Money Talk: Singapore Post, Lian Beng, HanKore

SINGAPORE - Stay up to date on market chatter with our picks of the latest broker research reports, compiled by The Straits Times Money Desk.

1. Singapore Post (SingPost)

Broker: OCBC

SingPost reported a 4.8 per cent rise in net profit to $143.1 million in FY2014. Excluding one-offs, underlying net profit grew 2.9 per cent to $145 million in FY2014, 1.8 per cent higher than our estimate.

Though the group's business transformation will still take time (and perhaps more acquisitions), its initiatives are starting to yield results. We switch our valuation to the free cash flows from equity method to capture growth from the e-commerce business. As such, our fair value rises from S$1.32 to S$1.42.

Meanwhile, SingPost's stock has also been buoyed by investors seeking to park their funds in an environment awash with liquidity. Indeed at the current price, the forecast dividend yield is decent at 4.4 per cent, and may be attractive to yield seekers.

However, given the limited upside potential, maintain Hold.

2. Lian Beng

Broker: OSK-DMG

Lian Beng, through its 32 per cent-owned associated company, Epic Land, has entered into an agreement to purchase 92.8 per cent of the aggregate strate area of Prudential Tower from Keppel Reit for $512 million. This implies a cap rate of 3 per cent and is 4.5 per cent above the latest valuation of the 99-year leasehold property at $490 million.

Being a Grade-A office in a central location, along with a 100 per cent committed occupancy rate with 40 tenants, we find the purchase consideration decent. The price consideration works out to be $2,219 per sq ft. This compares favourably against past year's strata-titled transactions for SBF Center, Samsung Hub, Suntec City and Springleaf Tower.

We view this opportunistic acquisition favourably, as the sale of Prudential Tower's strata-titled units could offer Lian Beng an earnings boost of $23.3 million, or recurrent rental income of $5.1 million annually.

We continue to favour Lian Beng for its strong bread-and-butter construction business and growing stream of diversified recurrent earnings. Maintain Buy and $1.17 target price.

3. HanKore Environment Tech Group

Broker: CIMB

No thanks to the one-off fair value loss of 110 million yuan from its contingent liabilities to Tongyong and the marking-to-market of its warrants, HanKore's net profit for the first nine months was in the red, as expected.

Core earnings were broadly in line with our expectations at 78 per cent of our full-year forecast.

Due to the net effect of the reclassification of certain expenses as non-recurring and some downward adjustments of projected engineering, procurement and construction (EPC) revenues, we raise our FY2014-FY2015 earnings per share estimates by 3.2 per cent and 6 per cent, respectively.

The deal with China Everbright International (CEI) remains a key near-term catalyst. We upgrade from Hold to Add, with a target price of $0.125, based on the scenario that HanKore purchases CEI's water assets at 1.3 times trailing net asset value.

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