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Sembcorp Marine
Break of dawn – Upgrade to Buy
Valuation: New price target of S$3.06 based on DCF
We upgrade our rating on the stock to a Buy from Neutral
Our investment thesis assumes: (a) SMM sees a revival of new orders to S$4bn in 2018,
ending a two year slump; and (b) SMM's balance sheet risks are resolved and net gearing falls to less than 30% by 2018, from 131% at Q317. We view SMM's new Singapore yard as a game changer. The larger physical scale and higher level of automation allows SMM to chase jobs above US$1bn, larger than the contracts it typically pursued in the past. Earnings are still volatile but we believe low market expectations are priced in: 2018 consensus earnings estimates are 80% below the peak. Our EBIT margin forecasts are only 4.5%/7.1% for 2018/19E, leaving room for upside, if the operating environment is conducive. At 1.8x P/BV, SMM trades above its
2008 GFC lows, but below its long-term mean of 2.3x. We expect strong order momentum to help narrow this gap.
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Frasers Commercial Trust
1QFY18 results were in line. However, portfolio weakness was visible, with four out of FCOT’s six properties registering lower occupancies. Its recent foray into the UK’s business park segment is positive and is likely to help diversify its income. The likelihood of a near-term EFR to fund the deal is likely to cap share price performance, though. Key potential to unlocking shareholder value rests on successful transformation of ATP and CSCP, which are currently undergoing asset enhancements. Our TP is raised to SGD1.49 (from SGD1.39, 4% downside). Maintain NEUTRAL.
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Mapletree Logistics Trust (MLT SP) 3QFY18: Downgrade To HOLD
Post Strong Share Price
Performance Results of MLT SP came in slightly above expectation due to better-than-expected contributions from acquisitions. We raise our target price by 2.9% to S$1.41 as we factor in the recent acquisition of the remaining 38% of Shatin No.3 in Hong Kong. However, we downgrade the stock to HOLD on valuation grounds post a 28% yoy increase in share price. Entry price: S$1.25.
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Keppel Infrastructure Trust
Another steady year
High dividend visibility remains; Maintain BUY.
Keppel Infrastructure Trust (KIT) maintained its record of steady DPU of 0.93Scts in 4Q17, as expected. KIT generated distributable cash flow of S$30.8m in 4Q17, slightly lower than expected due to a time lag between tariff adjustments and costs at City Gas and one-off maintenance costs at the Ulu Pandan plant. Most of KIT’s assets derive revenue from availability-based payments, independent of actual offtake. Hence, cash flows are highly predictable and not exposed to economic cycles. Concession agreements are long term in nature, of up to 20 years, and mostly with government entities, thereby minimising risk
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Keppel DC REIT
4Q17: On track for S$2bn AUM in 2018
■ FY17 DPU of 7.12 Scts (+16% yoy) was broadly in line with consensus and our expectations at 96% of our full-year forecast. 4Q17 DPU of 1.75 Scts was at 24%.
■ 4Q17 results were boosted by acquisitions. Organic portfolio was mildly impacted by a -4.3% rental reversion on a key lease and 0.8% qoq dip in portfolio occupancy.
■ KDCREIT is on track to achieve its S$2bn AUM target in 2018. Including mainCubes and Almere 2, we estimate that it needs another c.S$200m of third-party assets.
■ Reiterate Hold on KDCREIT with a higher DDM-based TP. Upside risk could come from further accretive acquisitions; downside risk from rich valuations.
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