Brokers' Call: Ascott Residence Trust

ASCOTT RESIDENCE TRUST

Brokers: OCBC Investment Research

Call: Hold

Target Price: $1.105

Ascott Residence Trust (ART) has entered into conditional sale and purchase agreements to divest trust beneficiary interests of 18 rental housing properties in Tokyo, Japan, for approximately $153.6 million, or 16.1 per cent above the valuation of the properties as at 31 Dec last year.

The estimated net gain from the sale is approximately $10.6 million. The net sale proceeds may be used for asset enhancement, funding potential acquisitions and/or other general corporate purposes.

Completion of the sale is expected to take place in the second quarter of this year. On a pro-forma basis, distribution per unit for financial year 2016 after the sale would have been 8.01 Singapore cents instead of 8.27 cents.

The transaction is deemed positive, given that the properties are more than 10 years old and due for asset enhancement.


CHINA AVIATION OIL

Brokers: CIMB

Call: Buy

Target Price: $2.28

Net profit for China Aviation Oil (CAO) for the first quarter of the year of US$25.3 million (S$35.3 million) was within expectations, accounting for 25.6 per cent of our full-year estimate. Quarter-on-quarter net profit growth of 41.1 per cent was driven by better GP margin of 0.47 per cent as the fourth quarter of last year is seasonally weaker on lower trading optimisation activities.

Year on year, higher single premium immediate annuity contribution drove the overall share of associate and joint venture contribution up by 5.1 per cent. Volumes fell 11.8 per cent quarter on quarter largely due to a fall in other fuel volumes traded in the quarter as CAO is still fine-tuning its crude oil trade operations.

CAO is open to merger and acquisition opportunities, but it is selective and is highly likely to opt for strategic assets.


JAPFA

Brokers: DBS Group Research

Call: Buy

Target Price: $1.00

Japfa Limited is involved in the production of major animal proteins across different geographies in Asia's fast-growing regions.

The earnings forecast for financial years 2017-2018 is adjusted to impute lower expected contribution from subsidiary Japfa Comfeed Indonesia due to weaker-than- expected prices of day-old-chick (DOC) and live broiler in the first quarter of this year.

Since initial government interventions were announced end of last month to address the oversupply, both DOC and live broiler prices have recovered in the worst affected areas; while in others, prices have increased further.

Japfa's share price is driven by DOC, broiler and swine prices, as well as China's raw milk price movements and the exchange rate between the United States dollar and the Indonesian rupiah. A strong recovery in the group's average selling price and/or rupiah would boost Japfa's share price.

A version of this article appeared in the print edition of The Straits Times on April 24, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe