Late last week, Starhill Global (Starhill) announced the renewal of the master lease from Toshin Lease. The lease renewal also factored in 6.7 percent higher rental. The rental upside shows that there is still growth potential among S-REITs like Starhill Global. OCBC Research reiterated their “Buy” at $1.00 on the back of growth potential, strong financial position and compelling valuations of Starhill Global but was marginally lower than its previous target price due to anticipation of higher interest rates.
Earlier this week, the YTL Group notified Starhill Global that they intend to exercise their rights to convert roughly 153 million convertible preferred units (CPUs) to new units of Starhill Global at $0.7266 a unit. The CPUs were issued in June 2010 as part of considerations for Starhill’s acquisition of Starhill Gallery and Lot 10 properties.
Based on UOB Kay Hian Research, this conversion will increase the total units of Starhill by 10.8 percent. This will in turn dilute the REIT’s distributions per unit (DPU) by about 1.1 percent in 2012. However, owing to the higher yields of CPUs (5.65 percent), the impact on DPUs should be mitigated. Currently there are two “Buy” and one “hold” with an average upside of 16.57 percent for Starhill Global.
Based on renowned columnist, Professor Chan Yan Chong’s technical analysis prescriptions of using the moving averages (MA) of 2 days and 19 days, we see that Starhill’s chart tells us that the MAs are converging. However, investors may want to wait till the 2 day MA line pierces through the 19 day MA line before going in to purchase the stock.
In the previous week, Jaya Holdings (Jaya) announced the charter of three platform supply vessels (PSVs) currently under construction and the sale an anchor handler. All three PSVs are long term time-charters and should bring in between US$76 million and US$81 million. Jaya Sovereign, the anchor handler was sold to Canadian buyer, Atlantic Towing, with delivery expected at end-2013. Jaya is likely to book shipbuilding profits of US$1million to US$2 million because of this transaction.
Noting from RHB Research, these charters and sale have already been factored into street forecasts. However, recent delays in vessel deliveries have hurt growth prospects. At the same time, Jaya appears overvalued at forward price-to-earnings of 12.7x to 9.4x, against peers with stronger growth profiles at 6x to 8x. Despite this, Jaya Holdings have an average upside of 33.92 percent based on two “Buy” and one “Sell” rating by three different analysts.
Looking at Jaya’s chart, we note that convergence of the 2 days and 19 days MA lines are still a far way off. With the 19 day MA line seemingly on a gradual downward slide, investors might want to stay off Jaya for some time before things improve.