Excerpts from latest analysts’ reports:
JP Morgan upgrades SGX to Overweight, price target $10 
SGX price target of $10 is based on PE of 26X.
Photo by Sim KihWe upgrade SGX to OverWeight from UnderWeight and add the stock to our Asia Analysts’ Focus List with a Jun-10 price target of S$10, raised from S$5.60 previously.
The revision is driven by a 40% increase in FY10e (June end) EPS to S$0.38, as we revise volume assumptions to S$2bn for the year.
We expect earnings momentum and re-rating to drive the stock due to sustained revival in trading volumes. Our Price Target is based on fair PE of 26x, which is single stage DDM derived. We use 30% normalized RoE, 9% Ke and 6% terminal growth rate.
We recommend buying every dip on the stock price as we expect trading velocity to increase, albeit in the midst of continued volatility. The stock has underperformed the STI by 8.4% since our downgrade on 14 May, and we believe the seasonality and consolidation of volumes have played out and that the risk-return has turned positive.
In addition to securities trading volumes, we expect increased derivative volumes (23% of revenues) and IPO pipeline to support earnings and re-rating.
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However, being cautious not to raise our growth assumptions excessively amidst the financial crisis, we have upped the FY09 gross margin to 20% from 18.5% and lowered the risk premium only slightly. We believe Sunsine merits a BUY recommendation with fair value of 41 SG cents for investors with longer-term horizon. Koh Choon Kong will meet with SIAS Research members tonight in the 'Face to Face with CFO' series. Members can register to attend here. |
CIMB maintains ‘overweight’ rating on S- REITS
We review the results of 9 out of the 10 REITs under our coverage that released their results over the last two weeks and summarise management guidance from results briefings. Key takeaways include 1) a more favourable credit environment with easing borrowing margins; and 2) capital markets are also opening up once again.
In this environment, we could expect
1) REITs' borrowing costs could go lower;
2) loan tenures could grow longer; and
3) asset acquisitions may start once again as yields continue to decline. We adjust the risk-free rates applied in this report, in line with our declining house forecasts in recent months.
This result in reduced discount rates and raises target prices across our coverage. We maintain our Overweight stance on the SREIT sector as we believe macro factors of high liquidity and low interest cost are favourable. Our top picks remain CDL Hospitality Trust and Suntec REIT - the best proxy to an Integrated Resort-led recovery in 2010.
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