DBSV S'pore Wired Daily 2 January 2014

kiasutrader

Publish date: Thu, 02 Jan 2014, 12:01 PM

Today's Focus

S-REIT - Organic growth potential to differentiate the winners. BUY Suntec, CDREIT, CRCT, FCT and FCOT

STI starts the year 2014 at 3167. This is some 61pts below the 13.9x (Ave) FY14F PE level at 3228 that is viewed as a major short-term resistance. Given that the index had risen more than 100pts from a low of 3050 in mid-December, we expect the rate of climb in the past 2 weeks to ease off in the near-term as it approaches the 3200 level or slightly lower. We see room for the STI to head towards 3350 in the months ahead but Rome wasn't built in a day. Near-term support is at 3130, which coincides with the 15-day exponential moving average, firmer at 3080.

Singapore GDP grew 3.7% in 2013, within the official forecast of 3.5-4%. 4Q GDP fell 2.7% (q-o-q saar), below consensus expectation for a 1.3% decline. The government official forecast for 2014 GDP growth remains at 2-4%. In his New Year message, PM Lee said he is confident that Singapore will do well provided nothing untoward happens in Asia. He added that Singapore is investing in her future and developing new capabilities for tomorrow's economy, like 3D printing, data analytics and consumer insights research. Still, he cautioned that while the US and European economies are stabilising and Asian prospects stay positive, there are problems and tensions, especially in North-east Asia. Disputes between China, Japan and South Korea over historical issues and ownership of various islands have sharpened. The stability of the Korean peninsula is a serious worry. Singapore's interest in new technologies such as 3D printing could underpin interest in companies such as Venture Corp.

According to a Gartner press release published in October last year, combined end-user spending on 3DPs will reach US$412mil in 2013, up 43% from spending of US$288mil in 2012. Enterprise spending will total more than US$325mil in 2013, while the consumer segment will reach nearly US$87mil. In 2014, spending will increase 62%, reaching US$669mil, with enterprise spending of US$536mil and consumer spending of US$133mil. Venture Corp is expected to declare a 50cts dividend payout when it announces its FY earnings on February. Our current recommendation is Buy (TP: $8.40)

We expect S-REITs to face rising cost of capital. This will mean that investors of SREITs will likely require higher returns to compensate for thinning spreads against the 10- year bonds in 2014. However, with S-REITs trading at a yield spread of 4.0% (vs 3.5% historical average), we believe that much of this risk has been priced in. With shorter-term interest rates expected to remain low, S-REITs should only see marginal changes in their refinancing activities, with limited impact to distributions. We prefer S-REITs with organic growth due to fewer

acquisition opportunities. We project distributions to grow by 5% in FY15F, driven largely from organic sources, supported by completing development activities. Our picks remain S-REITs with superior growth or with exposure in sectors leveraged to economic growth, such as CDL HT (TP: S$1.84), Suntec REIT (TP: S$1.80), CapitaRetail China Trust (TP: S$1.60), Frasers Centrepoint Trust (TP: S$2.14) and Frasers Commercial Trust (TP: S$1.46).

Sembcorp Marine's subsidiary PPL Shipyard has secured a repeat order to build a third Pacific Class 400 jack-up rig worth US$211.5m from Perisai, a wholly-owned subsidiary of Perisai Petroleum. The rig is scheduled for delivery in the third quarter of 2016.

GSH Corporation and TYJ Group - the investment vehicle of "popiah king" Sam Goi - are jointly investing about RM700m (S$269.7m) for a 77.5% stake in The Sutera Harbour Group Sdn Bhd. After the acquisition, The Sutera Harbour Group will hold 100% of Sutera Harbour Resorts, which operates two five-star hotels in Kota Kinabalu, Malaysia, as well as the 104-berth Sutera Harbour Marina and Country Club which has a 27-hole championship golf course. In property news, Singapore's private residential property index of 214.5 as at 4Q13 was lower than 3Q's 216.3, -0.8% Q-o-Q.

The revived interest in commercial and industrial en bloc sales here is likely to persist this year, say consultants, as preference for residential deals starts to dwindle, dampened by the various cooling measures last year which were largely aimed at the latter segment.

China's December PMI of 51 was below consensus for 51.2 and lower than November's reading of 51.4. Meanwhile, Xi Jinping, delivering his New Year address, said the country must press ahead with reforms in 2014. A key task will be overseeing the reforms spelled out at the Communist Party Central Committee's 3rd Plenum in November last year. These include loosening the one-child policy, increasing property rights for farmers and encouraging private investment in more industries. The issue of local government debt will also be tackled.

Source: DBSV

Suntec Reit (T82U)CapLand China T (AU8U)Frasers Cpt Tr (J69U)Sembcorp Marine (S51)

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