Compiled by Leila Lai
| HOLD (MAINTAINED)
DEC 13 CLOSE: $1.00
TARGET PRICE: $1.05
OCBC Investment Research, Dec 13
First Real Estate Investment Trust (Freit) is looking to rebalance its portfolio, where up to 50 per cent of its assets will be located outside Indonesia within the next three to five years.
Roadmap-wise, we are of the opinion that Freit could be looking to acquire a significant portion of OUE Lippo Healthcare's (OUELH) roughly $300 million Japanese nursing home portfolio next year, with another two to three sizeable acquisitions thereafter, in the ballpark of $300 million to $400 million each.
Debt, equity and divestments are avenues to fund these acquisitions.
Still, excluding divestments, management would have only about $102.4 million of debt headroom before hitting its short-term tolerance of up to 42 per cent gearing.
Thus, we cannot rule out a substantial amount of equity fund-raising, possibly through a rights issuance.
We note that management is focused on making any acquisition distribution per unit-accretive but see challenges to that, such as Freit's recent unit price plunge and presumably lower yields for OUELH's Japanese healthcare assets.
In light of the risks, we increase our Beta assumption and drop our terminal growth rate by 75 basis points to 0.75 per cent. Consequently, our fair value drops from $1.34 to $1.05.
| MARKET WEIGHT (MAINTAINED)
UOB Kay Hian Research, Dec 13
It has been over a year since Borr Drilling started acquiring rigs from Singapore shipyards.
The total amount due to the shipyards is approximately US$1.2 billion (S$1.65 million). Based on our estimates, the rigs have to be put out to work at the rate of US$120,000/day at the minimum to generate sufficient cash flow to repay its financing on time. Until Borr pays off the rigs in full, receivable risks remain.
The worst is over, but still far from a complete recovery.
The shipyards remain at or below breakeven at the operating level.
After accounting for net interest expense, they remain loss-making and are likely to be until their net debt falls significantly.
With balance-sheet risks remaining on the cards, the yards are not completely out of the woods yet. Profitability remains distant, and the yards are still trading plays at best.
Maintain "market weight". Within our coverage, Sembcorp Marine (SMM) is the most direct proxy to the recovery play. With the potential of breakeven at the operating level next year, and trading near below one standard deviation to its long-term mean price/book, current price levels look safe to catch the swings.
Our preferred pick remains Sembcorp Industries, which has a stable utilities business and exposure to SMM's improving financials.
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