Saturday, May 15, 2010


FY10 Results
• 4Q10 revenue of $15.6 million (+19.4% yy, +24.2% q-q),
• Net property income of $11.9 million (+28.2% y-y, +20.3% q-q),
• Distributable income available to unitholders of $7.9 million (+57.9% y-y, +46.7% q-q).

• FY10 revenue of $50.9 million (+0.2% y-y),
• net property income of $40.1 million (+8.9% y-y),
• Distributable income available to unitholders of $22.3 million (-4.6% y-y)..
• 4Q10 DPU 0.5376 cents, bringing FY10 DPU to 5.12 cents
• Maintain Hold recommendation with fair value of $0.23

A tumultuous year
To refresh our readers' memory, the REIT underwent a tough recapitalization exercise last year and subsequently changed its name from MIREIT to the present name. In essence, AAC managed to lower its gearing from over 40% pre-recapitalization to 28.9% currently. AAC also added 4 properties to its portfolio to shore up the balance sheet. The property portfolio now consists of 26 properties with an asset value of $635.25 million. Post-recapitalization, AAC now has total debt of $190 million which is due in 2012.

FY10 revenue was little changed from a year ago. The 4 properties were acquired in Jan 2010, therefore the contribution to full year revenue was not significant. High borrowing cost in FY2010 and the dilution of units from the rights issue resulted in a drop in DPU.

On the overall, actual full year results were not too far off from our estimates. Net property income and DPU were 5.9% and 3.6% above our numbers. From Fig 3, we can observe that the quarterly performance has been improving and the recapitalization exercise has worked out well. Fundamentals of the underlying portfolio remain fine, except for the drop in occupancy. The weighted average lease to expiry (WALE) is 4.4 years.

The near term strategy is to reposition the portfolio; divesting underperforming assets and using the proceeds to replace the current debt facility with cheaper facility. Management indicated that it is looking to sell the Japan property as the focus is on the Singapore market.

Furthermore it can't achieve economy of scale with a single property in Japan. One of the stated strategies is to increase the asset size to $1.4 billion within five years and to gear up to approximately 35% to fund the acquisitions.

FY10 was a difficult year whereby refinancing was due and the portfolio suffered a $41.4 million write-down in value. We think baring the dilution that resulted from the recapitalization exercise, AAC performed within expectations. Going forward, the REIT should be able to maintain its performance with the economy picking up. We have a DPU forecast for FY11E of 1.99 cents, which translate to 9% dividend yield. In view of the stability of the REIT, we are now ascribing a lower WACC of 9.2% versus 9.8% previously to our DCF model and arrived at a fair value of $0.23. Maintain Hold recommendation. We believe re-rating for AAC will depend on the actualization of the strategy to lower interest payment.

Wednesday, May 12, 2010

FSL Trust-dmg

First Ship Lease Trust provides update on the re-delivery of ‘Verona I’ and ‘Nika I’
The news: In relation to the matter of the lessees of the vessels ‘Verona I’ and ‘Nika I’ making requests to First Ship Lease Trust (FSLT) on 3 May 2010 to take re-delivery of the two vessels, the lessees have indicated that it has become increasingly difficult for them to improve their cash flow and the reasons appear to be: 1) the higher voyage expenses due to escalating bunker prices; 2) under-utilisation of the vessels under the Contracts of Affreightment with OJSC Rosneft Oil Company; and 3) limited options to generate incremental revenue given the trading area of the vessels. For the month of May, the lessees made full payment only for ‘Nika I’ but not for ‘Verona I’. They have informed FSLT that they will not make full payments for either vessel from June 2010 onwards under the respective bareboat charter agreements.

Our thoughts: The termination of contract illustrates that even ship operators with long term chartering contract may suffer from unexpected loss of business. Prior to these terminations, FSLT has a portfolio lease contract which lasts ~7.5 years on dollar weighted basis. Hence, it may be prudent for investors not to take for granted that long term charter contract will naturally translate to guaranteed income stream. In spite of the latent threat, there is still cause for optimism as recent results from ship operators seem to suggest that the worst is over for the shipping industry in line with global economic recovery going forward. We do not have a current rating on FSLT, which is trading at S$0.50.


