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Investors’ Corner (Silverlake Axis, SPH REIT, Keppel Corporation, Mapletree Logistics Trust)

Jimmy Ng

Silverlake Axis

Price – $0.425

Target – $0.62

Over 40% of the top 20 largest banks in South-East Asia which outsourced their core banking solutions run on Silverlake Axis’s (SAL) core banking solutions. Moreover, SAL is also a market leader in Insurtech providing a collaborative and information exchange platform for the insurance industry. Riding on the Fintech wave, SAL can leverage on its market leader position to secure more contracts as financial institutions enhance their systems. SAL’s orderbook improved significantly from less than Rm50m in FY17 to more than Rm400m currently, and we believe that we are at the beginning of an upcycle now. Furthermore, recurring revenue consisting of software maintenance and enhancement services accounts for close to 60% of SAL’s total revenue in the last few years. Gross margins were also high at about 60%. We expect this trend to continue underpinned by growing higher-margin software licensing business. Maintain BUY. DBS Vickers (07 Jan)

SPH REIT

Price – $1.01

Target – $1.05

SPH REIT’s 1Q19 revenue grew by 0.6% y-o-y attributable to higher rental income from Clementi Mall and maiden contributions from the Rail Mall acquired in Jun-18. 1Q19 DPU was maintained at $0.0134 similar to the previous year. Moreover, there was a sharp turnaround in rental reversions with positive reversions across all three malls led by Paragon at 10.1% driven by an increase in tenant sales. Management expects gearing to rise to 30% following the recent acquisition of an 85% interest in Figtree Grove Shopping Centre. Meanwhile, investors are awaiting the purchase of Seletar Mall which could add 7-10% to FY19-20 DPU, assuming that the deal is fully debt-funded given its low gearing and $600-950m of estimated debt headroom. Reiterate HOLD. Maybank Kim Eng (07 Jan)

Keppel Corporation

Price – $5.81

Target – $7.25

Keppel Corporation (KEP) recently announced that Keppel Land China has secured a 4.7 hectare residential site in Chengdu for Rmb889.7m via a government land tender, which will be developed into a residential community comprising 768 units of high-rise apartments and 96 units of low-rise apartments. KEP has a good history of building homes in Chengdu with six residential projects and launched about 17,800 homes there which are almost all sold out. A unit of Keppel Land has also entered into an agreement to acquire a completed commercial property in Haidian District. This transaction is in line with the group’s strategy to grow its commercial portfolio in China with a focus on first-tier cities. Meanwhile for the O&M division, we estimate that KEP has secured new orders worth about $1.7b in 2018, and should continue its gradual recovery in 2019. Maintain BUY. OCBC Investment (04 Jan)

Mapletree Logistics Trust

Price – $1.26

Target – $1.42

Since the 2Q19 results, Mapletree Logistics Trust (MLT) has acquired three properties in Australia, Vietnam and South Korea and the trust’s portfolio now comprise 139 properties with a book value of $7.8b. The acquisitions are focused on properties supporting domestic consumption which are more insulated from trade tensions, and have high specifications such as high floor-to-ceiling height and high loading capacity which are relevant in the e-commerce logistics market. As MLT’s DPU growth continues to be driven by inorganic expansion, its Sponsor’s pipeline in Japan and Malaysia presents possible acquisition targets. Alternatively, acquiring the remaining 50% stake in the set of 11 China properties from the Sponsor could also be a natural extension to the existing portfolio. We like MLT for its focus on properties supporting domestic consumption and pipeline of possible acquisitions from the Sponsor. Maintain ADD. CIMB Research (31 Dec)