DBS Equity Research: Daily Wired 25 Jan 2016

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DBS Equity Research: Daily Wired 25 Jan 2016

kiasutrader

Publish date: Tue, 26 Jan 2016, 02:06 PM

STI - Short-covering + bargain hunting drive rebound off 2500 ahead of FOMC meeting, rigbuilders and banks lead

Keppel Corp - To consolidate asset management businesses

Ascendas India Trust - Oversold; upgrade to BUY

With the ECB signalling more stimuli, expectations are for the FED to deliver a dovish interest rates outlook this week. Much has happened since the FED initiated the rate hike cycle a month ago. Consensus now only expects JUST ONE rate hike in July this year that lifts the Fed Funds Rate to 0.75%, down from expectation for two hikes to 1% last month. This is far lower than the official FED forecast for 4 rate hikes this year.

The Singapore market trades at just 1.12x P/B and slightly below 10.6x (-2SD) 12-mth forward PE following the 10.5% decline in the STI YTD. We expect short-covering and bargain hunting activities ahead of the FOMC meeting this Thursday. This looks to have started last Friday with the STI rebounding off a low of 2530 last week that coincides with our anticipated short-term inflexion point at 2500.

A dovish interest rates outlook by the FED could result in a decline in the USD against regional currencies and a rebound in oil and USD denominated commodities. For Singapore stocks, the rigbuilders and banks were the 2 sectors that suffered the worst selling pressure YTD and should lead the rebound.

In a major restructuring exercise to grow the contribution from its Investment Division, Keppel Corporation plans to consolidate its interests in business trust management, real estate investment trust (REIT) management and fund management businesses under Keppel Capital, a whollyowned subsidiary of Keppel Corporation. The major restructuring exercise aims to grow the contribution from its Investment Division. The asset management businesses currently manage S$26bn of quality assets and contributed S$60m of profits in 2015 (approx 4% of Keppel Corp's net profit).

We reiterate our HOLD call on Keppel Corpwith a lower TP of S$5.25 (Prev S$7.40). While value has emerged after the violent sell-off in response to the Sete Brasil news, we prefer to monitor the development in Brazil and oil market before revisiting Keppel. Dividend yield remains decent at 5.5% despite reduction in payout ratio from 50% to a more sustainable 40%, still within their guidance of 40-50%. Our TP is lowered to S$5.25, largely attributable to lower valuation for O&M segment.

We upgrade our recommendation on Ascendas India Trust to BUY from HOLD, with TP of S$0.91. While cognisant of the potential drag from a weaker INR in the midst of negative sentiment surrounding emerging markets, we believe these fears have largely been priced in following the recent 20% share price correction. In addition, AIT now trades at a discount to its adjusted NAV per share (S$0.80 which excludes deferred income tax liabilities which are unlikely to be paid in the event AIT's properties are sold) and offers an attractive 7.9% yield.

3Q16 results for Ascendas REIT were boosted by acquisitions in Australia. Rental reversions are expected to be flattish given the weak operating outlook but completion of proposed acquisitions in the coming years are expected to support earnings in the next few years. BUY maintained, TP S$2.52. We remain attracted to A-REIT's defensive earnings profile coupled with steady growth of c.2% CAGR over the coming 2 years. Recent price decline has raised forward yields towards 6.5%, which is attractive.

Vallianz has signed an agreement for a proposed investment of S$23.65m from subsidiaries of China State-Owned Rail Corporation, CRRC. The subsidiaries of CRRC will take a substantial stake of approximately 14% in Vallianz by subscribing for an aggregate of 550m new shares at S$0.043 per share. CRRC intends to leverage on Vallianz's worldwide operations to extend the applications of its technologies and products to the global offshore and marine market.

SATShas announced two JVs with Wilmar subsidiary Yihai Kerry Investments Co. Ltd. to supply high quality and safe food to the Chinese market. SATS subsidiary SFI has a 60% on the first JV, putting up a registered capital of RMB138m. The second JV will be a wholly owned subsidiary of the first JV, with SFI putting up RMB200m for a 60% stake. No further details on operations were provided. Both events are not expected to have any material impact for now.

Commercial property prices and rentals fell further in the fourth quarter of last year, as supply outpaced demand. According to figures released by the Urban Redevelopment Authority (URA), office rents fell by 1.8% in Q4, albeit at a slower pace of decline than the 2.9% decrease in Q3. This led to a full-year drop of 6.5%, which eroded most of the gains achieved in 2014 when rents rose 9.8%. Public housing resale prices rose by 0.1% quarter on quarter in Q4 2015, culminating in a full-year decline of 1.6%, according to data released by the Housing & Development Board (HDB). It is the first quarterly increase in 10 quarters, coming after a 6% price drop in 2014.

Source: DBS

Keppel Corp (BN4)CapLand India T (CY6U)CapLand Ascendas REIT (A17U)SATS (S58)

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