Brokers' Call

TRIYARDS HOLDINGS

Broker: OCBC Investment Research

Call: Buy

Target Price: 47 Singapore cents

Triyards Holdings reported a 17 per cent year-on-year rise in revenue to US$91.2 million (S$130 million) in the first quarter of the 2017 financial year but saw a 28 per cent decline in gross profit due to a lower gross profit margin from a different mix of projects and a competitive market environment.

Along with higher financial expenses, the company saw a 66 per cent drop in net profit to US$2.1 million for the quarter. Despite the tough operating environment, the group has been profitable every quarter, which is quite commendable.

Though earnings may be lacklustre for the group going forward, the stock is now trading close to 0.3 times book, which we feel is too low for a company that is unlikely to make significant impairments in the foreseeable future. In an extreme scenario in which all trade receivables, inventories and works in progress are wiped out, this would leave half of total assets remaining.

KEPPEL DC REIT

Broker: CIMB

Call: Hold

Target Price: $1.18

A big part of the KDCREIT story is powered by acquisitions.

The manager has targeted to expand the Reit's assets under management by $2 billion by 2018 (currently $1.4 billion). However, unlike 2016 when it guided for the acquisition of SGP 3, the acquisition pipeline for 2017 is less visible.

Around 25.7 per cent of KDCREIT's rental income, or 17 per cent of its net lettable area, is up for renewal in 2017. For its Singapore lease expiry, negative 10 per cent rental reversion is expected, in line with our estimated weighted average negative reversion for its Singapore leases in the financial year 2016.

While there are minimal lease expiries in financial years 2018 to 2020, which spells higher income certainty, the flip side of the coin is that the trust may not enjoy positive rental reversions if 2018 becomes a landlord's market.

While the above factors should not cause the stock to be de-rated, they could collectively cap KDCREIT's share price performance in 2017.

TAT HONG HOLDINGS

Broker: OCBC Investment Research

Call: Hold

Target Price: 40 Singapore cents

Books closure for the rights issue of Tat Hong Holdings will be tomorrow.

Recall that in November, Tat Hong announced that it will be undertaking a renounceable underwritten rights issue to raise approximately S$41.1 million in net proceeds through a 1-for-5 rights issue at 33 cents per share.

Proceeds will be used for debt repayment and working capital purposes.

Group chief executive officer Ng San Tiong and certain persons acting in concert with him have provided irrevocable undertakings to subscribe for up to 77.6 per cent of rights shares.

Given the cloudy outlook for operations, there may not be a significant pick-up in the near future and efforts would likely continue to be focused on operational restructuring and cost containment.

A version of this article appeared in the print edition of The Straits Times on January 16, 2017, with the headline 'Brokers'Call'. Print Edition | Subscribe