Brokers' take

ComfortDelGro | Hold

June 30 close: S$3.13

Target price: S$3.00

DBS Group Research, June 30

IN a media release from Transport for London (TFL), Metroline Rail Ltd, a wholly-owned subsidiary of ComfortDelGro (CD), has been shortlisted as one of four potential operators for London Overground. The other shortlisted bidders are Arriva Rail London Ltd, LoKeGo Ltd and MTR Corporation.

The four shortlisted bidders are all strong contenders, in our view, with experience in rail operations either in the UK or elsewhere. Furthermore, we noted separate bids by Arriva and MTR Corporation, who are the current incumbents albeit through a joint venture. This possibly signals the attractiveness of this concession, in our view.

At this juncture, it is still too early to factor this development for CD's forecasts given the uncertainty of the tender process and the other contenders. Nonetheless, our back-of-envelope calculation suggests that this could have a 3 per cent positive impact on CD's net profit in FY17F if it wins. Our calculation assumes a net margin of 3 per cent based on the turnover of the London Overground Rail Operations Ltd reported for FY14, coupled with the expanded network and a 3 per cent annual growth rate.

Ho Bee | Buy

June 30 close: S$2.11

Target price: S$2.60

RHB, June 30

HO Bee has entered into a contract for the sale of Forte, its industrial building at 29 New Industrial Road, to Laura Ashley for a consideration of S$66 million. This works out to a valuation of S$672 per sq ft for the freehold property and will generate a net gain of S$6.9 million for the group on completion. Ho Bee intends to deploy the cash proceeds to reduce its bank borrowings and for working capital purposes.

In recent years, Ho Bee has been steadily monetising its portfolio of older industrial buildings and strata-titled offices and re-deploying the proceeds to build up a portfolio of prime office properties in London and Singapore. Ho Bee's earlier divestments - which include over 90,000 sf of strata-titled office space at Samsung Hub, Hotel Windsor, 28 Genting Lane and 55 Jalan Pemimpin - generated over S$500 million of cash and substantial capital gains, which enabled it to finance the construction of its office towers at Metropolis in Buona Vista, as well as three prime London office properties. We continue to like the stock for its earnings visibility and management's track record in generating net asset value per share growth.

By Jacquelyn Cheok

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.