Business

Brokers' take

Compiled by Lynette Khoo, The Business Times

OUE COMMERCIAL REIT | HOLD

TARGET PRICE: $0.67
OCT 4 CLOSE: $0.71

OCBC Investment Research, Oct 4

OUE Commercial Trust (OUE C-Reit) announced it will be carrying out a redemption of 75 million convertible perpetual preferred units (CPPUs) at the issue price of $1 for each CPPU.

The issuance of these CPPUs to OUE C-Reit's sponsor was for partial payment of the purchase consideration for its stake in One Raffles Place. Following the redemption on Nov 2, 475 million CPPUs will remain outstanding. The manager notes that this move is part of its proactive capital management strategy and to mitigate dilution in distribution per unit (DPU) in the future.

While CPPU distributions will drop, OUE C-Reit's finance costs should move up, given that the redemption will be largely funded by existing loan facilities. OUE C-Reit's pro-forma aggregate leverage as at June 30 is expected to increase from 36.4 per cent to 38.7 per cent.

On balance, we expect DPUs to soften slightly by 0.2 per cent and 0.8 per cent in FY2017 and FY2018 against our last forecast, respectively.

We also believe it is possible for more CPPUs to be redeemed ahead of the non-call period in 2019, though a full redemption of the outstanding 475 million units is highly unlikely. We believe the outlook for the office sector is improving. We will be waiting for further evidence to corroborate our view as we head into the earnings season.

VENTURE CORPORATION | ADD

TARGET PRICE: $20.87
OCT 4 CLOSE: $18.18

CIMB, Oct 4

Venture has enjoyed strong earnings momentum in the past three quarters, driven by its success with customers in the life science/medical/others fields.

We expect H2 to be stronger than H1 for FY2017, in line with the past three years' trend.

We also expect the positive momentum to lift FY2018 earnings above the FY2007 record high of $300 million.

For the past 13 years, Venture has maintained a dividend per share (DPS) of $0.50 (except in FY10-11 when DPS was $0.55).

Barring higher returns on its capital, Venture will have the financial muscle to raise DPS to a higher level - $0.60 DPS for FY2017 is a possibility.

Venture currently does not need to add capacity aggressively but with its acquisition of a 60-year leasehold land at 318, Batu Kawan Industrial Park in Penang, Venture is well prepared for further customer wins or additional manufacturing requirements from customers.

We raise FY17-19F EPS by 3.2 per cent to 5.5 per cent to reflect Venture's strong order momentum from its customers.

Given its 25 per cent earnings per share CAGR over FY16-19F (based on our estimates), we raise our price-to-earnings (PE) multiple to 17.3 times, from 15.2 times previously, and roll over to FY2019 PE. A potential catalyst is stronger orders from customers. A key risk is pullback in customers' orders.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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