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]. (REITs Team)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- US stocks finished little changed on Fri, but with the Dow halting a
four-week losing streak, as Wall Street’s attention shifted from
developments related to Syria to the impact of the jobs report on US
monetary policy.
- Oil and gas exploration and production firm Ramba Energy has received
an offer from Jakarta-listed Sugih Energy for a 51% stake in the firm.
- Sunpower Group has won an RMB85.1m (S$17.8m) contract from Shenhua Group, a coal conglomerate in China.
- The takeover of China Minzhong by food giant PT Indofood Sukses Makmur
is as good as a done deal after Indofood doubled its stake in the China
vegetable processor from 29% to 58% in just three days of trading.
- Based on the filings on the Singapore Exchange in the first week of
Sep, buying among directors fell for the second straight week while
selling remained flat.
- New mainboard listing rules for mineral, oil and gas companies are
expected to add impetus to their already-growing cluster on the SGX.
- Otto Marine is unfazed by the competition from China's more cost-efficient yards in the building of offshore support vessels.
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