Cambridge Industrial Trust: S$0.28 BUY (TP: S$0.49) - Change at the Helm, Refinancing Overhang Removed

source: dmg

Cambridge Industrial Trust (CIT) has appointed Christopher Dale Calvert as the new CEO of Cambridge Industrial Trust Management (CITM), CIT’s REIT manager. While we reckon that CIT could gain from Christopher’s vast array of expertise in various segments of the property sector, we note that aside from his 1-year stint as CEO of Macarthurcook Industrial REIT, the bulk of his real estate experience evolved around the Australian market. However, as the previous CEO will remain with CITM, we believe CIT can still benefit from his wealthier experience within the Singapore industrial property sector. Additionally, we think that the new appointment could signify CIT’s intention to look into cross-border assets, as well as further enhancing its Australian identity. On a separate note, CIT has agreed to the terms of an S$390.1m syndicated 3-yr term loan from RBS, HSBC and nabCapital. With an effective annual interest rate of 6.6%, the loan will be used to refinance CIT’s all existing debt facilities of S$490.0m, of which it has drawn S$369.2m. While the agreed interest rate is higher than our assumed estimates of 5.6%, we believe this is reasonably lesser than what the market was pricing in (we forecast to be 10 – 12%). Our last sensitivity analysis has shown that for every 0.5% increase in funding cost, DPU would head down by 0.22¢. Until the final facility documentation is agreed and loan drawdown, we are maintaining our DPU estimates and fair value. We conjecture that CIT’s successful debt refinancing is an encouragement for S-REITs as a whole. Even though it is a smaller-cap REIT, CIT was able to secure a clean debt (which we view as most optimal amongst all refinancing options despite the higher funding costs eating into DPU), thus not risking a potential share dilution from issuance of equity or convertible bonds, or asset sales to pare down debt levels. More importantly, as CIT is the REIT with the first major loan due for refinancing in 2009, we believe that this event could be a harbinger of better things to come for other REITs with major debt due in 2009. The removal of the refinancing overhang is music to the ears of existing unitholders, and we thus advise prospective investors to buy the stock on its relatively higher yield of 17 - 21% compared to the sector average of 13 – 14%. Maintain BUY at S$0.49.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Jardine Cycle & Carriage: NEUTRAL - Downgrade (TP: S$11.18) - Outlook is less rosy

Sales of Komatsu equipment may decline in 2009. Overall Indonesian sales of heavy equipment vehicles may drop to 6,000 units in 2009, from an estimated 10,000 in 2008, as buyers face problems obtaining loans, and customers in the mining and plantation industries scrap expansion plans. Astra’s subsidiary in the Heavy Equipment business, United Tractors, which has a 45% market share, indicated in an announcement that it may also fail to reach its target of 4,750 units in 2008.

Plans to boost coal extraction capacity. United Tractors has also announced that it plans to spend US$315m to increase its coal extraction capacity, by 14% to 65m tons a year. It plans to add equipment to its coal mining services unit. This may somewhat offset the decline in its heavy equipment vehicles sales.

Motorcar sales continue to decline MoM. Overall Indonesian motorcar sales reached 47,000 units in November, up 2.6% YoY, but lower than the 54,810 units recorded in October. According to Astra, its November sales were 20,839 units.

Motorcycle sales improved slightly. Overall Indonesian motorcycle sales fell 4.4% YoY to 492,903 units in November, with Honda maintaining the lead with total sales of 230,544 units. This was slightly more than the 222,012 units achieved in October for Honda. Motorcycle unit sales for the first 11 months have already overshot the industry’s target of 5.8m units for 2008, and sales are expected to reach 6m units for the whole year. Automotive sales are expected to be lower in 2009,

We are lowering our target price for JC&C, as we adjust our valuation for its business units. Based on our SOTP valuation, we arrive at a target price of S$11.18, down from S$12.28 previously. This presents a marginal potential upside from current levels. Given the less rosy outlook for 2009, we are downgrading our recommendation to Neutral.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Property Sector: NEUTRAL - 1H09 GLS - Good But Not Good Enough

Citing the expected weak global economic outlook in 2009, the Government has decided against adding new sites to the 1H09 Government Land Sales (GLS) Programme. We believe another factor could be attributable to the considerable quantum of remaining sites backlogged from 2H08, where only 2 sites were successfully tendered off, paling in comparison to the average of 15 sites in the previous three semi-annual periods. Further potential supply was trimmed, as a mere 40,000 sm of commercial space would be made available through non-GLS avenues, representing a 72% HoH plunge. Although the move could help to re-calibrate the supply-demand dynamics, we surmise that the crux of the measure is essentially an affirmation of the current sentiments. While we welcome the Government’s move to pare down the potential pipeline of properties and not crowd the market with unnecessary supply when sentiments are already dampened, we hold the view that at this moment, the property market is more in need of demand-side catalysts than supply-side measures. Some of these could come in the form of temporary exemptions of stamp duty and decreased property taxes, as well as a fine-tuned Deferred Payment Scheme (i.e. 30 – 50% of sale price upon purchase to be paid initially, instead of 10 – 20%). Further, we reckon that the market has already priced in this measure following the earlier announcement on 31 Oct 08. As such, we believe the impact on developers’ share prices would be minimal. With the global macroeconomic climate still running its course, the operating environment for property developers has inevitably become increasingly challenging. We believe this is just the inception of a downcycle for the property market. There remain no near-term boosters to galvanize the share-price performance for developers. Aside from more concerted and effective measures by governments worldwide to shore up the economy and assist corporates in tiding through the current rough climate, we look forward to January’s Budget statement for Singapore. For now, we keep our NEUTRAL rating on the property sector and stick to developers which are well-capitalized, have less exposure to the residential segment and equipped with sources of recurring income. We thus maintain our BUY call for CapitaLand at S$3.05.

