Brokers' Call: M1 Limited; Keppel Reit; RHT Health Trust


Broker: OCBC Investment Research
Call: Hold
Target price: $2.25

M1's results in the third quarter of this year missed expectations as revenue fell 10.3 per cent year on year to $249.1 million, mainly due to lower handset sales and weaker mobile revenue.

Traditional telecommunications services such as international calls and roaming continued to be affected. Coupled with higher depreciation expenses, the third-quarter Ebitda (earnings before income tax, depreciation and amortisation) slid 13.9 per cent year on year to $74.6 million and net profit sank 23.4 per cent to $34.4 million.

With a fourth telecom company likely to enter the market, the competitive landscape is set to intensify. Hence, M1's average revenue per user will continue to be under pressure in the days to come and, at the same time, it remains crucial for M1 to be able to further monetise data usage.


Broker: DBS Group
Call: Buy
Target price: $1.23

Keppel Reit's share price has rallied over 25 per cent since its lows in late January. KReit's valuation is still attractive on the basis of its cheap valuation on a per square foot (psf) basis and decent 5.8 per cent yield. In addition, through proactive lease renewals, KReit has de-risked its portfolio to mitigate the potential downside from occupancies and rental rates. The impact on distribution per unit from the potential loss of key tenants next year and 2018 has been reduced considerably.

While expiring rents over the next two years are in the low $9 psf/month level, close to current Grade A rents of $9.30 psf/month, the premium status of KReit's properties will help mitigate the potential decline in overall office rents. Furthermore, with $50 million to $60 million of disposal gains yet to be distributed, KReit has the flexibility to stabilise its DPU going forward.

After incorporating the higher number of shares on issue and near-term drag from the loss of California Fitness at Bugis Junction Towers, the target price is trimmed to $1.23.

A key risk is new office supply causing spot rents to fall below $7 psf, which will likely lead to lower asking rents coming in below our expectations.

RHT Health Trust

Broker: CIMB
Call: Add
Target Price: $1.11

RHT announced that the proposed disposal of 51 per cent of the compulsorily convertible debentures (CCDs) in Fortis Hospotel and 100 per cent of the compulsorily convertible preference shares (CCPS) in Escorts Heart Institute and Research Centre to Fortis Healthcare were completed on Oct 14.

The gross consideration totalled 14.57 billion Indian rupees (S$303 million) while the net proceeds from the disposal amounted to 9.6 billion rupees. The latter translates into a special distribution of 24.8 Singapore cents to unit holders. This one-off distribution is on top of the income distribution expected for the first half of financial year 2017. RHT will retain a 49 per cent of stake in the Gurgaon and Shalimar Bagh hospitals and continue to enjoy these associated contributions.

It plans to add another 379 beds to its hospital portfolio over calendar year 2017, including for mother and child programmes, oncology and orthopaedics, and this should partly fill the income vacuum post-transaction.

Looking ahead, a key upside catalyst for further share price performance is more new acquisitions. Downside risks are continued weakening of the Indian rupee.

A version of this article appeared in the print edition of The Straits Times on October 24, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe