Highlights

SGX Stocks and Warrants

Author: kimeng   |   Latest post: Tue, 19 Jun 2018, 10:22 AM

 

Starhill Global REIT: Time Is Not Yet Ripe

Author: kimeng   |  Publish date: Tue, 19 Jun 2018, 10:22 AM


  • Cautious sector view
  • Expecting negative FY18 DPU growth
  • Lower FV of S$0.65

Underperformance Relative to S-REIT Peers

We retain our cautious stance on the S-REITs sector, and view the relatively more hawkish statement by the FOMC last week as a potential dampener to sentiment ahead. Although the 25 bps rate hike was well anticipated by the market, we note that the committee members have raised their 2018 federal funds rate forecast by 0.3 ppt to 2.4% from their Mar projections.

The FTSE ST REIT Index has delivered negative total returns of 6.1% YTD, while Starhill Global REIT (SGREIT) underperformed its peers, with total returns of -12.2% during the same period.

DPU Likely to Remain Muted in Near-term

We believe SGREIT’s share price underperformance can be largely attributed to its tepid DPU performance and challenging nearterm outlook. As a recap, SGREIT’s 3QFY18 DPU fell 7.6% YoY and this was its seventh consecutive quarter of YoY decline. This was driven by operational weakness from Singapore and Australia, while there were also higher withholding taxes from Australia and Malaysia.

We lower our FY18 and FY19 DPU forecasts by 5.7% and 6.5%, respectively, after taking into account

  1. lower rental assumptions,
  2. higher effective tax rate and
  3. weaker AUD assumption.

Our revised forecasts reflect our expectations of continued softness in SGREIT’s DPU growth outlook in the near-term (4QFY18F: -4.3% YoY; FY18F: -6.7%). Thereafter, we project FY19F DPU to recover 2.1% due to maiden contribution from UNIQLO at its Arcade Plaza and a full-year contribution from Markor International, a furniture manufacturer and retailer, at its China property.

In terms of valuation, we cut our fair value estimate on SGREIT from S$0.77 to S$0.65. This is underpinned by our reduced DPU forecasts and after incorporating a lower terminal growth rate of 1% (previously 1.5%) and higher cost of equity assumption of 8.5% (previously 8.2%) in light of the current market and sector volatilitiebs.

Although SGREIT is trading at FY19F distribution yield of 7.1%, as of the closing price on 18 Jun 2018, this is slightly below its 10-year average forward yield of 7.2%.

Source: OCBC Research - 19 Jun 2018

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Hangri-La Asia (69 HK): Another Summit to Conquer

Author: kimeng   |  Publish date: Mon, 18 Jun 2018, 09:32 AM


  • Proxy to China hospitality recovery
  • FY18F EBITDA expected to grow 16%
  • Initiate with FV of HK$21.05

Luxury Hotel Player With Large Exposure to Mainland China

Shangri-La Asia (69 HK, “Shangri-La”) is primarily a hotel ownership and management company, with assets consisting mainly of fivestar deluxe city centre and resort hotels based largely in Asia Pacific countries. In particular, Shangri-La’s mainland Chinese hotel assets contributed 49% of the group’s hotel EBITDA and 31% of the group’s EBITDA across all segments in FY17.

Given the group’s substantial exposure to mainland Chinese hospitality as well as a high degree of operational leverage, we see ShangriLa as a proxy to what we expect to be a multiyear recovery in the Chinese luxury hotel industry.

You’ve Only Seen the Beginning of the Ascent

RevPAR recovery in China started in 1Q17 after several years of decline. From channel checks and data points, it appears that the growth of luxury hotel room supply in Tier 1 and 2 cities has been slowing down while the domestic tourist spend has continued its relentless pace of growth.

Feeding the growth of local demand for luxury hotel rooms in China are three key factors:

  1. high-spending millennials
  2. legislation and
  3. massive infrastructure developments within the country which are discussed in greater detail in the sector report.

The hospitality industry typically works in cycles, given the 3-5 years needed to develop new hotels. We believe that the current demand-supply situation is ripe for several years of RevPAR recovery.

Initiate With a FV of HK$21.05

We initiate coverage on Shangri-La Asia (69 HK) with a BUY rating and a fair value estimate of HK$21.05. This is derived through a sum-of-theparts (SOTP) valuation that consists of applying a 15.3x EV/EBITDA ratio (15% premium to Asian hotel companies peer average) for Shangri-La’s hotel business as well as applying a 30% discount to its investment properties.

