Parkway Life REIT
Price target:
CGS-CIMB “hold” $5.05
Limited near-term upside
CGS-CIMB analyst Lock Mun Yee has downgraded Parkway Life REIT (PREIT) from “add” to “hold” with an unchanged target price of $5.05, given how its recent price gains probably have limited further upside.
“While we like PREIT for its stability, backed by its defensive income structure with in-built escalation features, its share price has outperformed in recent months and near-term upside appears limited,” Lock writes in her April 25 note.
Nevertheless, she continues to be somewhat positive on PREIT, which on April 22 reported a set of earnings “in line” with her projections.
In 1QFY2022 ended March, the REIT’s net property income was up 1.9% y-o-y to $28.6 million. Revenue in the same period was up 2.3% y-o-y to $30.7 million.
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Its Singapore portfolio of the three hospitals achieved 1.6% and 1% y-o-y increase in 1QFY2022 revenue and NPI to $17.8 million and $17 million respectively, underpinned by an in-built rental escalation structure of 1.66% for the period from Aug 23, 2021 to Aug 22.
Under its new master lease agreement and renewal capex agreement, PREIT will benefit from guaranteed rents from Aug 23 till FY2025 with 2% and 3% y-o-y step-up in rent for the interim period and the downtime period respectively, thereby giving it strong income visibility.
In addition, the annual rent review formula will kick in from FY2026 to FY2042, providing PREIT with inbuilt organic growth.
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Furthermore, with its triple-net lease structures, PREIT is shielded from higher inflation-related expenses.
The REIT’s portfolio of nursing homes in Japan, meanwhile, reported a 3.1% and 2.1% y-o-y rise in 1QFY2022 revenue and NPI respectively, to $12.8 million and $11.5 million respectively, due to contributions from three properties acquired in 2021, partly offset by a depreciation in the JPY interest rate and income.
PREIT indicated that it has hedged 81% of its interest rate exposure through new JPY interest rate hedges put in place in March. Management has also guided that it has hedged its income from Japan operations for FY2022–FY2023, providing income stability to unitholders. As at end-1QYF022, the REIT’s gearing stood at 34.5%, with an interest cover of 20.2x. — Chloe Lim
APAC Realty
Price target:
DBS Group Research “hold” 67 cents
RHB Group Research “neutral” 57 cents
CGS-CIMB “add” 93 cents
Morgan Stanley’s offer ‘opportunistic’, ‘significantly undervalues’ APAC Realty Analysts are divided on Morgan Stanley Private Equity Asia (MSPEA) acquiring 59.8% of APAC Realty for $129.5 million from Northstar Group. The transacted price of 61 cents per share is a significant discount off the property agency’s last traded price of 80.5 cents.
DBS Group Research analyst Ling Lee Keng is maintaining her “hold” call on APAC Realty, which holds regional master franchise rights to realtor ERA, but with a reduced target price of 67 cents from 88 cents previously.
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As a result of the change of ownership from Northstar to MSPEA, the latter is obliged to make a general offer to the remaining shareholders of APAC Realty.
The offer price is set at 57 cents, which takes into account the four cents dividend APAC Realty shareholders will receive but not MSPEA.
Given the hefty discount of 30.1% discount to the last traded price and 23.4% discount to the average price over the last 12 months, the general offer is unlikely to go through, says Ling.
However, she expects some weakness in share price in the near term, given how APAC Realty is seen to report softer FY2022 ending December earnings over FY2021, on the back of the cooling measures and rising interest rate environment, coupled with fewer new launches and depleting stockpile.
Meanwhile, RHB Group Research analyst Vijay Natarajan believes that Northstar, which has held on to its stake in APAC Realty for more than eight years, is cashing out so that it can redeploy its proceeds elsewhere.
He calls the offer price “opportunistic” as it “significantly undervalues APAC Realty’s long-term potential”. While he expects sales volumes to dip by up to 30% this year, “the underlying Singapore property market fundamentals remain robust and well supported by healthy GDP growth and strong household balance sheets.”
He is keeping his “neutral” call and 75 cents price target on the stock, as he sees limited downside risks, given how the stock is giving an “attractive” 6% yield and has a net cash position that let it ride out any near-term volatilities.
“Management has also set a target to increase its agent count to 10,840 by 2025 — a 10% CAGR growth — along with improving its technology capabilities,” adds Natarajan.
CGS-CIMB Research analyst Lock Mun Yee is keeping her “add” call on APAC Realty, with an unchanged target price of 93 cents, the highest among the analysts here.
“While its near-term share price performance could be affected by the proposed offer price, we believe this would also set a support level for APAC Realty’s share price,” she writes in her April 25 note.
Lock thinks there is potential for stronger growth through MSPEA. “MSPEA, with its expertise in investing in highly structured minority investments and control buyouts in growth-oriented companies in Asia, could potentially further build and support APAC Realty’s growth by leveraging on their global network and experience in growing businesses across Asia.”
Northstar’s stake in APAC Realty was held jointly by an entity called Asia Pacific Realty Holdings, whose other shareholders include Jack Chua, APAC Realty’s executive chairman; CEO Marcus Chu; and deputy CEO Doris Ong. — Jovi Ho
Venture Corp
Price target:
RHB “buy” $22.80
Venture’s 1Q expected to be positive, keep ‘buy’
RHB Group Research analyst Jarick Seet has maintained his “buy” rating and an unchanged target price of $22.80 on Venture Corp. Seet, in his April 26 note, expects the leading manufacturing services provider to enjoy a “positive” 1QFY2022 ended March, as it works through its backlog from the preceding 4QFY2021, where demand remains strong while component shortages, which had held back growth, continues to ease.
“FY2022 will enjoy a stronger performance than the one in the previous year,” writes Seet, who is expecting Venture to report earnings of $78 million to $82 million for 1QFY2022. In contrast, for 1QFY2021, Venture reported earnings of $65.3 million.
While overall supply chain issues have eased, there are still pockets of shortages more pronounced than others, such as so-called Field Programmable Gate Arrays (FPGA) — a form of integrated circuit that can be configured and widely used in different products used in medical, defence and wireless communications.
Venture has been dealing with the component shortages in a couple of ways. For example, its strong R&D team has managed to redesign products that can get by without requiring parts that are lacking. The company has also been able to buy more components from both existing and new suppliers. This allowed Venture to grow more revenue than before.
Seet, citing customer orders and forecasts, notes that Venture anticipates broad-based demand across semiconductors, life science, instrumentation, test and measurement, networking and communications as well as advanced industrials, where several new product introductions are expected. Customers in the lifestyle and wellness sectors also have provided positive demand guidance, adds Seet. — Lim Hui Jie
