Brokers' Call: CDL Hospitality Trusts

CDL HOSPITALITY TRUSTS

Broker: DBS Group Research

Call: Buy

Target Price: $1.65

CDL announced its maiden entry into the United Kingdom market with the acquisition of Cambridge City Hotel for £63.6 million (S$138.6 million). Based on the property price of £61.5 million, its annualised net property income for the first half of this year is 5.6 per cent.

The acquisition of the upscale 198-room hotel will be 100 per cent funded with sterling debt and is expected to close around Oct 1.

Besides the diversification benefits, this acquisition provides exposure to the growing hospitality market in Cambridge.

Furthermore, CDL should benefit from continued improvement in revenue per available room which jumped 28.6 per cent year-on-year, additional income from the conversion of under-utilised space into meeting rooms, and upside from repositioning the hotel under an international brand.

This should translate to a stabilised net profit interest yield of 6-7 per cent and lift our financial year forecast for 2015-2017 by distribution per unit by 0.3-2.6 per cent.

While the near-term outlook for the Singapore hospitality market is challenging, the risk reward after the recent share price correction is favourable.


RAFFLES MEDICAL GROUP

Broker: OCBC Investment Research

Call: Hold

Target Price: $4.59

Raffles Medical Group has made its first foray into operating clinical facilities in Japan by opening a 5,400 sq ft medical centre in Osaka, targeting both local and foreign patients.

The group also recently acquired International SOS (MC Holdings), which operates 10 clinics in China, Vietnam and Cambodia, at a consideration of US$24.5 million (S$34.6 million).

As at June 30, the group was in a net cash position of $112.5 million.

While these clinics may not contribute substantially to earnings, they will facilitate the group in gaining a foothold in new growth areas.

With waning medical tourism to Singapore and hospital services driven more by local demand in the second quarter of the year, the move to diversify its presence overseas bodes well for the group's earnings profile for the future.

More centres are slated for completion, with Raffles Holland V to be ready by the first quarter next year and the Raffles Hospital extension to be ready by the second quarter of 2017. Two more centres will also be introduced in Shanghai in 2018.


OCBC BANK

Broker: CIMB

Call: Buy

Target Price: $10.20

OCBC's wealth management strategy in consumer banking was to move away from a typical bank's product-centric model - where credit cards, loans and wealth are run as individual product lines - to a customer-centric model - where all efforts are geared towards finding out what the customer requires, then addressing those needs.

A customer-centric focus saw OCBC categorising the consumers into five divisions - premier private client, premier client, youth, family and emerging affluent.

Within the bank, each product line such as wealth or mortgages evolved from taking advertisements on their own products, to managers working with product teams to come out with the product suitable for each customer segment.

These are signs of a forward-thinking bank, making the effort to differentiate itself in a competitive wealth management market. Some mobile initiatives, such as full account access, will curb the growth of call-centre expenses.

Open-access money transfers will mean more short-term costs but will delight customers, while personal investment platforms have the potential for revenue generation.


KEPPEL CORPORATION

Broker: OCBC Investment Research

Call: Hold

Target Price: $6.95

Keppel Corp is still busy with rig repairs and sees orders from non-drilling products but, considering that the group will be delivering 15 rigs this year (eight next year and six in 2017), core earnings momentum may start turning downwards soon, justifying the stock's current depressed valuations.

Keppel also reiterated that it is still working with Sete Brasil on how to best finance the fifth and sixth semi-submersible rigs.

With the privatisation of Keppel Land, the property business can now focus more on returns rather than churning assets to generate profits, a pressure it faced previously as a listed entity.

Though the emerging markets of China and Indonesia could encounter speed bumps along the way, Keppel is positive on the longer-term outlook of its major markets.

The group is pursuing build-operate-transfer and build-own-operate projects; though this may be more capital intensive, they generate more recurring income over the longer term.

With Keppel Infrastructure Trust and Keppel DC Reit, the group is able to unlock value in assets once they stabilise.

New order assumption for next year is trimmed from $3 billion to $2.5 billion, such that earnings estimates are lowered by 3-6 per cent for the financial year 2015-16.

A version of this article appeared in the print edition of The Straits Times on September 14, 2015, with the headline 'Brokers' Call'. Print Edition | Subscribe