Frasers Logistics & Industrial Trust | Buy
Fair value: $1.21
May 9 close: $1.05
Broker: OCBC Investment Research, May 9
Frasers Logistics & Industrial Trust's second-quarter results came in within our expectations. Distribution per unit in Singapore dollar terms grew by 3.4 per cent year-on-year to 1.81 cents, owing to a currency hedge rate of A$1 to S$1.0647 that the trust entered into, against a rate of A$1 to S$1.0014 in the same period the year before.
There were three leases renewed or signed in the second quarter. Although rental reversions were negative at 7.3 per cent, the three leases carry annual rent increments of 3.15 per cent to 3.25 per cent, while two of the leases have long tenure of 7.1 years and 10 years, thus providing visibility. Occupancy continues to be high at 99.4 per cent, while weighted average lease expiry is healthy at 6.75 years.
As the trust has a policy of hedging its foreign exchange on a rolling six-month basis, we believe its currency hedge rate for its second-half distributions is likely to come in lower than its first-half hedges.
Riverstone Holdings | Buy
Target price: $1.27
May 9 close: 96 cents
Broker: DBS Vickers, May 9
First-quarter profits of RM31.1 million (S$10.5 million) were within expectations as foreign exchange was the key earnings drag. Industry headwinds persist, but Riverstone can outperform peers as it ramps up on new cleanroom capacity from the second half, which carries higher margins.
Given current attractive valuations, hard-to-replicate cleanroom expertise and robust end-demand, Riverstone could also be an attractive acquisition target for the bigger boys. Maintain "buy" call and target price of $1.27.
OCBC Bank | Accumulate
Target price: $14.90
May 9 close: $13.14
Broker: Phillip Securities, May 8
OCBC's growth may be more timid than expected. First-quarter earnings were boosted by an unsustainably low - or non-existent - allowance.
Unless we enter into a more vibrant capital market, investment income will remain a drag on earnings. Upside in net interest margins will be capped by Indonesia on inability to raise pricing, and Hong Kong on lack of current account and savings account franchise.
We raised our target price to $14.90, from $13.94 previously, on a higher terminal growth rate assumption. Nevertheless, our rating has been downgraded to "accumulate", owing to the share price performance.
Keppel DC Reit | Accumulate
Target price: $1.51
May 8 close: $1.38
Broker: Phillip Securities, May 8
What is the news?
• Launch of private placement of 224 million new units to raise gross proceeds of $303 million.
• Advance distribution of 2.75 cents.
• Acquisition of a 99 per cent interest in property located at 13 Sunview Way, by way of acquiring a 99 per cent interest in Kingsland Data Centre.
Gross proceeds from the private placement will be used to acquire the property and repay debt of Kingsland Data Centre.
There is an agreement in place for two of the three tenants to ramp up their space requirements, bringing committed occupancy to 84.2 per cent, which is lower than portfolio occupancy of 93.7 per cent... The weighted average lease expiry (Wale) of 3.6 years... is shorter than the existing portfolio Wale of 9.6 years as of March 30.
Upgrade to "accumulate" from "neutral", with a higher target price of $1.51, from $1.47 previously. The long-term demand drivers for data centres remain intact, but downside risk arises from the rich valuation.
Avi-Tech Electronics | Neutral
Target price: 43 cents
May 8 close: 44.5 cents
Broker: RHB Securities, May 8
We downgrade Avi-Tech Electronics to "neutral" from "buy", with a lower discounted cash flow-derived target price of 43 cents, from 59 cents
Avi-Tech's customers supply wafer machines to Taiwan Semiconductor Manufacturing Company, which trimmed its full-year revenue target owing to softer demand for smartphones and uncertainty over cryptocurrency mining. This will likely have a negative impact on Avi-Tech's customers as orders for machines and parts would be delayed, which would in turn affect Avi-Tech.
We cut our FY2018F estimates by 36 per cent to factor in the slowdown in the semiconductor sector globally, and expected delays in orders as highlighted. The stock is, however, backed by an attractive FY2018F yield of 5.4 per cent and management is actively exploring merger and acquisition opportunities.
