OUE Hospitality Trust: 2018 – a positive year for operations
The growth in passenger movements at Changi Airport remains strong – increasing 8.1% YoY in Oct and also in Nov. This is likely indicative of robust tourist arrivals in 4Q17 and would be a positive for Crowne Plaza Changi Airport, which has been stabilizing rapidly. While hotel operators may face fiercer competition in 4Q17 and 1Q18, the rest of 2018 is expected to offer a significantly improved supply-demand situation. In 2018, the injection of additional hotel rooms is expected to be minimal (~1.7% of existing supply), while both visitor arrivals and business demand are expected to grow mid- to high- single digit. After adjusting our model parameters on the lowered average cost of debt, our fair value increases from S$0.82 to S$0.83 and we expect a 6.2% FY18F yield against yesterday’s closing price. The stock has received more price action as of late, rallying from S$0.845 as at end-27 Dec 2017 to S$0.875 as of yesterday. We still do not find OUEHT’s current unit price compelling, though we remain most positive on OUEHT out of the four hospitality REITs under our coverage. Maintain HOLD on OUEHT on valuation grounds.
Banking – Singapore
Fintech – Enabler Or Disruptor?
Fintech introduced many foundational innovations that enable banks to reach and serve a wider audience with a leaner cost structure. DLT may cause some disruption but we see the impact as manageable. BUY DBS and OCBC. DBS is recognised as the world’s best digital bank and has the most productive workforce. OCBC leads in cost efficiency, and its income and PPoP per employee have grown at a faster CAGR of 4.6% and 4.3% respectively for 2013-17. Maintain OVERWEIGHT.
■ We estimate S$9bn p.a. of public civil engineering contracts could be awarded in Singapore in 2018-2021F, leading to construction sector recovery.
■ North-South Corridor is a key project, in our view.
■ In the private sector, we are seeing a multiplier effect from the en bloc deals, which we estimate could add S$1bn in construction value in 2018F.
■ Signs of easing competitive pressure could indicate better profitability for construction firms ahead. Maintain sector Overweight.
■ Yongnam is our top pick in the sector. Other key players of sizeable market cap highlighted in this report are Wee Hur, Lum Chang, Pan-United and Koh Brothers.
Strategy 2018 – Stay Selective, Focus Shifts to Growth
We expect selective REITs to continue to remain in favour in 2018 after a stellar performance in 2017 (+21%). While valuations are slightly above mean and rate hike threat persists, the strong economic pick-up should boost underlying demand and continue to support REITs. We believe investor attention would now turn to REITs that are likely to benefit from the current economic growth cycle and deliver DPU growth. Industrial and hospitality sectors are expected to be direct beneficiaries of the economic pick-up and would be further aided by supply tapering. While the office sector outlook is positive, stocks have priced in most of the upside. Retail is our least preferred sector, as weak demand and supply challenges continue to weigh. We remain OVERWEIGHT on the sector.
Positive buildup to 4Q results season
STI year-end base case objective 3688, bull case 3800
SIBOR’s jump positive for OCBC and UOB
Beneficiaries of US corporate tax cut – ST Engineering, Cityneon, Venture Corp
Interest uptick for service sector - Genting, mm2, Cityneon, OCBC & UOB
Check out our compilation of Target Prices