Brokers' Call: CapitaLand

CapitaLand | Buy

Target price: $3.62

Sept 19 close: $3.37

Broker: DBS Group Research, Sept 19

CapitaLand announced the acquisition of 16 freehold multi-family properties in the United States for US$835 million (S$1.1 billion). The target portfolio consists of 3,787 apartment units.

Positive market dynamics, driven by stronger business activities and employment growth opportunities in the sub-markets, underpin demand for offices and multi-family homes.

The multi-family asset class is widely seen to offer resilient cash flows and we see this asset class as an expansion of the group's established corporate housing business under Ascott.

Metrics - like the portfolio location within cities that enjoy strong employment growth and in hubs with an expanding multinational presence - are drivers of demand for these homes.


Sembcorp Industries | Add

Target price: $3.49

Sept 19 close: $3.02

Broker: CGS-CIMB, Sept 18

Sembcorp Industries (SCI) in India reported a surprisingly strong core profit of $28 million in the second quarter of 2018.

Specifically, Sembcorp Gayatri Power's core losses were only $3 million (excluding cost recovery of a positive $11 million). This was due to high average spot prices of 4 rupees (7.6 Singapore cents)/kilowatt hour (kwh) and a plant load factor of 91 per cent.

Average September electricity spot prices in India are at 4.13 rupees/kwh, with a high of 6.50 rupees/kwh in the past two days, on higher demand and lower renewables.

The latest spike in spot prices could spur SCI to ramp up plant load factor to enjoy the strong spread.


OUE Hospitality Trust | Buy

Target price: 79 cents

Sept 20 close: 70 cents

Broker: OCBC Investment Research, Sept 20

OUE H-Trust's unit price has declined 7.3 per cent since its Sept 10 close, after the announcement of a related party's acquisition of OUE Downtown office components through a dilutive rights issue.

We believe OUE H-Trust's sharp unit price decline was prompted by concerns of an equity fund-raising in the near term to fund the acquisition of one of its right-of-first-refusal assets, Oakwood Premier, the serviced residence component of OUE Downtown.

OUE H-Trust's gearing stands at 38.7 per cent as at June 30, implying a debt headroom of $250 million up to the regulatory limit of 45 per cent.

The counter's prospects for 2019 appear bright with Crowne Plaza Changi Airport at the cusp of surpassing its minimum rent, and the nearby Jewel Changi Airport expected to open in March next year.

We upgrade the counter from "hold" to "buy" with an unchanged fair value of 79 cents.


Thai Beverage Public Company | Buy

Target Price: 94 cents

Sept 20 Close: 67 cents

Broker: DBS Group Research, Sept 20

Following its recent results call in August when management said the firm was looking to issue debentures to replace its short-term debts, ThaiBev announced it had issued 77 billion baht ($3.16 billion) in debentures.

This follows the 50 billion baht issuances in March.

As per earlier issuances, the debentures come in tenures of two years and four months, three years and six months, five years, seven years, and 10 years, with fixed coupon rates ranging from 2.64 per cent to 4.16 per cent.

The weighted average coupon from the current issuance works out to about 3.42 per cent, and the estimated weighted average tenure is 5.24 years.

Including the latest issuances, the weighted average fixed coupon rate is 3.19 per cent, which we have taken into our forecasts.

The moves should allay investors' concerns about the group's exposure, in the light of rising interest rates.

We maintain our view that we are near or at the bottom of its operational performance, which should pick up in FY19.

A version of this article appeared in the print edition of The Straits Times on September 24, 2018, with the headline 'Brokers' Call'. Print Edition | Subscribe