Below are excerpts of recent analyst reports.
Yangzijiang prepares future funds
Analysts: Low Pei Han, CFA and Chia Jiun Yang, CFA (OCBC Investment Research)
Proposed issue of warrants
Yangzijiang Shipbuilding (YZJ) has proposed an issue of 330 million warrants at a price of RMB0.3072 (S$0.0605) for each warrant.
Each warrant carries the right to subscribe for one new ordinary share in YZJ at the price of RMB7.617 per share (S$1.50).
Though the exercise price represents a premium of 47% to Wed’s closing price of S$1.02, we note that the expiry date is more than three years later at 29 Apr 2016.
S$495m will be raised if warrants are exercised
Though this is a fund raising exercise, the amount that YZJ will receive for now is relatively insignificant to the amount that may potentially come in later when the warrants are exercised; net proceeds of about RMB92.17m (~S$18.15m) will come from the warrant issue, and assuming all warrants are exercised, YZJ will receive additional proceeds of about RMB2,514m (~S$495m), which will be used for general working capital.
No need of cash for now
With a net cash and financial assets position of RMB9.95b, YZJ is in no need of cash for the near term. According to management, this proposed warrant issue is for YZJ to prepare funds for the future when the shipbuilding industry recovers. We do not see a recovery in the Chinese shipbuilding market this year and even in 1H2014 – the shipbuilding market normally lags the shipping industry by about a year. Hence management contends that this is long-term planning as the potential funds would provide additional financial flexibility for future market expansion and development opportunities.
Industry outlook remains challenging
There is no impact on the group’s EPS for now, though there is a potential 8.6% dilutive effect if all the warrants are exercised. We still expect 2H13 and 1H14 to be the most difficult periods for the group, based on its order book (US$3.6b as at end Sep 2012) and delivery schedules.
Maintain HOLD with fair value estimate of S$0.95.
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Midas associate wins contract
Analyst: Daniel Lau (CIMB)
Midas’s 32.5%-owned associate Nanjing SR Puzhen Rail Transport Co Ltd (NPRT) won its first 100% low-floor tram contract from Suzhou New District Tramway valued at Rmb338m for the Suzhou National New & Hi-tech Industrial Development Zone Tramline 1, a light rail line currently under construction.
Delivery of the trams will take place in 2014. This contract adds to NPRT’s orderbook of Rmb9bn.
We believe the latest contract win reflects strong order flow momentum for the railway industry. While we have yet to see a major high-speed railway contract awarded, Midas’ stock price recently outperformed on market’s anticipation of potential contract wins.
Despite its recent outperformance, we continue to see upside for Midas. We will not be surprised to see valuations re-rating above our 17.5x target. Midas is currently trading at 14.7x rolling P/E. In its heydays of 2009 and 2010, Midas showed its ability to hit valuations higher than 28.6x, one standard deviation above its five-year forward mean. We see key catalysts from major high-speed railway contract wins.
Maintain OUTPERFORM, with target price 59 cents.
CapitaMalls Asia: Deepening its presence in Wuhan, China
Analyst: Eli Lee (OCBC Investment Research)
Acquiring new site in Wuhan
CapitaMalls Asia (CMA) announced recently that it has been awarded a retail mall land site in Wuhan, China for RMB660m (S$128m) or RMB2,700 per sqm. It is located in the Qiaokou District – the second most densely populated district in Wuhan - at the junction of Jiefang Avenue and Gutian Second Road, which is ~8km away from the city center.
This will be the group’s fourth mall in Wuhan, after CapitaMall Wusheng, CapitaMall Minzhongleyuan and CapitaMall 1818.
Envisioned development – a shopping mall with 2 office towers
The area of the acquired site is ~70,400 sqm and the envisioned development would consist of a six-storey shopping mall and two office towers to open in 2015. Total GFA (excluding car-park) is estimated at 240k sqm (160k sqm retail, and 80k sqm office). The total development cost for the project is ~RMB 2,800m (S$543m) or RMB 12,000 per sqm, with a projected IRR in the mid teens.
Management expects stabilized retail and office rentals levels of ~RMB200 sqm pm and RMB100-120 sqm pm, respectively. We understand that, because the office towers are structurally separate from the retail mall, management may opt out of developing the office component in the scenario of insufficient demand. They would also explore the option of selling the office space, instead of retaining it for investment income.
In our view, the price paid for the site appears to be fairly decent though we see limited RNAV accretion from this acquisition at this junction. From the perspective of capital deployment, we continue to favor CMA for executing sharply on a well thoughtout strategy: active capital deployment into its growth market China through deepening its operational presence in key cities, such as Shanghai, Beijing, Chengdu and Wuhan.
Maintain BUY with an increased fair value estimate of S$2.55, versus S$2.16 previously, as we update our model for firmer cap-rate assumptions and latest valuations of listed holdings.