Appetite for S-REITs to remain healthy: Citigroup

Stock Name: Ascendasreit
Company Name: ASCENDAS REAL ESTATE INV TRUST

Research House: Citigroup

Price Call: BUY

Target Price: 2.68

Stock Name: MapletreeInd
Company Name: MAPLETREE INDUSTRIAL TRUST

Research House: Citigroup

Price Call: BUY

Target Price: 1.60

Citigroup tips S-REITs over developers as it initiates coverage of the Singapore property sector.

“On the back of QE3, we believe interest rates would remain low near-term, which would continue to drive investor appetite for yield plays. Low bond yields, stable money markets and a strong Singapore dollar could all serve to keep investor interest in S-REITs healthy near-term and continue to drive yield compression. We believe forward DPU growth supports the sustainability of the yield compression cycle.”

It believes the developers’ risk-reward is unfavorable, as the market digests the recent round of policy tightening. After S-REITs strong year-to-date performance, it advises being more selective, preferring industrial and retail S-REITs; its preferred industrial picks are Ascendas REIT and Mapletree Industrial Trust, while its commercial-segment picks are Suntec REIT and CapitaMall Trust.

It views the office-segment outlook as weak, as while demand remains healthy, rents continue to see slight downward pressure.

It initiates A-REIT’s target at $2.68, Mapletree Industrial’s at $1.60, Suntec’s at $1.70 and CMT’s at $2.30, started all four at Buy.

Citi upgrades First Resources to 'buy'

Stock Name: FirstRes
Company Name: FIRST RESOURCES LIMITED

Research House: CIMB

Price Call: BUY

Target Price: 2.30

Citigroup upgraded palm oil firm First Resources to ‘buy’ from ‘neutral’ and raised its target price to $2.30 from $1.98, citing higher volume growth and favourable prospects.

By 12:41 p.m., First Resources shares were up 1% at $1.97. They have gained 30.5% since the start of the year, versus a 17% drop in the FTSE ST Consumer Goods Index.

Current crude palm oil prices (CPO) are expected to continue rising, as the peak CPO production period has passed and upcoming year-end festivities should help mitigate concerns of high inventory, Citi said.

The brokerage increased its 2013-2014 earnings estimates for First Resources by 7-8%. Although its stock is trading at 10.8 times its 2013 earnings estimates, a premium relative to peers, Citi said this was justified due to its improving corporate governance and good growth prospects.

Sembcorp Vietnam project in line with strategy: Credit Suisse

Stock Name: Semb Corp
Company Name: SEMBCORP INDUSTRIES LTD

Research House: Credit Suisse

Price Call: BUY

Target Price: 6.10

Concerns over Sembcorp Industries’ foray into residential property in Vietnam may not be warranted, Credit Suisse says.

“This development is in line with the company’s strategy to further enhance yield through selective commercial and residential development at its industrial parks. We also note that it has previously developed residential projects at the Wuxi-Singapore Industrial Park in China.”

It notes the Vietnam project’s total development cost is estimated at US$165 million ($201.5 million), with Sembcorp Development’s US$5.2 million equity investment internally funded; SDV will have a 40% stake in the JV project, while Vietnam Singapore Industrial Park JV will have 60%, and as SDV owns 47.4% of VSIP, its effective interest will be 68.4%, it notes.

It keeps an Outperform call with a $6.10 target, saying the utilities stub remains attractively valued; “we expect continued strong performance to drive a rerating.” The stock is up 0.4% at $5.47.

Citi starts CapitaMalls Asia at Buy, target $2.08

Stock Name: CapMallsAsia
Company Name: CAPITAMALLS ASIA LIMITED

Research House: CIMB

Price Call: BUY

Target Price: 2.08

Citigroup starts CapitaMalls Asia at Buy with a $2.08 target, saying its premium valuation over peers is well-justified by its solid management team, and citing a balance of growth and defensiveness.

“CMA is a top-class retail mall developer/operator in Asia with a scalable high-quality portfolio. As the retail arm of CapitaLand, CMA has achieved a fast-growth trajectory over the buoyant consumerism in Asia, especially China. Its modern and professional expertise in retail property management and multiple financing channel differentiate it from many retail property plays.”

