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Non Japan Asia convertible bonds trade ideas
● Equity markets in Asia opened the year with a bang, though quickly
settled into the usual volatile trading patterns bogged by concerns
around inflation, rate hikes, floods and Euro-zone issues.
● The NJA CB market has been largely stable, with market
participants focused on the impending stream of primary deals.
Looking forward over 1H11, we foresee continued activity in the
primary market supported by sizeable maturities/puts over March-
May. The secondary market is likely to remain a function of
sentiments in equity markets globally.
● In this environment, we have identified several trade ideas in the
NJA CB universe. While few of them may seem clear cut at first
glance, a deeper analysis and a longer-term view together with
some amount of faith is required to be convinced of the merits of
these trades.
Champion REIT (Fair Vantage) 2013s: At 135.5, Parity 129.5, only
6pts premium. (1) Stock continues to trend higher. Soft-call not until
June. (2) Stock can continue running as it is still at 0.84x P/B and
4.5% div yield, versus landlord Hongkong Land being at 1.3x book
and 2.2% div yield. (3) With Central vacancy near zero, tenancy
demand for Champion’s Citibank Plaza (in Admiralty) and Langham
Place (in Mong Kok) remains strong, resulting in higher rents. (4)
Champion’s book value is likely to be revalued higher as commercial
property values in Hong Kong continue to zoom due to higher rents
and further compression in cap rates. (5) CB is at only 6pts premium.
Though expensive on vol basis, it is still a good outright play on Hong
Kong’s commercial property sector.
Kaisa 2015s: At 110.25, Parity 93. Put in Dec ’13. (1)High parity (93),
cheap stock. CB still yielding 5.3%. (2) Cash balance Rmb 4.6bn,
Debt 8.4bn. Equity about 7.8bn. Net gearing below 50% as of end
Dec ’10. (3) Carlyle and Temasek continue to be major shareholders.
(4) Kaisa achieved 2010 presales of Rmb 10bn (+68% YoY), much
higher than its guidance of Rmb 7-8bn. 2011 official presales target is
Rmb 13bn, though internal target is higher. (5) 3 large redevelopment
projects set to be approved in 1Q11. These were not included in
landbank or NAV estimates. If included, NAV would rise by HK$1.10.
(6) Chairman Kwok increased his stake by 1.95% over last 1 month,
indicating his confidence in the stock. (7) Stock is very cheap at
discount of 54% to NAV versus average 37% for mid-cap PRC
developers. (8) Consensus Target price $3.03 (=49% discount to
NAV), implying 14% upside from current stock price.
Shanghai Real Estate 2014s: At 100. Parity 79. 6% yield. Put in
Jul’12. (1) CB still yielding 6% to Put date. SRE has historically always
repaid its bonds and CBs. (2) Parity fairly high at 79. Stock is relatively
very cheap at 5x P/E.
BakrieLand 2015s: At 88.5, offers 14.9% yield, Z-Spread of 1400bp.
Parity 57. Put in Mar ’13. (1) Among the largest property developers in
Indonesia. (2) Among very few performing CBs offering such high
yield. It has high cash coupon of 8.625% too. (3) Avenue Capital as
largest investor and having board seat alleviates potential corporate
governance concerns. (4) Stock is very cheap - at around 70%
discount to NAV. P/B is 0.8x versus 4x average for comps. (5) Rights
equity issue in July ’10 raised $350mm. Net gearing (Net Debt /
Equity) down to 40%. (6) Rights equity proceeds used for acquiring
cheap land-bank. This will enhance NAV, and increase the stock’s
discount to NAV further. (7) Given low balance sheet gearing, the very
high yield on the CB makes it attractive.
Daewoo International 2014s: At 138.5, Parity 138.5. 0 pt premium.
(1) Very low premium of 0 pt. Soft-call still 1.5 years away. (2) Stock
is cheap, at 50% discount to NAV. POSCO paid 37% above current
stock price for acquiring 68% stake in 2010. (3) POSCO has plans to
increase the profile of Daewoo Intl and boost trading revenues. (4)
Out of 8 analysts on Bloomberg covering the stock, ALL 8 have a Buy
equivalent rating. Upside to average analyst target price is 16%. (5)
Possible listing of Kyobo Life in 2011 could demonstrate a much
higher value for Daewoo’s 24% stake, and be a catalyst for Daewoo
stock. (6) Cheap stock and zero premium make this CB very cheap.
CCT 2015s: At 117.75, Parity 109.1. Only 8.7pts premium. (1) CCT
has Prime Grade A office assets in CBD Singapore, where rents are
now avg S$9 /sq ft/month, versus 2007-08 peak of SGD17-18 psf and
2003-04 troughs of $6 psf. So, there is a long way up for rents to go.
Also, CBD Singapore rents are still 50% discount to Hong Kong’s and
the gap is widening as Hong Kong keeps going up. (2) Vacancy rates
are expected to decline after 2011 as new space supply tapers off. (3)
Recent transacted cap rates imply upward revaluation for CCT’s
properties. So, P/B is actually lower than currently indicated 1.04x. (4)
CCT div yield is 5.2% compared with 2.2% for Hongkong Land and
4.5% for Champion REIT. (5) High parity, favourable sector dynamics,
and relatively cheap stock make this CB attractive.
Swiber 2014s: At 116, Parity 103.5. Put in Oct ’12. (1) Offshore and
marine sector is very strong on the back of higher E&P CapEx globally.
Strength in oil prices is keeping demand strong. (2) Swiber is among
the cheapest stocks in the sector at 7.7x 2011 P/E compared with
8.8x for mid-cap O&M comps and 14x for large-cap comps. (3)
Swiber’s PS CAGR over next 3 years is expected to be 33%, making
it look like a very cheap stock on 2012 or 2013 earnings. (4) Out of 8
analysts on Bloomberg covering the stock, ALL 8 have a Buy
equivalent rating. Upside to average analyst target price is 36%.
(5)Strong sector growth, high parity and very cheap stock provide
strong upside potential on this CB.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Non Japan Asia convertible bonds trade ideas
● Equity markets in Asia opened the year with a bang, though quickly
settled into the usual volatile trading patterns bogged by concerns
around inflation, rate hikes, floods and Euro-zone issues.
● The NJA CB market has been largely stable, with market
participants focused on the impending stream of primary deals.
Looking forward over 1H11, we foresee continued activity in the
primary market supported by sizeable maturities/puts over March-
May. The secondary market is likely to remain a function of
sentiments in equity markets globally.
● In this environment, we have identified several trade ideas in the
NJA CB universe. While few of them may seem clear cut at first
glance, a deeper analysis and a longer-term view together with
some amount of faith is required to be convinced of the merits of
these trades.
Champion REIT (Fair Vantage) 2013s: At 135.5, Parity 129.5, only
6pts premium. (1) Stock continues to trend higher. Soft-call not until
June. (2) Stock can continue running as it is still at 0.84x P/B and
4.5% div yield, versus landlord Hongkong Land being at 1.3x book
and 2.2% div yield. (3) With Central vacancy near zero, tenancy
demand for Champion’s Citibank Plaza (in Admiralty) and Langham
Place (in Mong Kok) remains strong, resulting in higher rents. (4)
Champion’s book value is likely to be revalued higher as commercial
property values in Hong Kong continue to zoom due to higher rents
and further compression in cap rates. (5) CB is at only 6pts premium.
Though expensive on vol basis, it is still a good outright play on Hong
Kong’s commercial property sector.
Kaisa 2015s: At 110.25, Parity 93. Put in Dec ’13. (1)High parity (93),
cheap stock. CB still yielding 5.3%. (2) Cash balance Rmb 4.6bn,
Debt 8.4bn. Equity about 7.8bn. Net gearing below 50% as of end
Dec ’10. (3) Carlyle and Temasek continue to be major shareholders.
