Singapore Strategy - CGS-CIMB Research 2019-01-11: Sentiment Built Up Along The Way

Singapore Strategy - CGS-CIMB Research | SGinvestors.io CAPITALAND LIMITED (SGX:C31) CDL HOSPITALITY TRUSTS (SGX:J85) OVERSEA-CHINESE BANKING CORP (SGX:O39)

Singapore Strategy - Sentiment Built Up Along The Way




Overweight call on developers better received by HK investors

  • The more positive reception in HK could be due to timing. Our marketing in HK (ended yesterday) was the last leg of our tour and coincided with an unexpected global stock rally buildup as US-China trade talks wrap up. Top 3 concerns raised:
    1. lack of sector catalysts,
    2. impairment risks,
    3. weak property market in China.
  • We reiterate that our OVERWEIGHT call on developers, premised on
    1. sector valuation is currently near crisis level,
    2. initial take-up rate of new units launched (c.+25%) post cooling measures were better than expected, and
    3. rising interest rate could be a past in 2H19F and inversely benefit developers, which are relatively under-owned vs. the crowded REIT space.
  • We think a consistent sell-through rate and stabilised prices for new launches could be read positively. Impairment on NAV would be premature as developers are still within the 5-year window to complete projects. We forecast property prices to rise 0-3% in 2019F with similar y-o-y demand of 9,000-10,000 units.
  • We still like REITs and think it is a rotational space. SUNTEC REAL ESTATE INV TRUST (SGX:T82U) and MAPLETREE COMMERCIAL TRUST (SGX:N2IU) drew more interests as rotation back-up for CAPITALAND MALL TRUST (SGX:C38U) and CAPITALAND COMMERCIAL TRUST (SGX:C61U). We like CDL HOSPITALITY TRUSTS (SGX:J85) due to 2H19F catalysts from improving statistics for Orchard Hotel and Maldives assets post refurbishment.
  • We remove CapitaLand Mall Trust from our list of alpha stock picks given its outperformance. (See Navigating Singapore - Analysts Top Picks 2019 for the list of alpha picks.) 


Investors like banks for their yields

  • Preference among investors were tilted towards UNITED OVERSEAS BANK LTD (SGX:U11) as a defensive name for its yield and relatively sheltered exposure from HK/China loan. Some investors were concerned over the banks' ability to expand NIM if the US Fed cuts its rate. We think repricing lag will flow through from 4Q18 to 1H19F. 4Q18F dividends could be the key to keep interests on Singapore banks, propping up the FSSTI.
  • Investors were neutral over the impact from the recent Coastal Oil liquidation on Singapore banks although we their believe asset quality could be in the limelight again.


Thai Bev and STE preferred over peers



Names that could surprise on the upside



Highlighted Companies


CAPITALAND LIMITED (SGX:C31)

  • ADD, Target Price S$3.55.
  • We like CapitaLand for its strong capital recycling activities and good progress in meeting its ROE target of 8%. Bumper recognition of Chinese projects in 4Q18F could be a key re-rating catalyst.

CDL HOSPITALITY TRUSTS (SGX:J85)

  • ADD, Target Price S$1.63.
  • It offers 6.3% yield for FY19F. The completion of its refurbishment works and recovery in Singapore RevPAR are potential re-rating catalysts. This should sustain our projection of 6.3% DPU growth in FY19F.

OVERSEA-CHINESE BANKING CORP (SGX:O39)

  • ADD, Target Price S$14.00.
  • OCBC is a laggard pick. With similar loan exposure to HK/China and ROE of 12% for FY19, OCBC trades at a more attractive valuation of 1.07x CY19F P/BV vs. DBS's 1.11x.





LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-11
SGX Stock Analyst Report ADD MAINTAIN ADD 3.550 SAME 3.550
ADD MAINTAIN ADD 1.630 SAME 1.630
ADD MAINTAIN ADD 14.000 SAME 14.000



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