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Brokers' take

Compiled by Lynette Tan

SPH REIT | HOLD

TARGET PRICE: S$1.02

DEC 20 CLOSE: S$1.01

Maybank Kim Eng, Dec 19

SPH Reit has announced its first overseas acquisition: An 85 per cent interest in Figtree Grove shopping centre in New South Wales Australia for A$188.2 million (S$188.2 million).

SPH Reit's acquisition cost includes a stamp duty (A$9.6 million), acquisition fee (A$1.8 million) and professional expenses (A$1.7 million), with a 12-month rental guarantee capped at A$0.8 million.

To be fully debt-funded, the transaction is expected to achieve a 6 per cent net profits interest yield (5.7 per cent post-costs), add 1-2 per cent to FY2019-2020 estimated distribution per unit (DPU), and will make up 5.2 per cent of its assets under management.

We see this as another sound initiative following its recent Rail Mall deal, given the property's focus on non-discretionary retailing, high 98.5 per cent occupancy, long weighted average lease expiry of 5.4 years by income and 7.8 years by gross leasable area and well-staggered lease expiries.

While it will just add 1-2 per cent to DPU, expectations of further inorganic growth opportunities have been raised.

That said, investors will need patience, given the limited visibility of its long-discussed potential Seletar Mall deal.

TOP GLOVE | FULLY VALUED

TARGET PRICE: RM4.64 (S$1.52)

DEC 20 CLOSE: S$1.85

DBS Group Research, Dec 18

Top Glove booked a net profit of RM110.1 million (S$36 million) in Q1 FY2019 (+4.4 per cent y-o-y; +8.3 per cent q-o-q).

This formed 22 per cent/21 per cent of our/consensus forecasts.

We deem this in-line as the group has incoming capacity as part of its expansion plans.

Bottom line was hit by higher tax due to a deferred tax liabilities provision of RM5.7 million. However, the group has unutilised tax allowance of up to RM99 million which it can choose to use in the coming quarters.

Top Glove currently operates 32 glove factories with the capacity to produce 60.5 billion gloves per annum.

It is working on expanding multiple factories in Malaysia, Thailand and Vietnam.

We are wary on the Aspion operations as it was loss making during the quarter at about RM3 million. We believe Top Glove will be able to leverage its expertise to ramp up Aspion, but it may take at least four years to achieve the targeted contributions of RM80 million.

Continued losses may drag Top Glove's profitability.

We believe earnings will continue to be supported by capacity expansion, but its valuation of 29.6 times FY2019 earnings per share is expensive as there are still headwinds from high nitrile prices, upgrading Aspion as well as incoming capacity by the industry in the medium term.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.

The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

HORSE RACING