Excerpts from analysts' report
Deutsche Bank analysts: Joel Liew, CFA; Joy Wang, Joshua Lee, CFA
We sense an increased interest among investors for dividend-yielding names in Singapore, given the tumultuous equity market since the start of the year. The decline in the 10-year government bond yield by 25bps over the last month to 2.36% at present has also been a catalyst.
Wider-than-average SREIT spread more than offsets potential rate increases
Sector spreads are currently at 460bps, c.70bps wider than its 390bps average. In comparison, Singapore 10-year government bond yield of 2.36% is c.50bps lower than Deutsche Bank’s year-end forecast.
Assuming that spreads and rates normalize to their mean, yields would be 20bps lower than average.
Our economist has forecast 0.8% inflation for 2016, with risks to the downside. If inflation trends lower, the 10-year yield could end up lower than the Deutsche Bank forecast.
Our top-yield 'Buy' recommendations
HPH Trust: At more than 9% yield for 2016E, the stock has the highest yield in our coverage. Its 2016/17E FCF yields of 15.2%/14.7% should support its semiannual dividend payout (mid-February ex-date).
Mapletree Logistics Trust: Strong FYMar17/18E FCF yield of 8.2%/8.5%, as well as positive earnings growth from active capital recycling and accretive acquisitions, should support quarterly DPU (1 Feb ex-date). Active capital recycling and accretive acquisitions, coupled with its 0.8x PB (below its longterm average of 1.1x), are positive catalysts for the stock.
M1: The stock declined 14% after its recent decision to cut dividend payout to 80%. At 7.7% yield in 2016E, it remains one of the top yielders in Singapore. Its semi-annual DPS (ex-date mid-April) is ably supported by stable earnings over the next two years. We think the stock has been oversold on the fourth telco operator concerns.
Keppel DC REIT: 2016/17E FCF yields of 8.4%/8.6%, coupled with positive earnings growth from data centre demand, as well as potential T27 acquisition should be supportive of semi-annual DPU (July ex-date).
A strong portfolio with rental escalations should drive FY16 DPU growth and act as potential for additional inorganic growth via acquisitions.
CapitaLand Commercial Trust: We think that strong office rental growth from TMT, law firms and regional banks will continue to gather momentum in the next 12-15 months. Its 2016/17E FCF yield of 7.4%/7.6% would continue to support its semi-annual DPU (July ex-date).