OCBC Report 19 Sep 13

Soilbuild Business Space REIT: Best proxy to Singapore industrial market
We are initiating coverage on Soilbuild Business Space REIT (Soilbuild REIT) with a BUY rating. Soilbuild REIT currently owns a young portfolio of seven modern business space properties in Singapore and has the largest exposure to the business park segment. We like Soilbuild REIT’s exposure in this space because demand in the local scene has been growing steadily throughout the years. We also believe that Soilbuild REIT is able to leverage on the capabilities of its Sponsor, Soilbuild Group, to grow its income given its track record and expertise. Soilbuild REIT is granted Right of First Refusal (ROFR) by its Sponsor over all its income-producing business space assets in Singapore. The ROFR currently covers four industrial properties, providing Soilbuild REIT with a clear acquisition pipeline. As of the listing date, Soilbuild REIT is sitting at healthy gearing ratio of 29.9%, while 75.0% of its interest rates are fixed. This not only gives Soilbuild REIT ample debt headroom to pursue its growth plans but also limits its exposure to rising interest costs. Our fair value of S$0.82 implies an attractive total expected return of 20.1%. At current price, Soilbuild REIT is also trading at the steepest discount of 8.8% to its book value, compared to its subsector peers. This is unjustified in our view given Soilbuild REIT’s quality portfolio assets, growth potential and respectable FY14F yield of 7.8%. (Kevin Tan)

MORE REPORTS

BreadTalk Group: Why the rush?
With BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that valuations are stretched at current levels. While the group’s growth proposition appears attractive, realizing future potential takes time, and more importantly, carries significant operating and execution risks. Its operating margins have also remained in the low single-digit region. Furthermore, the group’s valuation is expensive when compared to more established regional peers that compete in the same markets. We maintain our SELL rating with an unchanged fair value at S$0.77, and will look to re-rate the stock only when its margins arrest their decline and operations approach a steady-state. A takeover angle at this juncture is also unlikely as we do not envision MINT launching a takeover bid anytime soon in the coming quarters at current price levels. (Lim Siyi)

Singapore REITS: Expect bounce from no Fed tapering
This morning, the Fed announced that it would not reduce asset purchases in Sep-13 and reiterated that the job market remains a key economic concern. This outcome is above view, given that the consensus was for a tapering of US$5b-S$10b. In addition, we note Chairman Bernanke also indicated that, even after winding down assets purchases ahead, the “Fed’s rate guidance and its ongoing holdings of securities will ensure that monetary policy remains highly accommodative, consistent with an aggressive pursuit of our mandated objectives of maximum employment and price stability.” As a result of this dovish stance, the yield on the 10Y Treasury note dipped 15bp to 2.7% and the S&P500 rallied 1.22% overnight. While our rating on the sector is NEUTRAL, we believe the REIT sector would likely see a short-term bounce ahead and continue to advocate counters that show significant value at current prices. Our top picks in the sector are CapitaCommercial Trust [BUY, FV: S$1.61], Starhill Global REIT [BUY, FV: S$0.95] and Suntec REIT [BUY, FV: S$1.80]. (Eli Lee)

OUE Hospitality Trust: Declined stakes in Chinese hotels from sponsor
OUE Hospitality Trust (OUEHT) has declined an offer from its sponsor, OUE Limited, for the acquisition of a 100% stake in Meritus Mandarin Haikou and an 80% stake Meritus Shantou China for purchase considerations of S$58.7m and S$49.3m, respectively. These stakes were part of the sponsor’s ROFR pipeline. The offer was declined as the acquisition would not have been accretive to the distribution per stapled security of OUEHT. Our current model does not assume any acquisitions and this development does not affect our valuation. We believe a number of investors like OUEHT because of its Singapore-based assets, and are interested in the last asset in the ROFR pipeline – the 100% stake in Crowne Plaza Changi Airport, for which an additional 200 rooms are expected to be developed by the end of 2015, which means any offer by the sponsor would likely come after that. We maintain our fair value of S$0.94 on OUE Hospitality Trust and our BUYrating. (Sarah Ong)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.


NEWS HEADLINES

- US stocks climbed to record highs on Wed and the benchmark 10-year Treasury yield fell sharply after the Federal Reserve abstained from reducing its bond buys.

- Keppel Shipyard has secured two FPSO conversion contracts from repeat customers worth a total of S$190m.

- Yanlord Land Group has achieved about CNY2.607b (S$536m) in sales in the first two weeks of this month.

- Hyflux has officially opened Singapore’s second desalination plant with a capacity to process 70m gallons of seawater daily.