Investors’ Corner (Oversea-Chinese Banking Corporation, CapitaLand Commercial Trust, Mapletree Logistics Trust, Raffles Medical Group)

Oversea-Chinese Banking Corporation
Price – $11.15
Target – $11.05

Oversea-Chinese Banking Corporation’s (OCBC) 87.9%-owned insurance arm, Great Eastern (GEH), is now reviewing options in relation to a minority stake in Great Eastern Life Assurance (Malaysia) to comply with Bank Negara Malaysia’s (BNM) requirement of at least 30% domestic ownership. Assuming 30% stake sale of its life and general insurance business in Malaysia, we estimate that one-off gains from the sale could raise OCBC’s FY18E profit by 6 to 20%. If the sale proceeds were to be reinvested and factoring in reduction of 30% minority interests to earnings from its Malaysia business, near-term net impact to OCBC’s earnings will be limited. Nevertheless, GEH is a dominant player in Malaysia with 23% market share in life insurance by net premiums. Complying with BNM rule and to share at least 30% of their profits from Malaysian business may possibly have negative implications over the long-term. Maintain HOLD. Maybank Kim Eng (25 Sep)

CapitaLand Commercial Trust
Price – $1.70
Target – $1.60

CapitaLand Commercial Trust (CCT) announced the acquisition of a 100% stake in Asia Square Tower 2 (AST 2) for $2.1b. The acquisition price is attractive at a slight 1% discount to independent valuation and 5 to 10% lower than comparable Grade-A properties in the vicinity. Furthermore, its NPI yield (pre-tax) of 3.6% is also higher than CCT’s recent divestments’ exit yield of 3.2 to 3.4%. AST 2 has a committed occupancy rate of 88.7%, which is well below CCT’s portfolio occupancy rate of 97.6% and Grade-A average occupancy rate of 95.5% in 2Q17. With office supply slowing down and rental rates showing signs of bottoming, we see potential upside from occupancy improvements and rental growth and hence expect positive rental reversions. The acquisition will be partly funded by a rights issue which is DPU-dilutive. Despite being short-term negative, the transaction is positive for CCT over the long-term if it manages to extract value from the asset by capitalising on the office uptrend. Maintain TAKE PROFIT. RHB Research (22 Sep)

Mapletree Logistics Trust
Price – $1.20
Target – $1.35

Mapletree Logistics Trust (MLT) recently launched a non-renounceable preferential offering (PO) on the basis of one new unit for every 10 existing units at the issue price of $1.145 to raise gross proceeds of $286.5m. Beside this PO, the group has also concluded a private placement exercise at an issue price of $1.175 which was 3.3 times covered, as well as $180m fixed rate perpetual securities at a distribution rate of 3.65% per annum with a subscription rate of 6.7 times. Collectively, estimated gross proceeds of $820m were raised for MLT’s proposed acquisition of Mapletree Logistics Hub Tsing Yi in Hong Kong from its sponsor Mapletree Investments at the purchase consideration of HK$4.8b. This translates into an initial NPI yield of 5.7% which we deem to be attractive. Reiterate BUY. OCBC Investment (22 Sep)

Raffles Medical Group
Price – $1.11
Target – $1.28

Raffles Medical Group’s (RMG) share price has declined nearly 22% since April, and is currently trading at an inexpensive 31 times 2018F P/E in comparison to its peers’ 36 times. Although medical tourism in Singapore continues to be weak with a low single-digit percentage decline in the group’s number of foreign patients in 2Q17, we believe that patient load will be well-supported by growth in local patients given favourable demographic trends of rising affluence and an ageing population. Raffles Chongqing is targeted for completion in 2H18 and will be opened progressively in phases. While we expect earnings outlook for the next two years to be dampened by the start-up losses of the two hospitals in China, RMG’s long-term growth over the next 10 years will be significantly enhanced given a near quadrupling of capacity when its China hospitals are fully opened. Upgrade to BUY. UOB-Kay Hian (21 Sep)