Property Devt & Invt - CIMB Research 2016-11-03: Amazon and the expansion of New Economy firms

Property Devt & Invt - CIMB Research 2016-11-03: Amazon and the expansion of New Economy firms CAPITALAND COMMERCIAL TRUST C61U.SI MAPLETREE COMMERCIAL TRUST N2IU.SI KEPPEL DC REIT AJBU.SI

Property Devt & Invt - Amazon and the expansion of New Economy firms

  • Amazon is planning to expand to Southeast Asia through a Singapore launch slated for 1Q17.
  • The expansion of Amazon reinforces some of the underlying trends we observed: ecommerce threat, new office and warehouse demand from internet companies.
  • Maintain Overweight. Our top picks are KDCREIT, MCT and MINT.

Amazon to launch in Singapore in 1Q17

  • According to media reports, Amazon is planning to expand to Southeast Asia through a Singapore launch slated for 1Q17. TechCrunch reported that Amazon is covertly acquiring assets, including refrigerated trucks, and making new hires.
  • Checks by TODAY showed that the company has over the past six months placed on its jobs website more than 70 ads for positions in Singapore. This makes up nearly 80% of the 95 open jobs it is hiring for positions in the island-state. The positions cut across a wide range of functions, including marketing, supply chain and business development.
  • Amazon Web Services (AWS), a business unit of Amazon, currently has presence in Singapore and occupies Capital Square (50-50 jointly owned by Alpha Investment and NTUC Income). We suspect AWS could be leasing data centre space from Equinix to support its operations. Essentially, AWS offers a suite of cloud-computing services.

Thoughts from the expansion of Amazon

  • The expansion of Amazon into Southeast Asia reinforces some of the themes we highlighted in our ASEAN REIT report, Accommodating ASEAN “new economy” dated 5 Sep 2016.
  • Brick-and-mortar retailers would obviously face the most threat from Amazon, especially as the e-commerce giant is reportedly offering last mile delivery offerings such as AmazonFresh grocery service and Amazon Prime (free delivery and access to a library of videos and music). Already, we note that suburban malls are more resilient than the Orchard Road shopping belt.
  • The expansion of internet firms has at least provided some relief for office landlords, whereby leasing activities have been supported mainly by relocation demand. It would be interesting to see whether Amazon would occupy offices or business parks.
  • Thirdly, the major beneficiary of e-commerce would be logistics facilities or modern warehouses. However, we believe supply pressures would continue to overwhelm as warehouses are the most oversupplied among the industrial assets.
  • Hypothetically, the greater data usage and creation will lead to more demand for data centre storage capacity.

Maintain Overweight

  • We maintain our Overweight rating on the sector. 
  • Our top picks remain KDCREIT, MCT and MINT. 
  • Peeking into 2017, with the sector trading at historical mean, we believe the call on S-REITs is essentially a call on macro/interest rate. Hence, we would advise investors to shift to REITs with reasonable valuations and resilient income.

Highlighted companies 

CapitaLand Commercial Trust ADD, TP S$1.69, S$1.58 close 

  • Enjoys high portfolio occupancy of c.97%. We project that the additional contribution of CapitaGreen would more than offset negative rental reversions elsewhere.

Keppel DC REIT ADD, TP S$1.33, S$1.24 close 

  • We believe its acquisition momentum would mask near-term supply bump. There could be further earnings upside as we have conservatively assumed that tax transparency for SGP 3 would not be obtained.

Mapletree Commercial Trust ADD, TP S$1.62, S$1.52 close 

  • VivoCity continues to deliver positive rental reversion, underpinned by higher tenant sales and shopper traffic. We believe the addition of MPC P1 will strategically enhance the trust’s size and stability.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-11-03
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.690 Same 1.690
ADD Maintain ADD 1.33 Same 1.33
ADD Maintain ADD 1.62 Same 1.62