Top Bond Ideas

Sep - Oct 2016
CapitaLand Limited

U.S. Dollar Bond

Strong credit profile underpinned by quality assets

CapitaLand Ltd (CAPL) is one of Singapore’s leading real estate developers with a focus in key Asian/Europe cities, with a 39.5 per cent stake held by Temasek Holdings. CAPL delivered decent financial results for FY2015, mainly driven by the group’s China development projects and higher rental revenue from its serviced residence business. Debt levels have remained largely unchanged, while its net debt/equity has improved from 0.57 times in FY2014 to 0.48 times in FY2015 due to an accumulation of its cash position. In addition, the Group’s debt maturity profile is well-managed, having not more than S$3 billion of debt to be refinanced each year. We also expect liquidity to remain healthy given the group’s wide range of financing channels; currently, it has approximately S$3.8 billion of undrawn facilities from both the parent and its treasury vehicles. Free cash flow came in strong at S$1.4 billion in FY2015 as a result of higher sales collection from its China projects, as compared to –S$377 million over a year earlier. Credit profile remains strong, underpinned by its quality assets and close links to the Singapore government via Temasek Holdings. The weak residential market in Singapore -- primarily a result of property cooling measures -- may be a notable risk to note. However, its substantial operating presence in China property markets should provide some buffer should earnings from Singapore be affected adversely.

About the bond
Coupon Rate
4.076 % per annum
Maturity
20 September 2022
Bloomberg Ticker
XS0831700421
S&P/Moody’s/Fitch rating
Unrated
Product Risk Category*
Moderate Risk
About the company

CapitaLand Limited is a real estate company focused on investment holding. The company and its subsidiaries are principally engaged in investment holding, real estate development, investment in real estate financial products and real estate assets, investment advisory and management services, as well as the management of serviced residences.

Credit standing
4Q2014
2014
2015
Revenue (S$ m)
1,517,808
3,924,598
4,761,854
Gross profit (S$ m)
438,166
1,382,041
1,475,017
Net Income (S$ m)
409,363
1,160,848
1,065,650
Total Debt / LTM EBITDA (x)
15.4
15.4
14.0
Total Debt / Total Equity (%)
68.9
68.9
64.4
Net Debt / Total Capital (%)
37.1
37.1
30.7

Source: Bank of Singapore, as at 31 December

* Product Risk Categories
Low risk
= the risk of losing your investment is low.
Moderate risk
= it is possible that you could lose at least some of your investment.
High risk
= it is possible that you could lose all of your investment.
Very high risk
= it is possible that you could lose all or more than your investment.
Revenue breakdown by geography – FY2015
Revenue breakdown by geography – FY2015

Source: Bloomberg

GuocoLand Limited

Singapore Dollar Bond

Sharp improvement in credit profile post asset divestment

GuocoLand reported a set of lacklustre results in the fourth quarter. 4Q2016 revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) fell 15.8 per cent year-on-year to S$215 million and 70.7 per cent year-on-year to S$25.3 million respectively. This largely reflects a higher base effect due to the substantial sales of units in Goodwood Residence in Singapore and Seasons Park in Tianjin during the previous fiscal year. The decline was partially offset by higher progressive revenue recognized from the sale of the Sims Urban Oasis. On a full financial year basis, GuocoLand reported an 8.6 per cent decline in revenue. However, full-year net profit was strong, rising 155 per cent year-on-year to S$622.5 million, driven mainly by gains booked on the divestment of the Dongzhimen development in 1Q2016, which also served to sharply improve the company’s credit profile. In terms of credit ratios, net debt to EBITDA ticked higher to 10.8x due to poorer EBITDA in 4Q2016 while interest coverage currently stands at 3.8x. We also note that GuocoLand won the tender for a plot at River Valley with a price tag of S$560 million. This recent acquisition, along with the redemption of its perpetual securities, is expected to worsen its leverage moving forward despite the upward bump in credit profile post the Dongzhimen divestment. Nevertheless, we believe the Temporary Occupation Permit (TOP) of Tanjong Pagar Centre should provide some upside to GuocoLand’s leverage and liquidity profile.

