Brokers' Call: OCBC

An artist's impression of the International Financial Centre Jakarta Tower 2. Keppel Land is acquiring a prime site adjacent to it.
An artist's impression of the International Financial Centre Jakarta Tower 2. Keppel Land is acquiring a prime site adjacent to it.PHOTO: KEPPEL

OCBC

Broker: DBS Group Research

Call: Buy

Target price: $12.80

Great Eastern Holdings (GEH) is mulling over the sale of its Malaysian operations for US$1 billion (S$1.34 billion), following stricter enforcement of Malaysia's central bank regulations on foreign ownership pertaining to foreign insurers.

Other foreign insurers in Malaysia caught in this conundrum are AIA, AIG, Chubb, Tokio Marine and Zurich Insurance.

At the moment, these entities are wholly owned by their respective parent companies.

Three viable options for these companies to pare down their stakes are listing 30 per cent of their shares to the public, forming joint ventures with local partners and divesting to local institutional investors.

The impact on OCBC is minimal. On average, GEH contributes approximately 15 per cent to OCBC's pre-tax group earnings. OCBC holds 87.75 per cent of GEH. Based on Great Eastern Malaysia's (GEM) 2016 annual report, GEM contributed approximately 40 per cent to GEH's 2016 pre-tax profit which, from OCBC's standpoint, works out to 6 per cent of its group pre-tax profit. Hence, a 30 per cent divestment of its Malaysian operations would have minimal impact on OCBC.


CapitaLand Commercial Trust

Broker: OCBC Investment Research

Call: Hold

Target price: $1.69

CapitaLand Commercial Trust (CCT) has proposed to acquire Asia Square Tower 2 (AST2), which excludes the hotel component, from BlackRock.

The agreed property value of $2.09 billion translates into $2,689 per sq ft on net leasable area and is expected to contribute an initial net property income (NPI) yield of 3.6 per cent.

This is based on a committed occupancy rate of 88.7 per cent as at June 30 this year.

There is confidence that management would be able to ramp up the occupancy rate of the property amid a recovering office market. This acquisition yield also compares favourably with the exit NPI yield achieved by CCT for One George Street and Wilkie Edge.

As much as $340.1 million of the divestment proceeds will be used to partially finance this acquisition, with the remainder funded by bank borrowings.


An artist's impression of the International Financial Centre Jakarta Tower 2. Keppel Land is acquiring a prime site adjacent to it.
An artist’s impression of the International Financial Centre Jakarta Tower 2. Keppel Land is acquiring a prime site adjacent to it. PHOTO: KEPPEL

Keppel Corporation

Broker: OCBC Investment Research

Call: Buy

Target price: $7.36

Keppel Land recently announced that a wholly owned subsidiary has entered into a conditional sales and purchase agreement with Bank Central Asia to acquire a prime site in Jakarta's central business district for a total consideration of 586 billion rupiah (S$59.7 million).

The plan is to develop a premium high-rise tower which could yield about 400 luxury apartments; total development cost is estimated to be $170 million.

With a gross floor area of about 390,000 sq ft, the site sits on the main thoroughfare of Jalan Jenderal Sudirman and is adjacent to KepLand's commercial development, International Financial Centre Jakarta.

This premium high-rise tower will meet the needs of a growing expatriate and local business community seeking well-located apartments in the city centre. Looking ahead, Indonesia is likely to remain one of Keppel Land's key growth markets and we expect more upcoming developments.

A version of this article appeared in the print edition of The Straits Times on September 25, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe