pc wong - amazon s3€¦ · •management expects double digit rental reversion from mallage shobu...

PC WONG

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US INTEREST RATE HIKE


• Economists and analysts expect a 70% chance of a rate hike in December

• This is due to strong jobs number which exceeded expectations and a GDP which many are expecting to be revised up after a recent string of data

• Some even predicted a quarterly hike all through 2016

• The expectations drove the US$ Index up and put pressure on commodities and gold

BUT………..

IFS ASSESSMENT: US CURRENT DEBT


• The US debt today stands at more than US$18T

• Since 2009, the government has raised the debt ceiling 6 times. This is because the tax collections have been falling short of the government’s expenditure year after year

• US will likely continue to raise the debt ceiling as long as the Republicans and Democrats fail to reach an agreement on the budget and overhaul the tax regime. The Democrats have always wanted to raise the tax but the Republicans have always been against it. No solution in the near future

• Any increase in interest rate will increase US borrowing costs. A 25 basis point increase is equivalent to an interest payment of US$45B based on today’s debt figure!

• Further interest rates hike will create a snowball effect on the US debt. Borrowing at higher cost to pay for lower cost

IFS ASSESSMENT: STATE OF GLOBAL ECONOMY


• IMF recently cut the global outlook to 3.1% from 3.3%

• OECD cut the global outlook to 2.9% from 3.3%

• Baltic Index has fallen below 700 points

• Maesrk: “Global economy is worse than forecast.”

• China exports fell 6.9% while imports declined 18.8% in October. Inflation remains behind government’s target

• Marketwatch: “The S & P 500 heads for first revenue recession since the Great Recession.”

• Banks earnings are less than spectacular. Standard Charted to lay off 15,000 employees, while Deutsche Bank to lay off 30,000

• A state of deflation engulfing the EU and Asian economies

IFS ASSESSMENT: OCTOBER JOBS REPORT


Source: www.zerohedge.com

Construction added 31,000 jobs in October vs approximately 13,000 jobs September while Retail added 43,800 jobs vs approximately 5,000 in the month prior

IFS ASSESSMENT: EU INFLATION CHART


Source: www.statbereau.org

IFS ASSESSMENT: DEFLATION IN ASIA


Source: www.elliotwave.com

IFS ASSESSMENT: CONCLUSION


• Without inflation, the Federal Reserve will find it hard to continue raising interest rates. There will likely be one in December, just to keep the proponents off the Federal Reserve’s back but there could be a long pause before there is another

• Any further increase in interest rates after the first could tip the world into recession

• What if deflation remains stubborn? Central banks have little ammunition to combat deflation. Last resort could be negative interest rates

CROESUS RETAIL TRUST (CRT)


• Listed on the SGX under code S6NU. Lot size 100

• A Retail Trust with focus in Japan

• Portfolio of 8 malls comprising of:

Aeon Town Moriya Luz Omori

Aeon Town Suzuka Croesus Tachikawa

Croesus Shinsaibashi One’s Mall

Mallage Shobu Torius Property (newly acquired)

• Voted Best Small-Cap Company in Singapore by FinanceAsia

LOCATIONS


Source: Croesus Retail Trust website

Strategically located in densely populated areas Major tenants like Aeon, Uniqlo, H&M, etc and multi-tenanted in mixed retail concept Nearby major transportation hubs

Fukuoka (New)

LOCATIONS



Aeon Town Moriya Aeon Town Suzuka Luz Omori Croesus Shinsaibashi

Mallage Shobu Croesus Tachikawa One’s Mall

NEW ACQUISITION: TORIUS MALL



13 km from central Fukuoka City Land area 257,173 sqm Net lettable area of 77,032 sqm Leasehold expiry 9 February, 2060 Proximity to major roads and train stations along the JR Kashii Line and JR Sasaguri Line 145 tenants

