Broker's digest: MNACT, KREIT, Centurion Corp, Singtel, ThaiBev

Mapletree North Asia Commercial Trust (MNACT) has entered into a settlement agreement with its insurers for Festival Walk mall in Hong Kong’s Kowloon Tong. As such, CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei have kept “add” with a slightly higher target price of $1.13, from $1.12.

On Nov 24, the manager of MNACT announced that it has settled on an amount of HK$334.3 million ($58.5 million), which comprises HK$84.3 million for property damage and HK$250 million for revenue loss due to business interruption. In November 2019, MNACT’s Festival Walk suffered extensive damage because of anti-government demonstrations. Consequently, the retail mall area was closed from Nov 13, 2019, to Jan 15, 2020, while the office tower was closed from Nov 13 to Nov 25, 2019. Rental was not collected during these periods. An interim payment of HK$263 million has been received from the insurers to date. In its announcement, the REIT indicated that it will distribute the excess insurance settlement amount of $3.5 million to its unitholder as part of its distributions for the 2HFY2022.

To reflect this, Lock and Eing have upped their DPU estimate for FY2022 by 1.49%. They have reduced their DPU estimates for FY2023 and FY2024 by 0.01%. The REIT is currently trading at an inexpensive 6.6% FY2022 DPU yield.

“We believe much of the weak retail outlook at Festival Walk has been factored into the current share price,” they write in Nov 24 report. — Felicia Tan

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Keppel REIT
Price target:
UOB Kay Hian “buy” $1.52
CGS-CIMB “add” $1.29

Favourable reaction to Sydney acquisition

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

Even as Keppel looks to acquire Singapore Press Holdings (SPH), Keppel REIT (KREIT) has made a strategic expansion into North Sydney in Australia, acquiring an office property under development for $322.2 million.

The acquisition will boost KREIT’s portfolio optimisation strategy, write CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei.

In a Nov 30 note, Lock and Eing are maintaining their “add” call on the REIT, with an unchanged target price of $1.29.

KREIT announced on Nov 30 that it has entered into an agreement to acquire 100% of interest in Blue & William, a Grade A office building currently under development. KREIT acquired the land parcel for A$150 million ($145 million) and entered into a development agreement with Lendlease Development to develop the land into a Grade A office building.

The new property, with an approximate net lettable area of 14,000 sq m, is located at a prime intersection 160m from the North Sydney Train Station and close to the upcoming Victoria Cross Metro Station.

The purchase is DPU accretive, based on a net yield of 4.5%, write Lock and Eing. “The acquisition will enable KREIT to expand strategically to the North Sydney commercial district. Including the new property, KREIT’s portfolio is expected to increase to $9 billion, of which Australia accounts for 19.5%.” The property is estimated to achieve practical completion in mid-2023.

In addition, KREIT will receive coupon payments of 4.5% per annum, on cumulative progress payments made during the development period. There is also a three-year rental guarantee on any unlet space after completion by the developer.

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“We see the deal as positive for KREIT by locking in a well-located property at an acquisition yield of 4.5%, with little development risk and no negative carry during the construction period,” write Lock and Eing.

UOB Kay Hian analyst Jonathan Koh is optimistic on the impact of the acquisition, maintaining “buy” and raising KREIT’s target price to $1.52, from $1.25 previously. “Blue & William is able to attract tenants from the technology, media and telecommunication, professional services and insurance sectors… North Sydney is the second largest office market after the Sydney CBD in the state of New South Wales,” writes Koh.

The deal will be fully financed by additional debt, he adds. “Progressive payments will be made based on construction milestones. The acquisition is fully funded with Australian dollar-denominated loans at a cost of 1.97% for natural hedge. Aggregate leverage is expected to increase slightly by 2.3 percentage points to 39.9%.” — Jovi Ho

Centurion Corp
Price target:
UOB Kay Hian “buy” 43 cents

Outlook for dorm sector ‘robust’

UOB Kay Hian is maintaining a “buy” call and target price of 43 cents on Centurion Corp, on some indications of recovery seen by the dormitory operator.

