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Broker's Digest: SPH REIT, PropNex, China Aviation Oil

The Edge Singapore
The Edge Singapore • 5 min read
Broker's Digest: SPH REIT, PropNex, China Aviation Oil
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Price target:
CGS-CIMB “add” $1.04

Beneficiary of economy’s re-opening

CGS-CIMB Research analysts Eing Kar Mei and Lock Mun Yee have kept “add” on SPH REIT as they see several positive re-rating factors going on for the REIT.

The REIT’s Paragon Shopping Centre is the largest listed mall along the Orchard shopping belt. The mall stands to be a beneficiary of the easing Covid-19 restrictions and the reopening of Singapore’s borders.

Paragon is SPH REIT’s largest asset by value, representing 64% of the REIT’s portfolio in FY2020. Some 20-30% of the mall’s tenant sales before Covid-19 were generated from tourist spending, note the analysts.

“We expect Paragon’s tenant sales to improve in tandem with the higher Covid-19 vaccination rate and easing restrictions,” they write in an Aug 26 report.

“Meanwhile, tenant sales of Clementi Mall, Westfield Marion and Figtree Grove have recovered near or to pre-Covid-19 levels. We expect these three malls to continue supporting SPH’s REIT income,” they add.

The asset enhancement initiatives (AEIs) planned for Westfield Marion and Figtree Grove in Australia, once completed, are expected to boost the assets’ rental income in the medium term.

SPH REIT’s potential inclusion into the FTSE EPRA Nareit Developed Asia Index in September is also expected to give the REIT’s share price a boost.

SPH REIT also has a strong balance sheet to support inorganic growth. The REIT currently has one of the lowest gearing among the S-REITs at 30.4% as at 1HFY2021 ended June.

“If the privatisation of SPH materialises, SPH REIT could tap on a larger acquisition pipeline of assets from Keppel Corp which now owns several retail assets in Singapore and overseas,” write the analysts.

“The REIT is also open to acquire alternative assets; this increases its acquisition opportunities and strengthens its inorganic growth potential. We believe medical suites could be an option,” they add.

SPH REIT is currently trading at a DPU yield of 6%, below its five-year mean of 5.3%.

Its peers’ DPU yields have generally recovered to their respective five-year means, note Eing and Lock.

On this, the analysts have lowered their DPU estimates for the FY2021– 2023 by 0.6%–2% to factor in the two weeks of mandated rental rebates and lower fees paid in units.

They have, accordingly, lowered their target price on the REIT to $1.04 from $1.06 previously. — Felicia Tan

Price target:
SAC Capital “hold” $2

Strong momentum but positive news priced in

SAC Capital analyst Tracy Lim has upped her target price for PropNex from $1.27 to $2 in an August 27 research note.

Her higher target price is based on a P/E multiple of 13.8 times, which is one standard deviation above FY2021 P/E, reflecting the strong momentum of the property market that is expected to continue in the near term.

“We expect home prices to remain resilient with higher developer costs that will translate to higher property prices, more HDB upgraders and long waiting times for BTO flats,” she says. In addition, property investments by high-net-worth individuals due to Singapore’s “safe-haven” status are also expected to contribute to the increase.

“The low inventory of unsold private residential units in the market is, however, a double-edged sword,” she cautions.

PropNex reported its 1HFY2021 ended June results on Aug 11, with earnings making up 82.4% of Lim’s FY2021 forecasts, beating her expectations.

Following the “strong set” of results, she has tweaked her FY2021 revenue estimates up by 28.8%, while her earnings forecast for the year increased by 40.8% to $53.6 million. She also introduced her FY2022 forecasts.

Nonetheless, she has kept her “hold” call on PropNex unchanged, as she believes the market has priced in PropNex’s strengths. She is cautious about several factors: first, possible property cooling measures; strong growth rate might not be sustainable; and last but not least, dwindling supply in the pipeline and fewer new launches expected pointing to lower transaction volume next year,” she adds. — Atiqah Mokhtar

China Aviation Oil
Price target:
RHB “buy” $1.15

2HFY2021 likely to disappoint but trading at compelling valuation

RHB Group Research has kept “buy” on China Aviation Oil (CAO) albeit with a lower target price of $1.15 from $1.20 as China faces a disruption in domestic aviation traffic in August.

The disruption was brought about by a resurgence in Covid-19 cases across several provinces.

On this, analyst Shekhar Jaiswal has also lowered his profit estimates for the FY2021 ended December by 11% as he expects CAO’s earnings for the 2HFY2021 to “disappoint”.

“Any material recovery in China’s international aviation traffic is likely to happen next year,” writes Jaiswal in an Aug 26 report.

To be sure, Shanghai Pudong International Airport’s cargo deliveries were disrupted and delayed amid the detection of Covid-19 cases at its cargo operations.

Since the first Delta variant outbreak in Nanjing in July, the virus has spread to other provinces, which has triggered air travel restrictions in early August.

Families had to cancel their travel plans in July to August, which tends to be a peak season for travel.

While Jaiswal estimates that CAO’s profit in the FY2022 will grow by 46% y-o-y, a return to pre-Covid-19-level earnings could take around two to three years.

“CAO’s FY2022 price-to-earnings (P/E) is at 8.2 times, implying only 0.2 times FY2022 price earnings growth (PEG). With its net cash position equivalent to [around] 46% of its market cap, the stock is trading at a compelling 4.4 times FY2022 P/E on an ex-cash basis,” he writes. — Felicia Tan

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