Compiled by Navin Sregantan
COMFORTDELGRO | NEUTRAL (UPGRADED)
JUNE 18 CLOSE: $2.60
TARGET PRICE: $2.65
RHB Research Institute, June 18
We maintain that ComfortDelGro's public transport business will be its key earnings growth driver in the near term, aided by organic growth in Singapore and contributions from acquisitions undertaken in 2018.
In addition to organic growth from its bus operations in Singapore, the reduction of losses for its rail business, which has witnessed an increase in ridership and higher average fares, should also support earnings growth for its public transport business in Singapore.
We remain confident about ComfortDelGro's earnings growth recovery. The stock looks fairly priced now, trading at 17.3 times 2019 price-to-earnings. This compares with the five-year average of 15 times.
While we like the defensive nature of its earnings, investors should consider buying at a lower price of around $2.40.
Key upside risks are additional earnings-accretive acquisitions and a pause in its taxi fleet contraction.
Downside risks are increased competition from ride-hailing players, and a sharp decline in margins for existing businesses.
ESR-REIT | BUY (MAINTAINED)
JUNE 18 CLOSE: $0.53
TARGET PRICE: $0.60
CGS-CIMB, June 17
ESR-Reit has entered into a 49 per cent joint venture with privately held Poh Tiong Choon (PTC) Logistics to acquire PTC Logistics Hub.
The purchase consideration is $225 million, out of which $146.2 million is expected to be funded by debt taken on by the joint venture, implying a loan-to-value of 65 per cent for the acquisition. The total cost to ESR-Reit is $44.4 million.
ESR-Reit plans to tap unutilised plot ratio to redevelop the existing carpark space at 7000 Ang Mo Kio Avenue 5 into a new high-specification industrial space of around 270,000 sq ft.
The Reit's share of the total AEI cost is $35.7 million.
UE Bizhub East will also undergo an asset enhancements initiative where the drop-off areas, office lobbies and facade will be upgraded. The transactions will be funded with an equity fund raising of up to $150 million, part of which will also be used to repay debt.
As the private placement has not been completed and the details of the preferential offering have not been determined pending an EGM, we have not factored the impact of these transactions into our numbers and maintain our forecasts.
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