ANALYSTS SAY: Buy, Sell, Hold (25 July 2017)

Singapore Economics

Headline Inflation Dips as S&CC Rebates Effect Dissipate

Headline inflation softened in June as the base effects from the disbursement of Service & Conservancy Charges (S&CC) rebates dissipated. Headline inflation decelerated to +0.5% in Jun-17 from a year ago (May-17: +1.4%), weighed down by a sharp decline in “housing & utilities” costs. Core inflation softened further in June to +1.5% (May-17: +1.6%) on lower services and food inflation.

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REITs − Singapore

1QFY18 Results Of MLT (In Line); 3QFY17 Results Of FCT (In Line)

MLT’s and FCT’s results are in line with expectations, with portfolio rental reversions of +6% and +0.4% in the quarter respectively. MLT holds a mixed outlook with confidence in Hong Kong and trepidation in Singapore due to its single-user assets. FCT remains cautiously optimistic on its outlook due to its suburban portfolio. For MLT, maintain BUY and target price of S$1.29. For FCT, maintain BUY and target price of S$2.26. Maintain OVERWEIGHT on the sector.

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Frasers Centrepoint Trust

Tenant sales remain weak

SINGAPORE | REAL ESTATE (REIT) | 3Q17 RESULTS

 3Q17 results were within our expectations. 9M17 DPU at 74.4% of our FY17e DPU.

 Suburban malls’ rentals continue to drop as evident from slowing reversions.

 Tenant sales remain weak (-3.3% YoY excl. Northpoint) despite higher shopper traffic (+3.7% YoY).

 Improved occupancies expected at Northpoint and Changi City Point by year end.

 Maintain Neutral with a higher DDM-derived target price of S$2.14.

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mm2 Asia

Assuming ‘orange sky’ scenario

■ mm2’s proposed acquisition of a 50% stake in GV Singapore has been delayed.

■ The reason for the delay is that the seller could not obtain the approval of OSGH, the owner of the remaining 50% interest in GV Singapore by 21 Jul 2017.

■ While management confirmed that discussions are still underway, we expect stock overhang from the uncertainty. Its war chest of cash and cinema vision are intact.

■ Downgrade from Add to Hold following our 21-23% FY18-20F EPS cuts as we remove earnings contribution from GV Singapore.

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Frasers Commercial Trust: Broadly in-line set of results

Frasers Commercial Trust’s (FCOT) 3QFY17 results came in broadly within our expectations. Gross revenue and NPI fell 0.6% and 0.8% YoY to S$38.3m and S$27.9m, respectively, while DPU dropped 0.4% YoY to 2.40 S cents. The better performance by FCOT’s Australian portfolio on the back of a stronger AUD was offset by lower occupancy rates at Alexandra Technopark, China Square Central and Central Park. Notwithstanding the above, on a 9MFY17 basis, gross revenue and NPI both rose by 0.9% YoY to S$118.2m and S$87.1m, respectively. DPU improved by 0.5% YoY to 7.41 S-cents, forming 74.9% of our FY17 forecast. Looking ahead, we see signs of stabilisation in the Singapore office sector, while business park rents continue to hold their ground. In Australia, the Perth prime grade rents appear to be approaching a trough, while Melbourne’s CBD office market continues to remain strong. Pending further details from management, especially on developments relating to the upcoming Hewlett-Packard tenancy expiries, we put our BUY rating and fair value estimate of S$1.39 under review.