Singapore Strategy & Top Picks 2018 - 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 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.

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.

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.

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.

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