Singapore Strategy - CIMB Research 2015-10-06: Trans-Pacific Partnership winners and losers

Singapore Strategy - CIMB Research 2015-10-06: Trans-Pacific Partnership winners and losers CAPITALAND COMMERCIAL TRUST C61U.SI  ASCENDAS REAL ESTATE INV TRUST A17U.SI  SATS LTD A17U.SI 

Singapore Strategy - Trans-Pacific Partnership winners and losers

  • Singapore is already a relatively open market, with 21 FTAs signed and in-force, prior to the TPP. We are not worried about increased competition domestically. 
  • TPP will improve Singapore’s standing as an ASEAN hub; office landlords, business parks, warehouses, airport services all stand to gain. Manufacturers benefit from technology transfer. Banks benefit from funding domestic SMEs heading abroad. 
  • Losers include media and telco companies, and potentially healthcare. 

What is the TPP about? 

  • Twelve Pacific Rim countries signed the Trans-Pacific Partnership (TPP) at the start of the week. The TPP is not only meant to reduce trade barriers, it is also a treaty to oblige TPP countries to open up access to home markets, adopt stricter labor and environmental rules, provide stronger legal protection to drug companies, and lengthen copyright protection. 
  • Interestingly, China is not a signee, which suggests that the TPP is also a vehicle for the US to leverage its soft power into Asia. 

From the perspective of Singapore and Singapore companies 

  • Our view is the TPP represents more opportunities for Singapore SMEs to expand out. We are less concerned about the threat of foreign competition coming onshore. Singapore is already a relatively open market for banking, insurance, education, etc. As well, it does not have domestic industries like agriculture or automobiles to protect. 

Potential long-term winners 

  • Singapore is viewed as a hub to access ASEAN markets. Together with an impending AEC, we believe MNCs will view Singapore’s hub status as enhanced. Stock market beneficiaries from this ‘enhanced hub’ theme includes: 
    1. office landlords (UOL, CCT, KEP, KREIT), business parks (AREIT, Soilbuild, Cambridge); 
    2. airport services (SATS, SIAEC), 
    3. warehouse operators (Cache, MLT); as more MNCs set up shop here. 
  • A second group of winners would be manufacturers. These include not only the likes of VMS, MTEC, IP but also many more SMEs. Our analyst believes that the TPP, which is intended to better protect intellectual property, will encourage US companies to be open in exporting its leading-age components and technology, to manufacturing outfits in Singapore. Singapore’s pharma manufacturing industry would also view this as a positive, though it lacks stock beneficiaries. 
  • The third group of winners would be banks. Banking and insurance already operate in an open environment in Singapore, with prior FTAs (US, India) allowing foreign banks quite a bit of freedom to compete domestically; we are not too concerned with increased competition. Instead, we expect the TPP to provide lending opportunities to fund SMEs expanding out. 

Potential long-term losers 

  • With the US taking the lead in TPP, we expect incoming innovative tech companies in the media and content space to pose a threat for telcos (ST, M1, STH) and media (SPH) companies. 
  • In our opinion, another space that might see threats would be healthcare, as foreign companies could be interested in medical tourism opportunities here, while extension of drug patents could push up drug costs.

Highlighted companies 

CapitaLand Commercial Trust ADD, TP S$1.69, S$1.35 close 

  • TPP, plus an impeding AEC can make S’pore an attractive hub for TPP countries to access ASEAN markets, This potentially adds to office demand in a period where excess supply has already hit landlords’ share prices. 

Ascendas REIT ADD, TP S$2.57, S$2.38 close 

  • The US, being a lead in the TPP talks, is a source of innovative new tech companies. If the TPP encourages these companies to set up in Singapore, business park space is also attractive to these companies. 

SATS HOLD, TP S$3.56, S$3.90 close 

  • The domestic market of Singapore is too small to interest foreign companies. Its hub status is the key attraction; airport services like SATS stand to gain as the flow of outbound SME expansion and inbound FDIs grow.

Kenneth NG CFA CIMB Securities | http://research.itradecimb.com/ 2015-10-07
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.69 Same 1.69
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