ANALYSTS SAY: Buy, Sell, Hold (18 July '19)

OCBC

Wilmar International (WIL SP)
Value discovery
A China listing should uplift valuations

We estimate a Chinese listing can potentially unlock as much as a 23% higher valuation for Wilmar - consumer staple peers in China trade at an 80% PE premium. The group is likely to raise at least USD2.1bn to support new capacity in oilseeds and grains processing, according to its prospectus lodged with China’s securities regulator – CSRC. If the Singapore ParentCo pays out an equivalent of half the raised amount as capex savings, the 2020E potential dividend yield could rise to 9% (vs. 3.0% now). Rising hog production in China should improve earnings visibility, while WIL’s gearing towards emerging market, staples consumption should provide a counter-cyclical buffer from current tradewar related volatility. BUY.

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CapitaLand Commercial Trust: A busy and eventful quarter

CapitaLand Commercial Trust’s (CCT) 2Q19 results met our expectations, with DPU growing 1.9% YoY to 2.20 S cents. Rental reversions came in strong in 2Q19. Separately, CCT also announced that it has secured Wework Singapore Pte Ltd as a new tenant for its 21 Collyer Quay property. The 7-year lease will commence from early 2Q21. This lifts the overhang on the property. Some downtime is expected as CCT will close the entire building for upgrading works at an estimated cost of S$45m and targeted ~9% ROI. An AEI on 6 Battery Road was also disclosed, with a targeted ROI of ~8% on S$35m of capex. Last but not least, CCT proposed to acquire an effective 94.9% interest in Main Airport Center (agreed property value of EUR265.0m), a freehold office property in Frankfurt, from its sponsor CapitaLand. A private placement exercise was launched (gross proceeds of S$220m raised) to partially finance this acquisition. After adjustments, our fair value estimate increases from S$1.88 to S$1.92. Maintain SELL on valuation grounds

UOB KAYHIAN

CapitaLand Commercial Trust (CCT SP)
2Q19: Steady Growth; Deepens Presence In Germany; Downgrade To HOLD

2Q19 results were in line with expectations. CCT benefitted from the up-cycle in the office market with average office rent increasing 3.5% qoq to S$10.05psf pm, although committed office occupancy dipped slight by 0.7ppt qoq to 98.3%. CCT will embark on AEIs for 21 Collyer Quay and Six Battery Road in 2020. The acquisition of MAC in Frankfurt, Germany is accretive to 1H19 DPU by 1.0% (40% debt) to 2.5% (100% debt). Share price has already outperformed. Downgrade to HOLD. Target price: S$2.17. Entry price: S$1.98.

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Keppel-KBS US REIT

 Maintain BUY with USD0.88 TP, 7% upside with 7.5% FY19F yield. Yesterday, we hosted a meeting between Keppel-KBS US REIT’s (KORE) management and institutional investors post-2Q19 results. Key questions were on sustainability of occupancy and rental rate growth, market outlook, tenant retention strategies, potential acquisitions/funding structure and taxes. In summary, management expects strong rental rate growth to continue, with key markets of Seattle, Austin and Denver still in a sweet spot (demand far exceeding supply).

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