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Singapore REITs: Time to be selective, downgrade to NEUTRAL The Fed’s dot plot diagram indicates that the Committee is still expecting three rate hikes this year, which is unchanged from the Dec 2016 FOMC meeting. Looking ahead, given more encouraging economic data points arising not only from the U.S. but also from other key economies such as China, coupled with the recent robust performance of the equity markets, we believe the likelihood of a faster-than-expected pace of rate increase remains a possibility at this juncture. Operationally, the leasing environment remains challenging across the subsectors. For S-REITs under OIR’s coverage, we project softer DPU growth in FY17. While we believe S-REITs still warrant a strategic position in investors’ portfolio in light of uncertainties surrounding the geopolitical and macroeconomic environment, valuations are no longer compelling, in our view. As such, we downgrade the SREITs sector from ‘Overweight’ to NEUTRAL. We recommend investors to be selective, and narrow down our preferred picks to three REITs. Based on current price levels, our top picks are Keppel DC REIT [BUY; FV: S$1.39], Frasers Centrepoint Trust [BUY; FV: S$2.28] and Frasers Logistics & Industrial Trust [BUY; FV: S$1.08]. |
Thai Beverage F&N/FCL restructuring to propel the group into a regional beverage play ■ Management reiterated its expectation of completing F&N/FCL’s restructuring by Sep 2017. Its tone on timeline guidance has never been so confident. ■ We think the key is to divest FCL and utilise the proceeds to further the group’s ambition of becoming a regional beverage play across multiple products. ■ However, we estimate earnings dilution of c.9% from restructuring F&N/FCL. We expect the group to mitigate this with other acquisitions. ■ Without equity fundraising, we estimate it will be able to undertake a US$1.5bn-2bn acquisition. For perspective, Sabeco, a potential target, is worth US$5.8bn. ■ Maintain Add as Thaibev evolves into a regional and total beverage play
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City Developments Room For Acquisition-Led Growth Our recent site visit to the newly completed South Beach Project reinforces our positive view on CDL’s project management capabilities. Post policy relaxation, sales momentum has picked up across its Singapore residential projects, which should lower inventory risk. Additionally, its strong balance sheet offers healthy headroom (>SGD 3bn) for acquisitions. Despite a share price outperformance, CDL remains our Preferred Pick for its asset monetisation ability, nimble capital management and acquisition potential. Maintain BUY with a higher TP of SGD11.30 (from SGD10.50, 11% upside).
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| UOB Kayhian | |
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Long/Short Ideas: BUY OCBC, SELL DBS
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Check out our compilation of Target Prices
