Rotary Engineering: In the running for more contracts

Summary: We met Rotary Engineering (Rotary) for an update. The S$535m UT project has been fully completed on schedule and budget. While order flow had not been as visible in recent months, we understand that Rotary is currently in the running for several sizeable local and Middle East projects, notably ExxonMobil's Singapore Parallel Train cracker project, Nexsol's biodiesel process plants, Jubail refineries, and Saudi Aramco's projects. Given the updated status on the completion of UT project, we expect Rotary to recognize the remaining UT contract value. As such, we are raising our earnings forecasts to S$61.2m and S$69.7m for FY07 and FY08, respectively. We are also expecting dividend yield of 6.3% (or a total dividend payout of 5.4 Scents per share). However, in view of the present market weakness, we are trimming our fair value to S$1.48 (from previously S$1.60) based on 12x FY08 PER (prev: 18x). Maintain BUY. (Serene Lim)

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Macquarie MEAG Prime REIT: Update on FY07 results

Summary: Macquarie MEAG Prime REIT (MMP) reported 4Q results that enjoyed a nice boost from MMP's acquisition spree in Japan and China last year. For FY07, revenue grew 14.6% YoY to S$103m, with net property income (NPI) lagging at 10.9% YoY growth to S$76.8m. DPU for the year was 6.19 cents, + 6.9% YoY. NPI was hit by higher operating expenses, including higher property taxes and higher commission paid to renew leases at higher rates. For 4Q07, revenue grew 32.1% YoY and 14.2% QoQ to S$29.8m, with NPI growing 29.1% YoY and 14.4% QoQ to S$22.2m. DPU came in at 1.68 cents, +14.3% YoY and +9.1% QoQ. 4Q also saw a S$339m fair value gain, taking MMP's total asset portfolio to S$2.2b. MMP plans to enhance its earnings through: 1) the first S-REIT unit buy-back scheme, which allows MMP to redeem 10% of all units in issue, 2) significant rental reversions expected in 2008 and beyond, with office space up for renewal in 2008 radically under-rented at around S$5psf versus market rates in the mid teens and 3) various asset enhancement programs. MMP, which has recently set up new debt facilities, is geared at 29%, with a lot of room to grow and fund programs including its buy-back scheme, which can be launched at any time now. MMP is currently trading at a P/B of about 0.64x and yield of 6.5% based on annualized 4Q DPU. Due to a change in analyst, we are currently reviewing our rating on MMP. (Meenal Kumar)

Suntec REIT: 1Q08 results saw maiden contribution from ORQ

Summery: Maiden contributions from One Raffles Quay (ORQ) and positive rental renewals drove Suntec REIT's (Suntec) 1Q08 results with revenue up 18.3% YoY and 6.5% QoQ to S$54.3m. The impact was dampened by NPI margin falling from 71% to 69% due to higher property taxes. Distributable income was S$33.5m, +24% YoY and +10.2% QoQ. DPU for the quarter was 2.279 cents, +16.1% YoY and +7.5% QoQ. With the acquisition completed on 31 Oct, 1Q reflected only about 2 months of earnings from ORQ, and the full impact should be seen in 2Q. Because of its fixed-lease structure, ORQ will see considerable upside potential only in the medium term. Suntec has recently acquired an additional 28,000 sqft of Suntec City strata-titled office space, and plans to continue on this buy-back path to growth. Its retail space will also benefit from further asset enhancements. Opportunities for organic growth stem from the 49% of Suntec's office leases that are expiring in FY08-09. Note that the existing rents are below S$5psf, with recent leases secured at much higher levels of S$11-14 psf. Suntec is trading at a yield of 6.2% based on annualized 1Q DPU. Due to a change in analyst, we are currently reviewing our rating on Suntec REIT. (Meenal Kumar)

NEWS HEADLINES

- India's Bharti Airtel, 31%-owned by SingTel, posted a better than generally expected 42% increase in quarterly net profit as it won new users.

- CDL Hospitality Trusts saw 4Q distributable income rose 83.4% YoY to S$22.7m. It is hoping to acquire Copthorne Orchid in the Bukit Timah area from its parent this year.

- The Singapore Land Authority said it expects to release another 32.3k sqft of space for potential office use in the current quarter, earmarking properties such as the former Siglap-Changi Community Centre.

- Singapore Petroleum's FY07 net profit surged to a record S$508.3m, +78.6% YoY, helped by high oil refining margins that it sees staying healthy in 2008.

- Singapore Post posted a 3Q net profit of S$36.8m, up almost 8% YoY. It warned that Singapore's liberalization of basic mail services and the entry of new players will squeeze its margins.

- GuocoLand saw a 26% YoY slide in 2Q net profit to S$32.9m, because of a non-recurring profit of S$19.3m in the previous corresponding period. Gross profit rose 145% to S$40.2m.

- SIA will start A380 flights to London on March 18, its second A380 destination after Sydney.