Investors’ Corner (Health Management International, Old Chang Kee, Ascott Residence Trust, KSH Holdings)

Health Management International
Price – $0.62
Target – $0.84

The positive outlook for Malaysia’s healthcare industry, driven by inadequacy of public healthcare system, rising affluence and increasing availability of private insurance as well as climbing demand for medical tourism, could boost demand for private healthcare. Both of Health Management International’s (HMI) tertiary hospitals comprising Mahkota in Malacca and Regency in Johor, are strategically located and stand to benefit from the surrounding mega-development projects with more new jobs and healthcare demand. After turning around the two loss-making hospitals, HMI is set to enter a new growth phase. We feel that the group can scale up through fully acquired stakes in the two hospitals, doubling capacity of Regency Hospital and potential mergers and acquisitions of synergistic business. In our view, HMI’s growth opportunities have not been fully priced in. Initiate BUY. Maybank Kim Eng (5 Jun)

Old Chang Kee
Price – $0.84
Target – $0.98

Old Chang Kee’s (OCK) FY17 earnings missed our forecast by 66%, mainly due to a revaluation deficit of $3m for the group’s Singapore and Malaysia factory buildings. New outlets and new products continue to drive sales, and OCK has three new outlets in the pipeline, bringing the total number of outlets to 91 by end-FY18. Meanwhile, the reconstruction work in 2 Woodlands Terrace is on track to complete by 1Q18, and full integration with the adjacent factory and operations is expected by 3Q18. We believe that the completion and integration of the new factory facilities would be the inflection point for OCK as the advanced machinery and 60% additional production area would improve OCK’s productivity and operating efficiency. Maintain BUY. Phillip Securities (2 Jun)

Ascott Residence Trust
Price – $1.125
Target – $1.095

Ascott Residence Trust (ART) has entered into a conditional sale and purchase agreement to acquire a hotel property in Midtown Manhattan, NY, USA for an aggregate consideration of US$106m at an earnings before interest, tax, depreciation and amortization yield of 6%. The acquisition is expected to raise FY16 distribution per unit by 0.8% to $0.0729. We noted that the 25-storey property consisting of 224 guestrooms is strategically located near key catchment areas and transport nodes with an average occupancy of 95.2% from 2013 to 2016. In addition, the asset will also benefit as the nearby US$30b Hudson Yards – the largest private development in US history – opens in stages. ART’s gearing is expected to rise to 36%. As at yesterday’s closing price, the group is trading at 5.4% FY17F yield and 6.3% FY18F yield. Maintain HOLD. OCBC Investment (1 Jun)

KSH Holdings
Price – $0.915
Target – $1.12

KSH Holdings’ (KSH) results were in line with our expectations, despite net profit falling 33% y-o-y largely due to the lack of contribution from associates. Nevertheless, the group’s orderbook stands healthy at $340m while the balance sales proceeds of $163.2m will be progressively recognised which help in supporting KSH’s future profits. Aided by the announcement of the Xiongan New Area, Gaobeidian prices have surged considerably. We expected Phase I of the Gaobeidian project to provide the next leg of growth for KSH but would like to re-iterate related risks including execution and regulatory issues. Maintain BUY. UOB-Kay Hian (31 May)