(4) Kaisa achieved 2010 presales of Rmb 10bn (+68% YoY), much
higher than its guidance of Rmb 7-8bn. 2011 official presales target is
Rmb 13bn, though internal target is higher. (5) 3 large redevelopment
projects set to be approved in 1Q11. These were not included in
landbank or NAV estimates. If included, NAV would rise by HK$1.10.
(6) Chairman Kwok increased his stake by 1.95% over last 1 month,
indicating his confidence in the stock. (7) Stock is very cheap at
discount of 54% to NAV versus average 37% for mid-cap PRC
developers. (8) Consensus Target price $3.03 (=49% discount to
NAV), implying 14% upside from current stock price.
Shanghai Real Estate 2014s: At 100. Parity 79. 6% yield. Put in
Jul’12. (1) CB still yielding 6% to Put date. SRE has historically always
repaid its bonds and CBs. (2) Parity fairly high at 79. Stock is relatively
very cheap at 5x P/E.
BakrieLand 2015s: At 88.5, offers 14.9% yield, Z-Spread of 1400bp.
Parity 57. Put in Mar ’13. (1) Among the largest property developers in
Indonesia. (2) Among very few performing CBs offering such high
yield. It has high cash coupon of 8.625% too. (3) Avenue Capital as
largest investor and having board seat alleviates potential corporate
governance concerns. (4) Stock is very cheap - at around 70%
discount to NAV. P/B is 0.8x versus 4x average for comps. (5) Rights
equity issue in July ’10 raised $350mm. Net gearing (Net Debt /
Equity) down to 40%. (6) Rights equity proceeds used for acquiring
cheap land-bank. This will enhance NAV, and increase the stock’s
discount to NAV further. (7) Given low balance sheet gearing, the very
high yield on the CB makes it attractive.
Daewoo International 2014s: At 138.5, Parity 138.5. 0 pt premium.
(1) Very low premium of 0 pt. Soft-call still 1.5 years away. (2) Stock
is cheap, at 50% discount to NAV. POSCO paid 37% above current
stock price for acquiring 68% stake in 2010. (3) POSCO has plans to
increase the profile of Daewoo Intl and boost trading revenues. (4)
Out of 8 analysts on Bloomberg covering the stock, ALL 8 have a Buy
equivalent rating. Upside to average analyst target price is 16%. (5)
Possible listing of Kyobo Life in 2011 could demonstrate a much
higher value for Daewoo’s 24% stake, and be a catalyst for Daewoo
stock. (6) Cheap stock and zero premium make this CB very cheap.
CCT 2015s: At 117.75, Parity 109.1. Only 8.7pts premium. (1) CCT
has Prime Grade A office assets in CBD Singapore, where rents are
now avg S$9 /sq ft/month, versus 2007-08 peak of SGD17-18 psf and
2003-04 troughs of $6 psf. So, there is a long way up for rents to go.
Also, CBD Singapore rents are still 50% discount to Hong Kong’s and
the gap is widening as Hong Kong keeps going up. (2) Vacancy rates
are expected to decline after 2011 as new space supply tapers off. (3)
Recent transacted cap rates imply upward revaluation for CCT’s
properties. So, P/B is actually lower than currently indicated 1.04x. (4)
CCT div yield is 5.2% compared with 2.2% for Hongkong Land and
4.5% for Champion REIT. (5) High parity, favourable sector dynamics,
and relatively cheap stock make this CB attractive.
Swiber 2014s: At 116, Parity 103.5. Put in Oct ’12. (1) Offshore and
marine sector is very strong on the back of higher E&P CapEx globally.
Strength in oil prices is keeping demand strong. (2) Swiber is among
the cheapest stocks in the sector at 7.7x 2011 P/E compared with
8.8x for mid-cap O&M comps and 14x for large-cap comps. (3)
Swiber’s PS CAGR over next 3 years is expected to be 33%, making
it look like a very cheap stock on 2012 or 2013 earnings. (4) Out of 8
analysts on Bloomberg covering the stock, ALL 8 have a Buy
equivalent rating. Upside to average analyst target price is 36%.
(5)Strong sector growth, high parity and very cheap stock provide
strong upside potential on this CB.
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