source:DMG
The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Singtel:Key takeaways from Investor Day

Increasing mobile leadership. SingTel doesn’t seem to be contended with its comfortable lead in both the post-paid and pre-paid mobile segments. It has an overall market share of 46%, up from 40% a year ago. The launch of the iPhone 3G was an integral part of SingTel’s strategy to extend its lead. In fact, Allen Lew, CEO of SingTel Singapore, proclaims that it is the “best thing to happen to SingTel”. The telco garnered important lessons on key information, like what datasavvy subscribers are likely to watch and what are some of the most popular applications. Approximately 30% of the activations are new mobile clients and ARPU is about 1.5 times higher than its post-paid base. Management is confident that the company will reap good returns in time to come, and the knock in margins (due to higher SAC arising from handset subsidy) is a sacrifice it has to make in the near term.

Growing and diversifying ICT business. SingTel aims to sell its one-stop converged ICT services. Corporates that go with SingTel will be able to enjoy bundled services like e-mail, web-hosting, security and network solutions. The proposition has become even stronger with the acquisition of Singapore Computer Systems (SCS), which has 2,000 employees and is expected to be completed this month at a cost of S$240m. This acquisition will allow SingTel’s systems integrator arm NCS to diversify away from Singapore government projects, which currently accounts for a big chunk of its business.

Repositioning the fixed line. The fixed line copper service, where it has a 94% market share, is still very important to SingTel, as it allows the company to “upsell” its mio TV service. In doing so, it has successfully repositioned the traditional home telephone socket. mio TV has 46,000 subscribers, still small compared to StarHub’s 500,000, but nevertheless a credible base. It also claims to have a “critical mass” of channels, with 56 currently.

Update on Next Gen NBN. As a key partner in the winning OpenNet consortium, SingTel is confident of benefiting from the award of the NetCo. As mentioned in previous reports, the red camp will have a few bites of the cherry – OpenNet’s use of its passive infrastructure, sale of the same infrastructure to AssetCo and the participation in profits of OpenNet. Mr Lew assesses that the cost to households post-NBN will be close to S$80 per month, which is apparently higher than its rivals’ estimates.

soource:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

China Aviation Oil: A rebirth to stability? (NEUTRAL\S$0.655\Target S$0.705)

Post-restructuring story. China Aviation Oil (CAO) was brought to its knees by rogue trading of
jet fuel derivatives that amounted to more than US$550m in losses in 2005, but was given a new
lease of life in 2006 through restructuring and a subsequent re-listing. Since then, it had totally
done away with its trading arm and focused on its core business activities, which are mainly the
jet fuel procurement business and investments in complementary businesses.
A gradual swing towards synergistic strategies. As time passed after its re-listing and
subsequent stability in its operations, management realised the importance of streamlining the
business towards more value-adding activities by cutting out irrelevant or non-related investments
and concentrating on business targets that would complement its business-chain, be it going
upstream or downstream. This is evident when the Group disposed of its 5% stake in Compania
Logistica de Hidrocarburos, S.A (a Spanish logistics company) during 1H07, and purchased a
49% stake in the Beijing – Tianjin oil pipeline that should be completed by Jan 09.
Re-visiting trading and hedging activities. The Group announced about six weeks ago that it
will resume its petrochemicals trading business from 4Q08 onwards. Products traded will be
substances such as Benzene, Styrene and Toluene through the inheritance of BP’s Asian
petrochemicals and trading team. The Group also recorded a gain of S$4.8m on a close-out of a
swap deal backed by underlying physical cargo (jet fuel) with a customer in 2Q08. Management
has stressed that such activities are all carried out with the strictest supervision of its newly
established risk-management committee.
Overall business direction. Any expansion of its current operations will revolve around its three
main business segments: 1) Jet fuel supply & trading. 2) Oil-related assets. 3) Trading of other oil
products.
Valuation. We derive a 12-month fair-value target price of S$0.705 using our DCF model,
applying a WACC of 14.8%, a beta of 1.2 and a terminal growth rate of 1%. At the last traded
price, the stock is trading at 6.8x FY08 and 7.9x FY09 P/E, offering a yield of 4.8% and 1.1x P/B.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned