SGX Stocks and Warrants

Author: kimeng   |   Latest post: Wed, 19 Aug 2020, 8:36 AM


Frasers Centrepoint Trust: Half-year Scorecard Met Expectations

Author: kimeng   |  Publish date: Wed, 19 Aug 2020, 8:36 AM

  • 2QFY17 DPU flat YoY
  • Positive rental reversions of 4.1%
  • BUY with unchanged FV

2QFY17 Results In-line With Our Expectations

Frasers Centrepoint Trust (FCT) reported an inline set of 2QFY17 results. Gross revenue and NPI fell 2.9% and 3.3% YoY to S$45.7m and S$32.6m, respectively. This was largely due to loss of income from planned vacancies at Northpoint as a result of its ongoing AEI, with the mall’s occupancy at 60.7%, as at 31 Mar 2017. However, DPU was unchanged YoY at 3.04 S cents as management opted to take 70.0% of its management fees in units (2QFY16: 50.0%), coupled with a smaller amount of income available for distribution which was retained (S$476k in 2QFY17 versus S$1.1m in 2QFY16).

For FCT’s 1HFY17 performance, gross revenue and NPI slipped 4.6% and 4.5% to S$89.8m and S$64.2m, respectively, with the latter forming 49.3% of our FY17 forecast. However, DPU rose marginally by 0.4% to 5.93 S cents and constituted 50.2% of our full-year projection.

Positive Rental Reversions But Footfall and Tenant Sales Fell

Notwithstanding the headwinds facing Singapore’s retail sector, FCT managed to register solid rental reversions of 4.1% for its portfolio in 2QFY17, with only Bedok Point showing negative rental reversions (-17.9% for 4,669 sq ft of NLA). Strong rental uplifts were achieved at Changi City Point (+21.7% for 3,670 sq ft of NLA) and Causeway Point (+6.3% for 22,920 sq ft of NLA). Management sounded more upbeat about the prospects of Changi City Point, given encouraging shopper traffic and tenant sales figures, coupled with an improvement in interest from prospective tenants.

There was, however, some softness in overall portfolio footfall and tenant sales, which fell 3.5% and 6.9% (excluding Northpoint which is undergoing AEI) YoY for the Jan-Mar and Dec-Feb period, respectively. We believe this could be partly due to a leap year in 2016 and differences in timing of the Lunar New Year this year and last year, which affected consumers’ shopping patterns.

Maintain BUY

Looking ahead, the Northpoint AEI is progressing on schedule, with robust leasing interest from prospective tenants. Occupancy is expected to trough in Apr at 57.0% before recovering gradually as the AEI nears completion. We maintain BUY and S$2.28 fair value estimate on FCT.

Source: OCBC Research - 26 Apr 2017

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Oil Up From Lows

Author: kimeng   |  Publish date: Thu, 23 Apr 2020, 12:00 PM

Brent oil recovered from a 21-year low, bucking two days of frenzied selling, while WTI closed 19% higher. The market shrugged off a bearish EIA report showing US crude inventories rose a higher-than-expected 15.02 million barrels, which highlights the severity of the storage problem.

US stocks rallied as oil prices recovered from their record lows earlier this week. The positive sentiment sent Treasury prices lower, but the Dollar and gold shook that off and settled higher.

The S&P 500 closed at 2,799.31, up 2.3% while the Nasdaq Composite closed at 8,495.38 (+2.8%). The Dow Jones closed at 23,475.82, up 1.99%. The gains were broad, with all 11 sectors of the S&P 500 rising, led by the technology group, and 26 of the 30 members of the Dow Jones Industrial Average in the green.

Tonight, investors will digest the Labour Department’s latest report on jobless claims. Another 4.3 million workers are expected to have filed for benefits last week, which would bring the total number seeking benefits to over 26 million.

The number of cumulative claims rose to 22.025 million over four weeks prior, erasing nearly all of the 22.442 million jobs recovered since the Great Recession.

Europe’s markets closed higher too. UK inflation fell in March, on the back of tumbling oil prices and an escalation of the coronavirus crisis. The consumer price index came in at 1.5%, compared to 1.7% in February.

On the data front, South Korea’s GDP contracted 1.4% q/q in 1Q, almost as steep a drop as economists had forecast. Looking ahead, early indications for 2Q are already suggesting there’s worse to come. Shipments abroad for the first 20 days of April slumped while shipments to China and semiconductor sales also tanked as more major trading partners went on lockdown. That’s bad news for the export-oriented economy even as the virus outbreak looks to be easing domestically.

Source: OCBC Research - 23 Apr 2020

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Looking for a Bottom Amid Pandemic Fears

Author: kimeng   |  Publish date: Mon, 6 Apr 2020, 2:47 PM

US stocks ended down last week, paring some of the prior week’s rally, after a plunge in US hiring hinted at the extent of the pandemic’s toll on the world’s biggest economy. Meantime, oil pared some of the rally seen on Friday in the wake of hopes of production cuts.