Sunway City
BUY RM3.92
Price Target : 12-month RM4.70

REIT In Motion
• Disposal of assets to REIT for RM3.7b (~6.7% yield), 7% higher than our expectations
• Consideration in REIT shares (SunCity’s stake: 38%) and RM2.7b cash (REIT to assume 30% gearing)
• Proceeds to repay debts (turning net cash), development of new offices/landbank acquisitions and working capital
• Maintain Buy and TP of RM4.70. REIT listing in Jul 2010.

More details out. SunCity will be injecting 8 assets (comprising retail malls, offices and hotels, as announced earlier) to a REIT for RM3.7b, 7% higher than our expectations. Cap rate is estimated at 6.7%, with Sunway Pyramid mall and Sunway Resort Hotel being valued at relatively high market values of RM1365psf and RM1.1m/room respectively. As a comparison, Midvalley was recently valued at RM1050psf, while 5-star hotels in KL at RM1m/room. Consideration will be paid via 1m REIT shares (SunCity to retain 38% stake) and RM2.7b cash, to be financed by RM1.6b IPO proceeds and RM1.2b debt (REIT to assume 30% gearing, below 50% regulatory cap). SunCity is set to recognize one-off gain on disposal of RM328m in 2010F (not yet factored in our earnings estimates).

Unlocking value.
The sale proceeds will be used to:
a) Pare down RM780m borrowings (SunCity to turn net cash vs 53% net gearing currently, RM26m interest savings annually);
b) Repay minority interest (RM1.3b for GIC’s 48% stake in Sunway Pyramid mall, Sunway Resort Hotel and Pyramid Hotel);
c) Development of new offices at Bandar Sunway (potential REIT acquisition pipeline) and/or land acquisitions (RM500m); and
d) Working capital (RM110m).

However, there is no indication of any special dividends (cash/REIT shares) to shareholders. Potential re-rating. SunCity’s REIT is slated to be listed in Jul 2010, with an estimated market cap of RM2.6b – making it the largest M-REIT. Yield however looks rich relative to sector’s 8.5%, while rising interest rate environment could force yields higher (every +100bps, REIT valuation -RM480m or -13%). In any case, the REIT should help SunCity unlock its investment properties’ value and lead to more efficient allocation of resources to boost ROA. Maintain Buy on SunCity and TP of RM4.70 – assuming no discount for property investment and 30% discount for property development

Sunway City-ecm

Sunway City
Buy (RM3.92 SCITY MK)
Target Price: RM5.00
More details on REIT revealed

• More details revealed on assets disposal
Following last Friday’s announcement, Sunway City announced further details of the proposed assets disposal into Sunway REIT yesterday. While the assets will be injected into Sunway REIT at tentative valuation of RM3.7bn, the final value will be subject to adjustment after the bookbuilding process for the institutional block of Sunway REIT’s IPO. The maximum final value will however be capped at 110% of current valuation which has been appraised by valuer. Also to note is a gain on assets disposal of RM327.8m to be recognised in FY2010 which is contrary to earlier management’s guidance of a nil impact on earnings. Nevertheless, our adjusted EPS for FY2010 which only account for recurring income remain unchanged.

• Utilisation of cash proceeds explained
Management also revealed the utilisation of cash proceeds of RM2.7bn from the assets disposal. The biggest chunk of RM1.31bn relates to proceeds attributable to minority interest as compared to our earlier estimate of RM1.48bn. While we have previously suggested that the remaining proceeds will likely by reinvested, only RM500m has been earmarked for that purposes while another RM110m will be used as working capital for the development of two commercial projects in Sunway Integrated Resorts. The remaining RM780m will be used to settle borrowings to bring Sunway City into net cash position. Nevertheless, we hold firm to our belief that Sunway City has the capacity to increase its landbank in terms of GDV by at least another 50% to 100% by gearing up again. What’s missing from yesterday announcement is a special dividend which we previously suggested was a possibility.

