Brokers' Take

CapitaLand

June 26 close: S$5.69

BNP Paribas, June 26

CAPITALAND has acquired 61.9 per cent of the total retail strata area or 510,418 square feet and the car parks of Sungei Wang Plaza in Kuala Lumpur. At a purchase price of RM595 million (S$250 million), this works out to RM1,166 per square foot (psf), excluding car parks.

The freehold mall is strategically located in Kuala Lumpur's prime shopping belt, Bukit Bintang.
The mall has close to 100 per cent occupancy and attracts 24 million visitors each year. Anchor tenants in Sungei Wang Plaza include Parkson Grand, Giant Supermarket and McDonald's. It is understood that the rental yield is higher than 6.5 per cent, and CapitaLand has issued medium-term notes at a rate believed to be around 4.5 per cent, to fund the acquisition.

For comparison, Starhill Reit's Lot 10 shopping mall, which is located directly opposite Sungei Wang Plaza, is valued at RM402 million, or RM2,309 psf of net lettable area (as of May 2008).

Though the quality of Sungei Wang Plaza is not comparable to Lot 10, due to its ageing condition (it opened in 1977), we think the price is reasonable (50 per cent discount to Lot 10). Also, there is the potential of asset enhancement after the injection into a proposed Reit, which should boost the valuation of the mall significantly.

A RM2 billion retail Reit is on track by end-2008: Sungei Wang Plaza, along with the two malls acquired by CapitaLand in August last year - Gurney Plaza in Penang and Mines Shopping Fair in Selangor - will form the seed assets for the proposed Malaysian Retail Reit.

Collectively, the three assets amounted to RM2 billion, potentially making it the largest Reit in Malaysia. CapitaLand is on track to launch the Reit by end-2008. We believe that CapitaLand will potentially receive higher gain if the asset enhancement of Sungei Wang Plaza is done prior to the injection into the Reit. Asset enhancement is already in progress for the first two assets and is scheduled to be completed by year-end.

Negligible EPS impact; reiterate 'buy': We remain confident that its expansion in the region will continue due to its well-capitalised position. We reiterate 'buy' on CapitaLand, with our target price maintained at S$7.67, equivalent to our estimated RNAV.

BUY

Indofood Agri Resources

June 26 close: S$2.55

DMG & Partners Securites, June 26

KNEE-JERK reaction to higher crude palm oil (CPO) export tax and weaker Malaysian CPO export data: Indofood's share price fell on Wednesday, together with the other Singapore-listed palm oil companies, when news of higher Indonesian CPO export tax levied for July and weaker Malaysia CPO export data broke.

Indonesia's trade ministry raised the base price used to calculate the CPO export tax from US$1,105 per tonne in June to US$1,144 per tonne in July. The tax rate on CPO shipments will be raised from 15 per cent to 20 per cent accordingly.

According to the independent surveyor, Intertek Agri Services, Malaysia's palm oil exports for the period June 1 to 25 declined 9.4 per cent from the prior month to 899,300 tonnes. For the same period in May, Malaysia exported 993,100 tonnes of palm oil.

Selldown overdone, outlook still positive: We are of a view that the sharp selldown is unwarranted as we have already factored in the higher tax rate in our earnings forecasts. In addition, the macro outlook remains positive.

According to the United States Department of Agriculture's projections, global palm oil consumption for 2008/2009 will grow 6 per cent, reaching 42.7 million tonnes.

On the back of forecast growing demand of palm oil from India and China and persistently high petroleum prices, CPO prices are likely to remain at favourable levels, currently at around RM3,553 (S$1,491) per tonne.

Maintain 'buy', fair value of S$3.34: With the global trend of higher consumption and usage of palm oil and the present high CPO price of about RM3,553 per tonne, we believe that Indofood will continue to enjoy the present conducive environment, especially with its high ratio of mature acreage.

This being so, we are maintaining our 'buy' rating and fair value of S$3.34, using a PE of 14 times (in line with the Singapore and Malaysian plantation companies).

Although Indofood's share price has risen 11.7 per cent since our initiation on the platter as at end-May, our fair value of S$3.34 potentially translates into an additional upside of 29.5 per cent from its closing price of S$2.58.

BUY