Compiled by Navin Sregantan
CITIC ENVIROTECH (CEL) | HOLD (DOWNGRADED)
JULY 25 CLOSE: $0.30
TARGET PRICE: $0.34
DBS Equity Research, July 25
Our biggest concern about CEL is execution risk as slow project execution has been the main reason for earnings disappointment.
CEL's valuation is rather stretched given the low single-digit earnings growth in FY2019.
The high adjusted net debt-equity ratio (adjusted for perpetual securities) is also a concern, climbing from 1.1 times in FY2018 to 1.27 times in the first half of FY2019.
We need to see more signs of recovery before we are positive on CEL's growth outlook.
First half FY2019 attributable profit plunged by 80 per cent. This was mainly attributable to a change in recognition of construction revenue and delay in certain large-scale projects since the second half of FY2018.
Although construction and membrane solution segments in Q2 recorded quarter-on-quarter improvements, we are uncertain if the improvement can be sustained.
If the momentum in construction progress in 2Q19 can be sustained, 2H19 earnings could rebound on a low base comparison. Coupled with more project wins, CEL's share price could react positively.
A key risk to our view is that construction progress is the major swing factor for earnings growth.
MAPLETREE INDUSTRIAL TRUST | HOLD (DOWNGRADED)
JULY 25 CLOSE: $2.27
TARGET PRICE: $2.37
CGS-CIMB, July 24
Mapletree Industrial Trust's distribution per unit (DPU) for Q1 of 3.1 cents was in line at 25 per cent of our and Bloomberg consensus' forecasts.
The improved performance was largely driven by new contributions from 18 Tai Seng, 30A Kallang Place and Mapletree Sunview 1. The year-on-year increase in DPU was partially offset by the larger unit base.
That said, we downgrade Mapletree Industrial Trust to "hold" due to high valuations which are more than 2 standard deviations above the historical seven-year average of 1.2 times price-to-book value.
While we like the Reit for its visible growth profile, we think this has been priced in and investors could look for a lower entry point.
Our FY2020-2022 DPU forecasts were adjusted 1.9 per cent to +1 per cent after accounting for the redevelopment of Kolam Ayer and the earlier completion of 7 Tai Seng.
Potential re-rating catalysts are accretive acquisitions and redevelopments.
Downside risks to our call include slower recovery in industrial rents and large tenant exits.
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