APTT – CIMB
Expansion on track
Though the economic weakness in Taiwan slowed the broadband penetration, APTT reported 4Q13 EBITDA that was in line at 2% below our forecast, underlining the stability of its business model. With capex guidelines set for the Taichung expansion, distributions have been given greater visibility. We reiterate our Add rating as a dividend yield of 10% remains attractive relative to the risk of the underlying cashflows. Our DCF-based target price is lower due to slower broadband penetration going forward. Our FY14-16 EPS is cut to reflect the higher depreciation; however, this will not affect distributions. We expect the granting of the commercial operating licence by end-1HFY14 to be a potential re-rating catalyst.
Results in line despite the drag from the economy
4QFY13 revenue was 2% below our forecast as broadband subscriber growth stalled and ARPU was weaker by 2% qoq. Management attributed the poor showing to the continuing drag from the weak economy, with households reducing costs. While the price competition from CHT in high-speed packages has been apparent, TBC still takes the lead in both speed and price. Basic cable and premium TV were also weaker though broadly in line with our forecast. We cut our FY14-15 revenue forecasts by 2% due to the lower subscriber base and ARPU. Expenses remained well controlled, allowing its asset EBITDA to expand to 65.8% in 4QFY13. We expect its margin to remain at similar levels.
DVR: a new revenue driver
We believe that management’s raised digitisation target for end-2014 from 55% to 70% (currently just 37%) was prompted by the success of the DVR-only product. We expect this to be a popular product, and our view is supported by the implied DVR-only revenues that are 45% above our forecast. We project revenues of S$3.6m in FY14, a fivefold increase yoy.
Taichung expansion clarified
Management provided further details on the Taichung expansion, reaffirming that FY14 distributions will not be impacted and that it expects an uplift from FY15. It guided for FY14 capex at S$40m-50m and S$20m-30m for FY15-16, levels that can be funded by its current debt facilities. A commercial operating licence may be granted by end-1HFY14.
APTT – AmFraser
APTT declared second‐half DPU of 4.13c. Consistent with our expectations, APTT reported revenue of S$78.7mil and asset EBITDA of S$51.8mil for the quarter ending Dec 2013. While APTT witnessed a weaker‐than‐expected showing in its Broadband segment, this was cushioned by sturdy Basic Cable TV and Premium Digital Cable TV growth. APTT also reaffirmed its distribution guidance of 8.25c for FY14.
Network expansion plans on track. Taiwan Broadband Communications (TBC) has commenced with its network expansion works in Q413, which will provide it with the opportunity to deliver its services to an additional 400k homes across the greater Taichung area. APTT expects to achieve network coverage of at least 30% of the homes in the new areas in the first half of 2014. Upon attaining at least 30% of network coverage of the new homes and subject to National Communications Commission’s network inspection, TBC will be able to commence commercial operations in the new areas.
Distributions will not be negatively impacted by network expansion. Capex relating to the network expansion is expected to be between SS$40‐S$50mil in 2014 and will be funded by existing borrowing facilities. The network expansion is expected to be completed in early 2016. We reiterate that TBC’s expansion across greater Taichung will not negatively impact its FY14 distributions and are currently projecting a DPU accretion of 0.2c in FY15 as a result of the expansion.
Revving up the digitization push. Premium digital cable TV remains a particularly exciting growth segment, underpinned by TBC’s ongoing digitization initiatives. TBC has attained digital set‐top box penetration rates of 40% as at end‐2013 and has increased its digital set‐top box penetration target from 55% to 70% by end‐2014.
Maintain BUY at FV S$1.01. We lower our target price as we introduce our estimates for FY16. We note that FY14 projected DPU is lower due to the absence of an excess cash balance that was available for distribution at the time of the IPO. Our projected FY14 DPU of 8.25c translates into a distribution yield of 10.3%, and this is very compelling in our view.
AscottREIT – CIMB
Accretive Dalian acquisition
ART’s plan to acquire a serviced residence in Dalian, China did not come as a surprise to us. The S$118m investment offers an EBITDA yield of 5.5% and will be funded by debt costing 3.3%, making it an accretive investment. We estimate the impact of this deal on our FY14-16 DPU to be 0.6%-1.2%. There should be more acquisitions on the cards given that the amount utilised was only about half of the recent rights issue. We believe any additional
acquisitions should come at higher yields in order to justify the previous fund-raising. We maintain our Hold rating while our DDM-based target price (discounted at 8.5%) rises by 0.8%.
What Happened
ART has entered into a sales and purchase agreement with Winner Sight Investment Ltd, a third-party, to acquire a serviced residence in Dalian, China for a consideration of RMB571m (S$118.6m). The property is located in Jinzhou New District, a key development zone in Dalian, and is the only internationally-branded serviced residence in the region. It will be rebranded as Somerset and operated by Ascott Limited under a management contract.
