Brokers' Call: Frasers Commercial Trust

FRASERS COMMERCIAL TRUST

Broker: OCBC Investment Research

Call: Buy

Target Price: $1.59

Frasers Commercial Trust recorded a good set of fourth-quarter results for the 2015 financial year. Gross revenue jumped 16.9 per cent year on year to $37.2 million, driven largely by higher income contribution from the underlying leases of Alexandra Technopark and maiden contribution from Collins Street, but that was partially offset by a weaker Australian dollar.

Distribution per unit rose 14 per cent to 2.52 cents.

Fraser's occupancy rates remained largely stable at 95.4 per cent, while overall weighted average rental reversions of 16.8 per cent were achieved for its Singapore portfolio in 2015.

Management guided that it does not expect to see the same level of strong double-digit rental reversions in the 2016 financial year, given the looming office supply in Singapore and the narrower gap between its portfolio market rents and market rates.


OSIM INTERNATIONAL

Broker: OCBC Investment Research

Call: Fully Valued

Target Price: $1.22

Osim's headline net profit of $6.2 million was significantly below forecast. The third-quarter revenue declined by 10 per cent year on year to $142 million due to slower sales from North and South Asia on the back of weaker consumer sentiment. Operating margins dropped 7.8 percentage points to 9.2 per cent due to higher operational expenditure such as rents, labour and marketing.

The end demand for Osim products is weak. Store count is being rationalised and quarterly sales per store have declined.

With the inventory build-up and slower sales traction, aggressive store expansion and stronger sales per store do not seem likely. Further earnings disappointment would put dividend per share for the 2015 fourth quarter at risk.


SMRT CORPORATION

Broker: CIMB

Call: Sell

Target Price: $1.22

SMRT recorded an operating loss of $4 million in the second quarter of 2016, the third consecutive quarter of loss after the $5.3 million loss in the first quarter. The management expects monthly recurring expenditure to increase in the coming quarters, from 41 per cent of rail revenue to about 50 per cent from the second quarter of 2016 to the financial year-end.

Apart from the intensifying cost pressure, SMRT's fare businesses (both rail and bus) would be adversely affected by the Land Transport Authority's 1.9 per cent fare cut, effective from next month.

Given that SMRT's financial year ends in March, the fare cut is expected to hit its earnings from the fourth quarter onwards.

The Downtown Line is likely to divert some traffic load when it commences operations next month, which may affect SMRT's year-on-year rail ridership, and it is estimated that every 1 per cent dip in ridership would lower the estimated earnings per share for financial year 2017 by 4.8 per cent.


CDL HOSPITALITY TRUSTS

Broker: OCBC Investment Research

Call: Hold

Target Price: $1.61

CDL's third-quarter results were below expectations.

Although gross revenue rose 2.4 per cent year on year to $41.1 million, distribution per unit slumped 9.7 per cent to 2.36 Singapore cents.

The trusts' performance was impacted by the soft tourism scene as its Singapore hotels' revenue per available room dipped 5.7 per cent year on year to $181, due to a fall in both occupancy and average daily rate.

For the nine months of 2015, the trusts' gross revenue increased marginally by 0.5 per cent to $122.3 million.

Distribution per unit declined 10.3 per cent to 7.05 cents, which was 69.9 per cent of full-year projection.

Looking ahead, management remains cautious on the weak global economic environment, which may weigh on the performance of its portfolio.

A version of this article appeared in the print edition of The Straits Times on November 02, 2015, with the headline 'Brokers' Call: Frasers Commercial Trust'. Print Edition | Subscribe