Property - CIMB Research 2016-09-06: Singapore marketing feedback

Property - Overall - CIMB Research 2016-09-06: Singapore marketing feedback UOL GROUP LIMITED U14.SI MAPLETREE INDUSTRIAL TRUST ME8U.SI MAPLETREE COMMERCIAL TRUST N2IU.SI

Property - Overall - Singapore marketing feedback

  • Investors are hiding in yield. They concur that REITs are well-owned and are seeking reasons to switch to developers, but they lack near-term catalysts.
  • Developers: valuations are cheap but we expect sector to trade range-bound. Our pick remains UOL and Capitaland for outperformance over the next six months.
  • REITs: Partly driven by macro, we choose growth over value.

Singapore does not inspire; investors still seeking shelter in yield

  • We spent the last two weeks marketing Singapore property and REITs to a host of investors. We sensed that investors are largely hiding in yield, especially in liquid, large-cap REITs. For these reasons, retail REITs seem to be a favoured canopy.

Investors concurred that REITs are overly-crowded. 

  • Although investors are looking for a reason to switch to developers, the lack of near-term catalysts (for developers) is holding them back. There was some lengthy discourse on catalysts for each respective developer, as well as privatisation candidates.

Developers: why we think UOL could outperform in the next six months

  • Main topics discussed were our preference for UOL over CIT in the near term and catalysts for the Singapore property sector, such as potential privatisation or M&A activities. We view UOL as a laggard, with attractive discounts to RNAV. It has high recurring income from rentals and hotel operations. Residential projects such as Principal Garden enjoy continued sales thus extending development income visibility.
  • Names highlighted as potential privatisation candidates include BS, HOBEE, WINGT and WP. However, we are less sanguine on these names as we think that factors such as dwindling cash hoard (WP) and the need to replenish landbank or reinvest for future earnings growth (WINGT) would push privatisation to the backburner. On the other hand, the continued buying of shares by HOBEE’s major shareholder has continued to put the company in the limelight for such action.

REITs: chase growth or value?

  • The question for REITs is whether we should continue to chase stocks that have done well or rotate into laggards. Our view is somewhat anti-consensus as we recommend chasing growth over value. Stocks which exhibit a visible growth path – KDCREIT, MCT and MINT – are trading at a c.25-30% premium over book. Investors’ pushback comes mainly from valuations.
  • However, in a “lower-for-longer” environment where growth is a scarcity and one where there are few compelling stories, we believe that the valuation premium would continue. Also, on a forward RNAV-basis, the valuation premiums for KDCREIT and MINT could gap down to c.20% (from 30%) when the assets are re-valued. 
  • Otherwise, we see sense in a few select laggards – AREIT (ADD) and FLT (NR).
  • We had the most pushback for KDCREIT (in terms of numbers of “dissent”). That said, we note that the stock also enjoys staunch support from a select pool of investors. Concerns for the stock centre on the supply situation and legacy issue of maintenance capex. Nearer-term, we believe that the story of data explosion and inorganic growth would overshadow these concerns. We stay in the bullish camp. 
  • There was little debate on our sub-sector preference. We rank industrials ahead, followed by retail, office, and hospitality. We believe that the big-cap industrials are more resilient and diversified to cope with potential frictional vacancies. Also, we think that industrial landlords are best positioned as Singapore diversifies towards valueadded businesses. Further upside could come from acquisitions.

Maintain Overweight on developers and REITs; preference for REITs on a 6-month horizon

  • We maintain Overweight on developers (trading at 40% disc. to RNAV) and REITs (lower-for-longer underpins our stance)
  • For developers, our order of preference is UOL, CAPL and CIT
  • For REITs, our top picks are KDCREIT, MCT and MINT.

Highlighted companies 

Mapletree Commercial Trust ADD, TP S$1.62, S$1.60 close 

  • The acquisition of MBC P1 will enhance MCT’s size and stability. Completion of AEI at VivoCity in Jul 16 should continue to drive the bottomline while minimal office renewals should provide a stable outlook.

Mapletree Industrial Trust ADD, TP S$1.90, S$1.77 close 

  • We like MINT for its resilient portfolio, strong balance sheet and 3-year DPU CAGR of 5% (FY16-19F), one of the highest under our coverage.

UOL Group ADD, TP S$7.96, S$5.73 close 

  • UOL has high recurring income, underpinned by rentals, hotels and investment holdings, providing the group with a recurring income base. The stock is trading at a 43% discount to RNAV.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-09-06
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.960 Same 7.960
ADD Maintain ADD 1.90 Same 1.90
ADD Maintain ADD 1.62 Same 1.620