Brokers' Call: Mapletree Commercial Trust

MAPLETREE COMMERCIAL TRUST

Broker: CIMB

Call: Hold

Target Price: $1.48

MCT's VivoCity mall recorded fourth-quarter rental revenue of $48.5 million and full-year income of $191.2 million on 12.3 per cent rental reversion and income from the newly created 15,000 sq ft space in basement 1. During the quarter, it also enjoyed a 5.8 per cent rise in tenant sales and shopper traffic.

Committed occupancy remained high at 99.9 per cent. The trust has 15.3 per cent and 16 per cent retail leases to be renewed in financial years 2017 and 2018 respectively, including some anchor tenant space.

MCT would likely be able to achieve double-digit rental uplift. Its fourth-quarter revenue for financial year 2016 rose 2.8 per cent year on year to $73 million. Distribution income of $42.9 million translates to a distribution per unit of 2.02 Singapore cents.

Office rentals of $96.6 million for 2016 made up approximately 34 per cent of total revenue and experienced a 1.6 per cent decline.

Looking ahead, MCT would continue to drive retail rental revenue through a $6.1 million average earnings index exercise at VivoCity's basement 2 to be completed in the first half of next year. It would also introduce new concepts and organise more activities to grow shopper footfall.


ST ENGINEERING

Broker: OCBC Investment Research

Call: Hold

Target Price: $3

Singapore Technologies Engineering (STE) recently announced that it has won about $505 million worth of contracts in the first half of 2016. Adding the $443 million worth of aerospace orders announced earlier, the cumulative order wins total $948 million.

As of end 2015, STE's order book was around $11.7 billion, of which it is expected to deliver about $3.8 billion this year, covering about 60 per cent of full-year estimate.

Meanwhile, STE has also seen a pretty strong run-up in its share price after releasing an in-line set of 2015 results.

While the stock price has corrected somewhat, valuations are not compelling enough; the company's price to earnings ratio is still trading above its three-year mean of 19 times consensus earnings per share.


DECLOUT LIMITED

Broker: NRA Capital

Call: Overweight

Target Price: 34 cents

DeClout is an exciting high- return/high-risk investment opportunity. It is seeking the approval of its shareholders to list its subsidiary Procurri and, in the process, reduce its effective stake from 69 per cent to an assumed 40 per cent.

Based on the assumptions in the circular to shareholders, DeClout may enjoy a windfall of at least $48.6 million, an impressive sum equivalent to 42 per cent of DeClout's current market capitalisation.

A review of comparable companies suggests that Procurri may be worth between $141 million and $300 million. Hence, the assumption of Procurri being listed at a market capitalisation of at least $150 million is reasonable.

An internal merger of two subsidiaries is intriguing, with the combined entity seemingly mimicking a telecommunications company, except for the fixed line and mobile services, thus paving the way for DeClout to pursue more telecommunications-related business.

However, DeClout showed signs of slowing growth in the second half of 2015, suggesting that growth from acquisitions is being muted by a general slowdown in business. It will continue to invest in new businesses and a rebound in share prices is expected in 2017.

A version of this article appeared in the print edition of The Straits Times on May 02, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe