Investors’ Corner (M1, CapitaLand Commercial Trust, Sembcorp Industries, SPH REIT)

M1
Price – $2.07
Target – $2.05

M1’s share price has held up relatively well ever since its 3 major shareholders announced their intention to undertake a strategic review of their shareholdings. However, considering that a buyer would have to come up with over $2.2b for a controlling stake, funding could be a potential stumbling block for bids to materialise. In addition, MyRepublic’s revelation to enter the market as a mobile virtual network operator by Oct-17 adds to the uncertainties over escalating competition with TPG, the fourth mobile network operator, slated to rollout its mobile service in 2018F. We expect weaker revenue and earnings for 2Q17 results on the back of declining usage and roaming revenues. Nonetheless, M&A newsflows and a commendable dividend yield of over 6% will continue to lend support to the share price. Maintain NEUTRAL. RHB Research (14 Jul)

CapitaLand Commercial Trust
Price – $1.65
Target – $1.58

CaptiaLand Commercial Trust (CCT) has formed a joint venture (JV) with CapitaLand (45%) and Mitsubishi Estate (10%) for the redevelopment of Golden Shoe Car Park into one of the tallest buildings in Raffles Place with a gross floor area of 1m square feet, comprising 80% office, 14% serviced residence, 2% ancillary retail and a food centre. While the completion would coincide with other big office developments, we think CCT has some leeway to price competitively given its lower development costs. With a JV structure, CCT is able to minimise capital commitment, and coupled with proceeds from recent divestments, we estimate the gearing would remain low at 34%. We view this news as positive as it enhances CCT’s distribution per unit profile in the medium-term, but believe that current valuations are fair based on our discounted-cash-flow-derived price target from 2.8% risk-free rate and a 7.8% cost-of-equity. Maintain NEUTRAL. UBS Research (13 Jul)

Sembcorp Industries
Price – $3.09
Target – $3.66

Sembcorp Industries (SCI) reported q-o-q improvements in plant load factors (PLF) with Thermal Powertech Corporation India and Sembcorp Gayatri Power registering PLF of 88.2% and 77.9% respectively. Meanwhile, spot electricity prices in India were largely flat on a q-o-q basis, translating to higher earnings from the higher PLFs. Although headline losses for India operation will be higher due to a one-off refinancing charge, but core losses excluding the one-off refinancing charge should narrow arising from better operational performance. As the reported figures are close to our estimates, we maintain our earnings estimates while we await updates from 2Q17 results. Maintain BUY. UOB-Kay Hian (13 Jul)

SPH REIT
Price – $1.00
Target – $1.01

SPH REIT’s 9M17 distribution per unit of $0.0411 is largely in line with expectations. Net property income (NPI) improved by 4.6% y-o-y mainly from higher rents, lower utilities, lower maintenance and a one-off provision for property taxes last year. Excluding the one-off provision, NPI would have been up 3.8%. Meanwhile, interest costs were fairly stable dipping 1.1% y-o-y. The group has completed the renewal of around 80% of Clementi mall at rent reversions of 3.7%, while Paragon posted similar 3.6% reversions. It is noteworthy that income support from the vendors of Clementi mall will ends in Jul-18 implying a likely dip in DPU at approximately 1.4%. Although management saw some pick up in tenant sales over the last few months in tandem with the trend seen on the islandwide retail sales index, challenges for the retail sector going forward are expected. At 5.6% yield, we believe upside is limited. Maintain NEUTRAL. Credit Suisse (13 Jul)