Mapletree Logistics Trust - A blue chip yield of 8.0% (DBSV)

BUY S$0.86

Price Target : S$ 1.07

At a Glance

• 3Q11 DPU of 1.69 Scts in line (73% of FY11 estimates)

• Financial metrics remain strong, gearing of 41% is comfortable

• Maintain BUY and S$1.07 TP based on DCF

Comment on Results

3Q11 results in line. Revenues and net property income grew by 25% and 24.% to S$68.3m and S$58.9m respectively, benefiting from an enlarged portfolio. MLT had acquired 14 properties in 2010 and an additional 4 assets since the start of 2011. Occupancy levels remain well supported at 99% as of 3Q11. Distributable income increased by a higher 30% to S$40.9m as a result of lower than proportionate increase in borrowing costs and hedging of its HKD income streams, which mitigated the impact of the HKD depreciation against the S$. DPU increased by lower 10% to 1.69 Scts due to an enlarged share base. DPU includes 0.03 Scts from divestment gains of 9 and 39 Tampines.

The group continues to see active leasing enquiries across all geographies and healthy occupancy levels. In 3Q11, MLT achieved organic growth of 6% yoy - rental renewals at up to 12%, while 3 properties (which were converted from single tenanted to multitenanted buildings) reportedly achieved higher renewal growth of between 30-50%. The trust also announced that they have obtained permission to redevelop 21/23 Benoi Sector to a maximum plot ratio of 2.5x (from the current 1.4x), potentially adding 70k sqm to the portfolio.

Financial metrics remain strong; debt expiry profile extended to 3.7 years. To date, MLT has renewed a substantial portion of its JPY loans expiring in 2011 (JPY 17.3bn or S$281m) at a competitive rate for another 6 years, lengthening its debt maturity profile to 3.7years. Gearing ratio stands at 41%. While this is higher than industrial peers, it remains comfortable in our view, given its strong sponsor backing and that its portfolio is unencumbered. We note that MLT has taken local currency loans as a natural hedge against currency fluctuations and these provide tax shelters for its overseas exposure.

Recommendation

BUY, S$1.07 TP maintained. Yields of close to 7.7-8.0% are attractive in our view; re-rating catalysts likely to hinge on the manager’s ability to continue sourcing accretive acquisitions that will grow distributions. TP is maintained at S$1.07 as we roll forward our valuations to FY12F.

CapitaLand (KimEng)

Event

CapitaLand’s quarterly PATMI continues to be lumpy, after the group announced an 82.6% fall in 3Q11 PATMI to $80.2m. We believe the earnings were below market expectations, hampered by higher-than-expected financing costs and administrative expenses. Nonetheless, the group remains well-positioned for its growth path, having committed to $7b worth of new investments YTD. Maintain BUY.

Our View

CapitaLand’s 9M11 PATMI stood at $580.7m. While earnings volatility from property development were expected, financing costs were higher in the wake of higher costs of borrowing and marked-to-market losses on interest rate swap contracts. Higher administrative expenses were also incurred due to higher staff costs and professional fees. Profit recognition from Singapore was also slower than expected, and we have adjusted our profit recognition assumptions, leading to a 23.4% reduction in our FY11 forecast.

Overseas, the projects expected to be completed in 4Q11 include Rihan Heights in the UAE, Phases 1 and 3 of The Loft in Chengdu and a portion of The Beaufort in Beijing. In 3Q11, CapitaLand sold 409 homes worth RMB611m, accounting for 26% of its total home sales in China year-to-date. The group maintains its belief and confidence in China’s prospects.

In Singapore, CapitaLand has sold 338 residential units worth $715m during the 9M11 reporting period. The next launch is expected to be the 583-unit Bedok Residences in 4Q11 and we expect an ASP of $1,300 psf on an estimated breakeven of $1,060 psf. CapitaLand is also likely to launch more units at The Interlace and the new Bishan Central project in 1Q12.

Action & Recommendation

CapitaLand has already exceeded its full-year investment target of $5-6b, but it remains in sound financial position should new investment opportunities arise. We believe the warm reception to its new launches could serve as positive catalysts. Maintain BUY with a target price of $3.53, pegged at a 10% discount to RNAV.

