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DBS
SembCorp Industries: SMM is free
SembCorp Industries (SCI) is trading close to its book value ex-SembCorp Marine (SMM), which represents largely its utilities business, and implies getting SMM shares for almost “free”.
If we strip out the fair value of SMM at 0.9x P/B, SCI’s utilities business is also undervalued at 0.7x P/B and 7x FY16F PE vis-a-vis its global peers’ average of 1.7x P/B and 15x PE.
Thermal Powertech Corp India
Its first Indian power plant that has been fully operational since Sept-2015 and projected to post ~S$10m profit a quarter. SCI has also made forays into Bangladesh and Myanmar.
Our SOTP-based TP of S$3.10 translates to 0.9x P/B, which is 20-30% below the trough levels seen during the Global Financial Crisis and Asian Financial Crisis. We believe this is undemanding in view of 8% ROE and 3-4% dividend yield.
Reiterate BUY on SCI.
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Maybank Kim Eng
Duty Free International: A captive retail model
DFI is one of the largest duty-free trading groups in Malaysia, with strategic presence at all leading entry and exit points in Peninsular Malaysia, including duty-free zones, airports, seaports, downtown, border towns and popular tourist destinations.
DFI’s revenue is highly correlated to retail spending in Malaysia, which has started to show a recovery since end-2015.
Several initiatives have been introduced by the government to boost private consumption following the implementation of GST in Apr 2015, such as higher cash handouts under BRIM, revision of minimum wage, as well as a 3ppts cut in employees’ EPF contribution. Effective Jul 2016, civil servants’ salary has also been revised up.
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Phillip
Cache Logistics Trust: Holding arrangement at Schenker Megahub
Cache Logistics Trust (Cache) had announced that it has entered into a holding arrangement with Schenker Singapore Pte Ltd (Schenker) in relation to the Schenker Megahub property located at 51 Alps Avenue, pending the resolution of the Court proceedings commenced by Schenker. Schenker will pay Cache a holding rent of $0.77 psf/month, which Cache will receive "under protest". The holding arrangement will not be prejudicial to Cache's right against C&P Land Pte Ltd and C&P Holdings.
Holding rent at Schenker Megahub is significantly lower than last rent paid
Based on FY15 annual report, gross revenue contribution from Schenker Megahub was S$7.9mn. Gross floor area of the property is 439,956 sqft. This works out to an average rent of $1.50 psf/month in FY15. The holding rent of $0.77 psf/month is almost 50% lower than the last rent paid.
Expect weaker 3QFY16 and 4QFY16 on a qoq basis
Quarter-on-quarter (qoq) weakness in 3QFY16 will come from the lower rent at Schenker Megahub, but this negative development could be subsequently reversed if the outcome of the Court proceedings is favourable to Cache. Qoq weakness in 4QFY16 will come from the conversion of Hi-Speed Logistics Centre to multi-tenanted building, resulting in a negative impact at the net property income (NPI) level.
Downgrade to "Reduce" rating with lower valuation of S$0.81 (previous: S$0.85)
In view of the lower rent from Schenker Megahub, we have trimmed our gross revenue and DPU estimates.
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