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Sembcorp Industries
Accelerating net zero target; ESG uplift
■ We raise our TP to S$4.78, now based on 12x CY23F P/E (10% discount to regional peers). Re-rating catalysts: stronger-than-expected RE/CE profits.
■ SCI is divesting its Indian coal power plants for S$2.1bn to Oman pension fund-backed Tanweer. This cuts its GHG emission by 60% to 10.4m tCO2e.
■ The consideration will be paid via deferred note over 15 years at 1.8% plus 10-year Indian bond yield or an estimated c.S$150m p.a. of cash inflow. Add.
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Mapletree Logistics Trust (MLT SP)
Upgrading Of Domestic Consumption Drives Growth In Greater China
MLT’s China portfolio has recovered from localised lockdowns. Leasing activities have resumed and demand for logistics space is expected to pick up rapidly in 3Q22. Hong Kong suffers from undersupply.
Rent for logistics space increased 4.8% in 1H22 and is projected to increase 0-5% in 2H22. MLT has embarked on the redevelopment of 51 Benoi Road in Singapore and its Subang Jaya site in Selangor, Malaysia. FY23 distribution yield has improved to 5.4%. Maintain BUY. Target price: S$2.08.
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Mapletree Pan Asia Commercial Trust (MPACT SP)
Stronger Together – Gaining Scale And Diversification
The merger with MNACT was executed and completed at an opportune timing. Festival Walk benefitted from the easing of restrictions in Apr 22 and recovery would be further strengthened if Hong Kong’s border with Mainland China is reopened by end-22.
Gateway Plaza has weathered the localised lockdown in Beijing and registered positive rental reversion of 11% in 1QFY23. MPACT has doubled in size and become more geographically diversified. Maintain BUY. Target price: S$2.22.
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Sembcorp Industries (SCI SP)
Sale Of Indian Assets: Moving Decisively Towards A Greener Future
SCI will sell all of its Indian coal-fired power plants to an Omani party for S$2.1b via a 15-year Deferred Payment Note. The acquisition price implies an annualised 2022F PE of 10.2x and P/NTA of 1.03x, which we view as largely fair given the current market environment around coal-related assets.
We view this sale in a favourable light given the strategic imperative for SCI to progress towards being a greener company. Maintain BUY. Target price unchanged at S$4.10.
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Singapore Telecommunications (ST SP)
Driving ROIC higher
Data centers and IT services to help drive growth
We attended the recent Singtel Investor Day where management reiterated its commitment to improve Return on Invested Capital (ROIC) to high single-digits in the mid-term (FY22:5.4%) by:
a) delivering on enterprises’ 5G innovation for monetisation,
b) capturing growth opportunities in data centres (DCs) and IT services as enterprises increase spending on digitalisation, and newly launched GXS bank,
c) leveraging on positive price momentum in India, Indonesia and Australia to grow ARPU and
d) unlocking value from asset recycling and capital partnerships to fund growth investment.
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KPJ Healthcare (KPJ MK)
Entering into sale and leaseback for 3 assets
Maintain BUY
We are relatively neutral on KPJ’s sale and leaseback agreement for its 3 hospitals. Excluding a marginal disposal gain of MYR3.8m, the impact to earnings is neutral, but monetising its assets could free up more capital to improve its balance sheet and undertake its expansion and business
transformation initiatives going forward. Maintain BUY with an unchanged SOTP-based TP of MYR1.01.
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