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Tuesday, September 10, 2013

Local Brokerages Stock Call 9 September 2013

From OCBC:

Singapore REITS: Downgrading to neutral
Summary: We now see fairly solid grounds for a base case that the Fed would taper in Sep 2013 or soon after, and we downgrade the S-REIT sector to NEUTRAL on three key reasons. First, we believe this is the beginning of a long term secular, not cyclical, trend of rising interest rates. Higher discount rates and liquidity factors, due to capital re-allocation across asset classes, would likely negatively impact REIT prices over the mid to long term. Second, we believe a limited fundamental growth outlook for the sector is unlikely to trump the negative impact of rising rates on S-REIT prices. Finally, a key proxy for cheapness – the sector’s yield spread against the SG 10Y bond – implies that the sector appears fairly priced now. Our most preferred sub-sectors are domestic retail and office where rental outlooks and valuations still appear fairly appealing. Our top picks are CapitaCommercial Trust [BUY, FV: S$1.61], Starhill Global REIT [BUY, FV: S$0.95] and Suntec REIT [BUY, FV: S$1.80].

From UOB KH:
Blue Chips: KREIT, DBS, CapitaLand
Selective pickings after the selldown

Some big-cap names appear attractive after the recent selldown.
We find Keppel REIT (KREIT) a very compelling BUY as it holds the
best office portfolio in Singapore.

DBS is our top pick in banking for its strong execution capabilities
and attractive valuation.
CapitaLand is setting new directions with a renewed emphasis on
ROE and on its key markets Singapore and China.

Keppel REIT (KREIT SP, K71U) –
More compelling for the best office portfolio in Singapore
(BUY/Target: S$1.46)

Despite expectations of rising interest rates, we think the increase
would be gradual and could commensurate with economic growth.
Hence, we believe stocks with high and sustainable dividend yields
would continue to attract interest. Valuations of KREIT are more
compelling as it offers a 40bps premium to the average 6.2% yield
for office REITs. Equity overhang from a private placement and
Keppel Corp’s distribution in-specie has been largely removed.
KREIT offers the highest-quality Singapore office portfolio and will
benefit from the improving office outlook. We upgraded the stock to
BUY recently with a DDM-based target price of S$1.46.
Technically, KREIT is likely to be supported near S$1.14 and has a
resistance level of S$1.31.

DBS (DBS SP, D05) –
Strong management, ROE improvement
(BUY/Target: S$20.45)

DBS has raised its guidance for loan growth for 2013 from 10% to
14%. Management expects NIM to remain unchanged at 1.6%.
Customers are showing greater interest in fixed rate and longer
tenure loans, which are higher yielding. DBS has beefed up loanloss
coverage to a high of 141%. Over 40% of its NPLs are still
considered current. Management intends to maintain loan-todeposit
ratio at about 90%. DBS deserves to be re-rated due to its
strong management team and an improvement in ROE. It is our top
pick in banking with a target price of S$20.45, based on a P/B of
Technically, the stock has been supported near S$15.80 and is
likely to trend up towards S$17.00.

CapitaLand (CAPL SP, C31) –
Setting new directions
(BUY/Target: S$4.35)

CapitaLand is targeting an 8-12% ROE as it focuses on its two core
markets in Singapore and China. Emphasis is on CapitaLand’s key
strengths to execute on integrated/mixed developments and to
improve project profitability by undertaking larger projects with
faster time to market. Residential sales in Singapore and China
remain robust despite cooling measures. Singapore residential
sales more than doubled in 1H13 and demand in China remains
buoyant due to urbanisation and income growth. We have a BUY
for CapitaLand with a target price of S$4.35, pegged at a 15%
discount to its RNAV.
Technically, watch to see if the stock could continue to be well
supported above S$2.95 to test S$3.19 for further upside.

Singapore Property Nuggets: Office – Rising occupancies supporting
growth in rentals.

Office demand remains buoyant as pre-commitments surpass 80% for
The Metropolis project. Asia Square 2 has also been awarded its
Temporary Occupation Permit (TOP) on 2 September, and is about 25%
pre-committed with tenants including Allianz, National Australia Bank,
Swiss Re and Bank Mandiri. Net absorption of space in 1H13 was 474,000
sf. CBRE reported that Grade-A occupancies had risen 4.2ppt from 91.2%
in 4Q12 to 95.4% in 2Q13.
We see superior investment opportunities in the office segment presented
by the yield gap of 250-300bps between office REITs (6-6.5%) and
physical office transactions (3.5% yield). Office REITs also offer the best
value in the REITs sector, trading at an average of 0.8 Price/Book. We
expect the yield gap to narrow as positive rent reversions gain momentum
and growth expectations start building up with a turnaround in office
rentals. We forecast Grade-A rentals to rise 6-10% in 2014 after bottoming
out this year. Our key office picks are Suntec REIT, CapitaCommercial
Trust, OUE, Ho Bee and Keppel Land.

From Maybank KE:
Yongnam Holdings: Healthy 17-year Work Pipeline, Maintain Buy, 
$0.295 - TP $0.40
YNH SP | Mkt Cap USD292.3m | ADTV USD3.3m

We believe Yongnam has hit the bottom of the cycle and is geared up and 

ready to replenish its orderbook. Yongnam is tendering for SGD670m of 
potential projects which would commence in 2H13. Reiterate BUY with a
TP of SGD0.40.
Sixteen Thomson Line civil contracts have been placed out, with three already

awarded to the main contractors. We expect subcontracts will be given out in
late 2013 or early 2014.
We peg Yongnam to its closest peer, Malaysia-listed Eversendai at 11x 

forward PER. We keep our TP unchanged at SGD0.40, pegged at 11x
 FY13F-15F earnings

From DBS:
Markets have been weighed down by the anticipation of
FED QE tapering; emerging markets sell-off and the risk of
a military strike on Syria. We look for bargain/value
hunting opportunities should the STI dips moderately
lower towards 2900 that coincides with 12.3x (-1SD) 12-
mth forward PE. Guided by a 10.4% EPS growth forecast
for FY14, the Singapore market currently trades at 12.6x
FY14F PE, which is reasonably attractive. Singapore
market should recover past the September-October period
of uncertainty. Expect the STI to recover pass 3200 (13.1x
(-0.5SD) FY14F PE) but cap below 3400 [(13.9x (average)
FY14F PE) by year-end.

We continue to prefer stocks with exposure to developed
markets, and avoid emerging markets. Stocks with
earnings visibility supported by yield are likely to remain in
favour. Our picks are SingPost, Comfort Delgro, ST Eng,
HPH Trust and Overseas Education.

DBSV Research issues an Equity Explorer report on OUE
Hospitality Trust
with a fair value of S$0.93, offers 8%
upside. OUE HT is a Singapore-based REIT with an initial
portfolio of two properties in prime locations - the 1051-
room Mandarin Orchard Hotel, and the accompanying
Mandarin Gallery retail mall. The properties are collectively
worth S$1.7bn as of 31 Mar13. The Trust has resilient
earnings structure with strong visibility. Multiple growth
drivers are also in place. While earnings are sensitive to
RevPAR changes, we expect earnings volatility to RevPAR
changes to be limited given a high % of income pegged
to fixed rates. In addition, yields of 7.6%-8.0% are higher
than S-REIT peers. 


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