Investors’ Corner (CapitaLand Retail China Trust, Mapletree Industrial Trust, Sembcorp Marine, Singapore Exchange)

CapitaLand Retail China Trust
Price – $1.65
Target – $1.66

CapitaLand Retail China Trust (CRCT) announced the joint acquisition of Rock Square in Guangzhou with CapitaLand in a 51:49 JV for total purchase consideration of $688.9m. The transaction is expected to be completed by 1Q18, which marked CRCT’s another strategic entry into Tier 1 city in China after Beijing and Shanghai. We estimated Net Property Income (NPI) yield on cost to be in the high 3+/4% region. Recalled that CRCT recently divested CapitaMall Anzhen which was on a Master Lease with a FY16 NPI yield of 6.7%, hence this capital recycling effectively translated to swapping a stable higher yield for greater capital appreciation potential in a Tier 1 city. Nevertheless, the acquisition will be DPU accretive lifting pro-forma FY16 DPU by 1.1% because of the high usage of cheaper funding sources of debt and internal cash. Coupled with 53% of total rent up for renewal in 2018 – 2020, yield could be further enhanced over the next few years from positive rental reversions. Maintain NEUTRAL. Phillip Securities (4 Dec)

Mapletree Industrial Trust
Price – $1.99
Target – $2.06

To recap, Mapletree Industrial Trust (MIT) announced on 24 Oct that it had entered into a 40:60 JV with its sponsor Mapletree Investments to acquire a portfolio of 14 data centres in the US. We are favourable to MIT’s move to expand its footprint in the data centre industry seeing it as a paradigm shift to drive its next phase of growth. Consequently, we recalibrate our assumptions on MIT raising terminal growth to 1.2% but also increase the cost of equity assumption to 7.8% to account for higher operational and regulatory risks in a new market. Research firm 451 Research has projected demand for worldwide insourced and outsourced data centres to grow at a 5.3% CAGR (by net operational sqft) between 2015 and 2020, which we believe could be sustained by higher adoption of cloud services, big data requirements and proliferation of the Internet of things. Maintain HOLD. OCBC Investments (4 Dec)

Sembcorp Marine
Price – $1.87
Target – $2.10

According to rig brokers, sale of the West Rigel semisubmersible might be materialising at a price favourable to Sembcorp Marine (SCM). In the event of such a transaction, the cash inflow will see 2018 net gearing declining from 85% to around 70%. This would lead to further improvement of SCM’s balance sheet profile and allayed concerns of a stretched balance sheet. Together with a growing pipeline of orders which provides earnings and cash flow visibility for SCM, worries of a declining orderbook were also put to rest. We believed that the improving prospects will likely continue to drive the re-rating of the stock. Maintain BUY. UOB-Kay Hian (4 Dec)

Singapore Exchange
Price – $7.55
Target – $9.00

There were 23 new listings including 19 IPOs on the Singapore Exchange (SGX) for the first 11 months of 2017, and funds raised by the IPOs totalled $4.6b which is approximately 2 times the $2.3b registered in 2016. The recent spate of IPOs contributed to the strong November securities average daily value (SADV) of $1.3b, which we believed would continue to remain strong in subsequent months. In addition, global developments such as the federal funds rate hike in December could also stimulate trading volumes. Meanwhile, trading volumes of SGX FTSE China A50 Index futures were lacklustre in October but we see potential for more trading of them on the back of strong trading volumes on the HKEX equities market. We viewed SGX as an attractive investment given its longer-term prospects with the recent jump in IPO activity, as well as an attractive FY18F dividend yield of 4.1% in comparison to Singapore 10-Year Government Bond yield of 2.1%. Maintain BUY. RHB Research (4 Dec)