Compiled by Lynette Khoo, The Business Times
CITY DEVELOPMENTS LTD (CDL) | OVERWEIGHT
OCT 5 CLOSE: $11.41
TARGET PRICE: $12.30
JPMorgan, Oct 4
An 80-20 JV between CDL and its parent, Hong Leong Group, has acquired Amber Park for $907 million or $1,515 per square foot (psf), which could be lowered to $1,443 psf after factoring in another 10 per cent GFA for balcony.
This translates to profit before tax margin (PBT) of 5-10 per cent on a selling price of $2,100-2,200 psf and a new record for the Amber Road precinct.
We expect this deal to pave the way for more nearby en bloc deals to close, while UOL's acquisition cost of $1,063 and $1,429 psf for 45 Amber Road and Nanak Mansions respectively now looks competitive.
This represents CEO-designate Sherman Kwek's first acquisition since his August appointment and may signify CDL's renewed focus on Singapore given improved fundamentals, in our view.
While we like the site's strong attributes, the impact on share price may be slightly negative to neutral given the need to set a new record price for a moderate PBT margin and accretion to revalued net asset value.
This deal may provide fodder for the government to expand land supply in its H1 2018 GLS programme.
Nonetheless, we maintain our "overweight" on CDL given the prospect of a multi-year residential upcycle and undemanding valuations of 15 per cent RNAV discount versus upcycle mean of 5 per cent.
GOLDEN AGRI-RESOURCES (GAR) | HOLD
OCT 5 CLOSE: $0.38
TARGET PRICE: $0.35
OCBC Investment Research, Oct 5
GAR was recently included in the 2017 Dow Jones Sustainability Indices (Asia Pacific), marking the first time that GAR is made a member of the DJSI, which was launched in 1999.
The group is the only South-east Asian palm oil company to be included in the food, beverage and tobacco sector in Asia-Pacific, and is also one of five Singapore-listed companies in the index.
The sustainable development of palm oil plantations is a major issue for the industry.
In June, Norway banned the public procurement and use of biofuel based on palm oil, a year after its government pledged that the state would not contribute to deforestation of the world's rainforests.
It remains to be seen if other European countries will follow in Norway's footsteps.
Palm oil companies which are keen to remain in the business for the long term have to be serious about sustainability efforts, as consumers are slowly but surely moving to products that are developed in a responsible way. Meanwhile, short-term price fluctuations of stocks are still highly correlated with crude palm oil prices.
Our fair value eases slightly from $0.36 to $0.35 and we maintain HOLD, in consideration of the nearer term outlook with few catalysts for now.
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