Latest analyst excerpts…
SUNTEC REIT - Daiwa raises target price on tax savings
Analyst: David Lum
Daiwa Capital Markets has raised its target price for Suntec REIT to S$1.60 after its unit with one-third interest in Marina Bay Financial Centre Phase 1 (MBFC1) was converted into a limited liability partnership (LLP).
The benefit of an LLP structure is that income from MBFC1 will no longer be subject to corporate income tax. Instead, the income will have tax transparency and be taxed at the unit-holder level, in line with the income from other Singapore properties directly held by S-REITs.
Daiwa estimates that the annualized savings at the distribution level would be about S$3.5 million to S$4 million, and has revised its forecasts for Suntec REIT’S 2012-14E distribution-per-unit upward by between 0.8% to 1.6%.
The Japanese broking house expects Suntec and its partners to apply to the government for the conversion of One Raffles Quay to an LLP structure.
It has a ‘Buy’ call on Suntec REIT. The REIT last closed at $1.32, translating into upside of 21% based on Daiwa’s revised target price.
According to Daiwa, Suntec REIT’S 34% discount to its NAV of S$1.99 is “unwarranted”.
Risks: Unexpected deterioration in the Singapore office market over the next 12 months or an inability to deliver satisfactory returns from the Suntec City asset enhancement initiative.
SHENG SIONG – Attractive entry point on sell-down
Analysts: Lim Siyi and Eric Teo
OCBC Investment Research has upgraded Sheng Siong to a ‘Buy’ with the same fair value estimate of 49 cents per share.
”The share price of Sheng Siong Group fell 17.3% in less than two months from our last report compared to a drop of 6.5% for Singapore’s barometer (FTSE STI Index)… [and] have resulted in an attractive entry point.”
It cites the following positives:
1. Shifting consumption habits
With the macro environment remaining shaky, we have seen a drop off in retail sales on a trend basis especially in the F&B services segment. Persistence in this regard will benefit supermarkets as they benefit from a greater number of consumers cooking at home more often.
2. Improving operations
Competition amongst the Big 3 supermarkets has started to ease up as evidenced by a drop-off in the number of items in weekly promotions, and expect gross profit margins to start inching higher above the 21% mark. Furthermore, Sheng Siong Group’s new stores have received favorable responses and are expected to breakeven within a four-month period.
3. High possibility of interim dividend
Management had previously stated its intention to disburse the entire proceeds of a one-time S$10.4m gain from the sale of its old Marsiling warehouse facility to shareholders. We believe that an opportune time for this disbursement has emerged as it would reinvigorate interest in the counter and repay the faith of its shareholders.
Related story: HI-P INTERNATIONAL, SHENG SIONG: What Analysts Now Say.....
Technics – Record earnings this year
Analyst: Yeak Chee Keong
In an unrated report, Kim Eng analyst Yeak Chee Keong said that Technics Oil & Gas is likely to enjoy record earnings for the financial year ending Sep 2012, citing its strong orderbook of SGD95.5 million.
At a recent close price of 92 cents, analyst consensus estimate dividends of 8 cents translate into an attractive yield of 8.7%.
Here’s what Mr Yeak likes about Technics:
1. Technics is making a bigger presence in Vietnam’s oil and gas sector via the proposed purchase of a local offshore fabrication yard. This would facilitate its bid for projects that require local content and also improve its efficiency in project execution in the region.
2. Management emphasised that volatility in oil prices has less of an impact on its business as its equipment are used for production and storage functions. Oil majors also have a longer-term perspective when they make capital spending.
3. Technics is preparing to spin off two of its contract engineering subsidiaries for a separate listing on the Gretai Securities Market of Taiwan in June 2013 in hopes of better valuations.
Related story: VALUETRONICS, TECHNICS, KSH, STARHUB: High Dividends To Beat Inflation Blues
