Brokers' Call: Capitaland Commercial Trust

CAPITALAND COMMERCIAL TRUST

Broker: Maybank Kim Eng

Call: Buy

Target Price: $1.81

CapitaLand Commercial Trust (CCT) sold a 50 per cent stake in One George Street recently to FWD Group. The sale price is a 16.7 per cent premium over One George's carrying value of $1.01 billion or $2,271 per sq ft (psf). It implies a yield of 3.2 per cent over its net property income of $38 million. CCT expects to book a net gain of $79.7 million.

Assuming that the proceeds are used to pay down debt, CCT's aggregate leverage is estimated to fall to 32.9 per cent from 38.1 per cent. This implies debt headroom for $970 million/$1.8 billion to a gearing of 40 per cent/45 per cent. While it could potentially fund its Golden Shoe redevelopment, management is expected to diversify development risks with another core asset.

Hence, participating in the parent's potential purchase of Asia Square Tower 2 cannot be ruled out.

The deal's narrow cap rate reinforces the belief that CCT is undervalued against physical-market prices. Its unit price implies just $1,900 psf and a cap rate of 4.6 per cent for its Singapore offices.


SEMBCORP INDUSTRIES

Broker: CIMB

Call: Buy

Target Price: $3.51

Sembcorp's first-quarter core net profit this year was slightly above expectation, forming 28 per cent of forecast for financial year 2017, thanks to the higher land sales from urban development and better performance of Thermal Powertech Corporation India.

The new CEO, Mr Neil McGregor, will take about six months to review the group, focusing on performance, sustainability and value creation. Getting India right is key.

Rationalising utilities operations with limited growth would be his next priority and Phu My 3 in Vietnam could be a candidate as tariffs are declining.

Sembcorp's core net profit of $91 million (excluding gains from the divestment of Cosco) was better than expected. Urban development sold 42.6ha of commercial and residential land in Nanjing last December, raising net profit to $37.2 million and surpassing the forecast of $36 million. Net profit rose to $61 million for financial year 2017.


VENTURE CORP

Broker: OCBC Investment Research

Call: Buy

Target Price: $13.00

Venture Corporation recorded a strong start to financial year 2017 as first-quarter revenue jumped 33.7 per cent year on year to $843.1 million on the back of new product and programme execution with several customers.

In line with revenue growth, first-quarter operating expenses rose 33.1 per cent year on year to $784.2 million.

Consequently, first-quarter profit before tax jumped 41.3 per cent year on year to $60 million.

Despite a 72.7 per cent increase in tax expenses, profit after tax and minority interest surged 35.6 per cent year on year to $48.6 million.

Note that the first quarter has historically always been the weakest period in any given year since financial year 2013.

Venture's strategy of value creation for customers that has been in the works for the past few years is now bearing fruit and will persist in the years to come.

On SGX last Friday, Venture's shares closed at $12.93.

A version of this article appeared in the print edition of The Straits Times on May 08, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe