Brokers' Call: Mapletree Industrial Trust

MAPLETREE INDUSTRIAL TRUST

Broker: Maybank Kim Eng

Call: Buy

Target Price: $2.05

Mapletree Industrial Trust has announced its intention to expand its investment into data centres worldwide. This is an extension of its existing portfolio, which holds four data centres in Singapore (including one under development), which are build-to-suit or leased to third-party operators. Currently at 6.5 per cent of its assets under management (AUM), these are expected to grow to contribute up to 20 per cent of its AUM, implying further entrenchment of its high-tech segment to 45 per cent of AUM (up from 29 per cent).

Data centres are attractive assets, given the favourable sector fundamentals - rising data protection and storage needs coupled with longer land tenures and hence greater earnings stability. Mapletree Industrial Trust is targeting established data centre markets across the United States, Europe and the Asia-Pacific.

Given Mapletree Industrial Trust's low 29.8 per cent gearing, $200 million to $800 million in debt-funded acquisitions could boost the distribution per unit by 4 per cent to 18 per cent in financial year 2019, assuming net property income yields at 7 to 8 per cent.


SATS

Broker: CIMB

Call: Sell

Target Price: $4.24

Unless Changi Airport Group throws in attractive perks, Sats is expected to generate approximately 2.8 per cent core profit growth per annum from FY2018 to FY2020 as margin expansion tapers.

Sats' dominant market share of more than 80 per cent in Changi Airport ground handling and having branded SIA as a key customer could help fend off gradual structural disruption from the no-frills travel trend.

However, in-flight meal cost is under scrutiny as SIA combats declining passenger yields and stiff competition from regional airlines.

Sats could face an uphill battle with its Japan unit TFK Corp as more airlines are cutting routes to/from Narita or switching to Haneda, which has resulted in an 11 per cent year-on-year decline in its revenue in the first quarter of FY2018.

Slower revenue growth from food solutions is penned in, on the back of a potential rate squeeze from SIA in the upcoming renewal this month, in addition to weaker revenues from TFK. Margin of earning before income tax is lowered to 13 per cent per annum from FY2018 to FY2020 to account for higher staff costs, as wage growth may accelerate next year as overall gross domestic product growth improves in Singapore.


COMFORTDELGRO

Broker: Maybank Kim Eng

Call: Buy

Target Price: $2.40

ComfortDelGro's potential tie-up with Uber, announced in August, might mitigate its taxi business decline. The scenario of Comfort securing Uber's car rental business and leveraging Uber's ride-booking platform should prove positive. Media reports said Uber has about 15,000 cars, similar to Comfort's 15,000 cabs. This is close to Grab's alliance of 25,000 rental cars and 10,000 non-Comfort cabs. Comfort's reliance on taxis should decline significantly.

The downside for its taxi operations has been largely priced in after its 12-month share price correction of 28 per cent.

Its earnings per share is cut by one percentage point to 6 per cent, to incorporate further taxi weakness. It is assumed that there will be a 12 to 15 per cent fleet size reduction per annum from FY2017 to FY2019.

Positive outcome from a tie-up with Uber could reverse its taxi erosion, Downtown Line 3's opening this month could turn around its rail segment, and its Singapore bus operations should provide steady earnings.

A version of this article appeared in the print edition of The Straits Times on October 02, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe