Brokers' Call

MAPLETREE INDUSTRIAL TRUST

Broker: DBS Group Research

Call: Buy

Target Price: $1.62

Mapletree Industrial Trust should focus more on maintaining occupancy rates in the tough operating climate instead of focusing on pushing rents higher. Therefore, rental reversions are expected to moderate to an estimated 0 to 3 per cent in the coming years.

But distribution per unit growth over the coming two years is likely to turn more modest at an estimated 1.5 per cent per annum for the trust as the under-rented portfolio gets marked to a most recent market price over time.

Mapletree will also reap the benefits from the completion of development projects from the 2017 financial year.

An increase in refinancing rates will negatively impact distributions. However, Mapletree has minimised these risks through having approximately 80 per cent of its interest cost hedged into fixed rates.


ASCENDAS REIT

Broker: CIMB

Call: Buy

Target Price: $2.57

A-Reit reported a 13.6 per cent year-on-year rise in the second quarter's distribution per unit to 4.16 cents. This was underpinned by a 10.8 per cent rise in revenue due to acquisitions, positive rental reversion and increased occupancy at certain properties.

Portfolio occupancy inched up to 89 per cent and rental reversions registered a 9.1 per cent rise over preceding levels.

The trust is undertaking asset enhancements totalling $94.9 million in China and Singapore. These projects are scheduled to be completed in phases between the fourth quarter of this year and the second quarter of next year.

The acquisition of the Australian logistics real estate portfolio is expected to be completed by the end of this year. It will propel A-Reit to becoming the eighth-largest logistics property owner in Australia and will provide a strong platform to expand through partnerships with real estate firms there.


ISEC HEALTHCARE

Broker: Maybank Kim Eng

Call: Buy

Target Price: 40 cents

Eye specialist Isec acquired Malaysia's largest private opthalmology practice, Southern Specialist Eye Centre, for RM 37.1 million (S$12.1 million). The company is based in Malacca, which is close to medical tourism markets in South Sumatra and Singapore.

The move is expected to boost profits for the 2016 financial year by 17 per cent.

Isec is further expected to pick up the pace on mergers and acquisitions, including two sizeable prospects in Taiwan and Indonesia.

The stock has retreated below the IPO price of 28 cents but the risk and reward possibilities have turned favourable.


SEMBCORP MARINE

Broker: DBS Group Research

Call: Hold

Target Price: $2.32

Sembcorp's third-quarter net profit plunged 76 per cent year on year to a dismal $32 million. Ship-repair revenue also disappointed.

Brazilian projects are likely to be pushed back as Petrobras has slashed its five-year capital expenditure by 41 per cent and production target by 30 per cent.

The firm is still in discussions with Oro Negro and Perisai on the delivery of five jack-up rigs, of which two are near completion.

Sembcorp has reversed profits recognised for these projects, which will be written back on delivery. This could lead to patchy earnings in the next one to two years.

Construction progress for the Brazilian drillships remains slow pending Sete Brasil's restructuring.

Order momentum will likely lag any oil price recovery amid the rig supply glut and keen competition.

The earnings forthe 2015 financial year are expected to be leaner by 25 per cent to reflect project deferments and delays.

A version of this article appeared in the print edition of The Straits Times on October 26, 2015, with the headline 'Brokers' Call'. Print Edition | Subscribe