HI-P (Lim&Tan)

S$0.585-HIPS.SI

? Hi-P has revised down the company’s previous guidance provided on 1 Aug ’11 (where management had guided for 3Q ’11 profit to be between S$11.2mln to S$33.2mln) and now expect to report lower profit compared to 2Q ’11’s S$11.23mln. 3Q ’10’s profit was S$33.2mln.

? The profit warning is the second this year since the first provided on 1 July ’11.

? Management blamed the lower than expected performance to higher than expected labor & raw material costs, inferior product mix, higher contributions from low margined assembly work and factory consolidation.

? Due to the weaker than expected 3Q ’11 performance, management is also revising down their full year 2011 profit guidance to being lower than last year’s S$67.3mln from their previous expectations of being stronger.

? Having achieved S$29mln profit in 1H 2011, management’s guidance implies that 2H 2011 profit would be less than S$38mln compared to 2H 2010’s record profit of S$69mln.

? Given Hi-P’s uncertain and volatile bottom-line performance and guidance, we use the company’s historical price to book trend as a guide.

? Hi-P’s current 0.9x price to book is below its historical average of 1.4x, but still above its all time low of 0.4x reached in late 2008/early 2009. We note that the company’s closely compared to peer Venture has also been de-rated to about 1x price to book currently, also below its average of about 1.6x.

? Hi-P’s share price had in the past been boosted significantly by the company’s share buy back program and we note that despite its depressed state having about halved from its highs reached earlier this year, the company has not bought back shares having done its last buy back on 25 Feb ’11 when it bought 168,000 shares at S$1.18 each.

? We had downgraded Hi-P to a Sell when the company issued its first profit warning in July ’11 and would not attempt to bottom-fish as yet.

HI-P INTERNATIONAL (OSKDMG)

NEUTRAL

Price S$0.58

Previous S$1.28

Target S$0.55

Downgra de to NEUTRAL. Hi-P had, for two consecutive quarters, issued profit warnings prior to the results announcements. We believe that the poor results are mainly attributable to margin compression as the group faces downward pricing pressure from its customers, most notably Research in Motion (RIM). Fullyear gross margin is forecasted to fall by 3ppts YoY to 16%. Though we are expecting more opportunities coming from Apple, the risks of falling ASP and rising labour costs remain our main concerns. Consequently, we slashed our earnings estimates for FY11 and FY12 by 36.8% and 24.5% respectively. Downgrade to NEUTRAL as the current valuation seems fair. The new TP of S$0.55 is arrived after pegging blended FY11/12 earnings to 7.8x forward P/E (- 0.5 S.D of 5-yr historical mean). Going forward, we expect sales volumes to become the key driver behind profitability growth with more contributions coming from Apple.

Blows to top client RIM. Hi-P’s performance has for a long time been tied to that of its largest customer RIM. According to comScore MobiLens, RIM’s smartphone market share had shrunk by 5ppts to 24.7% for the three-month period ending Aug 11. To compound matters, a four-day service outage occurred lately, affecting nearly half of the 70 million customers worldwide. The incident has damaged RIM’s reputation and may drive away enterprise customers. As such, we expect Hi-P to share the burden, facing the risks of order cancellation and further price erosion.

Apple’s change of supply chain strategy to provide opportunities. Evidenced from the significant downward re-pricing of the iPhone 3 and 4, Apple has commenced competing in the mass market. Sales volume is expected to surge along with the falling ASPs, which its vendors will eventually have to shoulder. We have already seen Apple opening up its supply chain, bringing in new vendors and encouraging more competition among the suppliers so as to lower its purchase price. This move provides good opportunities for smaller but yet capable players such as Hi-P to come in and increase its market share. We are therefore cautiously optimistic about the group’s long-term prospects.

CapitaLand - Positioning for growth (KE)

Event

? CapitaLand’s quarterly PATMI continues to be lumpy, with the group announcing an 82.6% fall to $80.2m in 3Q11. Earnings were hampered by higher-than-expected finance costs and administrative expenses, thus falling short of market expectations. Nevertheless, we believe the group remains well-positioned to continue its growth path, having committed to $7b worth of new investments YTD, such as the Jurong Gateway and Bishan Central sites and the redevelopment of Market Street. Maintain BUY.

Our View

? CapitaLand’s 9M11 PATMI stood at $580.7m. While earnings volatility from property development were expected, finance costs crept up on higher costs of borrowing and marked-to-market losses on interest rate swap contracts. Administrative expenses also increased due to a rise in staff costs and professional fees. In addition, profit recognition from Singapore was slower than expected, and we have adjusted our profit recognition assumptions to reflect that, leading to a 23.4% cut in our FY11 forecast.

? Overseas, the projects expected to be completed in 4Q11 include Rihan Heights in the United Arab Emirates, Phases 1 and 3 of The Loft in Chengdu and a portion of The Beaufort in Beijing. In 3Q11, CapitaLand sold 409 homes worth RMB611m, accounting for 26% of its total home sales in China YTD (estimated average margins of >30%). The group remains confident of China’s prospects.

? In Singapore, CapitaLand sold 338 residential units worth $715m during the 9M11 reporting period. Its next launch is expected to be the 583-unit Bedok Residences in 4Q11 and we anticipate an ASP of $1,300 psf on an estimated breakeven of $1,060 psf. More units at The Interlace and the new Bishan Central project will likely be launched in 1Q12.

Action & Recommendation

CapitaLand has already exceeded its full-year investment target of $5-6b, but it remains in sound financial position should new investment opportunities arise. We believe the warm reception for its new launches could serve as a positive share price catalyst. Maintain BUY with a target price of $3.53, pegged at a 10% discount to RNAV.

CapitaLand - Dragged by accounting changes (DBSV)

BUY S$2.45 STI : 2,712.41

Price Target : 12-month S$ 3.28 (Prev S$ 4.34)

Reason for Report : 3Q11 Results/TP revision

Potential Catalyst: Accretive new investments

DBSV vs Consensus: FY12 below

• Within estimates, 9M profit forms 85% of FY11F earnings

• Spore and China residential activities to drive earnings

• Maintain Buy, TP lowered to S$3.28

In line. Capitaland reported a 58% decline in revenue over its restated 3Q10 to S$606.6m while PATMI posted an 83% decline y-o-y to S$80.2m. The drag came mainly from Singapore and China residential where change in accounting policy to recognise overseas development profits and those that were sold under deferred payment scheme in S’pore on a completed rather than progressive basis. In S’pore, deferred profits from the Seafront and Latitude boosted 3Q10 profits while 3Q11 saw only progressive contributions from The Interlace, Urban Resort and The Wharf Residence. In China, revenue dipped on smaller units being delivered to buyers and came mainly from Foshan. This was partially offset by profits from Vietnam and better showing from CMA. 9M revenue was 21% lower y-o-y to S$1.96bn while reported PATMI was S$580.7m, down 30% and made up 85% of our FY11 estimates. Excluding revaluations and impairments, PATMI would have been S$351.6m, -43.4%.

Residential to drive profits. Going forward, residential activities will continue to be the growth driver. It plans to launch the Bishan, Bedok and Marine Point enbloc sites as well as offer more units at The Interlace, Urban Resort and D'Leedon, totalling 1,246 units. In China, TOP of an estimated 4,369 units over 4Q11-2012 should boost bottomline. It has several projects that are launch ready in China - Paragon and Pinnacle in Shanghai, Intl Trade Centre in Tianjin, Beaufort in Beijing, Dolce Vita in Guangzhou and The Loft in Chengdu. These launches will be timed according to market and when sold, will extend forward earnings visibility. Construction of the 2,600 value home project in Wuhan is expected to commence by end 2011. CMA is expected to perform better while negative rental reversions and uncertain global macro outlook are likely to drag on the commercial property outlook. The group has committed about S$7bn of new investments YTD, exceeding its target of S$5-6bn. Gearing as at Sep 2011 stood at a low 0.28x with gross cash of S$5.5bn.

Maintain Buy, TP lowered to S$3.28. We have retained our FY11/FY12F estimates but reduced RNAV to S$5.05 on the back of lower TP for CMA and CCT. As such, Capitaland’s TP is also lowered to S$3.28 on adopting a slightly steeper discount of 35%. The stock is trading at 0.73x P/Bk and offers 34% upside to TP.

China XLX - An exceptionally strong 3Q (DBSV)

BUY S$0.295 STI : 2,712.41

Price Target : 12-Month S$ 0.40

Reason for Report : Earnings revision

Potential Catalyst: Urea ASP increase

DBSV vs Consensus: Our forecast is among the lowest on the back of weak urea margins.

• 3Q11 net profit surged 263% y-o-y and q-o-q to RMB102.9m on higher margin spreads

• Profitability to normalize in 4Q

• Valuation near GFC trough levels. Maintain BUY and S$0.40 TP

• Key risks are stretched balance sheet and persistent industry overcapacity issue

A strong 3Q. China XLX reported a 263% increase both y-o-y and q-o-q in 3Q net profit to RMB102.9m. This was largely attributable to higher margin spread of RMB150/t as urea ASP surged (+8% q-o-q to RMB2250/t) on the back of temporary supply shortages post power interruption in 1H as well as higher compound fertiliser sales during the peak 3Q. Methanol remained in marginal loss. Overall gross margin expanded by 8.8ppt y-o-y and 6.8ppt q-o-q to 19.8%.

Net gearing was high at 0.71x as of end Sept 2011. It will likely cross 1x net gearing next year as the company increases borrowings to finance the construction of 4th plant. Fund raising exercises through bond or capital markets could be expected in the near term.

Urea prices to ease in 4Q. 9M11 net profit of RMB152.4m exceeded our full year estimate by 5%. We raised FY11F net profit by 23.4% to RMB179.8m on account of the strong ASP in 3Q. This implies net profit of RMB27m for 4Q. We believe urea prices will ease in 4Q after the peak planting season. This will likely drag gross margins down to normal levels of c.13-15%.

Valuation is undemanding. Our TP is unchanged at S$0.40 as we apply a lower target PE multiple of 10.5x vs 12.0x previously against higher FY11/12 EPS. This is in line with -1.5SD from mean, which is justifiable given the current gloomy industry outlook and global economic slowdown. This translates to 1.1x P/BV (-1.0SD). While stock has gone up 13% since our upgrade in mid-Oct, current valuations are attractive at close to GFC trough levels of 0.78x 12-month forward P/BV and 8x PE, offering 33% upside to our TP. Maintain BUY. Key risks remain China XLX’s stretched balance sheet, ASP fluctuations and industry overcapacity concern.

Hi-P - Cuts profit guidance again (DBSV)

FULLY VALUED S$0.585

STI : 2,712.41

Price Target : 12-month S$ 0.44 (Prev S$ 0.45)

Reason for Report : Earnings revision

Potential Catalyst: Strong handset/tablet shipment, higher DPS

DBSV vs Consensus: Profits 30% below street; lower sales & margin assumptions

• 3Q11 profit to decline q-o-q against previous guidance of sequential growth

• 4Q may rebound but insufficient to support FY11 growth; FY11/12F cut by 12%/3%

• Share price has fallen >50% but valuations are not particularly compelling; Maintain Fully Valued

Weaker than expected 3Q11. Hi-P warns that net profit in 3Q11 would be lower than 2Q11, compared to previous guidance of q-o-q growth. Despite higher revenue, wage hikes and relocation expenses are hurting profits as well as a product mix change to one with more assembly work, which boosts revenue but not bottomline. We believe the ramp in assembly is for RIM’s new models. As with all new products and shift in production facilities, these transitions can affect yield and result in margin squeeze.

