Towards Financial Freedom
DBS Equity Research: Wired Daily 4 Feb 2016
Consensus now expects NO rate hike this year - Positive for SREITs (MCT, FCT, AREIT) and yield/defensive Venture Corp, Sheng Siong, Thai Beverage
Singapore REITs - Attractive valuations are pportunities to lock in yields. Picks : A-REIT, FCT, MCT, MAGIC and CRCT
SMC Monthly - We focus our picks on names that should report strong earnings or declare an attractive dividend - Japfa, Riverstone, mm2, Osim, CMH Pacific
US stocks and oil/commodities rose with the USD down on expectation that the FED will delay rate hikes amid growing uncertainty in the global economic outlook. Data released today showed the January ISM services index dipped lower than expected to 53.5 (consensus 55.1) from 55.3 the previous month. The ADP employment change that comes ahead of Friday's non-farm payrolls read 205k (consensus 195k).
What remains uncertain is the health of the global economy, what is becoming clearer is that US rates will not rise that fast. In fact, according to data from CME FEDWatch, consensus now expects NO rate hike this year. In this situation, expect dividend and defensive names to be underpinned, compared to cyclicals. We are selective on SREITs, our picks are MCT, FCT and AREIT. For stocks, we like Venture Corp (expect 50cts declaration when FY results are announced towards end February) , Sheng Siong and Thai Beverage.
Singapore REITs continues to show resilience in the midst of volatility. The S-REITs have outperformed the STI and developers YTD, falling by a smaller c.3% compared to the 11% drop in the overall market. Looking ahead, we believe that near term performance will be firm and largely macro driven, with increasing expectations of a delay in further FED hikes to be positive for share prices in the near term (DBS economists currently assume above-consensus 4 hikes over 2016). Attractive valuations are opportunities to lock in yields. The S-REIT sector trades at 0.9x P/Bk, and offers investors a yield of 7.1%. Our picks: Ascendas REIT, Frasers Centrepoint Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust and CapitaLand Retail China Trust.
With STI falling by nearly 9% in January, small cap names were not spared and our picks fell by an average of 5.9% since our last issue of SMC Monthly. We focus our picks on names that should report strong earnings or declare an attractive dividend. We expect good results from- Japfa, Riverstone, mm2, Osim while dividend yield for CMH Pacific is attractive at c.7%. CMH is likely to reward shareholders with a final dividend of up to 3.5Scts.
Value is also emerging from the P/BV perspective. We highlight a couple of names that offer value: Midas Holdings (BUY, TP S$0.49) is trading at c. 0.5x P/BV despite being profitable, 2) Perennial Real Estate Holdings (BUY, TP S$1.32) is at just 0.5x P/BV and 3) Centurion Corporation (BUY, TP S$0.59) trades at 0.6x P/BV and less than 7x PE.
We also feature leading local F&B group, Jumbo, whose growth is underpinned by new outlets in Shanghai and Singapore, in an Equity Explorer. For SMC Radars, we highlight Best World, Serial System, and Sunningdale.
Strong earnings quality in 1Q16 for Frasers Centrepoint Ltd as commercial and hospitality divisions drive operational performance. FCL will adopt a quick turnaround for its residential projects in Singapore, China and Australia. Unrecognised revenues for property development division stand at S$1.9bn. Attractive valuations, BUY, TP S$2.05.
1Q16 results for F&N within expectations. F&N reported a net profit of S$25.5m, a drop of 27% y-o-y, due to the disposal of its 55% stake in Myanmar Brewery Limited. Excluding the discontinued operations, net profit growth would have been 34%, even though revenue fell by 11% y-o-y to S$488.7m. Strong Dairies segment offsets weaker soft drinks. Maintain HOLD, TP: S$2.20.
mm2has entered into an agreement to acquire a 51% stake in UnUsUaL Group for S$26m. The acquisition comes with a net profit guarantee for three years at S$5m per year. The UnUsUal Group is one of Asia's largest promoters and organisers of shows and entertainment acts. This acquisition will enable mm2 to better project its presence in Southeast Asia and North Asia's market place.
The weaker state of the economy has resulted in fewer job openings in Singapore, according to new data released by the Manpower Ministry (MOM). The number of job vacancies declined over the year to 60,000 in September last year, down from a high of 67,400 the year before. The job vacancy rate was 2.7%, down from 3.2% a year earlier.
Source: DBS
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