Brokers' Call: Yangzijiang Shipbuilding

Yangzijiang Shipbuilding | Buy

Nov 8 close: $1.32

Target price: $1.41

Broker: OCBC Investment Research, Nov 8

Yangzijiang Shipbuilding (YZJ) delivered a 23 per cent year-on-year rise in revenue to 5.4 billion yuan (S$1.07 billion) and a 10 per cent fall in net profit to 866 million yuan in the third quarter this year, bringing net profit for the first three quarters to 2.4 billion yuan. This is a much better-than-expected set of results, with earnings for the first three quarters of the year accounting for 94 per cent and 90 per cent of our and the street's full-year estimates, respectively.

Gross profit margin for shipbuilding was 20 per cent in the third quarter this year, compared with 15 per cent in the same period last year, mainly due to a stronger US dollar against the yuan, as well as reversal of 152 million yuan of provision that YZJ made previously (in anticipation of potential losses when the yuan was stronger). Though the group made an impairment of 333 million yuan on financial products, the investment segment delivered strong earnings of 373 million yuan in the third quarter, a 67 per cent year-on-year rise.

With the better-than-expected results, we have also increased our earnings estimates, and our fair-value estimate rises from $1.32 to $1.41. As such, we upgrade our rating to "buy".


OUE Hospitality Trust | Buy

Nov 8 close: 69 cents

Target price: 85 cents

Broker: DBS Group Research, Nov 8

Financial year 2018 is a transition year for OUE Hospitality Trust (OUEHT), given the loss of income support and share price correcting on the back of slower increase in revenue per available room (RevPAR) and fears over a rights issue similar to that conducted by its sister real estate investment trust (Reit), OUE Commercial Reit.

However, we believe these issues have largely been priced in as OUEHT trades at 0.9 times price-to-book value, which is in line with -1 standard deviation (SD) of its mean price to book, and its forward yield of 7.6 per cent is also close to +1 SD of its mean yield of 7.7 per cent.

Between the fourth quarter of last year and the first half this year, the market came around to our view that OUEHT should trade at a premium to book, given its leverage to a multi-year recovery in the Singapore hospitality market given limited new supply over the next two to three years and premium prices paid for hotels by property investors.

However, the recent correction now places OUEHT at about 10 per cent discount to book. As we believe we are in the midst of a multi-year recovery, OUEHT should re-rate from the current level.

After incorporating slower RevPAR performance, we lowered our discounted cash flow-based target price to 85 cents from 90 cents.


Manulife US Reit | Buy

Nov 7 close: 78 US cents

Target price: 92 US cents

Broker: RHB Research, Nov 7

Manulife US Reit (real estate investment trust) delivered another solid set of quarterly results, backed by contributions from acquired assets and organic growth.

Portfolio occupancy rate improved in four of its properties, with double-digit rental reversions recorded in the third quarter.

More importantly, renewed leases registered a strong positive rental reversion of 13.5 per cent, indicating continued strength in the US office market and its asset quality.

While there has been some concerns over potential tax reforms impacting its tax-efficient structure, we believe the probability of any drastic changes is low.

Manulife US Reit currently offers FY18-19F yields of 7.7 per cent/8.1 per cent, which we deem as highly attractive.

Conversely, United States-listed office Reits and office S-Reits offer average yields of 4.7 per cent/5.7 per cent.

The counter is one of our top sector picks, but key risks to our call include changes to its tax-efficient structure, ability to retain key tenants, and an unexpected slowdown in office space demand.

A version of this article appeared in the print edition of The Straits Times on November 12, 2018, with the headline 'Brokers' Call'. Print Edition | Subscribe