Hutchison Port Holdings Trust is set to ride on the recovery of the US and European economies. Above: HPHT's Yantian International Container Terminals. Company photo
Credit Suisse upgrades Hutchison Port Holdings Trust to ‘Outperform’, TP 86 US cts
Analysts: Timothy Ross and Leonard Huo, CFA
PRC exports grew 7% YoY in August, reflecting renewed demand from the West, with import box volumes rising in both the US and EU.
The read-through to Hutchison Port Holdings Trust (HPHT) has also been visible: August volumes at Kwai Tsing terminals in HKG (where its HIT and ACT terminals are located) rose 1.5% YoY (the best performance since September 2012), with its COSCO-HIT joint venture ahead >10% YoY (its best month since March 2012).
Yantian hit a speed bump in August (down >6%), but we expect this to reverse over the balance of the year. For 2013, we now expect throughput at HIT to fall ~1% (vs 2% previously) and to bounce by 7% in 2014.
For YICT, we are looking for 2.5% and 9% in 2013 and 2014, respectively, and COSCO-HIT should see flat throughput (vs our earlier 1% drop expectation) and 7.5% growth in 2014.
HPHT's yields top the table of Singapore comparable companies— even when adjusted for its falling distribution growth between 2012 and 2014E, which reflects its capex programme.
With rising cash flows, we have increased our distribution estimates for both years, along with our rating from Neutral to OUTPERFORM. Our target price increase to US$0.86 is based on a target 2014 yield of 7%, which we believe is appropriate relative to its earnings growth and other SGX-listed yield plays.
While still markedly higher than the REITs, we believe it should trade closer to Cityspring at around 7%, which drives our US$0.86 per share target price.
Solaris is a business park development owned by Soilbuild Business Sapce REIT in the Fusionpolis cluster. Company photoAmFraser initiates coverage on Soilbuild Biz Space REIT with ‘Buy’, TP 78 cts
Analyst: Eileen Goh
We initiate coverage on Soilbuild Business Space REIT with a BUY recommendation and a target price of S$0.83.
Soilbuild REIT is a Singapore real estate investment trust that comprises two business park assets and five light industrial properties. Distributions are on a quarterly basis and the first is expected to be on or before 27 Feb 2014.
It was listed on the SGX on 16th August 2013 at an offering price of S$0.78 per unit.
A best-in-class business space portfolio
Characterized by an excellent connectivity to major transport nodes, longest weighted average leasehold term (WALE) for the underlying land of 50.6 years (versus industry average of 40 years) as well as its relatively young age, Soilbuild REIT clearly boasts a quality portfolio.
Defensiveness underpin yield sustainability
Soilbuild REIT is able to effectively capture rental upside at its multi-tenanted properties while enjoying rent stability through its master leases, that comprises 30% of its IPO portfolio by NLA. The defensiveness of Soilbuild REIT is further enhanced by a diversified trade presence and lease expiry schedule. With built-in rental step-ups of 2 to 3% per annum incorporated into its master leases, this provides Soilbuild REIT with greater income visibility and underpins the sustainability of its payouts.
Harnessing the increasing appeal of business parks
A key differentiating point of Soilbuild REIT from its industrial S-REIT peers is its stronger exposure to the business park market, a compelling alternative to traditional office space.
Business parks comprise 43.2% of Soilbuild REIT’s portfolio valuation (versus peer average of 15.7%).
Initiate BUY with future value S$0.83. Our valuation is derived from a dividend discount model that incorporates an assumed cost of equity of 7.8%. Current projected yield of 8.3% is highest among the industrial S-REITs and represents an attractive yield spread of 570 basis points over the risk-free rate.
SIA Engineering's hangar for Boeing 747 heavy maintenance. Company photoCIMB upgrades SIA Engineering to ‘Outperform’, TP S$5.20
Analyst: Lim Siew Khee
SIA Engineering (SIE) is likely to benefit from stronger regional travel, spurred by weak currencies. The share price has pulled back by 11% from its peak in May, making it more attractive. We upgrade our rating to Outperform from neutral.
We roll over our valuations to CY15 and upgrade our target price to S$5.20, still based on blended P/E and DCF. SIE is one of the top 10 non-REIT, high-yield Singaporean plays that are in a net cash position and has sustainable earnings growth prospects. We raise our EPS by 2% in FY16 based on higher growth in the line maintenance business.
Weak currencies boost regional travel
We expect SIE to benefit from the increase in regional air travel, which will continue on the back of weak currencies. Passenger movements between Singapore and Bali-Denpasar, Sydney, Tokyo (among Changi’s top 10 cities) registered double-digit increases in Jul 2013, in line with the weakened currencies of these countries.
Flights handled in Changi can only go up
The number of flights handled in Changi rose by an encouraging 7% yoy to 934 flights per day in Jul 2013 after a tepid average monthly increase of 5% yoy since Jun 2012.
The Civil Aviation Authority of Singapore (CAAS) estimates that Changi Airport will have the capacity to handle up to 430,000 flights p.a. (1,178 flights per day) in 2018, based on 5% p.a. flight volume growth. This suggests that there is 26% upside from the existing base volume and that SIE’s line maintenance business can only go up. We marginally increase our line maintenance sales growth estimates in FY15-16 to 6% from 4%.
Attractive dividend yields
SIE’s net cash at end-1Q14 stood at S$622m, which is a level that could lead to special dividends, as in FY06 and FY11 when net cash exceeded S$500m. However, we have conservatively assumed 90% dividend payout ratio and net dividend yield of 5% in FY14.
If there are no major M&As by end-FY14 and net cash still hovers above S$500m, we believe that SIE will maintain its good track record of rewarding shareholders via special dividends. The average dividend payout ratio in FY06 and FY11 was 130%, or about S$0.33/share, resulting in a dividend yield of 7%.