Singapore REITs - OCBC Investment 2016-12-07: Fortune Favours The Brave (Part C) Recommendations

SGinvestors.io

SREIT 2017 Recommendation FRASERS CENTREPOINT TRUST J69U.SI KEPPEL DC REIT AJBU.SI ASCENDAS REAL ESTATE INV TRUST A17U.SI FRASERS LOGISTICS & IND TRUST BUOU.SI MAPLETREE GREATER CHINACOMM TR RW0U.SI

Singapore REITs - Recommendations

S-REITs offer significant value vis-à-vis major REIT markets 

• Comparing the distribution yields of the major REIT markets using the FTSE EPRA/NAREIT REIT indices against their respective 10-year Government bond yields, we note that S-REITs offer significant value vis- à-vis their peers. 
• The yield spread of S-REITs currently stands at 421 bps, which is only lower than Europe (441 bps), but higher than Japan (379bps), Hong Kong (343bps), Australia (258bps) and U.S. (207bps).

Valuations not demanding; maintain OVERWEIGHT 

• Given the recent volatility in sovereign bond yields, the FSTREI is trading at a forward yield spread of 428 bps against the Singapore Government 10-year bond yield, which is slightly below the 5-year average of 440 bps.
• However, with continued vagaries in the geopolitical and macro landscape, we believe good quality defensive yield assets should still warrant a strategic position in investors’ portfolio. Moreover, on a standalone basis, the FSTREI blended forward distribution yield currently stands at 6.64%, which is approximately 0.4 standard deviation (SD) above its 5-year average of 6.45%; while forward P/B ratio of 0.94x is 0.4 SD below the 5-year mean of 0.98x.
• In light of the aforementioned factors, we believe sector valuations are not demanding, and thus maintain our OVERWEIGHT rating on the SREITs sector. 
• The year ahead is likely to remain volatile, and we believe investors should be nimble and position themselves for bargain hunting opportunities when the sector experiences a pullback. 
• Our preferred sector picks are Frasers Centrepoint Trust [BUY; FV: S$2.33], Keppel DC REIT [BUY; FV: S$1.35], Ascendas REIT [BUY; FV: S$2.67], Frasers Logistics & Industrial Trust [BUY; FV: S$1.10] and Mapletree Greater China Commercial Trust [BUY; FV: S$1.15].

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-12-07

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.33 Same 2.33

BUY Maintain BUY 1.35 Same 1.35

BUY Maintain BUY 2.67 Same 2.67

BUY Maintain BUY 1.10 Same 1.10

BUY Maintain BUY 1.15 Same 1.15