Global job losses could reach 25 million if the coronavirus isn't controlled, according to the International Labour Organization. The US jobs market is crashing even earlier than forecast. Payrolls tumbled by 701,000 last month, before the brunt of the shutdowns, way worse than consensus. Unemployment rose to 4.4% from 3.5% and analysts said April will be even more dire.

Last week, the Dow slid 1.7% while the S&P 500 lost 2.1%. The Nasdaq Composite closed last week down 1.5%. Stocks are also deep in bear-market territory as concerns over the coronavirus outbreak have virtually shut down the global economy and have dampened sentiment around corporate profits.

WTI ended the week 32% higher after five straight weeks of declines amid rising expectations the US may join OPEC and Russia in a coordinated pact to slash global oil production to help balance a heavily oversupplied market as the coronavirus pandemic has shrunk demand. Analysts remain sceptical of a deal between the Big 3 producers but say, it's important for markets that a dialogue has started.

On the whole, we believe that a rebound in activity should come quite quickly once the Covid-19 containment measures get lifted.

The situation will remain fluid for several months and even in a world of big data, time lags in releasing official statistics will impede analysis.

We will continue to closely monitor medical updates and economic policy measures, as these are likely to offer clues as to the length and depth of the recession and the scale of the subsequent bounce before we see the impact in standard macro data.

Source: OCBC Research - 6 Apr 2020

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Singapore Airlines: Travel Demand Hit Hard by COVID-19

Author: kimeng   |  Publish date: Fri, 20 Mar 2020, 12:11 PM

  • 50% cut in capacity till end-Apr
  • Further reductions possible should COVID-19 escalate
  • Cautious on earnings outlook

COVID-19 Spread Intensified Across the Globe

Singapore Airlines (SIA) announced further reductions in capacity, due to weaker demand across the group’s networks and wider border controls amid the COVID-19 outbreak. As of 17 Mar, COVID-19 has spread rapidly to over 150 countries with more than 190,000 confirmed cases globally.

WHO declared COVID-19 a global pandemic due to its rapid and wide transmission and severity. More than 65 countries across the globe have imposed travel restrictions or lockdown of the countries to combat the spread of COVID-19.

Further Reductions in Capacity Amid Weak Demand and Wider Border Controls

Till date, SIA has announced six rounds of capacity cut since February. With the latest reductions announced, the group has temporarily cut a total of 50% of its capacity from its network till end-April. Notably, the latest announcement saw a sharp increase of 34.4 percentage points from the last announcement on 12 March, underscoring the severity and escalation of the COVID-19 situation. Management highlighted the possibility of more reductions in future and to be “prepared for a prolonged period of difficulty”.

Rigorous Cost-management

SIA has been proactively looking at ways to control costs. Senior management and board members will take a 5-15% cut in salary to reduce staff costs. SIA also announced a voluntary no-pay leave scheme for staffs below senior management level to reduce manpower costs. Moreover, SIA is discussing with suppliers to get discounts and revisit the repayment schedule including the deferrals of aircrafts prepayment.

Management noted that SIA is currently in discussion with the banks to secure more lines of credit to make sure that they have enough cash to meet near-term liquidity requirement. Management noted that the banks have been supportive thus far. We note that SIA’s balance sheet remains stable with ~52% of net gearing ratio and S$1.5-2b of un-drawn credit lines.

SIA is trading at 0.6x P/B, 26% lower than the GFC lows. While valuations look attractive, we would continue to see volatility ahead, growing pressure on load factors and yields. As such, we remain cautious on SIA and would watch out for signs of stabilisation, e.g declining trend of new COVID-19 cases before reviewing our rating.

We update our cost assumptions and pare our earnings forecast for FY20/21F by 55% and 39% respectively to take into account the impact of COVID-19 which is likely to last longer till 3QFY21. After adjustments, our fair value estimate decreases from S$9.90 to S$6.60.

Source: OCBC Research - 20 Mar 2020

Labels: SIA
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Far East Hospitality Trust: Sentiment Turning More Cautious

Author: kimeng   |  Publish date: Mon, 16 Mar 2020, 4:12 PM

  • COVID-19 spread intensified
  • SRs and commercial portfolio could provide a buffer
  • Lower FV estimate of S$0.52

COVID-19 Was Declared a Pandemic

COVID-19 is spreading rapidly across the globe. As of 13 Mar, COVID-19 has spread to over 120 countries with more than 140,000 reported cases. More countries announced travel bans on visitors from coronavirus hotspots and advised people to defer all non-essential travel overseas. At a media briefing, WHO declared COVID-19 a pandemic and called all countries to take comprehensive measures to combat the virus.

