Money Talk: SMRT, Sheng Siong, Suntec Reit

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


Broker: Maybank Kim Eng

SMRT's share price surged by 18.5 per cent to close at its highest in almost five months, stoking speculations of impending corporate developments. The stock exchange's surveillance department has issued a query to which SMRT has replied that they are not aware of any news that has caused the price surge.

In our view, there are two possible corporate developments: the nationalisation of SMRT via a general offer, or a transition to new business model. The latter is a more likely scenario.

SMRT's core fare-based business suffered an operating loss of $32m in 2013 and is expected to remain a key drag to profitability in the future. While a change is imminent, it is highly speculative to conclude that the terms will be favourable to shareholders. In particular, we are concerned over the treatment of the asset purchase obligations under the old rail financing regime. In the absence of material announcements, we advise investors to stay cautious.

SMRT trades at a rich valuation of 30x FY2014-2015 price/earnings. Maintain Sell with a target price of $0.60.

2. Sheng Siong Group

Broker: OCBC

Sheng Siong's Q1 revenue increased by 5.7 per cent year-on-year to $190m, forming 26.3 per cent of our FY2014 forecast. This is within expectations as Q1 results are typically stronger due to Chinese New Year.

As a result of better gross profit margins, Q1 operating profit increased proportionally by 20.7 per cent to $12.5m (vs. a 5.7 per cent year-on-year increase in revenue), forming 29 per cent of our FY2014 forecast.

We see limited downside to the share price at the last close of $0.60 as our FY2014 forecast dividend yield at 4.8 per cent is expected to lend strong support. Maintain Buy with fair value estimate of $0.68.

3. Suntec Reit

Broker: OSK-DMG

Suntec Reit reported a lower-than-expected set of Q1 results with distribution per unit (DPU) of 2.229 cents, 8 per cent lower than our estimates of 2.42 cents. The main drag on the results appears to be the ongoing Phase 3 asset enhancement works in Suntec's retail portion and lower-than-expected leasing rates for the completed Phase 2.

As expected, Suntec's office portfolio continues to do well with an overall occupancy of 99.4 per cent, in line with its commercial office peers in the sector.

We maintain our FY2014 forecast DPU of 9.68 cents as Phase 2 of its retail asset enhancement initiative should be completed by the end of Q2 and should help close the earnings gap. We maintain our Neutral rating on Suntec.

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