What We Think
Accretive acquisition. At a 5.5% yield and fully funded by debt costing 3.3%, the acquisition is an accretive one. In operation since 2009, the property is a stabilised asset with ~80% occupancy and more than 80% of customers with length of stay longer than six months. International companies operating in the vicinity offer support to its high occupancy. Rebranding and refurbishment of the common areas can provide some upside to the room rates, albeit a small one, in our view.
More acquisitions should come at higher yields. Gearing remains healthy at 36.3% post the acquisition. Given that the acquisition used up slightly less than half of the rights issue, we expect an additional S$150m-200m worth of acquisitions to come. At our estimated cost of equity of 8.5%, we believe further acquisitions need to come at higher yields in order to justify the previous rights issue.
What You Should Do
Maintain Hold. ART’s FY14 dividend yield of 7.2% is slightly below the peer average of 7.5%.
CMT – OCBC
Worth a revisit
- Trading at undemanding valuation
- Further upside from AEI
- Debt profile enhanced
Valuation increasingly compelling
CapitaMall Trust (CMT) has continued to underperform both its local retail REIT peers and the broader S-REITs sector YTD, and is currently hovering near its 52-week low of S$1.80. This is despite its enhanced portfolio assets, financial position and strong track record. At current price, we believe that valuation is increasingly compelling, now that CMT is trading at 1.04x P/B, and offers a FY14F yield of 6.1%.
Outlook positive; possibly another year of AEI
In the past year, CMT has benefitted from higher secured rentals at several of its portfolio properties post asset enhancement initiatives (AEIs). We believe CMT will continue to focus largely on organic growth via AEI and tenant repositioning. To-date, CMT has announced the AEI on Tampines Mall and Phase 2 of Bugis Junction (both starting in 1Q14), and is currently exploring Phase 2 repositioning of IMM Building, which we believe will continue to improve its portfolio yield. The domestic landscape has also been supportive of the retail leasing demand, given the relatively resilient retail sales, expanding population and interest from international and new-to-market retailers. According to CBRE, Orchard Road rents recorded the strongest rise of 3.4% QoQ to reach S$33.30 psf pm, while the prime suburban rents grew at 1.7% QoQ to S$30.30 in 4Q13. As outlook is still expected to remain sanguine, we thus believe CMT will continue to achieve positive rental reversions upon lease renewals.
Refinancing requirements likely addressed
We also note that CMT has been very active on its capital management lately. Specifically, CMT issued a JPY5b medium-term note (swapped into S$62m at 3.148% interest rate) on 3 Feb and is currently offering a 3.08% retail bond to raise up to a maximum of S$350m. This will address not only the refinancing of its S$350m
convertible bonds due Apr and S$150m medium-term note due Sep, but also extend its debt maturity to 2021. The progressive payments from the sale of Westgate Tower, on the other hand, will likely provide with additional resources for its growth plans. We maintain BUY and S$2.20 fair value on CMT.
LMIR – OCBC
4Q13 a miss
- Weak IDR drags down results
- Repaid S$147.5m facility
- Maintain HOLD
4Q13 gross rental income contracts 4%
LMIRT’s 4Q13 results were significantly below ours and the street’s expectations. FY13 DPU of 3.25 S cents formed only ~93% of ours and the street’s prior estimate. LMIRT reported 4Q13 gross rental income of S$33.9m, down 4.0% YoY. Net property income (NPI) was S$31.1m, down 5.5% YoY. 4Q13 average IDR/SGD rate depreciated 15.4% YoY, pulling down the results. In IDR-terms, 4Q13 gross rental income and NPI increased by 13.5% YoY and 11.7% YoY respectively. Distributable income fell by 14.6% YoY to S$13.8m and 4Q13 DPU contracted 24.3% YoY to 0.56 S cents (down 36% QoQ). LMIRT’s NAV has fallen from S$0.4528 at end-Sep 2013 to S$0.4115 at end-Dec 2013. For FY13, gross rental income rose by 16.5% YoY to S$153m, chiefly due to the six malls acquired in 4Q12. FY13 DPU is 10.2% higher YoY.
Refinancing completed
The S$147.5m loan facility with all-in-cost of 6.77% p.a. that was set to mature in Jun 2014 was repaid in Jan. Recap that a S$150m 4.25% fixed rate note was issued on 4 Oct 2013. It is scheduled to mature in Oct 2016. Finance expenses jumped in 4Q13 by 37.5% YoY to S$9.0m due to the note issued last Oct and the S$75m note issued in Nov 2012. 4Q13 other losses was S$1.0m, versus S$0.2m a year ago, mainly due to a realised loss on FX of S$1.4m.
Good occupancy
LMIRT’s portfolio had an average occupancy of 95.0% as at end-Dec 2013. This is higher than the industry average of 81% (according to the 3Q13 Colliers report for retail properties in greater Jakarta). Weighted Average Lease to Expiry (by NLA) as at 31 Dec 2013 was 4.94 years. Average rental reversion for 4Q13 was 11.1%.
Maintain HOLD
Adjusting our assumptions, including raising our cost of equity assumption from 10.1% to 10.6%, we reduce our FV from S$0.45 to S$0.39. Maintain HOLD. We estimate a FY14F yield of 9.2%.