“Our target P/B multiple of 0.6 times is in line with Centurion’s past five-year average P/B of 0.61 times, which we view as fair,” writes analyst Adrian Loh.

The stock is currently trading at a 2022 P/B of 0.44 times or less than 1.5 standard deviation below its five-year average.

Loh’s “buy” call follows a 20% y-o-y jump in Centurion’s revenue for 3QFY2021 ended September, thanks to healthier occupancy levels at its Purpose-Built Workers’ Accommodation (PBWA) facilities.

The segment — which accounted for 63% of Centurion’s FY2020 revenue — saw a 19% q-o-q rise in its income, driven by new contributions from three Quick Build Dormitories (QBDs). Further revenue from two migrant worker onboarding centres and fee income from accommodation-related or ancillary services also boosted the segment’s performance, adds Loh.

Meanwhile, Centurion’s Purpose-Built Student Accommodation (PBSA) segment saw a 55% q-o-q upswing in revenue earned from its facilities in the UK. This followed improving Covid-19 restrictions on international travel as well as a lifting in on-campus programmes.

However, occupancy levels at Centurion’s facilities in Australia continued to take a hit from tighter border controls. Loh reckons that a recovery should come as more Australians become fully vaccinated and the states of Victoria and South Australia gradually reopen to international students.

Loh sees encouraging signs of recovery for the student dorm segment. Centurion’s PBSA capacity in the UK is 86% pre-leased for the 2021 and 2022 academic year, while that in the US is “similarly healthy”.

“UK and US student accommodation drove segment growth for the quarter with the former continuing to be a preferred tertiary-education destination with demand from international students expected to remain strong,” says Loh.

The outlook for Centurion’s PBWA segment is similarly robust, especially with the resumption of arrivals of migrant workers from South Asia. — Amala Balakrishner

Singtel
Price target:
RHB “buy” $3.37

On track for a stronger FY2023

RHB Group Research is maintaining its “buy” call on Singapore Telecommunications (SingTel) with a target price of $3.37, while keeping the stock as its preferred telco exposure.

In a Nov 12 report, the RHB research team expects a stronger 2HFY2022 ending March 2022, as the relaxation of travel restrictions should prop up mobile revenue. Meanwhile, SingTel’s Indian associate Bharti Airtel’s stellar performance should sustain, while the focus on the Asean business-to-business (B2B) sector and tailwinds from industry digitalisation initiatives will bolster enterprise revenue.

Singtel has reported earnings of $954 million for its half year ended Sept 30, double from the year earlier period, driven by better showing from its regional associates and improvements in the operating environment.

Specifically, Airtel has shown signs of a stronger turnaround after being weighed down for years by stiff competition and other market-specific factors. The better bottom line was also because of the absence of one-off hits taken this time last year.

Revenue in the same period was up 3% y-o-y to $7.65 billion, led by higher mobile revenue in Australia and the better showing made by its information and communications technology (ICT) subsidiary NCS.

SingTel’s results were in line with RHB’s expectations, at 47% of the research house’s numbers with a stronger 2HFY2022 anticipated from the recovery in mobile revenue.

RHB notes that Singapore consumer mobile revenue remained steady in 1HFY2022 as higher 5G adoption was offset by weaker prepaid and roaming weakness. Mobile postpaid average revenue per user (ARPU) was up 12% y-o-y with pricing discipline upheld. A year into the launch, SingTel had over 200,000 5G subscriptions in Singapore, and about 1.5 million 5G-capable device customers in Australia.

While enterprise revenue grew 0.3% y-o-y in 1HFY2022, Ebit fell 1.1% as strong ICT revenue growth was offset by weakness in carriage (legacy) revenues.

