ANALYSTS SAY: Buy, Sell, Hold (14 July 2017)

Ascendas REIT

Growth through rebalancing, stability through diversification

SINGAPORE | REAL ESTATE (REIT) | INITIATION

 Established and well-diversified platform, with a track-record of growing DPU.

 Singapore Industrial rents expected to bottom by 2018.

 Initiate coverage with Accumulate rating and $2.86 target price. Initiating with Accumulate rating and DDM valuation of $2.86 We like Ascendas Real Estate Investment Trust (A-REIT) for its track record of growing YoY distributions to Unitholders, active capital recycling, repositioning of portfolio mix and stability through its well-diversified portfolio. Our dividend discount model (DDM) valuation represents an implied 1.35x multiple over FY18e net-asset-value.

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ESR-REIT

Existing portfolio grinding along

■ 1H17 DPU of 1.96 Scts (-10.5% yoy) was below consensus and our expectations, at 45% of our FY17 forecast. 2Q17 DPU of 0.956 Scts (-11.3% yoy) was at 22%.

■ Portfolio WALE decreased to 3.4 years (1Q17: 3.7 years). Occupancy was flat qoq at 95.4%. Rental reversion for 1H17 was -18.3% (1Q17: -18.9%).

■ We cut our FY17F-18F DPU by 8.4-8.5% on 1H17 results and lower NPI margins. We also introduce our FY19F estimates.

■ There could be slight upside to our FY17 forecast should EREIT be reimbursed by insurance for the fire at 30 Toh Guan Road that occurred in 2Q17.

■ Maintain Hold. Upside risk could come from potential corporate actions.

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Sheng Siong Group: Broader sector sees resilience

Amid keen competition and relatively stable consumer sentiment, we expect the factors behind Sheng Siong Group’s flattish same stores sales in 1Q to likely continue into 2Q. In addition, the closure of The Verge store will slightly affect 2Q results as well. Nonetheless, we believe achieving an optimal level of revenue per square feet especially for the four new stores opened in 2016 (including 15k sq ft Yishun Junction 9) as well as the larger Block 506 Tampines store (additional 15k sq ft added), coupled with sustainable margins could offer resilience to earnings. We also estimate the new ~11k sq ft store along Woodlands St 12 to open by 3Q. While this latter new store is located about 1km walk from an existing store at Woodlands St 31 Blk 301, we believe management has traditionally been prudent in their decisions and the new store should help to boost presence and capture customers. Opportunities to expand also remain. With 2Q17 results to be released in the coming weeks, we maintain our BUY and S$1.15 FV.

CapitaLand Commercial Trust (CCT SP)

Capturing Office Rebound

Maintain BUY & SGD1.81 TP Long-awaited details for Golden Shoe’s redevelopment have been announced. We are positive as the redeveloped property should position CCT for a rebound in Singapore’s office market, by 2021. Our preliminary estimates suggest a development surplus of 2.9cts for CCT’s 45% stake. With its conservative 35% pro-forma aggregate leverage, before divestment of Wilkie Edge, we believe CCT has sufficient capacity to acquire another property to fill its income void during redevelopment. Independent valuers also recently raised their valuation of CCT’s properties by cutting cap / discount rates by 15/25bps. This is in line with our view of narrowing cap rates. Reiterate BUY and SGD1.81 TP, based on a target yield of 5.0%.No change to our estimates pending a full model update. Catalysts are expected from a rebound in office rents, while risks include a protracted office-market downturn and cost overruns in redevelopment projects.

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Oversea-Chinese Banking Corporation (OCBC SP)

2Q17 Results Preview:

Broad-based Growth With Resilient Asset Quality

We expect a slight uptick of 1bp qoq to 1.63% for NIM in 2Q17, driven by lower cost of deposits as OCBC collected more CASA from SMEs. High net worth clients remained on a risk-on mode, which contributed to higher loan growth from financing of leveraged investments and growth in wealth management fees. Asset quality has stabilised and provisions remained benign with no further damage from the oil & gas sector. Maintain BUY. Target price: S$13.00.

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