932 Brokers' Digest

“CapitaLand remains our preferred sector pick for its diversified portfolio, with a high proportion of recurring income offering resilience. We see good value at current share price levels, as the stock is trading at 0.6 times price-to-book value,” says RHB analyst Vijay Natarajan, who is keeping his “buy” call but with a slightly lower target price of $4 from $4.20 previously.

In China, CapitaLand is enjoying some bouncing back post-lockdown. Its residential across in China rebounded strongly in March (higher than January–February combined sales), after some lockdown measures were lifted. It recorded RMB900 million ($180 million) in sales for 1Q20.

All its 15 malls in China have reopened and 85% of the tenants are back in business. CapitaLand is offering some rental rebates, while shopper traffic has steadily increased m-o-m from February lows.

In Singapore, CapitaLand’s retail and lodging portfolio will see the biggest impact, especially the malls due to the “circuit breaker” measures. It is offering two-month rental rebates (including property tax rebates), and offsetting one month of security deposits. Business parks and offices, which account for 30% of Ebit, have largely remained resilient. Most of its existing residential launches have seen good take-up rates (>80% sold), so management does not see any need to pare down prices to move inventory.

Similarly, CGS-CIMB Research is keeping its “add” recommendation on CapitaLand with a target price of $3.52 from $3.60 previously. “The commercial, business parks and logistics properties across its geographic footprint performed better with occupancy exceeding 85% and enjoying positive rental reversion of 4% to 21%. That said, tenants remain cautious and we anticipate rental reversions to moderate ahead,” says analyst Lock Mun Yee in her May 4 report.

However, CapitaLand’s lodging business is still facing challenges. Revenue per available unit (REVPAU) for this business sector declined an average 22% y-o-y in 1Q20; and 52 of its total 485 properties remained closed at end-April.

“This will likely continue to put pressure on occupancy and REVPAU. 1Q20 fee income expanded y-o-y and we anticipate it to remain largely stable in the near term, but slower asset recycling or asset value depreciation could adversely impact this revenue source,” adds Lock. — Samantha Chiew

Genting Singapore
Price target:
DBS Group Research HOLD 75 cents

DBS Group Research has downgraded Genting Singapore to “hold” on prospects of a longer J-shaped recovery, as a larger drop in tourist arrivals, extended safe distancing measures, and a sharper contraction in Singapore’s economy will weigh on earnings for the casino and hotel operator.

That said, Genting Singapore still enjoys an attractive valuation and relatively strong performance compared to its regional peers. “In our view, the risk-to-reward set-up is neutral after the significant 54% rebound in Genting’s share price from its bottom in March, as the brutal hit to its earnings over the next two years is largely counterbalanced by its attractive dividend yield and compelling valuation,” remarked analyst Jason Sum, who has trimmed his target price from 78.5 cents from 75 cents while keeping his “hold” call.

“We will be staying on the sidelines until the regional Covid-19 situation stabilises, and cross-border travel restrictions in the region loosen,” says Sum, who has cut his FY20F/21F Ebitda estimates by 40% and 22% respectively to $351 million in 2020 and $760 million in 2021. The new figures constitute a 70% and 39% reduction respectively for pre-Covid-19 estimates and reflect the its current prediction of a J-shaped recovery fuelled by a more severe drop in tourist numbers, extended “circuit breaker” measures and a deeper contraction in the Singapore economy.

DBS economists are seeing a 2020 GDP that will contract 5.7%, and a full-fledged recovery that will take place in 2022 at the earliest.

Nevertheless, at current levels, Sum reckons that the economic fallout on Genting’s near-term earnings and the more cautious outlook have been adequately priced in. Despite the firm’s present lack of catalysts and significant downside risks of a longer than expected pandemic and a “hard landing” in China, the firm’s consistent and attractive 4.5%–5.1% net dividend yield means that the stock is still a good inclusion in investors’ portfolios. — Ng Qi Siang

Frasers Logistics and Commercial Trust (formerly Frasers Logistics and Industrial Trust)
Price target:
CGS-CIMB ADD $1.30

CGS-CIMB is maintaining its “add” call on Frasers Logistics and Industrial Trust (FLT), but with a slightly revised target price of $1.30, down from $1.32, according to analysts Lock Mun Yee and Eing Kar Mei in their April 30 note.

Their move follows the REIT’s recent announcement which also marks its first result since its merger with Frasers Commercial Trust on April 29.

Collectively, the merged entity — Frasers Logistics and Commercial Trust (FLCT) — booked a distribution per unit (DPU) of 1.73 cents for 2QFY20 ended March, down from the 1.76 cents logged a year ago.

Income available for distribution for the quarter was up 16.7% to A$43.1 million ($39 million) from A$36.9 million a year ago. This follows a 12.8% growth in revenue to A$67.3 million on the back of acquisitions in Europe and Australia, the group noted in a regulatory filing on April 30.

Based on its results, Lock and Eing note FLT remains fully occupied, following three leasing transactions in 2Q20 which gave it a 0.6% positive rental reversion. They add that FLT had 0.5% of gross rental income left for renewal at end-March 2020, and a further 7.8% in FY21F.

Now that FLT has merged to become FLCT, they are confident that its collective enlarged portfolio of 99 quality industrial and commercial properties located in Australia, Germany, Netherlands, the UK and Singapore will bring more opportunities to extract economies of scale.

“Not only is the merger DPU accretive for FLT, the enlarged portfolio would bring some diversification to FLT’s existing portfolio in terms of geography and asset class,” they say. — Amala Balakrishner