Larger Impact on Hotels Than on SRs

From our channel checks, the hotel industry’s occupancy rate in Singapore has dropped to ~30% in MTD March vs. February’s occupancy rate of ~40%. We understand that FEHT’s performance was slightly better than the industry average with higher hotel occupancy rate of mid-30s for MTD March and ~50% in Feb. Serviced residences (SRs) performed better than hotels due to its long term nature of stays and focus on corporate travel. Occupancy rate of SRs was ~80% for Feb vs. ~70% in MTD March.

In terms of forward bookings, April’s bookings was ~13% YoY lower while May’s booking was flat as compared to the same period last year. FEHT is seeing more “last minute bookings” with bookings coming in 1 or 2 weeks in advance as travellers are taking a wait-and-see approach. However, with the uncertainty ahead, we could potentially see more cancellations should the situation further escalate e.g. wide community outbreak in Singapore and stricter travel restrictions.

Higher risk of gross revenue declining to its minimum rent

The situation looks more severe as compared to SARS with much higher infection rate and death tolls. Prime Minister Lee remarked that COVID-19 could “continue for some time – a year, and maybe longer”. Singapore Tourism Board (STB) estimated that the fall in tourist arrivals to Singapore could be 25-30% in 2020.

Given FEHT’s pure Singapore focused portfolio, we now see higher risk of FEHT’s gross revenue declining to its minimum rent in its master leases with an estimated 21% fall in DPU YoY for FY20. However, FEHT’s fixed rent component which formed about 72% of the master lease rental in FY19, and its commercial segment i.e. office and retail (19% of FY19 gross revenue) could provide some buffer and downside protection.

In light of the rapidly evolving situation, we adjust our DPU forecasts for FY20/21F down by 16%/3%, and increase from COE from 7.3% to 8.6%, while decreasing our risk-free rate from 2.0% to 1.55%. After adjustments, our fair value estimate decreases from S$0.65 to S$0.52.

Source: OCBC Research - 16 Mar 2020

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Frasers Centrepoint Trust: No Immunity Card But Some Solace in Defensiveness

Author: kimeng   |  Publish date: Mon, 16 Mar 2020, 4:10 PM

  • Share price has fallen 15.5% from YTD peak, as at 13 Mar close
  • DPU grew even during last GFC
  • Not immune, but expected to remain resilient

Share Price Has Taken a Beating, in Line With Overall Weak Market Conditions

Frasers Centrepoint Trust’s share price has not been spared from the rough market conditions, with a decline of 15.5% from its YTD peak of S$3.03, based on the closing price on 13 Mar 2020. The sell-off in the financial markets have been broad based, which we believe is driven by increasing fears of a global recession due to the widespread impact of COVID-19.

FCT’s shopper traffic saw a decline of 10-20% in the first two weeks of February, especially during the weekend after DORSCON was raised to orange. Since then, footfall at FCT’s malls has improved progressively from the third week of Feb and is almost back to pre-COVID-19 levels by the first week of Mar.

That said, the impact on tenants’ sales is larger. While this has also progressively picked up, it is slower than the pace of recovery as compared to shopper traffic and unsurprisingly still below pre-COVID-19 levels. We believe trade sectors such as grocers, pharmacies, medical halls and education would still perform resiliently, while fashion and apparel, jewellery, health and fitness and certain F&B tenants would take a longer time to recover.

Resilient DPU Even During Last GFC

In terms of support measures, FCT will be passing on the full 15% property tax rebate to all qualifying tenants, and has also given tenants the flexibility for the conversion of security deposits paid in cash to Banker’s Guarantees to ease tenants’ cash flow constraints. The flexibility for shorter operating hours and complimentary car parking during certain timings has also been introduced.

From our understanding, no further rental concessions have been given to tenants, although this may still be progressively rolled-out in the future. We look back at FCT’s performance during the last Global Financial Crisis, and find solace that its DPU still increased by 11.3% in FY08 (financial year end 30 Sep) and a further 3.0% in FY08.

Operationally, FCT’s occupancy rate ranged from 87.7% to 99.3% from 1QFY08 to 4QFY09, but the drop in occupancy was largely attributed to substantial asset enhancement works at Northpoint. Rental reversions remained positive during that period, but FCT only had three malls in FY08 and FY09.

Overall Industry Conditions to Remain Challenging, But Expect FCT to Standout Defensively

Given the uncertainty over the scale and timeline of COVID-19, retail conditions will remain challenging. We expect FCT to stand out with its defensive attributes, but it will not be immune from these challenging conditions. As such, we lower our FY20 and FY21 DPU forecasts by 1.1% and 0.8%, respectively, due to more conservative rental assumptions. We also lower our risk-free rate assumption from 2% to 1.55% in light of the sharply compressed Singapore government 10-year bond yield. Our fair value estimate increases from S$2.93 to S$3.07.

Source: OCBC Research - 16 Mar 2020

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