Brokers’ take

Compiled by Navin Sregantan

YANGZIJIANG SHIPBUILDING

| BUY (MAINTAINED)

JULY 17 CLOSE: $1.50

TARGET PRICE: $1.82

DBS Equity Research, July 17

Yangzijiang Shipbuilding has acquired a 55 per cent stake in Odfjell Terminals Jiangyin (OTJ) from Norwegian tanker shipping company Odfjell for a consideration of US$46.2 million (S$63 million), funded by internal resources.

Operational since 2007, OTJ owns and operates a tank terminal, which handles various types of petrochemical products and provides complete terminal services for petrochemical distribution in the upstream of the Yangtze River region.

We understand there is ample potential to be unlocked with plans to expand into liquefied natural gas storage terminals using sizeable land space that is currently vacant.

The acquisition is in line with Yangzijiang's strategy to move into the clean energy space.

Yangzijiang's valuation remains undemanding at one time price-to-book value, about a 10 per cent discount to global peers, notwithstanding its more attractive 11 per cent return on equity, 3 per cent yield and solid balance sheet with 99 cents net cash a share.

Yangzijiang is due to release its Q2 results on Aug 5 after market close. We expect net profit to be in the range of 800 million yuan (S$160 million) to 900 million yuan, similar to Q1.

KEPPEL DC REIT

| BUY (MAINTAINED)

JULY 17 CLOSE: $1.73

TARGET PRICE: $1.93

OCBC Investment Research, July 17

Keppel DC Reit's Q2 FY2019 distribution per unit grew 6 per cent year on year to 1.93 cents, in line with our expectations.

Management achieved positive rental reversions in Q2, although the impact was not significant given that these were smaller clients.

Globally, the co-location market is expected to grow by 16 per cent to 18 per cent this year, versus an earlier forecast of 15 per cent to 17 per cent, according to BroadGroup.

Looking ahead, Keppel DC Reit remains focused on hunting for acquisitions, although it would be harder to acquire at above the 7 per cent cap rate level, which it had traditionally been able to do in the past.

We lower our risk-free rate assumption from 2.3 per cent to 2 per cent as we expect the interest rate environment to remain conducive over the foreseeable future.

We also pare our overall cost of equity assumption from 7.4 per cent to 6.7 per cent.

Factoring these in, our fair value estimate is bumped up from $1.64 to $1.93.

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