MARKET PULSE: First REIT, Tiger Airways (29 Jun 2012)

Stock Name: First REIT
Company Name: FIRST REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 0.96

Stock Name: TigerAir
Company Name: TIGER AIRWAYS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.76

MARKET PULSE: First REIT, Tiger Airways

29 Jun 2012

KEY IDEA First REIT: In anticipation of DPU accretive acquisitions We conduct a scenario analysis on possible acquisition targets by First REIT (FREIT) from its sponsor Lippo Karawaci (Lippo). This works out to an estimated DPU accretion ranging from 9-13% in FY13, assuming that two hospitals are acquired for ~S$88.9m and fully-debt funded. Meanwhile, FREIT has also secured a fresh 4-year S$168m transferable term loan facility, thus allowing the group to refinance its maturing debt and to fund its future acquisitions. FREIT's next refinancing requirement would only come in Jan 2015 (~S$49.4m). Given the ongoing macroeconomic uncertainties, we opine that investors can find investment merits offered by FREIT's defensive income and stability from its long-term master leases. We upgrade FREIT from hold to BUY, with a higher RNAV-derived fair value estimate of S$0.96 (previously S$0.935) as we incorporate our base case assumptions for new acquisitions in our model. (Wong Teck Ching Andy) MORE REPORTS Tiger Airways: Lower fuel prices aid recovery; upgrade to BUY The SGD-adjusted jet fuel price (JETKSIFC Index) is currently trading at 10% below the average of jet fuel prices in the current quarter, which is in turn 7% QoQ lower. Since fuel cost contributes to more than 40% of Tiger Airways' (TGR) operating costs, it should be able to achieve ~S$5m of savings in fuel cost in 1QFY13. Tiger Australia will begin operations in Sydney as its second base in 2QFY13 and Tiger Singapore will be moderating its capacity expansion in FY13. With Tiger Australia flying more sectors and lowering its unit fixed cost and Tiger Singapore more focused on improving yields and load factors, TGR's profitability is poised to considerably improve in FY13. Factoring in lower jet fuel prices and the expected improvement in TGR's operations, we upgrade TGR's rating to BUY and increase our fair value estimate of TGR from S$0.67/share to S$0.76/share. (Eric Teo)

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