Money Talk: UOB, Starhill Global Reit, Osim

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. UOB

Broker: OCBC

UOB's third quarter net earnings of $866 million came in higher than Bloomberg's poll of $736 million. Better fee and other incomes were partly mitigated by higher impairment charges. Overall group non-performing loans has stabilized at 1.2 per cent. Net interest margin is likely to hold steady at 1.71 per cent.

Management is cautiously optimistic about its prospects, in particular on wealth management and fee income, while mindful of the slowdown in China and the rest of Asia.

Taking into account the softer global outlook, we have revised our earnings projections and valuations, and lowered our fair value estimate for UOB from $25.00 to $24.20. With a dividend yield of 3.3 per cnet and medium term potential total return of 11 per cent, we are retaining our BUY rating.

BUY with lower fair value estimate of $24.20

2. Starhill Global Reit

Broker: OSK-DMG

The Reit has 67.2/65.6 per cent of revenue to net property income (NPI) exposure to Orchard Road via Wisma Atria and Ngee Ann City. Tight retail supply and the entry of new international retailers may increase its bargaining power in leasing negotiations. 47.2 per cent of its leases (gross rent) are up for renewal over the next two years.

In Malaysia, management is eyeing a 7.2 per cent increase in rent when the master tenancy with Katagreen Development for Starhill Gallery and Lot 10 is up for review in 2016.

In Australia, the A$10 million redevelopment plan to optimise upper-storey space at Plaza Arcade has been submitted to the City of Perth and is awaiting approval.

In Singapore, there is potential for leasable area expansion when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021.

Initiate BUY with a target price of 88 cents

3. Osim International

Broker: Maybank Kim Eng

TWG, its tea business, will expand further in the first half of 2015 (1H15) in Guangzhou, Beijing and HK. Start-up costs will stem from the building of warehouses & central kitchens and hire & training of serving staff. However, as TWG is expected to add more faster-breakeven retail-only stores, we expect scale economies to kick in, likely in the second half of 2015. To further mitigate the expansion costs, OSIM intends to build its international franchisee business which does not involve heavy start-up expenses.

We think the share price has factored in the weak quarter and short-term outlook, and expect management to do all it can to pace the cost of future expansion to the returns. We still like Osim's fundamentals in the luxury lifestyle space.

We have cut estimated FY14-15 earnings per share by 18 per cent. Essentially, we now expect no growth this year before a rebound next year.

Maintain BUY with a lower target price of $2.72 from $3.50

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