ANALYSTS SAY: Buy, Sell, Hold (4 Feb)

MAYBANK KIM ENG

LIM & TAN

Sembcorp Industries (SCI SP)

Wind of change

Reducing emphasis on Sustainable Solutions business Business Times cited SCI’s management as saying it may miss one of its FY25 targets of achieving 70% of group net profit from the Sustainable Solutions portfolio, and that it will stop using this metric as one of its targets for FY28. Given strong profit from gas sales and demand-supply imbalance of renewables, a miss in Sustainable Solutions would not be a surprise for us. That said, we expect near-term focus on capital allocation priorities and multiples ascribed for renewables. Maintain BUY as gas sales provide earnings visibility

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CapitaLand Investment Limited / CLI ($2.42, down 0.04), a leading global real asset manager, has acquired a freehold land parcel in Osaka to develop its first data centre in Japan which will entail a total investment of more than US$700 million (S$944.3 million). 50 megawatts (MW) of power capacity have also been secured for the project. The acquisition is a testament to CLI’s strong global multi-asset class network and dealsourcing capability. With this latest acquisition, CLI has added 23 data centres to its global portfolio since 2021. CapitaLand Group has 27 data centres across Asia and Europe with about 800 MW of power and around S$6 billion of assets under management on a completed basis.

With the step up in the AI race and dominance globally, we see datacentres as being the critical backbone to support such efforts. We maintain Accumulate on CLI given its yield of more than 5%, price to book of 0.9x and Bloomberg consensus target price of $3.52, implying a potential upside of 46%.

LIM & TAN

MAYBANK KIM ENG

Keppel Infrastructure Trust / KIT ($0.455, unchanged) delivered a strong set of results for the year, with Funds from Operations (FFO) for FY 2024 recording solid growth of 10.3% YoY to $282.0 million. Distributable Income (DI) for FY 2024 was $203.7 million, supported by steady portfolio performance, the resumption of contribution from Keppel Merlimau Cogen Plant (KMC), as well as contributions from newly acquired German Solar Portfolio and Ventura completed during the year.

KIT’s market cap stands at S$2.8bln and currently trades at 16x forward PE and 1.8x PB, with a dividend yield of 5-6%. Consensus target price stands at S$0.50, representing 8% upside from current share price. Given the small upside to consensus target price and fair valuations, we recommend a HOLD recommendation for KIT

Malaysia Strategy

JS-SEZ: More fiscal incentives

More details on fiscal incentives by flagship areas

More follow-ups post our Johor visit in mid-January where we have been anticipating details of more fiscal incentives to be announced at respective Flagship areas. This further reaffirms a commitment to make the JS-SEZ a success. Our JS-SEZ proxies remain ECW, ITMAX, YTLP, Dialog and AME Elite (Not Rated). Plantation companies with landbank which could be monetised include SDG, GENP and KLK. Watch this space - next decision to be made on traffic/people dispersal; ART vs LRT.

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Summary: Eyes on Earnings and Trump’s Next Moves – Singapore Market Focus

STI Outlook: Sideways Trend with Year-End Target at 3950

• The Straits Times Index (STI) is expected to move sideways after a 6.3% rally since the U.S. election, with renewed tariff uncertainties.
• Singapore Budget 2025 and General Election developments are unlikely to impact stocks significantly.
• Year-end target for STI remains at 3950.

Key Stocks to Watch for FY24 Results

• Positive outlook:
  1. Sembcorp Industries – Potential for earnings beat and positive guidance.
  2. AEM Holdings – Strong 4Q24 could signal an improving FY25.
  3. DFI Retail – Clarity on Yonghui disposal may lead to special dividends.
  4. IFAST – Growth in its pension business and AUA momentum.
• Cautious outlook:
  • SIA, Genting Singapore, and SATS face potential headwinds.

Trump’s Policies: Market Impacts & Beneficiaries

• Uncertainty over tariffs remains, as they are likely to fund anticipated tax cuts.
• "Trump 2.0" beneficiary stocks:
  • UOB (higher rates for longer).
  • ST Engineering (US reshoring).
  • ComfortDelGro & Seatrium (US domestic production boost).
  • Venture & Frencken (China+1 strategy).
  • S-REITs picks (FCT, CICT, MINT) expected to rebound from "buy banks, sell REITs" trade.

2025 Investment Themes

1. Resilient earnings & recovery:
   • ST Engineering: Strong order backlog and defense spending potential.
   • Sheng Siong: Possible focus on cost-of-living measures in Budget 2025.
2. MAS equity market review beneficiaries:
   • ThaiBev: Value unlocking and improving fundamentals.
   • Singtel: Potential sector consolidation benefits.

Summary of 1HFY25 Results for LREIT

Financial Performance

• Distributable Income: Declined 11.8% y/y to SGD 43.5 million, mainly due to higher interest costs from replacing Euro-denominated loan hedges.
• DPU: Dropped 14.3% y/y to 1.80 Singapore cents, meeting in-house estimates but below consensus forecasts.
• Gross Revenue & NPI:
  • Gross revenue down 13.6% y/y, net property income (NPI) fell 19.8% y/y.
  • Adjusted for supplementary rent from Sky Complex, revenue was up 0.4% y/y, while NPI fell 2.2% y/y due to higher operating expenses.

Operational Performance

• Occupancy: Stable at 92.3% (Retail 99.9%, Office 86.6%).
• Rental Reversions:
  • Retail leases: +10.7%.
  • Sky Italia lease (Sky Complex 1 & 2): +1.2% (inflation-pegged).
• Tenant Sales: Declined 5.2% y/y in 2H24 due to strong outbound travel.
• Sky Complex B3 Occupancy: Increased to 31% (two new tenants secured), with a target of 25% for FY25 and 50% for FY26.
• Grange Carpark Redevelopment: Scheduled for completion in 2H26, featuring 3,000-seat event space, F&B outlets, and an art exhibition lane.

Capital & Debt Management

• Gearing: Stable at 40.8%.
• Interest Costs:
  • Avg. borrowing cost up 4.4% y/y.
  • Fixed hedge ratio remains ~70%.
• Debt Refinancing:
  • Secured funding for SGD 360M due in FY25 and SGD 200M maturing in Sep-25.
  • Perpetual debt reset (SGD 250M in Apr-25) could marginally increase borrowing costs due to a higher 3-year SORA benchmark.

Outlook & Key Watchpoints

• JEM Office Anchor Lease (MND): Five-year rental review expected to bring a double-digit rent increase from Dec-24.
• FY25-FY26 Loan Renewals: Caution over high-interest-rate environment.
• Sky Complex Leasing: 60-70% occupancy needed for DPU neutrality after rental top-ups end.

Overall Verdict: 1HFY25 results were in line with internal expectations but below consensus estimates. Strong retail reversions and upcoming rent hikes at JEM are positives, but debt costs and Sky Complex leasing remain key risks.