Brokers' Call

Funan DigitaLife Mall is to close for redevelopment.
Funan DigitaLife Mall is to close for redevelopment. PHOTO: CAPITALAND

CITY DEVELOPMENTS

Broker: Maybank Kim Eng

Target Price: $10.40

Call: Buy

CDL's share price weakness during the second half of this year has arguably been caused by a tepid office market. The revalued net asset value has been cut to $12.22 from $12.72 to capture lower investment-property valuations.

Office assets account for 25 per cent of CDL's gross asset value. Updated office rents and occupancy means the valuation for its investment properties is cut to $5.2 billion from $5.7 billion.

Pre-sold homes will provide CDL with a revenue of an estimated $2.4 billion from 2016 to 2019.

The Singapore property market is past the worst policy tightening and the Government is expected to start rolling back cooling measures in the year ahead. This could revive home sales and remove a critical overhang for developer stocks. CDL also has multiple options to monetise its portfolio of assets, including outright sales.


SEMBCORP INDUSTRIES

Broker: DBS Group Research

Target Price: $3.80

Call: Buy

SCI had a successful completion of expansion for Fujairah 1 Independent Water and Power Plant in the United Arab Emirates, while it signed an agreement to build the largest gas-fired independent power plant in Myanmar. These showcase SCI's track record and growing overseas footprint.

SCI's share price has corrected 7 per cent following 60.6 per cent-owned Sembcorp Marine (SMM)'s profit warning. Dividend per share also lifted from divestment gains, and SCI is expected to maintain similar payout of 16 Singapore cents in the financial year 2015 despite the decline in recurring profit after tax and minority interests.

The first power plant in India had incurred total start-up losses of $21 million in the past two quarters. The plant is likely to break even this year and contribute to SCI's bottom line from next year with better economies of scale after the second unit's ramp-up. SCI has also made its foray into other markets - Bangladesh and Myanmar - underpinning its long-term growth prospects.


ASCENDAS REIT

Broker: Barclays Capital Inc

Target Price: $2.68

Call: Neutral

A-Reit will acquire One@Changi City business park for $420 million, and raise at least $408 million in equity capital to fund this acquisition partly, for another potential acquisition of an Australian logistics property, for debt repayment and for other future acquisitions.

At 5.9 per cent, One@Changi City's net property income yield may not seem attractive but it would enhance A-Reit's overall lease profile, and has a rent growth potential of approximately 15 per cent, assuming reversion to market rents on lease expiries.

Given that early failure rate is pre-emptive and acquisitions uncertain in terms of timing and valuations, there could be near-term dilution to A-Reit's distribution per unit.

However, the One@Changi City acquisition has its merits as it should enhance A-Reit's lease and land expiry profile, as well as improve its portfolio quality with upside prospects to rent growth.


CAPITALAND MALL TRUST

Broker: OCBC Investment Research

Target Price: $2.09

Call: Buy

CMT's management is constantly seeking to enhance the value of its portfolio by carrying out asset rejuvenation works and tenant repositioning exercises to make its malls more relevant to consumers.

It is also speeding up phase two of its asset-enhancement initiative at IMM Building. More recently, CMT announced its plans to redevelop Funan DigitaLife Mall into an integrated development, given its untapped gross floor area of approximately 388,000 sq ft.

As a result of this, the mall is expected to be closed from the third quarter of next year, and redevelopment works will take approximately three years.

CMT is expected to continue delivering stable growth to its unitholders. Dividend per unit is expected to come in at 2.3 per cent and 2.5 per cent for financial years 2015 and 2016 respectively, partly driven by contribution from its recent Bedok Mall acquisition.

A version of this article appeared in the print edition of The Straits Times on December 14, 2015, with the headline 'Brokers'Call'. Print Edition | Subscribe