MARKET PULSE: Industrial REITs, CapitaLand, COSCO (2 Aug 2012)

Stock Name: Capitaland
Company Name: CAPITALAND LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 3.32

Stock Name: CoscoCorp
Company Name: COSCO CORPORATION (S) LTD

Research House: OCBC

Price Call: SELL

Target Price: 0.84

MARKET PULSE: Industrial REITs, CapitaLand, COSCO

2 Aug 2012

KEY IDEA Industrial REITs: 2Q12 results roundup Industrial landlords continued to deliver, meeting expectations for 2Q12. Going forward, we believe that industrial REITs will likely maintain their financial performances, driven by contribution from recent investments and healthy leasing activities in the industrial space. We also note that a few industrial REITs had cited the possibility of further positive rental reversions, as current market rents are still above the passing rents at some of their assets. As at 30 Jun, the subsector average occupancy rate stood at 98.4%, representing a 60-bp improvement QoQ, while the aggregate leverage was still comfortable at 33.5% (vs. 33.9% in 1Q). This reflects active portfolio and capital management by the REITs, as well as continued strong demand for industrial property. We maintain our OVERWEIGHT rating on the industrial REIT subsector. Cache Logistics remains our preferred pick, given its attractive FY12F DPU yield of 7.6% and robust portfolio. (Kevin Tan) MORE REPORTS CapitaLand: Uptick in Chinese sales CapitaLand (CAPL) announced 2Q12 PATMI of S$385.9m - down 3.3% YoY. Adjusting for revaluations and impairments, we estimate core PATMI at S$179.5m, which is broadly in line with expectations. In China, residential units sold leaped 218% QoQ to 812 units as buyer sentiments rebounded somewhat. Management indicates they had increased prices in the 4%-5% range, and expects to launch about 4k units in China this year (unchanged from 1Q12 guidance). 202 residential units were sold in Singapore over 2Q12 (57 in 1Q12) with most of the QoQ increase due to the Sky Habitat launch in Apr 12. We think CAPL's valuations remain undemanding, and continue to favor its sound balance sheet with S$5.1b in cash and net gearing of 0.41. Maintain BUY with a higher FV estimate of S$3.32 (25% RNAV disc), versus S$3.25, as we update valuations of its listed holdings. (Eli Lee) COSCO Corporation: In-line 2Q12 results COSCO Corp Singapore (COSCO) reported a 2% YoY decrease in revenue to S$975.3m and a 13% fall in net profit to S$27.6m in 2Q12, such that 1H12 net profit accounted for 50% and 43% of ours and the street's full year estimates, respectively. The slight drop in turnover was due to lower contributions from shipbuilding which more than offset the growth in shiprepair and marine engineering. Gross margin, however, increased from 7.5% in 2Q11 and 10% in 1Q12 to 12% in 2Q12; we note that unlike previous quarters which saw provision of losses for certain contracts (due to cost overruns), COSCO saw a S$15.9m reversal of expected losses that were recognized earlier. The group's order book stood at US$5.9b as at 30 Jun 2012 after receiving US$1b of new orders in 1H12 (mainly offshore). Meanwhile, current operating conditions and outlook of the Chinese shipbuilding sector remains challenging with minimal new orders and weak vessel values. Our Sell rating and fair value estimate of S$0.84 is currently under review. (Chia Jiunyang)

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NEWS HEADLINES - US stocks fell after the Federal Reserve held back from monetary easing but paved the way for further stimulus. The Dow and the S&P 500 Index both dropped 0.3%. - Japan's Suntory Group is seeking to take private Cerebos, maker of Brand's Essence of Chicken, with an offer to buy the 17.42% stake it does not own at for S$6.60/share (or ~S$365m). - CCM Group has secured two contracts worth a total of S$136.43m. The first is for a warehouse development with ancillary office and the second is for a commercial building. - Tiong Woon Corporation Holding expects to report a loss for FY12, largely due to foreign exchange loss and provision for doubtful debts. - A subsidiary of CDW Holding is selling its Suzhou factory premises to the government of Mu Du for RMB56.16m (S$11m) under a land acquisition exercise.