Compiled by Lee Meixian
ESR-REIT | ADD
TARGET PRICE: $0.62
JUNE 4 CLOSE: $0.51
CGS-CIMB, June 1
ESR-Reit has proposed a merger with Viva Industrial Trust (VIT) by way of a trust scheme arrangement.
We expect the post-merger ESR-Reit to become the fourth largest industrial S-Reit with a combined asset under management of around $3 billion.
In fact, it would be the largest S-Reit with pure exposure to the Singapore industrial market.
Including the potential acquisition of 15 Greenwich Drive, the enlarged trust would have a portfolio of 57 properties with total gross floor area of 13.6 million sq ft.
Post-merger, high-spec industrial and business parks would form 46 per cent of the Reit's assets under management.
We forecast its gearing to rise to about 40 per cent as at end-FY19. Chinese tycoon Tong Jinquan will own around 33.8 per cent of the enlarged trust; ESR will own around 9.1 per cent.
For simplicity, we incorporate the merger on "day one" of FY19.
Propelled by the addition of VIT as well as an expected bottoming in the Singapore industrial market, we now forecast FY19 distribution per unit (DPU) to expand by 12.8 per cent year on year.
We see FY18 as a "work in progress" as additions to the portfolio are counteracted by ongoing weakness and capital management actions.
We now forecast FY18 DPU to decrease by 6.3 per cent year on year.
Incorporating the merger, we raise our target price to 62 cents.
KSH HOLDINGS | BUY
FAIR VALUE: $0.98
JUNE 4 CLOSE: $0.66
OCBC Investment Research, June 4
KSH Holdings' FY18 revenue fell 33.4 per cent year on year to $132.6 million mainly due to lower construction revenue resulting from delays in handover of two construction sites.
Nonetheless, construction margins remained healthy, rising to 23.8 per cent in FY18 compared to 21.6 per cent in FY17.
Profit from operations before share of results of joint ventures (JVs) and associates fell 18.4 per cent year on year to $26.7 million.
Share of results of JV rose to $11.1 million, almost doubling, while share of results of associates locked a $3.1 million loss versus the $8.5 million profit in FY17.
As a result, net profit fell 28.1 per cent year on year to $29.5 million.
We believe that KSH stands to benefit from the residential property rebound through its property development projects with associates and JVs.
As at March 31, around 96.5 per cent of the units already launched by KSH's associates and JVs have been sold.
There is around $85.9 million of the group's attributable share of progress billings to be recognised as sales revenue from these projects, and these will progressively contribute to the group's results after FY18.
In addition, the group plans to launch four Singapore residential projects with its JV and associate partners this year.
We upgrade KSH from "hold" to "buy".
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