Brokers' Call

ESR-REIT

Broker: DBS Group Research

Call: Hold

Target Price: 60 cents

ESR-Reit (previously known as Cambridge Industrial Trust) remains in the midst of a portfolio repositioning in the downturn in industrial space.

Stable occupancy rate has been a trade-off of declining rents.

Some road bumps are ahead as single- to multi-tenant lease conversions could lead to more downside to distributions per unit.

Divestment of two non-core assets will reduce gearing from 38 per cent to 35 per cent.

On the bright side, there is some optimism over its new sponsor e-Shang Redwood.

Given its position as a leading logistics developer and operator in North Asia, synergy could be created.

Lease conversion from single to multi: The unfavourable rental reversion resulted from the ongoing conversion of tenancy may bring downside surprises.


DUTY FREE INTERNATIONAL

Broker: CIMB

Call: Hold

Target Price: 33 cents

Duty Free International reported a first-quarter 2018 revenue of RM167.5 million (S$53.7 million) in line at 25 per cent of the full-year forecast.

The year-on-year sales decline in the first quarter of 2018 was due to softer consumer sentiment and intensive promotions.

The 11.6 per cent quarter-on-quarter sales growth in the same period, albeit with slight sales slowdown in the liquor and beer categories at the borders, is a sign of consumer weakness at Malaysia-Thai border towns.

Another key contributor lies in duty-free shopping at airports, which was unaffected by the 6 per cent GST implementation in Malaysia, and recorded high single-digit sales growth in the first quarter of 2018, driven by increasing passenger volume.

Key upside/downside risks to the hold call comes from consumer sentiment and US dollar fluctuations versus the Malaysian ringgit.


CAPITALAND COMMERCIAL TRUST

Broker: CIMB

Call: Hold

Target Price: $1.68

CCT has confirmed it will be redeveloping Golden Shoe Car Park (GSCP) in Raffles Place into a 51-storey integrated project with offices, serviced residences (299 units), ancillary retail units and a food centre.

It will be done via a joint venture with CapitaLand, CCT and Mitsubishi Estate.

This exercise would enable CCT to leverage on growth opportunities while building a potential acquisition pipeline.

Total estimated development cost for GSCP is $1.82 billion, including $958 million of differential premium.

On completion in the first half of 2021, the food centre will be handed back to the Ministry of the Environment and Water Resources.

Ascott will manage the serviced residences.

The target yield on the cost is estimated at 5 per cent.

CCT's 45 per cent share of the total development cost works out to $819 million, making up 9 per cent of its revalued assets under management, well within the required 10 per cent development limit.

A version of this article appeared in the print edition of The Straits Times on July 17, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe