Highlights

SGX Stocks and Warrants

Author: kimeng   |   Latest post: Wed, 18 Sep 2019, 9:17 AM

 

Global Energy: Saudi Not That Impenetrable After All

Author: kimeng   |  Publish date: Wed, 18 Sep 2019, 9:17 AM


  • Limited impact from attacks for now
  • But higher geopolitical risk premium
  • Value play; benefiting under sector rotation

Limited Impact From Attacks for Now…

Following an attack on Saudi Arabia’s production facilities that has taken out 5.7m bbl/day of supply, or about half of the kingdom’s output and about 5% of the global supply, the kingdom has just issued an update that it has recovered more than half of the production that it had lost during the attack.

The Abqaiq facility is now processing about 2m bbl/day, and should return to pre-attack levels by end Sep. This suggests that Saturday’s attacks should only have a limited impact on production and exports, a smaller shock than feared by Monday’s media reports. Still, this incident is worthy of attention because it is not like any other supply disruption involving pipelines or other peripheral infrastructure, but one that damages the heart of Saudi Arabia’s oil complex.

… But Higher Geopolitical Risk Premium

Saudi Arabia has for decades been a stable oil producer that markets turn to in times of crude oil crisis, but now the view that its key production facilities are also vulnerable to attacks and sabotage may lead to a higher geopolitical risk premium in oil prices, given the apparent ease with which a significant chunk of productive capacity was put out of action. It is not clear whether Saudi Arabia or the US will try to respond militarily. In addition, there is also the risk of more attacks later.

Recapping Our Earlier Stance

In our 23 July sector report, we highlighted preferred picks for key sub-sectors of the oil and gas value chain, noting that selective opportunities exist over the medium term. Depending on movements in oil prices as well as demand and supply dynamics, the performance of each subsector will vary accordingly.

For instance, under a weak oil price environment, higher beta names such as exploration & production (E&P) companies as well as drillers are likely to underperform, and as mentioned in our sector report, there did not seem to be a compelling reason to be heavily invested in this segment at that time.

Favour E&P and High Beta Names When Oil Prices Rally…

However, this has changed since the Saudi attacks and spike in oil prices. When oil prices rally, these higher beta names typically outperform. As mentioned in our earlier internal flash note on 16 Sep, higher beta and previously high short-interest stocks should lead the way higher on a trading basis post the attack, and this was seen after markets opened on Monday. Refiners, on the other hand, would generally underperform due to the higher input costs with higher crude oil prices.

… But Stick to Oil Majors After the Dust Settles

Fundamentally, we would stick to our preference for the oil majors (relatively defensive, attractive yields) after the move fades, barring an escalation in geopolitical tensions. The oil majors are still relatively more defensive compared to other subsectors, and we expect the dividends of companies BP, Total and Royal Dutch Shell to be sustained with the strong free cash flow yields, backed by improving returns.

Source: OCBC Research - 18 Sept 2019

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Mapletree Industrial Trust: Proposed JV With Sponsor for Data Centres Acquisition in North America

Author: kimeng   |  Publish date: Tue, 17 Sep 2019, 10:14 AM


Mapletree Industrial Trust (MIT) announced that it has formed a 50:50 JV with its sponsor Mapletree Investments Pte Ltd for the acquisition of 10 powered shell data centres from Digital Realty for a purchase consideration of ~US$557.3m (~S$774.2m). At the same time, this JV has also formed an 80:20 JV with Digital Realty for the coinvestment in three fully fitted hyperscale data centres (turnkey portfolio) for a purchase consideration of US$810.6m.

The 13 data centres are located across North America with a total transaction value of ~US$1,367.9m, of which MIT’s share is approximately US$683.9m. All properties are fully leased to nine established tenants, with a long WALE of 9.1 years (by gross rental income) and 92.2% of the leases have fixed annual rental escalations of 2% or more. 94.1% of the land area of the properties is freehold.

Expected completion date for the turnkey portfolio acquisition is in late 2019 while the powered shell data centres are expected to be acquired in early 2020.

Separately, MIT has launched a private placement exercise to raise gross proceeds of at least S$350m. The indicative issue price is between S$2.211 and S$2.265, representing discounts of 2.8-5.1% to MIT’s last closing price prior to the announcement. The bulk of the gross proceeds will be used for the aforementioned acquisitions, with the remaining acquisition cost to be funded by debt.