RHB believes that SingTel has placed a strategic focus on the enterprise segment. A new 30MW to 40MW data centre (DC) will be built on a site adjacent to its existing cable landing station in Tuas, which will be ready in three to four years. Another 70MW in DC capacity is planned in Thailand and Indonesia as part of the regionalisation of its enterprise and B2B plans. This would more than double existing DC capacity to over 170MW in five years.

SingTel is poised to ride a DC growth boom, as the Asean DC market is projected to grow at a 18% 2020 to 2025 CAGR to US$5.7 billion ($7.7 million). RHB says Singapore, Indonesia and Thailand will make up 76% of the market.

Additionally, share of earnings from SingTel’s regional associates jumped 21% y-o-y in 1HFY2022, led by the turnaround in Airtel, with double-digit expansion in revenue and Ebitda.

This partly offset weaker contributions from Indonesian associate Telkomsel and Thai associate Advanced Info Service (AIS) from the resurgence of Covid-19 cases. SingTel remains upbeat on the prospects in India with the positive ARPU accretion set to continue. — Samantha Chiew

Thai Beverage
Price target:
PhillipCapital “accumulate” 76.5 cents
DBS Group Research “buy” 92 cents
UOB Kay Hian “buy” 92 cents

Analysts mixed on ThaiBev’s prospects after FY2021 results

PhillipCapital analyst Paul Chew has downgraded Thai Beverage (ThaiBev) to “accumulate” from “buy”, with a lower target price of 76.5 cents from 86 cents.

Chew’s revised call came following lower than expected FY2021 ended September earnings of THB24.64 billion ($995 million), on the back of THB240.54 billion in revenue. According to Chew’s estimates, ThaiBev’s earnings and revenue for the FY2021 stood at 91% and 90% of his FY2021 forecasts respectively.

With slower recovery in consumer spending seen, Chew has lowered his earnings estimates for FY2022 by 3%. “Recovery [post-lockdown] is underway but the pace may remain tepid in the near term. The lockdown is taking a toll on consumer sentiment and income,” writes Chew in a Nov 28 report.

“The impact of the re-opening of the borders and nightlife entertainment and economic recovery may be more material only in 2HFY2022,” he continues, as the reopening of nightlife entertainment venues in Thailand will occur only after January 2022.

DBS Group Research analysts Woon Bing Yong and Paul Yong are more optimistic on ThaiBev’s prospects. They have kept their “buy” call with an unchanged target price of 92 cents, given how the earnings were “in line” with their expectations.

They note how ThaiBev is starting to enjoy fruits from cost control and improved productivity. The company is generating strong cash flow and low refinancing risks, and gaining more heft.

“ThaiBev is transforming into the region’s leading beverage player and has gained market share in its key markets of Thailand and Vietnam,” write the analysts on Nov 29.

“Its valuation is attractive at 14.5 times FY2022 P/E, which is -1 standard deviation from its mean forward average,” they add. For Woon and Yong, this is now the last chance to buy ThaiBev at current levels. They believe that investors are “not pricing in its potential as Southeast Asia’s largest food and beverage (F&B) player”.

Similarly, UOB Kay Hian analyst Llelleythan Tan has kept his “buy” call on ThaiBev with the same target price of 92 cents. Besides considering the value of the alcohol businesses, ThaiBev holds a 29% stake each in two other listed entities, Frasers Property and Fraser and Neave.

Tan says ThaiBev’s earnings were within expectations. While revenue declined, he notes that the company has held its cost down well too, and has also indicated it will raise prices for certain products even as the medium-term outlook is one of recovery.

“We reckon ThaiBev remains attractively priced at below -1 standard deviation to its mean P/E, backed by an expected earnings recovery underpinned by favourable tailwinds,” adds Tan.

He also alluded to ThaiBev’s plans to resuscitate the separate listing of its beer business. “Management has mentioned that the group has resumed the IPO process and would release more information moving forward. Barring no unexpected delays, we opine that the expected IPO date would happen in 3Q and 4QFY2022.” — Felicia Tan