Brokers' Call

COMFORT DELGRO

Broker: OCBC Investment Research

Call: Buy

Target price: $3.40

SBS Transit, a 75 per cent-owned subsidiary of ComfortDelGro, announced the sale of 50 new buses to the Land Transport Authority on Dec 29 at a net book value of about $23 million to be delivered by next year and 2017.

This means LTA may be willing to pay for the rest of Comfort's buses at $800 million after stripping out buses financed by LTA.

As part of the plan to shift to the new bus government contracting model by the second half of the year, LTA could either pay a lump sum in cash for Comfort's assets, or structure the transaction as a finance lease which means progressive payments.

As Comfort removes bus assets from its balance sheet, it will need to record a corresponding amount in its receivables, which will decline with each LTA payment, until zero by the end of the fifth year.

Factoring in these assumptions the target price may inch up.

ASCENDAS REIT

Broker: Maybank Kim Eng

Call: Hold

Target price: $2.23

A-Reit was busy during the holidays raising new equity to fund two acquisitions.

Last month, it raised $610.5 million by issuing 275 million new units in consideration shares to the vendor to fund the purchases of business park One@Changi City for $438.9 million and a logistics facility in Sydney for $82 million.

By itself, the exercise was dilutive, but the 6 per cent blended net property income yield for all its acquisitions last year has been accretively financed.

Overall, value is being created and balance-sheet risk reduced.

NOBLE GROUP

Broker: OCBC Investment Research

Call: Hold

Target price: 44 cents

Rating agency Standard & Poor's (S&P) has cut its investment credit rating on Noble Group to junk, just a week after Moody's downgrade.

However, Noble said the downgrade is not expected to have a material impact on its operations, noting that the increased collateral calls have been immaterial and below the previously indicated range of US$100 million (S$144 million) to US$200 million.

Management also highlighted that Fitch has affirmed Noble's rating.

A version of this article appeared in the print edition of The Straits Times on January 11, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe