Brokers' Digest 969

Keppel REIT announces higher 2HFY2020 and FY2020 DPU, boosted by Aussie acquisition

Keppel REIT’s 2HFY2020 ended Dec 31, 2020 numbers have elicited mixed views from analysts.

For CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei, the REIT’s 2HFY2020 DPU of 2.93 cents was “slightly above” their estimations.

Keppel REIT also revalued its portfolio down by 1.5% at end FY2020, which puts it at book value per unit of $1.29.

Portfolio occupancy as at Dec 31 last year held high at 97.9%, and positive rental reversion of 14.8% in FY2020 (and +12.7% in 4QFY2020).

“Looking ahead, Keppel REIT has 17.5% and 16.8% of leases to be renewed/reviewed in FY2021 and FY2022 respectively. With expiring rents averaging a low $9.76 per sqft in FY2021, management expects to continue to achieve positive reversions when these leases are re-contracted,” note Lock and Eing, who have kept their “add” call but with a slightly higher price target of $1.29 from $1.25.

The analysts also view visible inorganic growth drivers in the REIT, which includes the acquisition of Pinnacle Office Park in Sydney in December last year and the recently proposed acquisition of Keppel Bay Tower.

Post-results, they have thus increased their FY2021-2022 DPU projects by 0.52% and 0.56% respectively, with potential catalysts to include recycling capital on new, accretive acquisitions.

For RHB’s Vijay Natarajan, who has a “neutral” call on Keppel REIT, the latest earnings are in line with his forecasts.

“Despite the challenging market, portfolio occupancy has held up so far with healthy positive rental reversions. The REIT has also been growing inorganically and announced two accretive acquisitions worth $1 billion in 2HFY2020. While we glean positives out of the recent developments, the stock is trading close to its fair value (1 times P/B) and we recommend investors to accumulate on dips,” says Natarajan, whose new price target is $1.20, from $1.14 previously.

Keppel REIT’s FY2020 DPU, up 3% y-o-y, was supported by contributions from the acquisition of T Tower and completion of Victoria Police Centre.

Natajaran says he expects FY2021 DPU to increase by 7% y-o-y on the back of earnings accretion from acquisitions, full-year contribution from Victoria Police Centre, as well as lower financing costs.

While he expects a slight dip in occupancy — about 12% of its leases —in FY2021, positive rent reversions are estimated to continue.

Natarajan has also upped his DPU estimates for FY2021/2022 by 1% to 3% on the back of accretive earnings contributions from the REIT’s recent acquisitions.

Meanwhile, Maybank Kim Eng’s Chua Su Tye sees the REIT’s 2HFY2020 DPU as ahead of his estimates and in line with street estimates.

However, he remains negative on its prospects. Seeing “headwinds ahead”, Chua — who has a “sell” call and 90 cents target price on this REIT — notes that rents have moderated and that the outlook remains challenging given the uncertainties in office demand.

“We continue to see headwinds for leasing out vacancies and at pressured rents. This is especially in the coming quarters as firms reassess options post-Covid. We anticipate further downsizing by financial institution tenants (around 33% of its net lettable assets or NLA). Keppel REIT’s DPU growth is unexciting versus peers,” he says, adding that there are limited acquisition catalysts for its Singapore portfolio.

“[Keppel REIT’s] high trading yield versus tighter Singapore office yields suggests further acquisition growth opportunities are likely to be overseas (South Korea and Australia),” he says. — Felicia Tan

China Aviation Oil

Price target:
DBS Group Research “buy” $1.38

With the worst for aviation sector behind, CAO is still undervalued

DBS Group Research is keeping its “buy” recommendation on China Aviation Oil (CAO) with a higher target price of $1.38, from $1.20.

In a Jan 25 report, lead analyst Paul Yong says: “We continue to see strong value for CAO at less than three times FY2021 ex-cash P/E, and its share price could re-rate even further if the company can make a significant earnings-accretive acquisition.”

At this juncture, Yong believes that CAO is a beneficiary of the strong recovery in China’s domestic air traffic at Shanghai Pudong International Airport (SPIA).

Departing frequencies at SPIA have picked up substantially since May 2020, reaching to about 70% of pre-Covid-19 levels in January this year. It is expected to stay firm as long as the pandemic remains under control in China.

“CAO’s earnings should improve materially from 2HFY2020 as key 33%-owned associate SPIA (which is the sole supplier of jet fuel for the airport) typically accounts for more than half of its earnings,” adds Yong.

As vaccines are being rolled out, international air travel recovery is in sight.

CAO’s supply volumes are expected to pick up more meaningfully from 2HFY2021 ended December, assuming the vaccinations in key aviation markets will allow international flights to resume in greater numbers.

Meanwhile, its trading business should continue to do well in a contango market for oil.

“With the worst for the aviation sector likely behind us, we value the company based on 11 times (+1 standard deviation of its mean) FY2021 P/E as earnings are set to recover firmly in the next 12 months,” says Yong. — Samantha Chiew

Mapletree Logistics Trust

Price target:
OCBC Investment Research “buy” $2.17
Maybank Kim Eng “buy” $2.40
CGS-CIMB “hold” $2.10

Analysts maintain positive stance, cites resilient portfolio Analysts are keeping a positive stance on Mapletree Logistics Trust (MLT) following its quarterly earnings, where it recorded DPU of 2.065 cents for the 3QFY2021 ended December over an enlarged unit base of 4.28 billion, following the equity fund raising completed during the quarter.

The DPU represents a 1% y-o-y increase, from 2.044 cents in 3QFY2020.

Amount distributable to unitholders for the quarter rose 10.2% y-o-y to $84.4 million, as it included the partial distribution of the gains from the divestments of Mapletree Waigaoqiao Logistics Park in Shanghai.

The sum also included the gains from the divestments of the five properties in Japan as well as from 7 Tai Seng Drive in Singapore. Revenue for the quarter came in at $139.9 million, 15.5% higher y-o-y.

OCBC Investment Research is keeping its “buy” call on MLT but with a higher fair value estimate of $2.17, from $2.12 previously.

“Although MLT will not be immune to a weaker macroeconomic backdrop, we expect it to remain relatively more resilient vis-à-vis its peers,” states OCBC.

“However, given the rotation play to value and laggards, MLT’s share price has recently underperformed and we view this as a buying opportunity for investors with a medium to longer-term horizon,” it adds.

The research team also likes MLT for its diversified logistics portfolio spread across Singapore, Hong Kong, Japan, Australia, Vietnam and China.

Looking ahead, MLT is seeking further new acquisition opportunities and this would be supported by its healthy aggregate leverage of 36.8% as at Dec 31, 2020. South Korea and India are its likely near-term destinations.

Meanwhile, CGS-CIMB Research kept its “hold” call but with a higher target price of $2.10, from $2.05.

“We like MLT for its pan-Asian logistics asset focus but at a projected approximately 8.2% total return, our rating remains a ‘hold’,” says analyst Lock Mun Yee.

MLT’s portfolio saw a slight q-o-q dip in occupancy to 97.1% as at end 3QFY2021, dragged by lower occupancy in Hong Kong and Japan, partly offset by higher take-up in China and South Korea.

Lock expects MLT to source for new acquisitions in the short- to medium-term.

“In addition, with greater debt headroom capacity, we believe any further new purchases would likely be accretive,” says Lock.

Maybank Kim Eng, meanwhile, remains its bullish view on MLT, with an unchanged target price of $2.40, while keeping the stock among its top S-REIT picks.

Analyst Chua Su Tye says: “MLT delivered a stable 3QFY2021 as DPU rose 1.0% y-o-y due to higher rental income and earlier acquisitions offsetting its divestments and provisions for rental relief. Our forecasts are unchanged and we expect its occupancies to remain resilient due to steady demand growth”. — Samantha Chiew