Investors’ Corner (NetLink NBN Trust, Singapore Technologies Engineering, OUE Commercial REIT, Singapore Press Holdings)

NetLink NBN Trust
Price – $0.78
Target – $0.95

NetLink NBN Trust (NetLink) has dominant market share of 90% for residential and 35% for non-residential fibre connections. The group added 24,600 residential connections in 1Q19 representing a 2.1% q-o-q increase, and there is still an untapped market of 300,000 residential homes not on fibre broadband. Meanwhile, NetLink also added 900 non-residential connections over the same period rising 2.1% having a competitive advantage in areas outside of CBD and business parks due to its extensive nationwide coverage. Entry of the fourth mobile operator causes no concern as TPG Telecom would be a customer of NetLink relying on its NBAP connections for backhaul transmission. We see NetLink as the most defensive stock listed on the SGX because of its low volatility but high liquidity and is in the business of catering to basic necessities. In addition, NetLink enjoyed high barriers to entry as it would be almost impossible for any potential competitor to match its extensive nationwide coverage or current regulated wholesale pricing. Maintain BUY. UOB-Kay Hian (17 Sep)

Singapore Technologies Engineering
Price – $3.53
Target – $4.35

Singapore Technologies Engineering’s (STE) proposed acquisition of 100% of Middle River Aircraft Systems (MRAS) from General Electric for US$630m holds multiple positives in our view. This acquisition will enable STE to become more firmly embedded in the aircraft manufacturing chain with OEM capability and IP in nacelles and complex composites design. The purchase will be earnings accretive immediately with MRAS’s balanced portfolio of next-gen and mature nacelle programmes. Furthermore, we expect medium-term synergies with STE’s existing MRO business by opening doors for engine aftermarket work with airlines currently not STE MRO customers. We believe that STE could comfortably fund the purchase through internally generated cashflow and borrowings, although we forecast FY19 net gearing to increase to a manageable 38% level post-acquisition. Maintain BUY. Maybank Kim Eng (17 Sep)

OUE Commercial REIT
Price – $0.67
Target – $0.60

OUE Commercial REIT (OUECT) announced the proposed acquisition of OUE Downtown office towers for $908m, comprising 2 office towers with a total lettable area of 529,981 sqft and has a committed occupancy of 95.1%. Transaction NPI yield stood at 5% which is higher than existing portfolio yield of 4%, and include rental support for a period up to 5 years. The purchase will be funded by a $587.5m equity fund raising as well as $361.6m of debt. Post transaction, OUECT’s aggregate leverage is estimated to improve slightly to 39.8% from 40.3% as at Jun-18. We think that the acquisition of OUE Downtown is timely given the recovery in the office leasing market coupled with the transformation of Tanjong Pagar, and this purchase will expand OUECT’s portfolio NLA to 1.6m sqft valued at $4.4b of which 83% is located in key nodes within the Singapore CBD. Nonetheless, we lowered our DPU forecast factoring in the additional contributions from OUE Downtown office as well as the dilution from the right issue. Maintain HOLD. CIMB Research (11 Sep)

Singapore Press Holdings
Price – $2.79
Target – $2.52

Singapore Press Holdings (SPH) announced that it has entered into a sales and purchase agreement with Unite Students to acquire a portfolio of purpose-built student accommodation in the UK for a cash consideration of GBP180.5m. The portfolio comprises of 10 freehold assets and 4 leasehold assets with a total capacity of 3,436 beds for student accommodation. According to Unite Students, this transaction would result in a net initial yield of 6.3%. We have expected SPH to explore the real estate management market in the UK especially assets in the education sector to diversify its income streams. While we think that local demand for student accommodation in the UK is generally robust, there are some near-term issues to contend with. These include the relatively stronger growth in supply as well as the disruptive effect on demand from EU students because of Brexit. Maintain HOLD. OCBC Investment (11 Sep)