By Carmen Lee
Tue, 20 Apr 2010, 08:29:22 SGT

Market Pulse: A-REIT and Yangzijiang (20 Apr 2010)

FOCUS

Ascendas REIT: Results dragged by higher costs

Summary: Ascendas REIT (A-REIT) reported its 4Q FY09/10 results which came in below our expectations. Net property income fell by a larger 4.2% to S$76.8m due to lower revenue and higher operating expenses. DPU of 2.73 S-cents has been declared for 4Q FY09/10 and this is 17.8% below our forecast DPU of 3.32 S-cents. But the variance was largely attributable to the one-off upfront fees for its loans and higher operating expenses. While management believes that rents are bottoming out, any increase would only be visible after 2-3 quarters, depending on economic growth. While we have raised our forecasts for operating expenses, our cost of debt has also been lowered to 3.94%. Net impact is an increase in our FY10/11 DPU estimate to 13.8 S-cents. Our fair value has also been raised to S$1.85. With a potential total return of just 0.1%, we maintain our HOLD rating on A-REIT. (Foo Sze Ming)

Yangzijiang Shipbuilding: Eyeing offshore expertise

Summary: Yangzijiang Shipbuilding (YZJ) will place out shares to a Middle East investor to raise S$108m which will be used to acquire PPL Holdings from Baker Tech in a joint bid. Our calculation shows that the joint bid values PPL Shipyard at about S$1.4b ex-orderbook, which is 3x PPL Shipyard’s net book value of about S$480m for FY09. Major shipyards in the world are trading around 2x P/B, and assigning a 3x peg seems rather generous. Historically, PPL Shipyard has been focused on the construction of jack-ups, though it has built semi-subs before. As the jack-up market is expected to remain weak compared to deepwater units, PPL Shipyard must be able to divert its spare capacity to the construction of semi-subs and other deepwater units for a promising future. Given YZJ’s limited expertise in the offshore market, it has to start somewhere and hence this recent move. We have increased our earnings estimates with better new orders outlook and roll over our valuation to blended FY10/11F earnings, raising our fair value estimate to S$1.60 (prev. S$1.44). Maintain HOLD. (Low Pei Han)

For more information on the above, visit www.ocbcresearch.com for detailed report.

NEWS HEADLINES

- DBS Group said it is in no hurry to sell its minority stakes in banks in Thailand and the Philippines.

- K-REIT posted a 28% YoY rise in net property income to S$13.9m in 1Q10.

- Keppel T&T reported a 24% YoY rise in net profit to S$12.7m in 1Q10.

- Qian Hu posted a 0.9% YoY rise in net profit to S$1.41m in 1Q10.

- Pteris Global has won a S$53m contract from Mumbai International Airport to design and build the baggage handling system at Terminal 2.

- C&G Industrial Holdings warned it is likely to report a loss for its PET chip and yarn business for 1Q10.

- MAP Technology reported net profit of US$3m in 1Q10 compared to net loss of US$1.35m in 1Q09.

- Nera Telecommunications said net profit fell 24.7% YoY to S$2.2m in 1Q10.