Towards Financial Freedom
DBS Equity Research: Wired Daily 27 May 2016
- Model Portfolio - Include City Developments in Blue Chips and remove Frasers Centrepoint Limited from Balanced and Dividend categories
- Religare Health Trust - Fairly priced
- SATS - Positive prospects priced in
- CDL attempts third PPS deal, this time with top-end condos
- Motor loans restriction eased. Property easing in the wings?
- Motor loans restriction eased. - impact on land transport
- Manufacturing output up 2.9% in April, boosted by biomedicals, semiconductors
Stocks to Watch
Model Portfolio - Include City Developments in Blue Chips and remove Frasers Centrepoint Limited from Balanced and Dividend categories
• We add City Developments to the Blue Chips category. We had removed it on 15 April when the stock traded higher at $8.66. It has since corrected to as low as $7.90. Potential catalysts going forward include - (1) Possible inclusion into the FTSE EPRA/NAREIT Global Developed Index (review date 2nd June) (2) Better investors' sentiment towards property developers if the hope that government may ease measures picks up.
• We remove Frasers Centrepoint Limited from the Dividend and Balanced portfolios.
Religare Health Trust (RHT SP): HOLD
Last Traded Price: S$1.01; Price Target: S$0.95 (Downside 6%) (Prev S$0.97)
Fairly priced
• 4Q16 DPU grew 0.5% y-o-y, in line
• Average revenue per operating bed rose 5% while occupancy fell
• Distribution payout reduced to 95% (100% previously) from FY2017 onwards
• Proposed disposal still pending approval
SATS (SATS SP): HOLD
Last Traded Price: S$4.21; Price Target: S$4.18 (Downside 1%) (Prev S$3.65)
Positive prospects priced in
• 4Q16/FY16 results in line; higher passenger volume offsets lower pricing in aviation food
• Growth outlook remains muted; recovery in aviation traffic dampened by low airline yields
• Valuations stretched at <4% dividend yield and PE at +2SD; maintain HOLD, TP S$4.18 maintain HOLD, TP S$4.18
News
CDL attempts third PPS deal, this time with top-end condos
CITY Developments Ltd (CDL) is said to be attempting its third profit participation securities (PPS) structure, this time involving a portfolio of 48 apartments in three projects in the Core Central Region completed earlier. The potential deal is seen as the latest instalment of the group's capital-recycling strategy. PPS is a fixed-term instrument that provides investors both yield and capital gains play. The 48 apartments - at Cliveden at Grange, St Regis Residences Singapore and One Shenton - have a total portfolio size of about S$350m, which works out to around S$2,300 per square foot on strata area. The units are substantially leased.
Motor loans restriction eased. Property easing in the wings?
The Monetary Authority of Singapore (MAS) has just announced the relaxation of financing loans for vehicles. The maximum loan-to-value for vehicles on the open market less than or equal to S$20,000 will be raised from 60% to 70% while vehicles more than S$20,000 will be raised to 60% from 50%. The maximum loan tenure is also increased to 7 years (5 years). This adjustments follows a sustained moderation in Certificate of Entitlement (COE) premiums over time.
Property easing in the wings? Our property analyst thinks that we are not there yet. Firstly, he notes that prices, measured by the Property Price Index (PPI) is down 9.4% from the peak which is hardly a correction. (ii) The government has maintained in recent updates that the property market remains in a modest, controlled decline in prices given that prices still remain close to 40% above the lows seen in 2009, while income growth have lagged that. This is especially when interest rates remain low and any policy relaxation could result in an unintended rise in prices.
He believes that any tinkering is likely to come on the back of a further drop in prices close to the tune of 13%-15% (in line with previous policy reversal) or any systemic risk seen in the economy. A plausible timely, in his view, will likely come by the end of 2016 or 1H17.
He believes that the perceived policy loosening stance by the government will be a sentiment boost to developers who have been trading in a range close to 0.7x P/NAV (near the GFC lows) under the weight of a weak operating environment. Amongst developers,
City Developments (BUY, TP S$9.60) have the largest exposure to SG residential at 27% of its RNAV. Other developers with a higher portion of RNAV in the SG residential market is
Wheelock and Wing Tai.
Motor loans restriction eased. - impact on land transport
This change in financing for vehicles should level the playing field and lessen the attractiveness of financing a car through Uber arranged dealership. Currently, Uber has a financing scheme that allows consumers to finance up to 80% of the car's price, provided the car is registered under a company name and under a scheme that offers paid rides. With this narrowing of financing gap, this could lower the pool of cars in this area, in our view.
Could lead to higher COE prices? With the easing of financing, the resultant impact on COE prices remains to be seen on the back of an increased crop of supply. In the event of a higher COE prices (given increased demand), we believe this could put private car hire players off in their bid for COE to grow its fleet. In our view, if this happens, it could provide an outlet on competitive pressure or concerns that the private-hire car will edge taxi companies out.
We maintain our positive view on Comfort Delgro (BUY, TP: S$3.23).
Manufacturing output up 2.9% in April, boosted by biomedicals, semiconductors
Manufacturing output in Singapore rose a surprise 2.9% in April from a year ago, boosted by strong growth in the biomedical and semiconductor sectors. Excluding the biomedical sector, factory output was down 0.1 for the month. The biomedical manufacturing cluster's output jumped 14.9%, driven by a 17.7% output increase in the pharmaceuticals segment and a 5.4% increase in the medical technology segment. Output of the electronics sector rose 10.9%, boosted by a 24.2% increase in the semiconductor segment.
Source: DBS
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