• REIT listing by July
Management also guided that Sunway City shareholders’ approval will be procured by end May while the REIT listing will be completed by July.

• Reiterate BUY
Our earnings and valuation remain unchanged. We continue to rate Sunway City as one of our top picks. At current market capitalisation, investors are not only paying 16% discount for the net cash proceeds and 38.25% in Sunway REIT valued at RM2.2bn but also get all its development landbank for free. We maintain our TP of RM5.00 based on 14x P/E which is one standard deviation higher than average forward P/E of 9.9x. We believe this is justified given (1) 18.7% EPS CAGR over next 3 years, (2) unlocking hidden value in investment properties, and (3) potential upside from further expansion. Our TP is also supported by RNAV of RM6.36, with an implied discount of 21%.

Tuesday, May 11, 2010


11 May 2010
First Ship Lease Trust
Maintain HOLD
Previous Rating: HOLD
Current Price: S$0.505 / Fair Value: S$0.48

Dragged back into uncertainty

Vessel re-delivery. FSL Trust's (FSLT) charterer Groda Shipping recently requested FSLT to take re-delivery of two of its product tankers Verona I and Nika I as Groda does not intend to continue to make full charter payments. To recap, both vessels are under a seven-year bareboat charter agreement fixed at US$20,700/day each until Nov 2014. For the month of May 2010, Groda has made full payment for only one of the two vessels. It has also told FSLT that from June 2010 onwards, full payments should not be expected for either vessel. The charter agreement was structured with a cash security deposit of US$3m/vessel (covering about five months of charter revenue) and an assignment of the long-term Contract of Affreightment (CoA) between Groda and OJSC Rosneft Oil Company, a Russian state-controlled energy company.

What happens to DPU? FSLT said it was exploring legal and commercial options, and that "best efforts will be made to ensure the uninterrupted operation of the vessels". FSLT has the option to either continue the CoA with Rosneft (terms not disclosed) or re-deploy the two vessels elsewhere. The end result could potentially be at a lower rate than before. The two vessels contribute roughly 15% of total revenue. In our view, FSLT may be able to meet its DPU guidance for 2Q10 with cash reserves and the vessel deposits. However, DPU guidance for further quarters will depend on where the two vessels are employed and at what terms. Note that FSLT has to pay out US$32m (roughly 50% of cash earnings) in loan repayments every year during the covenant waiver period. The balance is utilized towards distributions.

Contagion key concern. Our key concern is what the redelivery means for the rest of FSLT's product tanker portfolio (26% of total revenue including Groda). While Groda's thought process is unknown, it seems to have found it more profitable to walk away from the deal (and the US$6m deposits) than to continue with the charter agreements. FSLT has always touted its focus on risk management and current events may be a good test of that focus. On a positive note, we understand from the manager that this development does not impact FSLT's loans. Still, any reduction in revenue could affect FSLT's plans to raise unsecured debt. We reduce our fair value estimate from S$0.59 to S$0.48 (which assumes a slight negative drag on cash earnings from the two vessels and increases our discount to FCFE value from 20% to 25%). Maintain HOLD.

Sunway City-ecm

Sunway City
Buy (RM3.78 SCITY MK)
Target Price: RM5.00
A big pay day

Largest M-REIT with RM3.7bn assets
Sunway City finally announced last Friday the 8 investment properties will be injected into its soon-to-be listed Sunway REIT at a combined value of RM3.7bn, which is poised to be the largest REIT listed on Bursa Malaysia. The proposed listing which has been approved by the Securities Commission is still subject to the approval of Bursa Malaysia and Sunway City’s shareholders at an extraordinary general meeting to be held. Further details on Sunway REIT will be revealed in its prospectus to be issued at a later date.

Sunway City will receive RM2.7bn in cash and 1,025m units in Sunway REIT valued at RM1 par. Since Sunway City does not wholly-own all the 8 assets to be injected into Sunway REIT, it will pay RM1.5bn cash to the other vendors, of which the majority goes to Government of Singapore Investment Corporation Pte Ltd (“GIC”). Sunway REIT will raise the RM2.7bn cash required to pay Sunway City through (1) initial public offering of 1,655m units, and (2) bank borrowings, which we estimated at RM1.0bn. Upon listing of Sunway REIT, Sunway City will hold 38.25% interest and Sunway REIT will have a debt/asset ratio of 0.28x which is well below the maximum 0.5x threshold.

