MARKET PULSE: CAPL, ART, KepCorp, ST Eng

Stock Name: Capitaland
Company Name: CAPITALAND LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 3.25

Stock Name: AscottREIT
Company Name: ASCOTT RESIDENCE TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.23

Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.50

MARKET PULSE: CAPL, ART, KepCorp, ST Eng

10 Jul 2012

KEY IDEA CapitaLand: Recycling/optimizing hospitality assets CapitaLand (CAPL) announced that it would acquire, for S$359m, Somerset Grand Cairnhill Singapore (SGCS) from Ascott Residence Trust (ART). SGCS would be redeveloped into a mixed serviced residences and residential project, with ART expected to re-acquire the serviced residences component for S$405m in 2017. In addition, ART would acquire two assets, Ascott Raffles Place and Ascott Guangzhou, from CAPL for S$220.0m and S$63.3m, respectively. From these transactions, CAPL is expected to book combined gains of S$98.9m in FY12. We project for SGCS' residential units to be launched in 1Q13 at S$2.8k psf, and estimate a net present value accretion of S$150m (S$0.03 per share) to RNAV. Maintain BUY with an increased fair value estimate of S$3.25 (25% discount to RNAV) versus S$3.21 previously, mostly due to accretion from this transaction and a higher valuations for listed entities. (Eli Lee) MORE REPORTS Ascott Residence Trust: Redevelopment of Cairnhill property Ascott Residence Trust (ART) announced yesterday four inter-conditional transactions. First, it seeks to divest Somerset Grand Cairnhill Singapore to CapitaLand subsidiaries at S$359m, which would give ART a gross divestment gain of S$87.1m. Second, ART will have a put and call option on a new Cairnhill serviced residence (SR) with a hotel license. The acquisition price is S$405m. This new Cairnhill SR will be built together with high-end residential units for sale by CapitaLand as part of the redevelopment of Somerset Grand Cairnhill. Finally, ART will purchase Ascott Raffles Place Singapore and Ascott Guangzhou for a total of S$283.2m. Excluding the new Cairnhill SR, which is expected to be delivered only in 2017, the transactions are mildly yield accretive. We maintain BUY and raise our fair value estimate, based on RNAV, to S$1.23 from S$1.14 previously, as we roll into our valuation model stronger capital values assumptions and divestment gains from Cairnhill. (Sarah Ong) Keppel Corporation: Gains E&P exposure in KrisEnergy Keppel Corporation (KEP) announced that it has acquired a 20% shareholding in KrisEnergy Ltd (KEL) for US$115m. KEL was previously wholly owned by KrisEnergy Holdings, whose major shareholder is an investment fund sponsored by First Reserve Corporation. KEL was established in 2009 and is an independent upstream oil and gas company with assets in SE Asia (working interests in three producing blocks, three development blocks and eight exploration/appraisal blocks). This is also the latest venture of three individuals who originated previously SGX-listed Pearl Energy in 2002, which was later sold to an Abu Dhabi-based company in 2008. Recall that KEP divested its entire 45.5% stake in Singapore Petroleum Company (which had three producing assets out of its portfolio of nine assets then) to PetroChina in 2009. With this latest development, KEP has regained direct exposure to oil and gas exploration and production (E&P) activity. Given the capital intensive nature of E&P companies, we think there may be a possibility of KEL executing an IPO down the road. There is no material impact on KEP's NTA or EPS for FY12 from this move. (Low Pei Han) ST Engineering: S$370m of aerospace contracts ST Engineering (STE) yesterday announced that its aerospace segment won new contracts worth ~S$370m in 2Q12. Together with the ~S$210m worth of new contracts won by its electronics announced last week, STE has announced a total of ~S$580m of new contracts in 2Q12. These contracts are not expected to have any material impact on the consolidated financials of the group for the current financial year. With the strong order flow in 2Q12 adding to its order book of S$12.2b at end-1Q12, we maintain our fair value estimate of S$3.50/share and BUY rating on STE. (Eric Teo)

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NEWS HEADLINES - US stocks dropped for a third consecutive session after Spain's 10-year debt yield climbed above 7%. The S&P 500 Index and the Dow lost 0.2% and 0.3% respectively. - According to a preliminary prospectus lodged yesterday, property manager Ascendas will spin off its hospitality arm in that will raise up to S$823m. - Broadway Industrial Group plans to buy a 70% stake in Malaysia's Millennium Arena, which specialises in contract precision manufacturing services, for MYR50.8m (S$20.2m) to diversify into the aerospace and oil and gas industries. - Asahi Group Holdings' Singaporean subsidiary has signed JV agreements with PT Indofood CBP Sukses Makmur Tbk to establish companies to manufacture and market non-alcoholic beverages in Indonesia. - Lung Kee (Bermuda) Holdings warned that its profit for 1H12 will be "substantially lower" than 1H11. The manufacturer of mould bases said that fewer orders and rising operation costs have persisted from 1Q12.