It says CMA’s solid record is proved by its sizeable 100-mall portfolio it directly and indirectly owns and manages, with 74 operational and 26 under development. It forecasts 13% FY11-14 CAGR on rental and management-fee income, while its robust china expansion will fuel a stable 11% FY12-14 earnings CAGR.

“We see its recent acquisition of a new Qingdao project, teaming up with residential giant Vanke, as ‘win-win’ for its expansion in China. That said, relative to pure-China plays, CMA stands out with a more balanced portfolio, with exposure to more resilient markets like Singapore and Japan.”

The stock is up 2.9% at $1.75.

Phillip upgrades M1 to Neutral despite weak 3Q12

Stock Name: M1
Company Name: M1 LIMITED

Research House: Phillip Securities

Price Call: HOLD

Target Price: 2.41

Phillip Securities upgrades M1 to Neutral from Reduce. “Although net profits were low, and ebitda margins declined for the fifth consecutive quarter since 2Q11, we are upbeat on the improvement in service revenue, while noting that handset subsidies will be recovered in future quarters.”

It notes 3Q12 service revenue rose 2.9% on-quarter to $195.3 million on a larger customer base, but operating expenses rose 13.8% on-quarter to $213.2 million on increased handset costs. It expects nationwide LTE coverage and M1’s higher iPhone 5 subsidies vs peers will further increase its post-paid customer base.

“With the current uncertainty in the macro-economic environment, and as the search for positive real returns continue, M1’s dividend yield of 5.5% remains attractive at current prices. Fundamentally, M1’s service revenue growth continues to be healthy, while we do not expect any potential headwinds, other than a possible spectrum auction bidding war, for which M1 has the ability to compete in, possibly through an increase in borrowings from banks.” It raises its target to $2.41 from $2.38. The stock is up 1.1% at $2.69.

Citi downgrades SPH to 'sell' from 'buy'

Stock Name: SPH
Company Name: SINGAPORE PRESS HLDGS LTD

Research House: Citigroup

Price Call: SELL

Target Price: 3.80

Citigroup downgraded print and property company Singapore Press Holdings to ‘sell’ from ‘buy’ and cut its target price to $3.80 from $4.15 on weaker-than-expected quarterly earnings and slower growth prospects for the next year.

Shares of SPH were down 0.5% at $4.09, but have risen 10.8% since the start of the year, compared to the Straits Times Index's 15.4% gain.

SPH posted net profit of $365.5 million  for its financial year ended August, down 5.9% from a year earlier.

Citi said SPH's fourth-quarter net profit of $84 million was weaker than expectations, due to poor print ad sales, falling circulation demand and rising cost pressures.

Citi cut its 2013-2014 earnings estimates for SPH by 8-11%, reflecting the company's challenges to grow its core media business in Singapore as classified and circulation segments continue to decline.

“We think demand for print ads is unlikely to pick up strongly amid moderate growth expectations in 2013 and a lackluster structural outlook for circulation,” said Citi in a report.

UOB upgrades Keppel REIT to 'buy'

Stock Name: K-REIT
Company Name: K-REIT ASIA

Research House: UOB KayHian

Price Call: BUY

Target Price: 1.36

UOB Kay Hian upgraded Keppel REIT, previously known as K-REIT Asia, to ‘buy’ and raised its target price to $1.36 from $1.26, on expectations of improving office rentals.

Units of Keppel REIT, which owns office buildings, were up 2.5% at $1.22. They have jumped 47.3% since the start of the year, compared with the FTSE ST Real Estate Industrial Trust's 34% gain.

Keppel REIT said its third-quarter distribution per unit was 1.96 cents, in line with UOB's expectations and up 84.5% from a year earlier, helped by higher rents and property income.

“We anticipate office rentals to bottom out in the next 2-3 quarters, with K-REIT expected to remain resilient due to its near-full occupancies, long weighted leases and its highest exposure to Grade-A office assets in Singapore,” UOB said in a report.

The rate of decline for office rentals in Singapore is slowing, and UOB expects Keppel REIT to start seeing positive rental reversions, while acquisitions in Australia will also contribute to further growth.