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Investors’ Corner (CapitaLand Commercial Trust, Mapletree Logistics Trust, Keppel DC REIT, Sheng Siong Group)

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CapitaLand Commercial Trust

Price – $1.93

Target – $1.86

Bloomberg reported earlier that CapitaLand Commercial Trust (CCT) is vying to acquire Duo office and retail tower valued at over $1.5b. If CCT decides to pursue the acquisition, this could lead to major equity fund-raising which is a near-term overhang on its share price. In 1Q19, CCT signed leases for 225,000 sqft of which 18% were new leases. Based on CBRE preliminary data, Grade-A office rental rates rose 3.2% q-o-q in 1Q19 and with limited Grade-A supply in the pipeline, we expect the office leasing momentum to remain strong. CCT currently has about 11% of leases by rental income due for renewal in 2019 and should benefit from the momentum. Meanwhile, construction works for CapitaSpring are on track to be completed by 1H21. As of now, JP Morgan has signed up to be the anchor tenant taking up 24% of the Net Lettable Area. Despite its positive outlook, CCT’s valuation of 1.1 times P/B and FY19F yield of 5% are not compelling enough. Hence, we recommend investors to buy on dips. Maintain NEUTRUAL. RHB Research (22 Apr)

Mapletree Logistics Trust

Price – $1.44

Target – $1.45

Mapletree Logistics Trust’s (MLT) share price has whipsawed since it was reported that CWT International (CWTI) had failed to pay accrued interests and certain fees in relation to a loan facility agreement. CWT, a wholly-owned subsidiary of CWTI, is currently the largest tenant of MLT contributing 9.1% of its 3Q19 revenue. However based on an announcement by MLT, CWT has not defaulted on its rental payments and there are no arrears due from CWT. In addition, MLT currently holds security deposits of six months of rental in relation to the leases with CWT. Hence, we do not expect to see any near-term impact to MLT’s Distribution Per Unit but believe that this situation will create an overhang over CWT’s longer-term outlook and thus some uncertainties for MLT. As such, we raised our cost of equity assumption and lowered MLT’s fair value to $1.45.

Downgrade to HOLD. OCBC Investment (18 Apr)

Keppel DC REIT

Price – $1.48

Target – $1.59

Keppel DC REIT’s portfolio occupancy stood healthy at 93.2% and the long weighted average lease expiry of eight years provides income visibility. Average cost of debt fell to 1.7% as a result of locking in a lower Euribor on the issued Medium Term Notes. Gearing rose slightly to 32.5% leaving debt headroom of $273m assuming 40% gearing. The group’s Asset Enhancement Initiatives (AEI) works at Keppel DC Singapore 3 to increase client’s wattage is estimated to complete in mid-19 and will utilise extra power on hand and increase revenue. Concurrently, power upgrade and fit out for client expansion at Keppel DC Dublin 2 is expected to complete in Sep-19 bringing occupancy to 100%. In addition, AEI to improve energy efficiency at Keppel DC Dublin 1 will be completed in 2020. Despite no deal flows in the last six months because of the lack of supply of assets, the management has a healthy pipeline of off-market deals in discussion. In view of the revenue additive AEIs secured by pre-committed leases and lower cost of debt, we maintain our accumulate call. Maintain ACCUMULATE. Phillip Securities (17 Apr)

Sheng Siong Group

Price – $1.04

Target – $0.95

Singapore’s Feb-19 retail sales slid 10% y-o-y while the supermarket & hypermarket sub-index declined 13.3%. After adjusting for the “Chinese New Year” effects, this is the first time the sub-index saw a y-o-y contraction and the second time since 2016 that it had underperformed the main index during the Jan-Feb period. While the Budget 2019 had introduced supportive initiatives for low-to-middle income earners, we believe that schemes such as GST vouchers have only temporary effects on supermarket sales. If consumer sentiment remains subdued, supermarket sales is expected to stay muted for the rest of 2019. With Sheng Siong Group’s 1Q19 results due this month, we estimated revenue to grow 10% driven by strong contributions from the record-high of 10 new stores opened in FY18, but net profit to register a flat growth of 0.1% due to the higher costs arising from opening of new stores. Maintain SELL. Maybank Kim Eng (15 Apr)

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