4Q rebound insufficient to support FY11 growth. Despite the likelihood of higher volume in 4Q11, the rebound is insufficient to offset YTD earnings decline. We therefore cut FY11/12F estimates by 11.7% and 2.6%. FY12 earnings growth is expected to stem from i) more new launches by smartphone /tablet customers; ii) recovery in operating margin post consolidation; and iii) new consumer appliances customers. But, Hi-P’s biggest risk is market share loss in the tablet/smartphone segment, either through a) further market share loss of key customer RIM and/or b) competition from Apple’s new contract manufacturer and its related supply chain. As of now, it appears that Hi-P is maintaining supplies to Apple.

Maintain Fully Valued, TP lowered slightly to S$0.44. Although Hi-P’s stock price has fallen in excess of 50% from its peak in Feb this year, valuation is not exactly compelling at < -1SD PE on FY12 earnings whereas the barometer STI has corrected close to –1.5SD FY12 PE. In view of still uncertain outlook, Hi-P’s share price may not have fully priced in all earnings risks. Hence, we maintain Fully Valued rating on Hi-P with TP of S$0.44 based on 5.5x FY12 PE (- 1SD)

First REIT: 3Q11 results within expectations (OCBC)

3Q11 DPU of 1.92 S cents. First REIT (FREIT) reported a set of 3Q11 results which were within our expectations (excluding any one-off distribution). Gross revenue surged 79.2% YoY to S$13.7m due largely to new contributions from three of its recently-acquired properties; while distributable amount to unitholders jumped 125.7% YoY to S$12.1m. The latter was boosted by a one-off gain distribution of S$2.2m arising from the total gain on divestment of the Adam Road property amounting to ~S$8.7m. The balance will be distributed to unitholders at the discretion of the manager of FREIT in future periods. Sequentially, gross revenue and distributable amount rose 3.4% and 22.2% respectively. DPU of 1.92 S cents represented a decline of 1.0% YoY due to an enlarged unit base from the effects of the 5-for-4 rights issue in Dec 2010 but increased 21.5% QoQ due to the oneoff distribution highlighted earlier. For 9M11, gross revenue increased 77.2% to S$40.1m and formed 74.3% of our full-year projection. Excluding the special non-recurring distribution of 0.34 S cents per share, 9M11 DPU of 4.74 S cents constituted 75.0% of our FY11 forecasts.

New acquisitions could occur soon. First REIT has a strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci (Lippo), of which it has a right of first refusal. Lippo has placed strong emphasis on its Hospitals segment due to the rising demand for quality healthcare services in Indonesia. Media reports have also stated that the group is aiming to sell some of its hospital assets by this year or in 2012 while FREIT said that it is already engaging in preliminary discussions with Lippo on the possibility of acquiring some these assets.

Likely to be debt funded. We believe that these acquisitions, should it occur, would likely be funded by debt given its low gearing ratio of 15.1% as at 30 Sep 2011. This leaves FREIT with ample debt headroom of S$86.0m-S$138.4m before reaching its comfortable gearing ratio range of 25%-30%.

Defensive qualities in times of uncertainty; upgrade to BUY. We expect FREIT's long master leases with downside revenue protection to provide resilience and stability to its income stream, which would provide an attractive investment merit in times of global uncertainties. FREIT also offers a good proxy to the growing healthcare scene in Indonesia. With a pull-back in its share price since our downgrade to HOLD, we believe that value has re-emerged again. Our RNAV-derived fair value estimate is unchanged at S$0.84, but as this represents a total return of 14.0%, we upgrade the stock to BUY.

Frasers Centrepoint Trust: Strong uplift from Causeway Point (OCBC)

Record high DPU. Frasers Centrepoint Trust (FCT) announced 4QFY11 DPU of 2.35 S cents, representing an 8.8% YoY and 20.5% QoQ increase. This is the highest-ever quarterly DPU paid out, and surpassed both our and consensus forecasts. Coupled with 9MFY11 DPU of 5.97 S cents, fullyear DPU amounted to 8.32 S cents, or 5.8% ahead of our estimates (2.7% above consensus). This translates to a 5.7% DPU yield.

