Pavilion REIT 'hold'; Pestech and Bumi Armada 'outperform'


PAVILION REIT

By HLIB Research

Neutral (hold)

Target price: RM1.47

Pavilion REIT is proposing to dispose an area measuring 11302 sq ft, including 72 parking bays in Pavilion Mall, Kuala Lumpur, for a cash consideration of RM4.9mil from its developer Urusharta Cemerlang (KL) Sdn Bhd.

Urusharta Cemerlang also issued a letter of undertaking to leaseback 66 car park bays to the reit for a period of nine years at a proposed monthly rental of RM16,500 or RM250 per car park bay per month.The proposal is expected to be completed in the second half of 2015.

“We are neutral on the news as the affected area is just 0.9% of total mall’s net lettable asset while the affected car park area value is estimated at 0.1% of Pavilion REIT’s total asset value,” HLIB Research said.

Meanwhile, Pavilion REIT had already secured first-right of refusal for Pavilion Extension from its sponsor, Urusharta Cemerlang.

Proceeds from the disposal would finance asset enhancement exercises or meet operational needs.“There is strong branding and rental reversions as well as a well-managed tenant mix,” the research house said.

“We maintain our “hold” call on the equity and unchanged target price of RM1.47. The targeted yield remains at 5.7%, derived from historical average yield spread of Pavilion REIT and seven-year Malaysian Government Securities.

PESTECH

By Kenanga Research

Outperform

Target price: RM6.11

After a fruitful study trip to Cambodia last week, Kenanga Research came away with findings that reinforced its belief in Pestech International Bhd’s bright prospects in the Indo-Chinese country.

Being one of two favoured contractors of EdC, the national utility company, Pestech should stand a fair chance of securing new contracts in this fast growing energy infrastructures development market, Kenanga Research said.

“We learnt that at least 500MW new generation capacity will be added into the system by 2021 from 1,400MW currently. Thus, new transmission lines and substations are needed to cater to the new generation capacity,” it said.

The integrated electric power technology company’s new and existing projects in Cambodia include its Alex Corp contract for a new 198km 230KV transmission line from west Phnom Penh to Sihanoukville and 230/115/22KV Substation Extension Project as well as the north Phnom Penh Substation.

Overall, it maintained its “outperform” call on Pestech for its bright utility development prospects in Cambodia, and with an unchanged price target of RM6.11 per share.

Bumi Armada

By PublicInvest Research

Outperform

Target price: Rm1.48

In relation to Bumi Armada Bhd’s proceeds of RM2bil from the renounceable rights issue from 23 June 2014, the group had approved the change in the manner of utilisation of the rights proceeds to better focus on its core businesses.

They comprised the floating production, storage and offloading (FPSO) unit, while enhancing the capabilities of its offshore support vessel (OSV) and floating gas solutions divisions.

“We continue to maintain our “outperform” recommendation on Bumi Armada with a target price of RM1.48 derived from our discounted cash flow approach, implying a financial year 2015 forecast forward.

The research house remained positive on Bumi Armada Bhd, considering its initiatives to stay focused and to dissolve potentially non-viable divisions such as the oilfield services division amidst a landscape of oil price uncertainties.

The international offshore oilfield services provider recently dissolved its oilfield services division, reallocating the RM80mil proceeds of this business to the OSV unit.

Changes to the proceeds allocation also included reduction in transport and installation business being reduced to RM80mil to include capital expenditure (capex) in work barges, pipe-laying and trenching equipment, and higher capex for FPSO.

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