOL Group
Price – $5.81
Target – $6.14

In the property sector, the government continues to maintain a high supply in the 1H13 land sale programme. It has released 13 confirmed and 19 reserve sites with 6,935 residential units under the confirmed list and another 7,100 residential units under the reserve list. Most of the sites are located in the outside Central Region or Rest of Central Region, indicating that the proportion of mass and mid-market housing will remain high. In addition, it will introduce 315,000 sqm of commercial space and 1,740 hotels rooms. While we expect developers to be selective in their choice of land parcels, participation is expected to stay keen, particularly for interesting sites. As such, land prices are likely to be steady and development margins to remain thin. Meanwhile in the medium term, price appreciation potential remains capped due to visibility of land. Therefore, we prefer those with a diversified property exposure or an effective business model with the potential for ROE expansion. UOL is one of our picks for the sector. Maintain BUY. – DBS Vickers (17 Dec)

CapitaMalls Asia
Price – $1.98
Target – $2.14

During our recent visit to Chengdu, we did a detailed analysis of 4 new malls in Chengdu, and noticed that one of the malls managed by CapitaMalls Asia (CMA) – Raffles City Chengdu have managed near 100% occupancy quickly, with relatively strong foot traffic and sales. The success of Raffles City Chengdu shows that 2013 may be the harvesting period for CMA, as many newly opened malls should start contributing rental income. We believe that one of CMA’s advantages in China is its ability to leverage on a regional tenant pool, and its extensive mall network to provide a differentiated product versus its competitors. Despite China accounting for more than half of its total assets, China PATMI is barely a third as most of its malls in China are still in the stabilisation phase or yet to be opened. But, we expect profitability and cash flows to improve going forward as its malls gradually stabilise and those under construction complete. We recommend CMA as a proxy to China’s consumption growth. Maintain OUTPERFORM. – Credit Suisse (13 Dec)

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

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Frasers Commercial Trust  1.600 -0.040 -2.44%   
Business: Co invests in a diverse portfolio of real estate and real estate related assets, primarily focusing on office and retail assets.

Insight: Apr-19, 1H19 gross revenue declined 9% to $61.9m, ... Read More
United Engineers  2.560 -- --   
Business: [FY17 Turnover] Engineering & distribution (25%), property development (27.1%), property rental & services (24.3%), manufacturing (15.8%), corporate services & others (7.8%).

Insight: May-18, 1Q18 revenue fell marginally by 0.8% to $1... Read More
UOL Group  7.370 -0.10 -1.34%   
Business: Co engages in property development, property investments, and hotel businesses. [FY17 Turnover] Ppty devt (52.2%), hotel ops (23.6%), ppty invs (14.9%), invs & others (9.3%).

Insight: Aug-18, 1H18 revenue jumped 72.9% to $1.3b attribu... Read More

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