Strong performance from Causeway Point. The solid performance, we note, was achieved on the back of strong performance upswing from Causeway Point (CWP), following the re-opening of refurbished sections. This lifted FCT's quarterly gross revenue and NPI to S$34.1m (+5.1% YoY) and S$25.3m (+13.7% YoY) respectively. Management shared with us that 65.5% of the refurbished works at CWP had been completed, and the asset enhancement initiative (AEI) is on track to fully complete in Dec 2012. With next phase of work to shift to the higher levels, we expect the disruption to revenue to be more muted.

Healthy financial and operating statistics. FCT's financial position as at 30 Sep remained at a healthy level of 31.3% (vs. 31.7% at end-3Q) in spite of a 15.3% QoQ increase in total debt, helped by portfolio revaluation gain of S$97.2mn. The average rental rate for renewal leases signed in 4Q was also 7.9% higher than the preceding leases. In addition, its portfolio occupancy improved from 87.6% in 3Q to 95.1%, boosted by sharp recovery in occupancy at CWP from 78.3% to 92.0% in the same period.

Positive outlook. Going forward, we believe FCT will continue to post significant growth in its rental income as the full contribution of CWP and newly-acquired Bedok Point has yet to be realized. According to management, CWP is expected to provide over 20% increase in NPI when the AEI is completed, while its occupancy rate is likely to stay above 90% throughout. Bedok Point, on the other hand, is likely to add S$7m to FY12 NPI.

Upgrade to BUY. We raise our FY12 forecasts by 3.3-8.3% to factor in the latest results and lower cost of debt. We also introduce our FY13 estimates and roll over our RNAV-based valuation to FY12. Consequently, our fair value is now raised from S$1.57 to S$1.68. We turn positive on FCT as its suburban malls are likely to remain relatively resilient even in times of market uncertainty. We also like its strong execution and steady pipeline of assets from its sponsor. Upgrade from Hold to BUY.

CapitaLand: Focus on key residential launches ahead (OCBC)

3Q11 within expectations. CapitaLand (CAPL) announced 3Q11 PATMI of S$80.2m, down 82.6% YoY mostly due to earnings recognized for DPS units at The Seafront at Meyer and Latitude in restated 3Q10 earnings as required by the new INT FRS 115 standards. 3Q11 earnings came in mostly within our expectations and 9M11 PATMI now forms 72.4% of our FY11 forecast. Top-line of S$608.6m also came in line, with 9M11 numbers constituting 75.3% of our annual forecast.

Bedok and Bishan launches to be key catalysts ahead. We estimate that the group sold 67 units in 3Q11, mostly at The Interlace, d'Leedon and Urban Resort for a total sales value of ~S$150m, compared to 271 units sold (S$565m) over 1H11. The sequential slowdown, however, is expected to reverse with new project launches at Bedok and Bishan in 4Q11-1Q12. We believe the market is likely to focus on the performances of these launches as key share price catalysts in the short term.

Chinese homes sales could slow further. The pace of home sales in China moderated in 3Q11 to ~RMB 0.7b (410 units sold) versus RMB 1.9b (930 units) in 1H11. We expect the downtrend to continue due to purchase restrictions and further tightening conditions in China. For the new CapitaLand Value Homes unit, we understand that its Wuhan project (2,600 units) is set to commence construction by end 2011. The Raffles City Chengdu project also achieved structural top-up in 3Q11 and we expect retail operations to begin by 2Q12.

Balance sheet remains strong. We saw the group commit another ~S$2b in new investments in 3Q11, bringing the YTD total to S$7b while net gearing remained at a relatively low 28% with about S$5.5b of cash on its balance sheet. We believe this is a key strength of the group and that capital deployment could well slow down in 4Q11 given macro uncertainties and that the group has reached its S$5-6b target for FY11.

Maintain BUY with revised S$2.91 fair value. We revise our fair value estimate to S$2.91 from S$3.46 previously to reflect latest valuations for its listed holdings and weaker forecasts for the office sector. In addition, we also apply a higher 20% discount (versus 15% previously) to RNAV, in-line with our valuations for other major developers, to reflect heightened macrorisks since our last update. Maintain BUY. Possible catalysts ahead are strong performances at Bedok and Bishan launches and a stronger share buy-back program.