We believe Shangri-La deserves a premium given its strong international branding as well as its exposure to the RevPAR recovery story in China.

Investors also stand to benefit from internal cost-cutting and efficiency measures that are expected to bring up to US$80m in savings as well as opportunities to strengthen revenue growth in the next 3-5 years.

Source: OCBC Research - 18 Jun 2018

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Regional Hospitality: Here Comes the Sun

Author: kimeng   |  Publish date: Mon, 18 Jun 2018, 09:30 AM


  • It’s been a long, cold, lonely winter
  • Turning a corner in SG and in CN
  • Initiate on Shangri-La Asia [69 HK]

Singapore: It’s Going to Get Hotter Through the Year

Hotel RevPARs are currently ~20% down from their peak in 2012, having been affected by stiff competition from new hotels despite climbing visitor arrivals. Going forward, given that much of last year’s supply injection was back-end loaded, we expect hotel RevPARs to accelerate from the pace seen in 1Q18.

Visitor arrival growth has had a healthy start with visitor days growing +1.2% YoY in Jan, +7.1% in Feb, and +8.6% in Mar. On the other hand, hotel room supply is only expected to increase +2.5% in 2018, +0.8% in 2019, and +0.6% in 2020.

China: More Than a Temporary Heat Wave

Singapore is, however, not only place where we see a demand-supply situation ripe for RevPAR growth. RevPAR growth in mainland China turned positive in 1Q17 after several years of decline, and we believe the recovery is still in its early stages, particularly for luxury hotels.

From channel checks and data points, it appears that the growth of luxury hotel room supply in Tier 1 and 2 cities has been slowing down while the domestic tourist spend has continued its relentless pace of growth.

Feeding the growth of local demand for luxury hotel rooms in China are three key factors:

  1. high-spending millennials
  2. legislation and
  3. massive infrastructure developments within the country, which are discussed in greater detail in the sector report.

Given the current demand-supply situation, we believe existing hotel owners/operators are poised to benefit from several years of RevPAR recovery.

Initiate BUY on Shangri-La Asia

We initiate coverage on Shangri-La Asia [BUY; FV: HK$21.05], an Asia-based hotel ownership and management company, with a portfolio consisting mainly of five-star deluxe city centre hotels and resorts. With the group’s substantial exposure to mainland Chinese hospitality as well as a high degree of operational leverage, we see Shangri-La as a proxy to what we expect to be a multi-year recovery in the Chinese luxury hotel industry.

On the other hand, for hospitality SREITs, while we see 2018 as a positive year operationally, we remain wary on the impact of rate hikes on REITs as an asset class. Out of the hospitality S-REITs, we like Far East Hospitality Trust [BUY; FV: S$0.735] as we believe that the operational upside has yet to be priced in. We are also positive on Hotel Properties Limited [BUY; FV: S$4.74] given its attractive valuations.

We have a POSITIVE view on the regional hospitality sector.

Source: OCBC Research - 18 Jun 2018

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SATS Ltd: Looking Attractive With a Longterm View

Author: kimeng   |  Publish date: Thu, 14 Jun 2018, 09:29 AM


  • Home market showing strong statistics
  • Positive on growing presence in Asia
  • Unchanged FV of S$5.50

Changi Airport Continues to Record Strong Growth

Singapore’s Changi Airport continued to post encouraging operating statistics for Apr 18 as passenger throughput grew 5.1% YoY, aircraft movements rose 4.6% and air freight movements increased by 4.5%. For the period from Jan-Apr 18, YoY growth also came in positively across all three categories – passenger throughput (+5.0%), aircraft movements (+4.7%) and air freight movements (+3.8%).

As highlighted before, strong traffic growth at Changi Airport is positive for SATS Limited (SATS) as we estimate that it handles ~80% of the traffic throughput there. We also expect Terminal 4 (T4), which opened on 31 Oct 17, to help contribute to longer-term traffic growth at Changi Airport. This also translates positively for SATS given that it is co-handling the ground operations at T4 with AirAsia.

According to management in its last earnings call, SATS’ JV with AirAsia (which includes ground handling at Changi Airport T4 as well as other key airports in Malaysia) is already making positive though not yet significant contributions on a gross basis (after stripping out depreciation and amortization).

Positive Longer-term Outlook Intact

Our long-term positive view over SATS’ outlook remains unchanged, which is hinged upon SATS’ diversification strategy in its expansion outside Singapore as well as into non-aviation business segments through its many collaboration with overseas partners.

For non-aviation, we like its partnership with Wilmar to supply quality and safe food in China, leveraging on each other’s capabilities (i.e. SATS’ expertise in operating central kitchen and Wilmar’s extensive distribution network in China).

For aviation segment, we are constructive on SATS’ ground handling partnership with AirAsia where both firms will own an interest in each other’s groundhandling units.

We are long-term positive on this partnership as it allows SATS to gain access to 15 airports in Malaysia. Beyond these, a potential catalyst would be the potential partnership with Turkish Airlines to provide inflight catering services at Istanbul New Airport.

Looks Attractive Below S$5.15

While we keep our FV unchanged at S$5.50, we think SATS is currently trading at an attractive price of S$5.06 (13 Jun 18 closing price), especially given its expanding presence in Asia.

Source: OCBC Research - 14 Jun 2018

Labels: SATS
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UOB: Right ‘BUY’ You

Author: kimeng   |  Publish date: Wed, 13 Jun 2018, 10:52 AM


  • Value is emerging
  • Good level to accumulate
  • FV of S$31.02

“Buy at S$29.00 or Lower” Is Now!

In our last report dated 3 May 2018, when we downgraded the stock to a HOLD, we recommended investors to buy at S$29.00 or lower. Since then, the stock has dropped below S$28.00 recently, down about 7% in the past one month from the recent high of S$30.14. At current price, value is emerging.

Based on an estimated dividend payout of S$1.00, current yield is at about 3.6% - and we deem this to be a good level. Fundamentally, there is no change in our projections for the group and we are retaining our FY18 net earnings estimate of S$4007m – the highest level in its operating history.

Recent Quarter Showed Broad-based Improvement

For 1Q18, UOB delivered net earnings of S$978m, up 21% YoY and 14% QoQ. Better Net Interest Margin (NIM) together with healthy loans growth of 5% led to a new high of S$1.47b in Net Interest Income, which is a 13% improvement YoY. NIM rose from 1.73% in 1Q17 and 1.81% in 4Q17 to 1.84% in 1Q18.

Net fee and commission income increased 18% YoY to S$517m, supported by growth in wealth management (+30% YoY), fund management (+27% YoY) and loan-related fee income (+24% YoY). Cost-to-income ratio stood at 44.2% this quarter. NPL was at 1.7%, down from 1.8% in the previous quarter. Allowances fell sharply from S$140m last quarter to S$80m this quarter.

Outlook Is Fairly Positive; Possibility of Higher Dividend?

With the improving market outlook, we are generally more optimistic about the operating environment for the Singapore banks. We expect improving NIM to be a key feature this year. While management has earlier indicated the possibility of a special dividend this year, based on what was given out last year, which amounted to a total of S$1.00 (dividend of 80 cents plus special dividend of 20 cents), current dividend yield of 3.6% will complement the potential price upside to our fair value estimate of S$31.02.

Source: OCBC Research - 13 Jun 2018

Labels: UOB
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Banking Sector: Bank for Your Buck!

Author: kimeng   |  Publish date: Wed, 13 Jun 2018, 10:51 AM


  • Outlook is improving
  • Banks are on strong footing
  • DBS remains our pick

Favorable Operating Conditions

Banking stocks have performed well this year, up some 9% YTD at the high, as measured by the FTSE ST Financial Index (FSTFN). While share prices have come off and the index is now off the year’s high of 1112.15 in May 2018, we believe that most of the positive drivers are still intact despite current equity market softness. The outlook is definitely improving as the banking sector saw several quarters of improvement as allowances declined, NPLs plateaued and margins started to reverse up.

Healthy Set of 1Q18 Results

In general, quarterly profitability trends have also shown good improvements in the past few quarters. For DBS, 1Q18 was also a record quarter for the group. This was similarly the case for the other banks, stripping out exceptional items. In terms of pretax profits, the 3 banks reported combined total profits of S$4.4b, the highest level historically.

Net Interest Margins (NIMs) moved up to a range of 1.67% to 1.84% in 1Q18. On average, this was the 5th quarter of improvement. Dividend payout trend has also been edging up in the last decade.

Recent Weakness Is Opportune Time to Accumulate

At this year’s high, DBS was up 23% YTD, OCBC was up 13% and UOB was up 13%, which brought the 3 stocks to all-time historical highs. Since then, together with market softness, the banking stocks have also fallen in tandem.

We think that the recent price weakness, partly due to the lull period in May and June, could also be an opportune time to accumulate. Our top pick in the sector is DBS.

Source: OCBC Research - 13 Jun 2018

Labels: DBS
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