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Mapletree Logistics Trust
Model update
■ We update our model for higher perpetual interest cost on reset.
■ We see slight FY24-25F DPU erosion; MLT is keeping debt headroom for potential acquisition opportunities.
■ Maintain Add with a DDM-based TP of S$1.84.
Adjusting for higher perpetual interest cost MLT recently announced that it will not be exercising its option to redeem its S$180m
perpetual securities on 28 Mar 2023 (First Reset Date), in view of the current macroeconomic conditions and interest rate environment. Accordingly, the distribution rate
will be reset from the current 3.65% to Swap Offer Rate plus spread of 1.815%. Based on
Refinitiv data, the current 5-year swap offer rate currently stands at 3.42%. This will likely
translate to a higher perpetual interest cost of c.5.2-5.3%.
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In the aviation sector, we see Singapore Airlines (SIA) [BUY; FV:SGD6.47] and SIA Engineering Company (SIAEC) [BUY; FV:SGD2.74] as the beneficiaries of air travel demand recovery. Headwinds from cost pressure could normalise gradually as flight activities pick up and be partially mitigated by strong travel demand.
CapitaLand Ascott Trust’s (CLAS) [BUY; FV:SGD1.23] remains our top hospitality REIT pick under our coverage. We believe CLAS is poised to benefit from the recovery in the hospitality sector while its stable income could provide downside protection and income stability. As of 31 Dec 2022, CLAS’s gearing stood at 38.0% with effective borrowing cost at 1.8%. CLAS increased the portion of debt on fixed rates from 76% in 3Q22 to 78% in 4Q22 (vs 55.9% hedged for CDLHT and 54.1% hedged for FEHT), which would place CLAS in a better position to mitigate the expected increase in borrowing costs ahead.
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Petrochemical
Fragile recovery for PE/PP spreads
■ ASEAN integrated PE/PP spread has recovered on record supply outages and butadiene price recovery.
■ We believe the convergence of ASEAN and North Asian PE/PP spreads is likely, especially with new capacity additions in late 2Q-3Q23F.
Integrated PE/PP spread picked up on several shutdowns ASEAN integrated polyethylene (PE)/polypropylene (PP) spread recovered to US$250/t in Feb 23 vs. US$30/t in 4Q22 and US$180/t in Jan 23, due main to the 60-day scheduled shutdown of crackers operated by PTTGC (400kt), JG Summit PC in the Philippines (480kt) and ExxonMobil in Singapore (875kt).
Based on IHS Markit data, ASEAN capacity outage could peak at 30% of total capacity in Mar 23. In addition, the price of butadiene (a byproduct from naphtha cracker) improved to US$1,154/t in Feb 23 from US$878/t in Jan 23, reflecting stronger downstream demand from the auto industry, especially for synthetic rubber. Due to weaker restocking demand, integrated PE/PP spread declined slightly to US$144/t in early-Mar 23.
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Banking – Singapore
Keep Calm And Carry On
The demise of SVB was caused by the untimely investment in treasury bonds and mortgage-backed securities at peak levels and panic caused by the shutdown of Silvergate Capital. We expect nerves to calm once investors realise that contagion from the three ill-fated banks did not spread to the broader economy. BUY DBS (Target: S$42.00) and OCBC (Target: S$16.92) for 2023 dividend yields of 5.2% and 6.2% respectively. Maintain OVERWEIGHT.
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Property – Malaysia
2022 Ended Strong
The sector recovered strongly in 2022 supported by pent-up demand, border reopening, easing of the labour shortage and higher billings. Raw materials and other operating costs remain elevated, putting pressure on margins. 2023 earnings are expected to be stronger yoy, backed by strong unbilled sales and higher property launches.
Developers that have exposure to industrial properties and overseas projects will pull ahead of peers. Maintain MARKET WEIGHT. Top pick: Matrix.
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Oppstar (OPPSTAR MK)
Oppstar-ting The Giant Journey; In A Constellation With Enormous Growth
Oppstar, the first-ever listed local IC design house, is listed at an undemanding 19.6x FY23F PE. We see enormous growth opportunities that can supercharge a three-year revenue/core net profit CAGR of 33%/35% respectively from FY22, premised on aggressive workforce and geographical expansions, cutting-edge R&D and
technological know-how alongside huge untapped potential augmented by Malaysia’s
geopolitical neutrality. Initiate coverage with BUY and a target price of RM2.28.
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