OUE COMMERCIAL REIT
JAN 9 CLOSE: $0.745
FAIR VALUE: $0.67
OCBC Investment Research, Jan 9
On the back of a nascent recovery for the office market in Singapore last year, we see robust sentiments extending into 2018.
Despite the sector's tailwinds, we are cognisant that the expiry of OUE Bayfront's income support is now within a one-year horizon (Jan 2019).
As a recap, this income support involves the sponsor providing a top-up of the gross rental income of the property should it fall below $14.3 million in a quarter, subject to maximum annual and aggregate limits of $12 million and $50 million, respectively.
On a 9M17 basis, the level of income support drawn on is estimated to be around $2.3 million, which represents an increase of 11.5 per cent year-on-year.
Given that OUE Bayfront's committed office occupancy of 98.2 per cent (as at Sept 30, 2017) is already relatively robust, this year will be a year for OUECT to capitalise on the improving market sentiments to establish firmer rental reversions to mitigate the removal of the sponsor's income support.
Valuations are not cheap against historicals at this juncture.
While OUECT is currently trading at a 12-month blended forward consensus P/B (price to book) of 0.67 times, this is close to one standard deviation above the three-year mean.
With the recent jump in share price of 4.2 per cent on a year-to-date basis, we note that OUECT's 12-month blended forward consensus dividend yield has now compressed to 6.4 per cent - close to two standard deviations below the three-year mean.
Upside risk to our call would be yield-accretive acquisitions, given that One Raffles Place was OUECT's last acquisition in late 2015.
CITYNEON HOLDINGS | BUY
JAN 9 CLOSE: $1.02
TARGET PRICE: $1.55
UOB Kay Hian, Jan 9
Cityneon has signed a term sheet with Fabulous Inc to set up a digital media signage board at the Marvel exhibit in Las Vegas.
The deal is highly lucrative as it should net a minimum of US$15 million (S$20 million) over a five-year period.
This agreement should provide a stream of income over the next five years.
The firm has also purchased property at 25 Tai Seng Avenue, which will possibly be its creative hub.
We do not expect any net cash flow impact apart from the upfront cash consideration as the majority of the property will be rented out.
At current price levels, investors would be buying into Cityneon at a 7.7 per cent premium to what major shareholder Lucrum 1 came in at $0.90.
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Compiled by Anita Gabriel