Going forward, Sunway City will share 38.25% of Sunway REIT’s earnings as well as earn fee-based income from the management of Sunway REIT. Management fees which will be charged by Sunway City comprise of (1) base fee, (2) performance fee, (3) acquisition fee, and (4) disposal fee.

Future earnings slightly diluted…
Post-listing of Sunway REIT, Sunway City’s earnings will be lower due to dilution of its stakes in the investment properties to be injected. Sunway City’s effective 60.3% stake in the value of assets before the divestment and listing will be lowered to just 38.25% upon listing of Sunway REIT. However, this will be mitigated by fee income from managing Sunway REIT and improving earnings visibility from property development division.

Sunway City is stepping up its property launches in FY2010 with a target of RM1.5bn, including new projects in China and India. To note, there will be no earnings impact from the disposal of investment properties into Sunway REIT as these assets will be transferred at revalued amount as at FY2009. Consequently, we tweak our FY10, FY11 and FY12 earnings by -0.7%, -5.0% and +0.8%% respectively.

…but massive value unlocked with RM1.2bn cash
Despite lower earnings from investment properties going forward, Sunway City has unlocked massive value in its prime assets, particularly Sunway Pyramid which account for 62% of Sunway REIT’s assets. Net of the amount payable to other vendors of assets to be injected into Sunway REIT, Sunway City will receive net cash proceeds of RM1.2bn which will effectively cover all existing debts of the group. With such massive cash hoard, we believe Sunway City will utilise the cash by reinvesting it to buy more landbank and/or build more commercial properties for injection into Sunway REIT in the future. We also do not rule out the possibility of Sunway City distributing special dividends to reward its shareholders.

Malaysian CapitaLand in the making?
As the Sunway REIT listing drawing closer to completion, Sunway City is transforming itself from an asset heavy domestic developer to a more nimble regional developer with presence in Malaysia, China, India and Australia. In a way, we could draw parallel of Sunway City transformation to that of CapitaLand, South East Asia’s largest property developer. Since the merger of Pidemco and DBS Land in 2000 to form CapitaLand, the company has embarked on a regional expansion and in 2002, injected its portfolio of prime retail assets into Singapore’s maiden REIT, CapitaMall Trust. The rest is history.

Although it is premature to draw any conclusion from recent developments in Sunway City i.e. expansion into China and maiden REIT listing, we believe the company is making all the right steps by lowering its debt and lighten its balance sheet while embarking on regional expansion. In theory, the company can boost its remaining GDV from the current RM13bn by another RM6bn to RM12bn assuming it utilises all the RM1.2bn net proceeds from Sunway REIT listing to buy landbank which typically makes up 10% to 20% of project GDV. Further to that, the company has in its pipeline more commercial projects such as remaining phases in Sunway Integrated Resort, Sunway Velocity and Sunway Tower which can be injected into Sunway REIT in the future. As we have not accounted for these possible scenarios, we believe there is immense potential in Sunway City over the medium term.

Reiterate BUY, TP raised to RM5.00
We remain bullish on Sunway City and rate it as one of our top picks for the property sector. At current market capitalisation of just RM1.8bn, investors are not only paying 21% discount for the net cash proceeds and 38.25% in Sunway REIT valued at a combined RM2.2bn but also get all its property development landbank for free. We raise our target price from RM4.33 to RM5.00 based on 14x P/E which is one standard deviation higher than average forward P/E of 9.9x. We believe the higher valuation is justified given (1) 18.7% EPS CAGR over next 3 years, (2) unlocking hidden value in investment properties, and (3) potential upside from further expansion. Our revised target price is also supported by our supplementary RNAV valuation of RM6.36 which has been revised from RM5.77.

Monday, May 10, 2010

胡立阳: 二次危机机会为零



Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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