SUMMARY OF FINANCIALS FY 2014/15

• Revenue 7,635.4M Yen in 2015 vs 6,261.2M Yen in 2014

• Net Profit (before adjustments) 7,579.1M Yen in 2015 vs 4,792.5M Yen in 2014

• Net Profit (after adjustments) 872.7M Yen in 2015 vs 1,009.6M Yen in 2014

• Current Assets 7,408.1M Yen

• Non Current Assets 92,992.9M Yen

• Total Assets 100,401.0M Yen

• Current Liabilities 2,780.7M Yen

• Non Current Liabilities 54,034.1M Yen

• Total Liabilities 56,814.8M Yen

• Total Equity 43,586.2M Yen


BENCHMARK AGAINST KPIs


Actual KPI

• Revenue Growth +21.9% +5%

• Net Profit Growth (before adjustments) +58.1% +10%

• Net Profit Growth (after adjustments) -13.6% +10%

• Current Ratio 2.66 >1.0

• Debt to Equity Ratio 1.30 <1.5

• Gearing 0.47 <0.35

• Occupancy 99.3% >80.0%

• Distribution Yield based SP of S$0.82 9.85% 7.5%

• NAVPS (83.95 Yen or S$1.00) 1.00

• SP/NAVPS 0.82x <3x

KEY TAKEAWAYS


• Healthy occupancy in all the malls

• Management expects double digit rental reversion from Mallage Shobu Mall

• Torius Property to add incremental revenue in the long term. Short term will be mitigated by enlarged number of Units in issue (addition of more than 114M Units)

• Gearing to remain in the 40.0 - 50.0 range due to acquisition of Torius Property

• Distribution fully hedged at 85.43 yen to S$1.00 for 2016. Avoid fluctuations in FOREX

• Steady appreciation in assets price since acquisition. Lowest +9.1%. Highest +19.0%

• Fixed interest rates for all long term debts. First payment due only in 2017

DISTRIBUTION HISTORY

2010

2011

2012

2013

2014 S$0.0898

2015 S$0.0808

CRT listed in 2013. Distribution has been consistently above S$0.08

Using S$0.08 as a benchmark, this represents a potential minimum yield of 9.8% based on the closing price of S$0.82 a share on 12 November, 2015


SHARE PRICE PERFORMANCE


52 Week Low of S$0.785 and 52 Week High of S$0.970 Current price of S$0.82 is 15.5% off its 52 week high of S$0.97

Chart Source: Yahoo Finance


• Slowdown in the Japanese economy

• Volatility in the Yen after the hedging period. This can impact its distribution in S$

• Prospect of the Federal Reserve increasing rates in the future will likewise increase borrowing costs

• Continued dilution via acquisitions will impact the share price

EVENTS WHICH COULD IMPACT THE STOCK NEGATIVELY

IFS ASSESSMENT: JAPAN’S ECONOMY


GDP -1.6% (Q3) -7.3% (Q2) +3.9% (Q1)

Takan Survey +12 (Q3) +15 (Q2) +12 (Q1)

Retail Sales -0.2% (Sep) +0.8% (Aug) +1.8% (Juy)

Japan proposed to cut corporate income tax by at least 3.3 percentage points to boost domestic investment

Economists are predicting that Japan will likely delay a sales tax hike in view of the poor data in recent months, while also anticipating further easing by the BOJ

IFS ASSESSMENT


• BUY prospect due to increase in distribution growth expected from new acquisition. Lookout for Japan’s GDP numbers. Negative growth will affect the share price, but will be mitigated by the BOJ’s action to ease further

• Distribution is fully hedge in 2016, avoid disruption due to FOREX fluctuations

• Healthy occupancy throughout its properties and situated in many prime locations

• Higher reversion in rental possible due to appreciation in property value

• Torius Mall to contribute positively in both revenue and income growth

• Medium Risk due to possibility of a slowdown in Japan’s economy

• Non Syariah compliant

RELIGARE HEALTH TRUST (RHT)


• Listed on the SGX under code RF1U. Lot size 100

• A Healthcare Trust with focus in India

• Portfolio of 14 medical and healthcare assets in major cities in India

• Management to look at opportunities to invest in medical and healthcare assets throughout Asia, Australasia and emerging markets of the world

