ANALYSTS SAY: Buy, Sell, Hold (6 Sept 2017)

Cache Logistics Trust Would it be a case of déjà vu?

■ CACHE has announced a rights issue to raise gross proceeds of S$102.7m. Proceeds would be used to pare down debt.

■ We expect gearing to decrease to 35.3%. Factoring in S$3.5m interest cost savings p.a. plus the rights issue, we cut our FY17F-19F DPU forecasts by 3.5-10.5%.

■ Judging from its previous equity fund raising in 2015, we would not be surprised if CACHE acquires Australian assets in the next couple of months.

■ In the near-term, we expect unit price to come under pressure from this pre-emptive rights issue. Maintain Reduce with a lower DDM-based target price.

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SG Hospitality: Leisure demand looks to remain healthy

According to STB’s latest report, visitor arrivals jumped +9.1% YoY in Jun 2017 and are up +4.5% YoY for 1H17. Correspondingly, visitor days was up +8.7% YoY in Jun and +3.5% YoY for 1H17. Industry hotel RevPAR was up 0.4% YoY for 1H17. For the same period, in terms of hotel tiers, Economy RevPAR posted the strongest performance with +4.6% YoY growth followed by Upscale (-0.9% YoY), Luxury (-1.3% YoY), and Mid-Tier (-2.6% YoY). This is generally consistent with the latest set of quarterly results. Recall that for the REITs under our coverage, 1H17 hotel RevPAR growth ranged from -3.0% to +0.9% YoY with Upscale assets posting a more resilient performance relative to the Mid-tier assets. We believe the positive momentum in leisure demand will continue for the latter half of the year, though we are less certain on the future strength of the corporate environment. Though corporate optimism seems to have picked up, geopolitical uncertainties and expensive asset prices may continue to weigh on business budgets, especially for serviced residences. In light of this, we see OUE Hospitality Trust’s (OUEHT) leisure-focused Mandarin Orchard Singapore and its conveniently located Crowne Plaza Changi Airport as being particularly well-poised to benefit from the growing visitor arrivals. Our top pick within the hospitality REITs sector remains OUEHT [BUY; FV: S$0.82] given the value it offers at undemanding price levels. Maintain NEUTRAL on the hospitality sector.

Wheelock Properties (WP SP)

Ready To Pounce

We see good value in Wheelock that is trading at a deep 33% discount to its RNAV of S$2.74, despite its net cash position with S$448m in the coffers and no outstanding debt. It is a key beneficiary of the property sector turnaround and rotational interest, deriving over 80% of its value from Singapore. It offers a stable dividend yield of 3.3% supported by a strong recurring income stream from its investment properties. Resume coverage with a BUY and a target price of S$2.33. Deployment of S$2b in acquisition headroom will be a key re-rating catalyst.

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ST Engineering Ltd

There Is Growth Beyond 2017

We initiate coverage on ST Engineering with a BUY and SGD4.07 TP (13% upside). Its exposure to the commercial and defence industries across four segments creates a defensive business model that is tough to beat. It is world’s largest MRO service provider for aircraft and Asia’s leading provider of ICT solutions. Aircraft fleet size growth, rising demand for P2F conversions and more spending on Smart Nation initiatives should lead to strong 2018 growth. While a 4% yield could support the stock, strong order wins and accretive M&As may act as near-term catalysts.

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 A Missile over September

 Eyes on central banks’ policy meetings, Merkel victory anticipated

 STI downside to 3210 amid an uncertain September

 Yield stocks in focus – SREITs KREIT, AREIT, FLT, CDL HT, Far East HT & MAGIC. Non-SREITs Breadtalk, Hong Leong Finance & Frasers Centrepoint Ltd

 Top slice UOB, Suntec REIT & Riverstone

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