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Ascendas REIT (BUY; Target Price: S$2.23)

CapitaMall Trust (BUY; Target Price: S$2.20)

Frasers Centrepoint Trust (BUY; Target Price: S$1.79)

Mapletree Logistics Trust (BUY; Target Price: S$1.06)

CapitaCommercial Trust (SELL; Target Price: S$1.06)

K-REIT Asia (SELL; Target Price: S$0.83)

The myth that S-REITs are good income-yielding instruments for retail investors has generated much debate. On the one hand, REITs proponents like the recurring distributions paid out from steady streams of rental income. On the other hand, naysayers argue that whatever REITs managers pay out in dividends, they will likely take back in the form of rights issues. We examined the total rate of return of the 10 largest S-REITs since their listing, namely, those with a trading history of at least five years, and put forward our pristine picks to ride through the impending economic down cycle. REITS in the more resilient subsectors like industrial and retail topped our league table, with CDL Hospitality Trusts, Frasers Centrepoint Trust and Ascendas Real Estate Investment Trust the best performers. K-REIT Asia was the worst performer, given the numerous equity cash calls it made to fund acquisitions. While past performance may not guarantee future returns, we take the view that our league table does provide some insights into the track record of the individual S-REITs. Rental income resilience, total rate of return, accretive distributions and stable payout track record are some of the parameters we scrutinised by delving into the operating history of the S-REITs since their initial public offering. Barring a full-blown European debt crisis, we also think that it is unlikely that S-REITs will be de-rated to the levels seen during the global financial crisis (GFC) due to stronger balance sheets and the absence of credit tightening. S-REITs currently trade at an average of 0.94x P/BV (price to book value) and 6.8 per cent yield compared to their trough valuations of 0.34x P/BV and 17.2 per cent yield seen at the height of the GFC. Our top four S-REITs are CapitaMall Trust and Frasers Centrepoint Trust in the retail subsector, and Ascendas REIT and Mapletree Logistics Trust in the industrial subsector. Our top SELLs are K-REIT Asia and CapitaCommercial Trust as we see further downside risk in their DPU which would render valuations unattractive. – Maybank Kim Eng Research


Baker Technology (Not Rated)

The legal battle between Baker Technology and SembMarine over the sale of a 15 per cent stake in the PPL Shipyard swung in favour of the former following a judgment by the High Court on 30 May 2012. In 2010, Baker had agreed to sell PPLH, the holding company which owns a 15 per cent stake in PPL Shipyard, to a consortium of buyers that includes Yangzijiang for US$155 million. SembMarine subsequently claimed that it had right of first refusal to the stake and counter-offered with a much lower offer of S$59.4 million. Due to the long-drawn lawsuit, the Yangzijiang consortium subsequently reduced its offer for PPLH to US$116.25 million. With the conclusion of the lawsuit, and barring a successful appeal by SembMarine, Baker would finally be able to recognise a deferred gain of S$58.2 million from the sale of PPLH, resulting in a 8 S-cents lift to NTA/share to 32 S-cents. – OSK-DMG


Fortune REIT (BUY; Target Price: HK$5.22)

The HK private retail rent and price indexes set new records in March, after the previous highs in February. The rent index was 0.9 per cent higher than in February, while the price index showed a 2.4 per cent MoM improvement. For April, retail sales in HK climbed 11.4 per cent YoY to HK$35.7 billion. While this is slower than the 17.1 per cent YoY increase for March (revised figure of HK$36.6 billion), we note that the Chinese government had its first ever nationwide Consumption Promotion Month on the Mainland, which may have temporarily reduced average spending by Mainland tourists in HK. A HK government official expressed cautious optimism, with the still buoyant labour market and inbound tourism continuing to lend support. Visitor arrivals to HK continued to be strong in April, with the total number of arrivals growing 14.4 per cent YoY to 3.8 million. Arrivals from Mainland China climbed 23.9 per cent to 2.6 million. In 2011, the latest period for which data is available, the average overnight tourist spent HK$4,430 per trip on shopping (an overnight tourist is one who stays for at least one night in HK). Overnight Mainlander tourists spent an even greater amount, HK$5,795, on shopping every trip. Fortune is trading at a P/B (price to book) of 0.6x and an estimated FY12 dividend yield of 7.2 per cent. – OCBC Investment Research


OCBC (BUY; Target Price: S$10.50)

UOB (HOLD; Target Price: S$19.50)

Loan growth in April moderated further to 24.0 per cent YoY, bringing YTD loan growth to 3.5 per cent. Momentum continued to be driven by business loans albeit slower than previous months. Housing loan growth was further reduced to 15.3 per cent YoY with YTD growth at 3.8 per cent as a result of the stricter property measures. Deposit growth of 7.7 per cent YoY in April was the slowest since April 2009. Such trends were evident in the 1Q12 bank results. Banks appear to be pacing deposits with loan growth. As we believe S$ liquidity remains ample, banks do not appear to be aggressively competing for deposits. Quarterly and monthly deposit growth rates were anaemic. With slower deposit growth vs loan growth, loan-to-deposit ratio inched up to a high of 89 per cent in April. 1Q12 bank results reaffirmed the slower loan pace. Overall, S$ corporate loans drove growth. Banks continued to guide for low teens loan growth in 2012. It is no surprise that loan growth momentum will continue to moderate for the rest of the year. However, we believe the Singapore banks remain well positioned to take advantage of extended credits given their liquidity position, similar to what we saw in the past when they benefitted from the pull-back of credits by the European banks. This would also provide Singapore banks an opportunity to price up loan spreads in view of a tighter supply market. OCBC remains our preferred pick. We believe its non-interest income ventures will drive ROEs quicker over the longer term without utilising too much capital. UOB remains a HOLD as we believe positives are largely priced in and the stock has outperformed peers. While all looks rosy for now, we caution on possible volatility as downside risks in the global environment have once again re-emerged and could reverse positive sentiment. In that scenario, we strongly advocate accumulating Singapore banks as they are safe bets given robust asset quality and are strongly capitalised even with Basel III adoption. Overall drivers are very much Asian-centric with minimal European exposure. – DBS Vickers


ROXY Pacific (BUY; Target Price: S$0.45)

Despite increasing market uncertainty from European macro concerns, we believe that ROXY’s earnings continue to be underpinned by significant progress billings of about S$780 million. This is from units already sold at launched projects, for which revenue would be recognized as project construction proceeds into FY12-14. In our view, this visibility of earnings ahead could buttress the share price even as the market decreases its risk appetite, and highlight that current progress billings stand at more than five times of FY11 development revenue (S$132.6 million). We also note that ROXY’s recently launched projects, such as Eon Shenton, The Millage and Natura@Hillview, are converting well into sales, and also expect the MKZ to launch later this year. As we progress into FY12, we estimate that unsold residential exposure could decline into only about a quarter of the total gross development value of ROXY’s current residential portfolio. This would comprise of primarily Jade Towers, which is expected to launch in 2012. Being a key project, we believe that execution at Jade Towers would likely be an important catalyst for ROXY’s share price ahead. ROXY’s hotel segment, comprising of its ownership of Grand Mercure Roxy Hotel (GMRH), continues to put up strong numbers and would provide a steady source of recurring cash flow for the group even as we enter into an increasingly uncertain environment. For the domestic hospitality sector, however, we continue to hold a positive outlook and expect ROXY’s hotel segment to contribute approximately S$17 million in profit before tax in FY12. We continue to like ROXY for its ability to seek accretive land acquisitions, quick turnaround time for projects and efficient sales conversion at recent launches. – OCBC Investment Research