LOCATIONS


Fortis Hospital, Amritsar Fortis Hospital, Noida Fortis Hospital, Kolkata Fortis Hospital, Benerghatta

Fortis Hospital, Faridabad Gurgaon Fortis Hospital, Jaipur

Kalyan, Mumbai

Source: Religare website

Malar, Chennai

LOCATIONS (CONT’D)


Mulund, Mumbai Nagarbhavi, Banglore Rajajinagar, Banglore Fortis, Shalimar Bagh

Fortis Hospital, Faridabad Mohali


LOCATIONS (CONT’D)



SUMMARY OF FINANCIALS H1 2015/16


• Revenue S$72.103M in 2015 vs S$66.648M in 2014

• Net Profit (before adjustments) S$23.286M in 2015 vs S$15.403M in 2014

• Net Profit (after adjustments) S$20.259M in 2015 vs S$16.893M in 2014

• Current Assets S$97.470M

• Non Current Assets $1,016.954M

• Total Assets S$1,114.424M

• Current Liabilities S$94,71.2M

• Non Current Liabilities S$266,173M

• Total Liabilities S$360.885M

• Total Equity S$753.539M

BENCHMARK AGAINST KPIs


Actual KPI

• Revenue Growth +8.2% +5%

• Net Profit Growth (before adjustments) +51.2% +10%

• Net Profit Growth (after adjustments) +19.9% +10%

• Current Ratio 1.03 >1.0

• Debt to Equity Ratio 0.48 <1.5

• Gearing 0.12 <0.35

• Occupancy 80.0% >80.0%

• Distribution Yield based SP of S$1.02 7.46% 7.5%

• NAVPS S$0.946

• SP/NAVPS 1.08x <3x

KEY TAKEAWAYS


• Both revenue and net profit growth beat the KPIs

• Healthy balance sheet with very low gearing. This means that RHT can have the option to acquire new asset if it wishes to

• Improved occupancy from 72% in Q1 FY2015/16 to 80% in Q2 2015/16

• RHT has plans to increase their bed capacity from 3,590 beds to 4,964 beds in the future. Increase of bed capacity has low capex but high returns

• Acquisition of land to expand the existing Mohali Clinical Establishment with an additional block to cater for an extra 500 beds

DISTRIBUTION HISTORY


2010

2011

2012

2013 S$0.0760

2014 S$0.0775

2015 S$0.0761

Listed in 2013. Distribution has consistently remained above S$0.0750

Using S$0.075 as a benchmark, this represents a potential minimum yield of 7.4% based on the closing price of S$1.02 a share on 12 November, 2015

SHARE PRICE PERFORMANCE


Source: www.Morningstar.com

52 Week Low of S$0.81 and 52 Week High of S$1.14 Current price of S$1.02 is 10.5% off its 52 week high of S$1.14

EVENTS WHICH COULD IMPACT THE STOCK NEGATIVELY


• A general slowdown in the global economy, but impact will be less as healthcare is still a priority in many people’s lives

• Volatility in the Rupee which can impact the distribution in S$

• Prospect of the Federal Reserve increasing rates in the future will likewise increase borrowing costs

• Continued dilution via acquisitions will impact the share price

IFS ASSESSMENT: INDIA HEALTHCARE POTENTIAL


By 2025, India’s middle income group will overtake the US

As middle income group grows, so too will be the demand for proper healthcare

Healthcare business is expected to reach US$158B in 2017

RHT is in position to meet such a demand

Source: kkr.com website

IFS ASSESSMENT


• BUY due to increase in distribution growth expected from increase in number of hospital beds in the future

• Distribution of S$0.039. Ex Distribution date at 16 November, 2015, Book Closure date at 18 November, 2015

• Healthcare services in India is poised to take off with growth in the middle income group

• Low Risk due to strong balance sheet, especially its low gearing

• Syariah compliant as at 12 November, 2015

MY DISCLOSURE


• I own shares of Croesus Retail Trust

• I do not own shares of Religare Health Trust

pc wong - amazon s3€¦ · •management expects double digit rental reversion from mallage shobu...

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