CapitaLand | Buy
June 24 close: S$3.46
Target price: S$4.20
RHB, June 23
CAPITALAND announced its intention to divest its 30 per cent stake of PWC Building - a 99 year leasehold office building at Cross Street where PricewaterhouseCoopers is an anchor tenant - for a consideration of S$150 million, which translates to S$1,892 psf. The transaction will take place with DBS Group, which owns the remaining 70 per cent stake of the office building.
We think that this is part of the company's core strategy to unlock value from its older assets and recycle its capital into higher yielding projects such as developing properties in emerging markets. We note that the divestment of PWC Building will not have any material impact to our target price. Based on our revalued net asset valuation estimates (RNAV), the building is valued at S$127 million. The ensuing S$23 million surplus is not material as CapitaLand requires a surplus of S$43 million to increase its RNAV by one Singapore cent.
Given that the local property scene will remain sluggish in the near to mid-term, we favour property counters with high exposure to the overseas market. As for CapitaLand, we like the fact that 94 per cent of its China exposure by value is in Tier 1-2 cities, which limits downside risks.
Q&M Dental Group | Buy
June 24 close: S$0.75
Target price: S$1.02
Maybank Kim Eng, June 22
Q&M IS acquiring 60 per cent of the Smilebay group of dental clinics in Penang, Malaysia for S$4.4 million. 63 per cent of the consideration will be in the form of cash, with the rest in new shares issued at S$0.72.
Smilebay, the six-clinic dental group, founded by Yong Peng San in 1999, marks Q&M's first venture into the state of Penang in Malaysia. The acquisition will increase its network of dental clinics in Malaysia to 14, up from eight previously (Johor, KL and Malacca). Q&M and Smilebay intend to tap each other's expertise and strengths to further penetrate the Malaysia market. Eight senior dentists have signed 6-12 year service agreements.
Based on the 12-year profit guarantee, the acquisition is expected to contribute at least S$0.32 million a year in earnings to Q&M, with 5 per cent compound annual growth rate (CAGR), from FY16 onwards. This assumes the deal completes before the end of FY15. We raise FY16-17 EPS by 1.3 - 1.5 per cent.
Compiled by Jacquelyn Cheok
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CapitaLand's divestment of 30 per cent of PWC building for a consideration of S$150 million translates to S$1,892 psf, not S$1,405 psf. The article has been amended to reflect this.