Today's Focus

• Singapore banks - Earnings momentum remains positive, NIM the key earnings driver 
• Singapore Hospitality REITs - Expect weak 2Q15 results as excess supply overwhelms a pick-up in demand

The latest STB May15 statistics reveals a 1.1% y-o-y growth in tourist arrivals, the first month of y-o-y increase since February 2014. Despite this, May15 RevPAR was down 4.9% y-o-y to S$200.90. The decline was largely driven by new supply hitting the market, with ADR taking the brunt down 4.6% and occupancy slipping 30bps to 82.8%. Given weak RevPAR performance in April (-8.7%), May and now June, we expect the Singapore-focused REITs such as CDREIT and FEHT to report weak 2Q15 results. We have trimmed our FY15-16F DPU for CDREIT by 1-2% with TP lowered to $1.66(from $1.77) and that for FEHT by 1% with TP tweaked slightly higher to $0.78 (from $0.76). We lowered our FY15-16F DPU for Frasers Hospitality Trust by 3-4% and lower the TP $0.89 (from $0.96).

We believe earnings momentum for Singapore banks will still be positive with NIM as the key earnings driver despite a much slower loan growth momentum. Banks have stated that the full impact of re-pricing of the SIBOR/SOR hikes would be more visible in 2Q15. Expect asset quality indicators to remain benign with credit costs staying largely low except for UOB that continues to guide for a 32bps credit cost, higher than peers. Loan growth has clearly slowed and banks are only guiding for mid-single digit loan growth for 2015. We prefer OCBC (vs UOB) as we believe the market is still underappreciating its Greater China presence as well as its fee income franchise and low credit cost position.

Soilbuild Business Space REIT reported DPU of 1.615 Scts (- 7.7% y-o-y) for 2Q15, largely due to increase in number of units post placement exercise. Gross revenues and net property income rose by 17.2% and 19.0% respectively. The manager expects interest costs to rise by c.20bps from the current rate of 3.49% post refinancing, given rising hedging costs. We believe a medium acquisition target could be 566 Bukit Batok St 23, a light industry property that is estimated to be completed in 1Q15. The manager is taking a more defensive strategy to maintain occupancy rates rather than hiking rents. We maintain our 3-5% rental reversion forecasts. Our DCF-backed TP is S$0.95 as we roll forward valuations. Supported by an attractive yield of >7.5%, we believe that at current levels, SBREIT offers an attractive total return of >15%. Maintain BUY (TP: $0.95, prev. $0.91).

Capitaland Mall Trust Management, manager of CapitaLand Mall Trust, is currently exploring its options for Funan DigitaLife Mall, which include possible disposal or redevelopment. This is in line with its policy of continually evaluating CMT's portfolio of assets and exploring opportunities to maximise the value for CMT's assets.

SIA reported weaker performance for its passenger business in June. The carrier flew 1.58mil (-0.9% y-o-y) passengers last month. Load factor slipped to 79.9% cent from 81.5% a year ago. Load factor for routes to East Asia, Americas and Europe all dropped due to weaker demand and competitive pressures. Cargo load factor also dropped from 62.7% in June 2014 to 60.3% last month. Weaker demand on European routes and lower outbound demand from Americas were the key factors.

Source: DBS