SG: MARKET PULSE: Long SPH/Short STH, CMT, Yoma, STE (5 Apr 2013)

Stock Name: CapitaMall
Company Name: CAPITAMALL TRUST

Research House: OCBC

Price Call: BUY

Target Price: 2.32

MARKET PULSE: Long SPH/Short STH, CMT, Yoma, STE

5 Apr 2013

KEY IDEA Conviction Idea: Pair trade - Long SPH / Short STH We recommend a long SPH/short STH pair trade. Investors would pick up a 63 bps dividend yield spread (to offset transactions costs) and gain significant upside exposure to the scenario that SPH lists its REIT. Two bases for our trade: first, we believe SPH's 63 bps spread over STH is attractive. Newspapers are generally perceived to have weaker prospects than telcos but SPH has a virtual monopoly in its market while STH perennially competes against the much larger SingTel and has been losing market share in both its mobile and Pay TV segments. Second, from our calculations, we believe a SPH REIT listing scenario is realistic given the current yield/valuation dynamics of its assets and the size of its portfolio. Assuming SPH retains a 51% stake in the REIT, we see potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share. This could consequently lead to a special dividend and/or distribution in specie of REIT units for SPH shareholders. (Eli Lee) MORE REPORTS CapitaMall Trust: Deep value at current price CapitaMall Trust (CMT) has been a clear laggard within the S-REITs space, staying flat YTD versus an average of 11.0% increase in unit prices for its local retail peers. We believe this is unjustified given its portfolio of 15 quality retail malls and its relentless efforts in optimizing its yield via asset enhancement initiatives. The operating landscape in the retail space also appears sanguine thus far. According to CBRE, the average rents in prime Orchard Road rose for the first time in 1Q13 after staying flat since 3Q11. While the suburban retail will see a substantial amount of space coming online in 2013, CBRE notes that retailers are still upbeat about the suburban market. This is consistent with our view that both the Orchard Road and suburban rents may possibly remain firm in 2013. We are keeping our S$2.32 fair value unchanged and maintaining BUY on CMT as we expect the valuation gap to narrow between CMT and its peers. (Kevin Tan) Yoma Strategic Holdings: Forming consortium to bid for mobile license Yoma announced that it has formed a consortium with FMI, its affiliate in Myanmar, and Digicel Group and Quantum Strategic Partners to bid for one of the two mobile licenses expected to be awarded by the Myanmar Government later this year. The consortium has submitted its pre-qualification bid in Nay Pyi Taw yesterday as the first part of the mobile license process. We understand that Yoma and FMI has joined the consortium through a newly created 80:20 joint venture YSH Finance Ltd, but Yoma's eventual effective stake in the consortium is yet unclear. Also, we expect fierce competition for the mobile licenses from a host of contenders, including a Vodafone-China Mobile tie-up and other major telco players such as SingTel, Telekomunikasi Indonesia, Malaysia's Axiata Group Bhd, Norway's Telenor ASA and India's Bharti Airtel Ltd. Since we have downgraded Yoma to a SELL on 1 Feb 2013 with a fair value estimate of S$0.71, the share price has corrected 17.2% from S$0.90 to S$0.745. We now put our rating and fair value estimate UNDER REVIEW. (Eli Lee) ST Engineering: ST Electronics won S$151m of contracts in 1Q13 ST Engineering (STE) announced that its electronics arm, ST Electronics, has secured about S$151m of contracts. This is in line with our expectations. The contracts include S$65m in the rail electronics market with projects for mass rapid transit (MRT) projects in Malaysia, Taiwan and North America. S$78m in contracts was secured under the satcom and sensor business segment and S$8m was under smart utilities solutions. We maintain our fair value estimate of S$4.12 and HOLDrating on STE. (Sarah Ong)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - US stocks climbed Thursday as optimism over monetary stimulus in Japan outweighed news that US jobless claims rose to a four-month high. - Amara Holdings has entered into a MOU to develop hotels and engage in other real estate projects in Myanmar. The first project involves establishing a JV to develop and operate a hotel located in Dagon Township, Yangon. The proposed total investment is ~US$50m. - Metro Holdings has entered into an option to sell a property at 100H Pasir Panjang Rd for a purchase price of S$39.8m. - Riverstone Holdings has acquired a piece of land of 30 acres located at an industrial estate in Taiping, Malaysia for a purchase price of RM12.4m, to support business expansion.