About the bond
Coupon Rate
3.95% per annum
Maturity
1 April 2019
Bloomberg Ticker
SG6TB3000000
S&P/Moody’s/Fitch rating
Unrated
Product Risk Category*
Moderate Risk
About the company

GuocoLand Limited develops and invests in properties. The company also provides investment trading, underwriting managers, and fund management and advisory services. In addition, GuocoLand offers internet commerce services.

Credit standing
FY2014
FY2015
FY2016
Revenue (S$m)
1,251.4
1,159.9
1,059.8
EBITDA (S$m)
242.3
299.4
223.0
Profit before tax (S$m)
410.0
318.7
773.2
Net Debt to Equity (x)
1.46
1.40
0.70
Cash/current borrowings (x)
0.31
0.41
0.67
EBITDA/gross interest (x)
2.8
4.6
3.8

Source: OCBC Treasury Research & Strategy

* Product Risk Categories
Low risk
= the risk of losing your investment is low.
Moderate risk
= it is possible that you could lose at least some of your investment.
High risk
= it is possible that you could lose all of your investment.
Very high risk
= it is possible that you could lose all or more than your investment.
Revenue breakdown by segment – FY2015
Asset breakdown by geography – FY2015

Source: OCBC Treasury Research & Strategy

CITIC Envirotech Limited

Singapore Dollar Bond

A key player in a strategically important industry

CITIC Envirotech Limited (CEL) reported a 65 per cent year-on-year growth in revenue in 1H2016 to S$239.4 million. Likewise, the company also saw 67 per cent year-on-year growth in quarterly revenue in 2Q2016 to S$140 million. Substantial revenue growth in the second quarter was driven by an increase in revenue across all their three business segments namely engineering, water treatment and membrane sales. Revenue from the company’s engineering segment was particularly noteworthy as earnings there contributed 71 per cent of the total absolute growth in revenue. In terms of the relevant credit ratios, the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) to gross interest margin improved to 4.6x despite the increase in interest expense since a year ago in 1H2015. CEL’s net debt-to-equity ratio, however, continue to see a steady increase to 34 per cent as at 30 June 2016 from 29 per cent at 31 March 2016 and 18 per cent at 31 December 2015, signaling a deterioration in CEL’s credit in 2Q2016. Meanwhile, the company’s cash balance also saw a decline to S$226.1 million from S$332 million as CEL continued to bulk up its water portfolio. On balance, we continue to hold a favourable view of CEL, on account of the strategic importance of the water treatment industry in China and the parental support of CITIC Ltd (majority owned by the Chinese government).

About the bond
Coupon Rate
4.70% per annum
Maturity
29 April 2018
Bloomberg Ticker
SG6WH1000003
S&P/Moody’s/Fitch rating
Unrated
Product Risk Category*
High Risk
About the company

CITIC Envirotech Limited is an integrated water treatment solutions provider in China. The company operates in 3 main business segments: engineering, water treatment and membrane sales. It is listed on the SGX and 54 per cent owned by CITIC Ltd and 24 per cent by KKR.

Credit standing
FY2014
FY2015
1H2016
Revenue (S$m)
349.0
274.8
239.4
EBITDA (S$m)
118.9
128.8
99.9
EBITDA/Gross interest
4.1
4.4
4.6
Net Debt to Equity (x)
0.28
0.18
0.34
Gross debt to Total assets (%)
23.0
34.3
29.9
Cash/current borrowings
1.9
1.6
1.3

Source: OCBC Treasury Research & Strategy

Note: EBITDA does not include change in inventories

* Product Risk Categories
Low risk
= the risk of losing your investment is low.
Moderate risk
= it is possible that you could lose at least some of your investment.
High risk
= it is possible that you could lose all of your investment.
Very high risk
= it is possible that you could lose all or more than your investment.
Revenue breakdown by segment – 2Q2016
Operating profit by business (RMB b) – FY2015

Source: OCBC Treasury Research & Strategy

Chip Eng Seng Corporation Limited

Singapore Dollar Bond

Healthy order book to bolster earnings moving forward

As a testament to their strong reputation in the construction business, the Chip Eng Seng (CES) currently holds an A1 classification as a general building & civil engineering contractor and general building works, the highest possible classification awarded by Singapore’s Building and Construction Authority (BCA). CES’ liquidity profile is expected to remain strong given its relatively large cash position (S$470 million) and potential proceeds from the sales of apartment units at two of its properties namely Fulcrum at Fort Road and Willow Apartments, which are currently 61 per cent and 52.8 per cent unsold respectively. Meanwhile, with regard to its construction segment, the CES’ order book remains healthy at S$437.4 million. There is likely little shortage of projects given BCA’s forecast demand of around S$26 – S$35 billion per annum of public projects from 2017 to 2020. The risk, however, remains that competition for public housing projects is expected to increase which could potentially pressure overall construction gross margins. Nevertheless, we believe that this segment will continue to be a steady source of income for the company.