On a pro forma basis, MIT’s FY19 DPU and NAV is expected to increase by 3.5% and 3.3%, respectively, while pro forma aggregate leverage will increase from 33.4% to 38.5%. We will provide more details after speaking with management.

We currently have a HOLD and S$2.29 fair value on MIT.

Source: OCBC Research - 17 Sept 2019

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Keppel DC REIT: All Good Things Come Into One

Author: kimeng   |  Publish date: Tue, 17 Sep 2019, 10:13 AM


  • Proposed two acquisitions in Singapore
  • Strong merits from these deals
  • Raise FV to S$2.08

Proposed Acquisitions of KDC SGP 4 (99% Interest) and 1-Net North Data Centre

Keppel DC REIT (KDCREIT) has proposed two acquisitions in Singapore. The first is for a 99% interest in Keppel DC Singapore 4 (KDC SGP 4) from a JV between Alpha Data Centre Fund and Keppel Data Centres Holding (70-30 JV between Keppel T&T and Keppel Land Limited). The agreed property value is S$384.9m, and works out to an expected stabilised NPI yield of 7.5% (at least 7% in first year as the property is still ramping up).

KDC SGP 4 is a five-storey carrier-neutral and purposebuilt facility, with a current occupancy of 92% and its IT power is fully committed. There will be a rental support not exceeding S$8.7m for a 2-year period after the acquisition completion date. The second proposed acquisition is for 1-Net North Data Centre (51%-owned by Keppel Infrastructure Trust and 49%- owned by Shimizu Corp) at an agreed value of S$200.2m.

Expected initial NPI yield is attractive at ~9%, and the property has a triple-net master lease with 16.8 years remaining. Both acquisitions are expected to be completed in 4Q19.

DPU Accretive Despite Equity Fund Raising…more Acquisitions to Come!

We are positive on this proposed deal, given that it will consolidate KDCREIT’s positioning in the Singapore data centre market (AUM will jump 30.7% to S$2.6b and Singapore’s share will increase from 51.1% to 62.7%), which is seeing strong demand and supply dynamics.

Portfolio occupancy and WALE will also both increase. Despite funding these acquisitions largely with equity (private placement and preferential offering to raise gross proceeds of S$478.2m; pricing came in at top-end of indicative range), KDCREIT’s pro forma FY18 DPU is expected to be accretive at +9.4%, or +12.4% if tax transparency is granted on KDC SGP 4 (good likelihood of this happening, in our opinion).

Furthermore, KDCREIT’s pro forma aggregate leverage is expected to decline from 31.9% to 30.3% post completion. This leaves it with continued ample debt headroom to fund more acquisitions and management had previously highlighted it was actively seeking third party acquisitions.

To be Included in FTSE EPRA Nareit Global Developed Index

KDCREIT also announced recently that it will be included in the FTSE EPRA Nareit Global Developed Index with effect from 23 Sep 2019. We factor in KDCREIT’s proposed acquisitions in our model, and trim our FY19 DPU forecast by 0.3% (slight dilution before completion of acquisitions) but bump up our FY20 DPU forecast by 7.7%.

Correspondingly, our DDM-derived fair value estimate increases from S$1.93 to S$2.08. We recommend unitholders to subscribe for the preferential offering.

Source: OCBC Research - 17 Sept 2019

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Oil & Gas: Geopolitical Risk Premium Higher Post Drone Attacks

Author: kimeng   |  Publish date: Mon, 16 Sep 2019, 9:18 PM


Following drone attacks at Saudi Arabia’s production facilities on Saturday, Brent crude surged the most on record with benchmark oil futures rising as much as $11.73 /barrel to $71.95 as the market opened today in Asia. As at time of writing, Brent has eased to $68.30, representing a 13.4% rise.

Saudi’s Energy Minister Prince Abdulaziz bin Salman said the strikes had reduced crude oil production by 5.7m bbl/day, which is about half the kingdom’s output.

Part of the decline will be compensated through stocks, though the level remains uncertain, with JODI reporting global stocks owned by Saudi Arabia at an 11-year low of 188 mb and Kayrros showing Saudi and Egypt combined crude inventories at 101 mb.

