Money Talk: Neptune Orient Lines, Parkson Retail, Ascendas Reit

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Neptune Orient Lines (NOL)

Broker: Maybank Kim Eng

According to a Reuters report, NOL is hoping to sell its logistics unit for US$750 million to US$900 million, valuing it at 10 to 12 times EBITDA (earnings before interest, tax, depreciation and amortisation). NOL said it would continue to evaluate all options to improve its strategic positioning and business performances (sales, IPOs etc.).

However, it cautions that these considerations are preliminary and exploratory, with no assurance of firm conclusions.

APL Logistics has been a stable earnings contributor, though its performance is often less prominent than that of NOL's container shipping arm. A sale could unlock value within the group, with investors reacting positively, in our view. The target valuation translates to US$0.29 to US$0.35 a share.

In an all-cash sale, NOL's net gearing could fall below 1.8 times from 2.2 times in Jun 2014. It could use the proceeds to: 1) pay down its high debt; 2) reinvest in new vessels for longer-term growth (no outstanding vessels for delivery); and 3) M&As.

NOL could also return part of the proceeds to shareholders as special dividends, though we doubt these would be significant. A more prudent move would be to reduce debt.

Maintain Hold and target price of $1.05.

2. Parkson Retail

Broker: OSK-DMG

Parkson's results were significantly below expectations, with Q4 net profit down 35.9 per cent year-on-year to $3.2 million. This capped a year of decline. We note that some of this decline can be attributed to weaker regional currencies against the Singdollar. On a same-store basis excluding the currency impact, net profit increased 4.5 per cent year-on-year.

We expect business conditions to remain difficult for the next few quarters, especially in its core Malaysian market. Consumer confidence remains weak in Malaysia. Pre-goods and services tax (GST) buying may bring some respite in the next two quarters, but will likely be negated by a weaker second half in FY2015.

Indonesian demand remains more resilient, but we note that competition remains keen and its substantial new stores will be a drag on pre-tax profit before they hit maturity.

We downgrade the stock to a Neutral (from Buy). Our new target price of $0.85 (from $1.17) is pegged to a 15 times FY2015 price-earnings ratio, which is lower than regional peers' 19.5 times due to more subdued market growth in Malaysia, which still accounts for more than 70 per cent of the group's gross sales.

3. Ascendas Reit (A-Reit)

Broker: OCBC

A-Reit recently announced the completion of acquisition of Aperia, a newly completed integrated mixed-use development in Kallang iPark, for a total transaction value of $458 million.

Recall that A-Reit first proposed to acquire the property during the launch of private placement on Mar 8 2013. As previously guided, about $270 million out of the $406.4 million gross proceeds raised from the placement will be used to fund the acquisition, while the rest of the amount by debt financing.

A-Reit disclosed that Aperia has secured pre-commitment for 46 per cent of the space with another 15 per cent in advanced negotiations. This is a tad lower than our initial assumption of a 70 per cent occupancy rate upon completion.

Nonetheless, we understand that Aperia will be home to renowned companies such as Intel and popular retailers including Cold Storage, which should translate to sustainable income stream for A-Reit.

We retain our Buy rating and $2.45 fair value on A-Reit.