Brokers' Call

ASCENDAS REIT

Broker: DBS Research Group

Call: Buy

Target price: $2.57

A-Reit has proposed to acquire 26 logistics properties in Australia for A$1.013 billion (S$1.01 billion) at a net profit interest yield on cost of 6.4 per cent. With an average age of only 6.4 years, the assets are located within 40km of their respective city central business districts, are freehold and 94.4 per cent occupied.

The acquisition propels A-Reit into being the eighth-largest logistics property owner in the country and gives it astrong foothold in a deep and mature market with strong population growth, rising consumption and a well- organised logistics sector.

Market occupancy is also expected to stay high, given low incoming supply.

There is also potential for further earnings upside from boosting occupancy to 98.3 per cent. Furthermore, there is room to enhance gross floor area in the medium term should existing tenants exercise the option of expanding their floor space.

SEMBCORP INDUSTRIES

Broker: Maybank Kim Eng

Call: Hold

Target price: $3.67

Sembcorp Industries (SCI) intends to divest its 40 per cent stake in SembSita to Suez Environment Asia. SembSita is an Australia- based integrated waste-management company. Suez holds the other 60 per cent stake and has approached SCI for the sale.

The cash consideration of $482 million would net SCI a handsome gain of $350 million. The transaction is expected to be completed by the fourth quarter of this year, subject to the approval of Australia's Foreign Investment Review Board.

SembSita contributed $33.5 million to SCI's net profit for the 2014 financial year. Contribution for the first half of this year was only 2.3 per cent of SCI's $365.8 million profit as SembSita's second half is usually stronger.

SCI could use its cash proceeds to snap up other high-growth energy or water businesses or pay special dividends. SCI's divestment of Sembcorp Bournemouth in Britain in April netted the company $214 million.

SATS

Broker: OCBC Investment Research

Call: Hold

Target price: $3.78

Sats' growth outlook is positively correlated to the performance and outlook of Singapore's Changi Airport because Sats generates approximately 82 per cent of its total revenue locally.

Although a recent report showed a weak 0.7 per cent growth at Changi Airport and sluggish performance for the airport's operating statistics for the January-July period, the Singapore Tourism Board said it continues to expect up to 3 per cent growth in visitor arrivals for the remainder of this year.

Sats is expected to continue its operational improvements, driven by management efforts to increase productivity, investing in automation to allow for sustainable reduction in staff costs, which also leads to increases in operating leverage.

Even though growth in the overall air-freight industry is still relatively muted, Sats has been recording an increase in its market share in cargoes commanding higher margins.

Another area that helps Sats in its top line is the contribution from its Japanese subsidiary TFK, which is expected to increase with the contract win to support all of Delta's flight operations in Tokyo.

Q&M DENTAL GROUP

Broker: CIMB

Call: Buy

Target price: 92 cents

Q&M's largest acquisition, TP Dental, for $28.6 million will be paid for in cash ($18 million) and new shares ($10.6 million).

The acquisition reinforces Q&M's position as the largest private dental group in Singapore and opens up the premium dental healthcare segment.

The profit target was revised down 20 per cent to $3.2 million every two years for eight years, from the previous $4 million. The revision is likely due to insertion of a safeguard clause where

Q&M retains $1.6 million of the cash consideration and TP Dental will make up for any shortfall in the profit target.

While this lowers the earnings per share forecasts, the upside potential is intact if only profit targets and guarantees are modelled in.

This acquisition also significantly adds to Q&M's dentist pool and the profit target of $1.6 million per annum increases Q&M's dental profits in Singapore by about 21 per cent.

A version of this article appeared in the print edition of The Straits Times on September 28, 2015, with the headline 'Brokers' Call'. Print Edition | Subscribe