ANALYSTS SAY: Buy, Sell, Hold (23 June 2017)

REIT

Let’s go for a bus ride!

■ We brought a group of local investors to three distinct business park clusters: i) Singapore Science Park, ii) one-north and iii) Changi Business Park.

■ Given easing supply and demand from science, technology and media sectors, we believe that business parks would be the first to post recovery gains this year.

■ A flattening/declining yield curve and abating supply pressures in 2018 underpin our Overweight stance on the sector. Risks include rate hikes or economic recession.

■ We believe that the positive view on business park recovery and further acquisitive DPU growth have been largely priced in for AREIT.

■ Instead, our preferred picks are FLT, MAGIC and MCT.

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CapitaLand Commercial Trust (CCT SP)

Divestment Of One George Street

CCT has completed the divestment of a 50% stake in One George Street for $591.6m ($2,650psf) to insurer FWD Group. The divestment will facilitate the redevelopment of Golden Shoe Carpark. Management is still evaluating whether distribution from One George Street sales proceeds will be partly used to mitigate the income shortfall. We reduce our 2017-19F DPU by 1-3.1% after factoring in the loss of income from One George Street. Maintain BUY with a lower target price of S$1.90 (previously S$1.94).

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Singapore Airlines: Integrating LCC operations

Singapore Airlines’ (SIA) wholly owned subsidiary, Budget Aviation Holdings (BAH), recently announced that Scoot and Tigerair will operate under Scoot brand from 25 Jul 17, as these two brands will merge to operate under a single air operator certificate (AOC). SIA has opted to retain Tigerair’s AOC, which we believe is a logical choice given that Tigerair currently serves more countries than Scoot. We believe this integration will improve BAH’s capacity management capability since not all countries allow airport slots transfer between two airlines. This means if Scoot and Tigerair continues to operate with separate AOCs, it will be impossible to increase or decrease capacity by changing the type of aircraft being used on these routes. Under a single AOC, it will provide BAH with more flexibility in terms of capacity management. All said, yields are still under pressure on intensifying competition driven by expansions of the Gulf and Chinese carriers, which could erode any gains derived from the integration. Keeping our forecasts unchanged for now, maintain HOLD on SIA with FV of S$10.03.