buysellhold july.23




4Q23F: Expect some seasonal softness


■ Updated management guidance on FY24F NIM trajectory, portfolio credit quality, wealth fees and dividends to steer the sector’s re-rating/de-rating.

■ Reiterate sector Neutral. Drastic Fed fund rate cuts affecting NIMs are a downside risk but c.7% div. yields should retain investors’ interest in banks.

■ UOB is our sector top pick for better sequential performance. We think NIMs could be relatively more defensive vs. peers given its funding profile.

■ We expect DBS to declare final DPS of S$1.04, OCBC to declare S$0.43 DPS, and UOB to declare S$0.95 final DPS in 4Q23F.



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Frasers Centrepoint Trust

Not sitting idle


■ No financials were provided in FCT’s 1Q business update. However, 1QFY9/24 retail reversions tracked above FY23’s 4.7%, management said.

■ Reiterate Add and TP of S$2.52. FCT is our top pick of the sector



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Suntec REIT ($1.20, up 1 cent) reported distributable income of S$206.8 million for the period from 1 January to 31 December 2023 (“FY 23”), 19.1% lower than the year ended 31 December 2022 (“FY 22”). Distribution per unit (“DPU”) of 7.135 cents to unitholders for FY 23 was 19.7% lower year-on-year, coming in line with market expectations. Operational performance of the Singapore Office, Retail and Convention portfolios continued to improve. The REIT faced higher financing costs, lower contributions from the overseas properties arising from vacancies at 55 Currie Street, Adelaide, Southgate Complex, Melbourne and The Minster Building, London and leasing incentives given for 177 Pacific Highway, Sydney. Australian dollar has also weakened by 6.6% against the Singapore dollar during these periods. These have impacted the distributable income. On the divestment front, Suntec REIT divested S$94.4 million of strata units at Suntec City Office Towers at an average price of 31% above book value. The proceeds were used to pare down debts. The transactions were accretive to the REIT’s earnings as the divested yield were lower than current borrowing costs. 

Suntec REIT’s market cap stands at S$3.5bln and currently trades at 20.0x forward PE and 0.6x PB, with a dividend yield of 5.9%. Consensus target price stands at S$1.17, representing 3% down-side from current share price. DPU for the year ahead is expected to remain at best flat if not down 5-10%. Hence, notwithstanding the low P/B ratio and decent dividend yield, it remains at best a “HOLD”.


Frasers Centrepoint Trust (FCT SP)

Positioning for growth


Steady performance

The update underscored the resilience of well-located malls and the importance of portfolio reconstitution and asset enhancements. Notwithstanding marginal decline in tenant sales, malls are almost full on a committed basis. Mgmt. commentary suggests positive momentum for rent reversion. Borrowing cost rose, reflecting on-going repricing. Factoring in higher funding cost but a lower discount rate, we cut our earnings estimates but raise our DDM-based target price to SGD2.40 from SGD2.25. Maintain BUY



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Sabana Industrial Real Estate Investment Trust / Sabana Industrial REIT ($0.39, unchanged) reported financial results for the period from 1 July 2023 to 31 December 2023 (“2H 2023”) and for the full year from 1 January 2023 to 31 December 2023 (“FY 2023”). For FY 2023, the REIT reported a record high gross revenue of $111.9 million, 17.9% higher year-on-year (“y-o-y”). FY 2023 NPI increased by 3.2% y-o-y to $55.0 million, a new high since 2016 despite a smaller number of 18 portfolio properties, from 21 assets in 2016. 

At 39 cents, Sabana REIT is capitalized at $434mln and trades at trailing distribution yield of 7% and price to book of 0.74x. If we annualize 2H’23 DPU, forward annualized yield would only be 5.9%. Bloomberg consensus 1 year target price of 30 cents implies a potential downside of 23%. We would “AVOID” this REIT for now.



Frasers Centrepoint Trust (FCT SP)
1QFY24: Upside From Enhancing Tampines 1 And NEX

Strong demand for suburban retail space enabled FCT to sustain positive rental reversion and improve committed retail occupancy by 1.5ppt yoy and 0.2ppt qoq to 99.9% in 1QFY24. AEI for Tampines 1 is progressing smoothly with the second batch of completed AEI units expected to open in Mar 24.

NEX could potentially be enhanced by decanting existing carpark space for conversion into commercial space. FCT provides defensive FY24 distribution yield of 5.2%. Maintain BUY. Target price: S$2.70. 


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