Singapore Strategy & Top Picks 2018 - RHB Invest 2018-01-24: Adding Real Estate To List Of OVERWEIGHT Sectors

Singapore Strategy & Top Picks 2018 - Singapore - RHB Invest 2018-01-24: Adding Real Estate To List Of OVERWEIGHT Sectors Singapore Stock Market RHB's Top Picks 2018 CACHE LOGISTICS TRUST K2LU.SI CAPITALAND LIMITED C31.SI OUE HOSPITALITY TRUST SK7.SI

Strategy - Singapore - Adding Real Estate To List Of OVERWEIGHT Sectors

  • Our 2018 Top Stock Picks have generated YTD returns of 7.8%, outperforming FSSTI’s 5.6%. 
  • We upgraded CapitaLand to BUY (from Neutral) and revised our call on the Real Estate sector to OVERWEIGHT. 
  • We remain optimistic on the outlook for Industrial REITs and added Cache Logistics Trust to our Top Picks following a recent upgrade to BUY (from Neutral). 
  • With small upgrades to index EPS, we raise our end-2018 FSSTI target to 3,660 (from 3,650), implying a 5.1% TSR from here on. 
  • Real Estate, REITs and Consumer are OVERWEIGHT, while the NEUTRAL call on banks has an OVERWEIGHT bias.

CapitaLand is now our Top Real Estate Pick. 

  • CapitaLand was upgraded to BUY following the group’s recent divestments of non-core retail assets in China and India (in our report CapitaLand - Making The Right Moves dated 8 Jan). 
  • We think the company now has the right ingredients to deliver long-term growth, given its growing business presence through management contracts, rising recurring income base and focus on asset light strategies. 
  • CapitaLand's share price has lagged its peers. The reconstitution of its China retail assets and a softer government policy stance in the Chinese property market (in our report China Real Estate - Stay Positive Amidst Recent Rally dated 8 Jan) have removed some overhang on CapitaLand. We expect the counter to outperform in 2018.

Improving near-term optimism for Real Estate. 

  • CapitaLand’s upgrade to BUY led us to raise the Real Estate sector to OVERWEIGHT (from Neutral). In our report Real Estate - Brighter Outlook But Watch Out For Pitfalls dated 12 Jan, we highlighted our expectations of a 3-7% rebound in property prices during 2018. This price rebound would be aided by the improving job market, strong surge in the en-bloc sales, and falling inventory levels. However, we remain conservative on the price outlook vs consensus as a soft rental market, rising interest rates and unchanged immigration policies could keep investment demand at bay.

Adding Cache Logistics Trust (Cache) to Top Picks. 

  • We upgraded Cache Logistics Trust to BUY in our report - Cache Logistics Trust - Looking Beyond The Near-Term Weakness as we now expect the logistics sector rents to bottom out in 1H18 given a more favourable demand supply balance. The resolution of a rent dispute with Schenker Singapore Pte Ltd, one of its anchor tenants, in Nov 2017, has also removed a key overhang on the stock. 
  • To address concerns of high gearing, it raised SGD102.7m through a rights issue in Sep 2017. It is also divesting 40 Alps Avenue for SGD73.8m, proceeds from which would be used to pare down debt. We expect it to announce a yield accretive acquisition in Australia soon. 
  • An upside surprise could come from lower interest cost and tax exemption for rental top-up income.

OUE Hospitality Trust’s (OUEHT) higher TP. 

  • We raised OUEHT's Target Price to SGD0.91 (from SGD0.88) after it announced an early debt refinancing at 40bps lower interest rate, translating into 2-3% higher DPU (in our report OUE Hospitality Trust - Early Refinancing Provides Another Boost dated 3 Jan). 
  • Hospitality remains our preferred segment among REITs and we continue to rate it as the key beneficiary of a 3-7% rebound in revenue per available room (RevPAR) in 2018. OUEHT's share price has delivered a 4.7% YTD returns. 
  • Key catalysts for its continued share price performance would be higher corporate demand from more events in 2018, tapering of hotel supply and Changi Airport’s continued rise as a regional hub.

RHB’s Top Picks For 2018

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2018-01-24
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.960 Same 0.960
BUY Maintain BUY 4.200 Same 4.200
BUY Maintain BUY 0.910 Same 0.910