About the bond
Coupon Rate
4.75% per annum
Maturity
14 June 2021
Bloomberg Ticker
SG73C5000004
S&P/Moody’s/Fitch rating
Unrated
Product Risk Category*
Very High Risk
About the company

Chip Eng Seng Corporation Limited specializes in building construction activities in the private and public sector. The company also owns, develops, and invests in properties.

Credit standing
FY2014
FY2015
1H2016
Revenue (S$m)
1105.7
676.5
346.2
EBITDA (S$m)
267.2
99.9
40.3
Total Debt (S$m)
940.8
858.7
1,199.3
Total Equity (S$m)
736.4
743
735.0
Total Debt/Equity (x)
1.28
1.16
1.63
Total Debt/Total Assets (x)
0.47
0.45
0.54

Source: Bank of Singapore

* Product Risk Categories
Low risk
= the risk of losing your investment is low.
Moderate risk
= it is possible that you could lose at least some of your investment.
High risk
= it is possible that you could lose all of your investment.
Very high risk
= it is possible that you could lose all or more than your investment.
Revenue by segments – 1H2016
Asset breakdown by segment – FY2015

Source: Bank of Singapore

First Real Estate Investment Trust

Singapore Dollar Bond

Decent earnings and healthy credit ratios bode well for FREIT

First REIT (FREIT) reported a decent set of results in 1H2016. The company printed a 6.8 per cent increase in gross revenue on a year-on-year basis to SGD53.1 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) to gross interest margin remains healthy at 5.1x, indicating the company is well able to service its short-term debt obligations. In addition, debt-to-total assets ratio remained controlled at 34 per cent. It bears mentioning, however, that two key contributors of FREIT’s rental income (about 83 per cent) namely, FREIT’s Sponsor PT Lippo Karawaci Tbk (“Lippo”) and PT Siloam International Hospitals Tbk (71 per cent owned by Lippo), are undergoing a period of aggressive expansion with 43 hospitals under various stages of development. This will likely increase the demands on available capital and may potentially affect the developer’s (Lippo) and healthcare operator’s (Siloam) cash flow generation in the next few years. As such, with about 30 per cent of master leases coming due in about 5 years, FREIT is exposed to uncertainty surrounding potential amendments to lease terms, even though the risk of outright non-renewal of leases remain low at this point.

About the bond
Coupon Rate
4.125% per annum
Maturity
22 May 2018
Bloomberg Ticker
SG56E6992960
S&P/Moody’s/Fitch rating
Unrated
Product Risk Category*
Moderate Risk
About the company

First Real Estate Investment Trust (First REIT) is a healthcare real estate investment trust. The Trust invests in and owns a diversified portfolio of healthcare and healthcare-related real-estate assets in Asia.

Credit standing
FY2014
FY2015
1H2016
Revenue (S$m)
93.3
100.7
53.1
EBITDA (S$m)
80.5
88.0
47.1
Profit before tax (S$m)
112.7
96.3
34.4
Net Debt to Equity (x)
0.49
0.53
0.53
Total Debt/Equity (%)
53.23
55.95
57.06
Total Debt/Total Asset (%)
32.71
33.65
34.09
EBITDA to Interest Expense(x)
5.3
5.3
5.1

Source: OCBC Treasury Research & Strategy

* Product Risk Categories
Low risk
= the risk of losing your investment is low.
Moderate risk
= it is possible that you could lose at least some of your investment.
High risk
= it is possible that you could lose all of your investment.
Very high risk
= it is possible that you could lose all or more than your investment.
Revenue breakdown by geography – FY2015
Gross revenues by segment (S$m) – FY2015

Source: OCBC Treasury Research & Strategy

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