It is also unclear how long the outage will last – initially the “majority” of production was expected to be back online by Mon, then Tue; latest is that it will take “weeks” to get back to full.

With the latest development, oil-related stocks are expected to see a positive knee jerk reaction, and we will unwind the earlier 9 Sep recommendation to take partial profits on CNOOC and PetroChina – the former is down 1.2% while the latter is up 2.4% since.

Higher beta and previously high short-interest stocks should lead the way higher on a trading basis – e.g. US midcap E&P and services, seismics/E&Ps in Europe, and SMM in Singapore. Fundamentally, we would stick to our preference for the oil majors after the move fades.

For oil, with 1) less risk from Iran production returning, 2) higher geopolitical risk premium and 3) Iraq taking steps to reduce exports, downside risks to prices have materially lessened.

Source: OCBC Research - 16 Sept 2019

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Ctrip.com International: Looking Beyond Near-term Headwinds

Author: kimeng   |  Publish date: Wed, 11 Sep 2019, 9:44 AM


  • Geopolitical tensions taking a toll on guidance
  • Going into lower-tier cities and abroad
  • FV of US$40

Above Expectations

Ctrip.com International’s (Ctrip; CTRP US) 2Q19 results were broadly above expectations. Net revenue rose 19% YoY to RMB 8.7b, which was 0.4% above consensus expectations. This was on the back of a mix of increased accommodation choices, an improving consumer experience, strong international air ticketing demand and an increase in ground transportation.

Gross margin came in at 79%, comparable to the 80% registered last year. Non-GAAP PATMI came in at RMB1.4b, which was 3% above consensus expectations, which we attribute to lower-than-expected sales and marketing spend.

3Q19 Guidance Soft

Management has guided for 3Q19 net revenue to grow 10-15% YoY, of which the mid-point implies another 3.6% downside to consensus estimates. We note that this has already incorporated an impact of about 400-500 bps on the growth rate, largely due to the geopolitical situation in Hong Kong and Taiwan (~1/3 of total outbound revenue), as well as a drop in outbound air ticket prices.

However, management signalled some optimism in being able to capture incremental outbound market share, given its position as the market leader. Management has guided for a non-GAAP operating profit of RMB 2.3-2.6b for 3Q19, which implies an OPM of 22-25%.

Long-term Story Intact

Management shared that international revenue accounted for over 35% of total revenue (of which ~20%pts to 25%pts / 10%pts to low-teens are from its outbound travel and pure international business, respectively), and hopes to grow this to 40-50% in the next 3-4 year years. This should be supportive for margins, given ASPs for outbound products are typically higher than domestic ones.

Interestingly, management highlighted that Ctrip’s transportation revenue is diversified across both domestic and global train ticket products (including TrainPal), which we believe implies limited impact on its domestic train ticketing takerate from 12306’s introduction of its free ‘waiting queue’ service.

In the lower-tier cities, we believe Ctrip has been holding its own, despite competition from Meituan and Tongcheng-Elong. In 2Q19, we observed that Ctrip branded low-star hotel room nights increased 50% YoY, on the back of effective promotions. Management has also observed a continued increase in travel consumption within the lower-end hotel segment.

Despite the near-term headwinds, we remain constructive on the long-term prospects of Ctrip, and expect partial mitigation from outbound destination switches away from HK. We employ a DCF-based valuation, and derive a FV of US$40.

Source: OCBC Research - 11 Sept 2019

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Wing Tai Holdings Ltd: Weak set of results

Author: kimeng   |  Publish date: Wed, 28 Aug 2019, 9:14 AM


Wing Tai’s 4QFY19 revenue fell 41% YoY to S$63.4m, dragged by lower contributions from development properties (-24.1% YoY). FY19 revenue fell 10% YoY to S$322.6m. 4QFY19 PATMI declined 86% YoY to S$18.1m, while FY19 PATMI fell 79% YoY to S$46.8. The latter formed 87% of our initial full year forecast, which we considered to be below our expectations.

The decrease in PATMI was mainly attributable to the absence of one-off gain on the disposal of a subsidiary company and also due to lower contribution from Wing Tai Properties Limited in Hong Kong. A full-year dividend of 8 cents per share was declared, unchanged from last year.

We currently place our BUY rating and fair value estimate of S$2.41 under review.

Source: OCBC Research - 28 Aug 2019

Labels: Wing Tai
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