Month: June 2011
SPH – OCBC
Upgrade to BUY; awaiting capital deployment
Almost got the Jurong Gateway site… A consortium, made up of Singapore Press Holdings (SPH) and United Engineers Limited, recently bid S$917m for a site beside Jurong East MRT station, and only 5.4% below the winning bid. This outcome was similar to a Bedok site auction in Sep 10. We think these strong tenders from SPH underline its desire to expand their retail landlord business. As of 2Q11, we estimate SPH to have a sizeable acquisition war-chest of S$1,265m, assuming a net gearing ceiling of 70%.
…but more GLS auctions to come. We think there are three sites in the 2H11 GLS supply that could be of interest to SPH. The commercial site beside Paya Lebar MRT, with a large GFA of 86,940 sqm, could have a significant retail component after setting aside the minimum office and hotel requirements. In addition, the commercial site beside Fernvale LRT could house a retail development with 26,400 sqm GFA – around the size of Clementi Mall. There is also a white site on the reserve list beside Novena MRT with potentially 19,400 sqm retail GFA after taking out the estimated minimum hotel requirement.
TripleOne and 313@Somerset potential targets? Market talk is that TripleOne Somerset is on the market for about S$1.2b ($2,132 psf NLA) and that 313@Somerset could be for sale as well. These may be interesting targets for SPH who could derive operational synergies between managing Paragon and any one of these assets, particularly 313@Somerset. Given the sizes of these assets, however, it is more likely for SPH to consider acquiring a stake or participating in a joint venture instead of acquiring these assets wholly.
Successful execution at Clementi Mall. Clementi Mall has opened for operations smoothly. The mall is fully leased with an average monthly rent of S$14 psf. Clementi Mall highlights SPH’s retail management capabilities in a suburban location and the market would likely view similar acquisitions favorably. We forecast annual revenue at around S$30m from Clementi Mall after 4Q11.
Upgrade to BUY on valuation. The current price of S$3.81 indicates an upside of 13.4% against our S$4.32 fair value. In addition, the downside is limited by an attractive dividend yield of 7.1%, which is underpinned by a core newspaper segment yielding solid recurrent cash. Look for accretive acquisitions to be positive catalysts in FY11-12. We are upgrading SPH to BUY with a fair value estimate of S$4.32.
SPH – OCBC
Upgrade to BUY; awaiting capital deployment
Almost got the Jurong Gateway site… A consortium, made up of Singapore Press Holdings (SPH) and United Engineers Limited, recently bid S$917m for a site beside Jurong East MRT station, and only 5.4% below the winning bid. This outcome was similar to a Bedok site auction in Sep 10. We think these strong tenders from SPH underline its desire to expand their retail landlord business. As of 2Q11, we estimate SPH to have a sizeable acquisition war-chest of S$1,265m, assuming a net gearing ceiling of 70%.
…but more GLS auctions to come. We think there are three sites in the 2H11 GLS supply that could be of interest to SPH. The commercial site beside Paya Lebar MRT, with a large GFA of 86,940 sqm, could have a significant retail component after setting aside the minimum office and hotel requirements. In addition, the commercial site beside Fernvale LRT could house a retail development with 26,400 sqm GFA – around the size of Clementi Mall. There is also a white site on the reserve list beside Novena MRT with potentially 19,400 sqm retail GFA after taking out the estimated minimum hotel requirement.
TripleOne and 313@Somerset potential targets? Market talk is that TripleOne Somerset is on the market for about S$1.2b ($2,132 psf NLA) and that 313@Somerset could be for sale as well. These may be interesting targets for SPH who could derive operational synergies between managing Paragon and any one of these assets, particularly 313@Somerset. Given the sizes of these assets, however, it is more likely for SPH to consider acquiring a stake or participating in a joint venture instead of acquiring these assets wholly.
Successful execution at Clementi Mall. Clementi Mall has opened for operations smoothly. The mall is fully leased with an average monthly rent of S$14 psf. Clementi Mall highlights SPH’s retail management capabilities in a suburban location and the market would likely view similar acquisitions favorably. We forecast annual revenue at around S$30m from Clementi Mall after 4Q11.
Upgrade to BUY on valuation. The current price of S$3.81 indicates an upside of 13.4% against our S$4.32 fair value. In addition, the downside is limited by an attractive dividend yield of 7.1%, which is underpinned by a core newspaper segment yielding solid recurrent cash. Look for accretive acquisitions to be positive catalysts in FY11-12. We are upgrading SPH to BUY with a fair value estimate of S$4.32.
SPH – Kim Eng
Be content with stability
Event
• Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings (SPH) to become more aggressive in seeking future projects. Or, it could just put property acquisition plans on the back burner as there are fewer sites that meet its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. We also identify a revaluation boost for Paragon as a potential catalyst, even though the chances of it occurring are still remote for now. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating but at a lower target price of $4.60.
Our View
• In May this year and September last year, SPH failed to secure the White Site at Boon Lay Way and the mixed‐used site at Bedok Town Centre, respectively. Fewer commercial plots are now available with nearly all sites on the Confirmed List of the 2H11 Government Land Sales (GLS) Programme slated for residential use and a White Site on the Reserve List catering to Grade A office use. With neither segment the focus of SPH’s property development division, we rule out land acquisition as a near‐term catalyst.
• The group’s commercial properties appear to be doing well. We expect Clementi Mall, which became fully operational last month, to achieve gross rental revenue of $32.5m pa by FY Aug12. Paragon, on the other hand, is benefitting from positive rental reversions. If market buzz is true that Australian property group Lend Lease is seeking to divest its stake in the neighbouring retail mall, 313@Somerset, at $4,400‐4,800 psf net lettable area, Paragon’s valuation may get a boost. It currently is valued at around $3,200 psf compared to Ion Orchard whose valuation stands at $4,169 psf.
Action & Recommendation
SPH’s core media and retail mall rental businesses will continue to hinge on domestic consumption growth. The plan to use Apple’s and Google’s subscription platforms to boost its subscription base is positive for the longer term. The return of surplus cash as dividends is another potential catalyst. However, a key risk is that management might bid aggressively for property projects. Maintain BUY with target price lowered to $4.60 (previously $4.68).
SPH – Kim Eng
Be content with stability
Event
• Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings (SPH) to become more aggressive in seeking future projects. Or, it could just put property acquisition plans on the back burner as there are fewer sites that meet its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. We also identify a revaluation boost for Paragon as a potential catalyst, even though the chances of it occurring are still remote for now. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating but at a lower target price of $4.60.
Our View
• In May this year and September last year, SPH failed to secure the White Site at Boon Lay Way and the mixed‐used site at Bedok Town Centre, respectively. Fewer commercial plots are now available with nearly all sites on the Confirmed List of the 2H11 Government Land Sales (GLS) Programme slated for residential use and a White Site on the Reserve List catering to Grade A office use. With neither segment the focus of SPH’s property development division, we rule out land acquisition as a near‐term catalyst.
• The group’s commercial properties appear to be doing well. We expect Clementi Mall, which became fully operational last month, to achieve gross rental revenue of $32.5m pa by FY Aug12. Paragon, on the other hand, is benefitting from positive rental reversions. If market buzz is true that Australian property group Lend Lease is seeking to divest its stake in the neighbouring retail mall, 313@Somerset, at $4,400‐4,800 psf net lettable area, Paragon’s valuation may get a boost. It currently is valued at around $3,200 psf compared to Ion Orchard whose valuation stands at $4,169 psf.
Action & Recommendation
SPH’s core media and retail mall rental businesses will continue to hinge on domestic consumption growth. The plan to use Apple’s and Google’s subscription platforms to boost its subscription base is positive for the longer term. The return of surplus cash as dividends is another potential catalyst. However, a key risk is that management might bid aggressively for property projects. Maintain BUY with target price lowered to $4.60 (previously $4.68).
STEng – OCBC
10% cap on Ropax contract claims
Receives claim from LDA. ST Engineering (STE) has just updated that its marine arm – ST Marine (STM) – has received a letter of claim (dated 10 Jun 2011) from the lawyers of Louis Dreyfus Armateurs (LDA) in respect of the shipbuilding contract for the Roll-on/Roll-of Passenger (Ropax) ferry that was contracted in Jul 2007 for around S$179m. LDA is claiming for both liquidated and unliquidated damages resulting from STM’s purported breach of the Ropax contract amounting to around S$4.8m and EUR33.03m, respectively. However, STM has referred the matter to its legal advisers and it intends to dispute the claim as it is of the view that LDA’s purported termination of the Ropax contract is a breach and STM itself has terminated the Ropax contract because of this breach.
No material impact on financials. But in the event that STM is liable, we understand that STM is required to refund the milestone payments made by LDA (amounting to S$129m plus interest); STM also maintains that under the contract, its total liability is capped at 10% of the contract price. As such, STE also does not expect the contract termination to have any material impact on its NTA or EPS for FY11. Meanwhile, we note that the milestone payments (excluding interest and damages) are just 2.2% of STE’s FY10 revenue, and we also understand that the group has been making provisions for this particular vessel since missing the stated delivery date.
Sell or lease vessel when completed. We also understand that the group is going ahead with the completion of this vessel; and this will give STE the option of either reselling it in the secondary market or chartering it out to third party operators. However, as the Ropax is likely to be quite highly customized, we note that there may be a need for STE to refit the vessel to new specifications or face a longer time before it can find a suitable buyer or charterer. But from recent transaction reports from shipbrokers, we understand that the demand for RoRo (Roll-on/Roll-off) vessels remains relatively buoyant.
Maintain BUY. As before, we think it is still early days to assess if STE/STM has to pay damages, hence we hold off adjusting our FY11 estimates. Our worst case scenario could see a <5% impact on FY11F pre-tax profit. We are still positive on the group’s overall prospects, defensive nature and do not believe that this incident will affect its strong payout (around 90% of core earnings) ability; hence we maintain our BUY rating and S$3.57 fair value (21x FY11F EPS).