With 2017 coming to an end in a month’s time, what should be in our portfolio come 2018?
UOB- Kay Hian (UOB KH) recommends four themes for investors to add to their portfolio. Companies with multi-year growth drivers, reflation plays, quality laggards and stocks with earnings upside are the recommended investment themes for 1H18. Among Singapore stocks, UOBKH recommends three blue chips that resonate with its investment theme.
CapitaLand – Singapore’s Property Market Back To Live
Singapore’s residential property market is starting to make a turnaround following 15 consecutive quarters of decline in the private residential price index. CapitaLand’s management expects sentiments to improve further, underpinned by increased buying volume and rise in home prices.
UOBKH notes that CapitaLand has been holding back sales for Sky Habitat and Marine Blue after newly-launched projects in Singapore saw strong demand with 97 percent of units sold. This suggested that CapitaLand may be looking to raise prices, especially since Amber Park site was bagged by City Development at an aggressive $906 million bid.
On the Chinese market, CapitaLand saw its average selling price for residential property climb in 3Q17 despite the property cooling measures introduced by the Chinese government. China’s property market is showing no signs of slowing down and CapitaLand has Rmb13.8 billion in value worth of properties to be recognised from 4Q17 onwards and from 8,000 sold units of Chinese residential properties.
Furthermore, investment income from China shopping malls are expected to rise as CapitaLand closes in on the opening of nine new malls in China, which would bring the total tally of Chinese malls in China to 69. Accompanying this, CapitaLand’s management has been improving existing malls’ performances, as same-mall net property income grew 7.9 percent over the past year in 9M17. BUY, TP $4.30
Ascendas REIT – Top Industrial REIT As Industrial Sector Revives
With a pick-up in the Singapore industrial demand, Ascendas Real Estate Investment Trust (A-REIT) could be riding into 2018 on the back of an industrial market revival. Following recent strong manufacturing growth data, A-REIT’s Singapore portfolio occupancy showed signs of increased demand from technology (cyber security, software) and biomedical sectors. With its good proxy to the favourable business park segment in Singapore, UOBKH highlights A-REIT as one of its top pick in the industrial sector.
Adding on, A-REIT has been executing its superior capital recycling strategy. In 2Q18, A-REIT divested two of its properties in Singapore for $44.1 million at 10 percent premium to its book value. Following which, it then acquired a suburban office in Australia for $90.3 million. Moving forward, A-REIT will continue to be targeting the Australian market for acquisitions, given the reasonably high yields Australian assets offer. A-REIT’s management noted that it might double its Australian exposure to 30 percent over the medium term.
With most of its Australian assets being freehold in nature, unitholders can expect further income stability going forward. Its triple net lease structure further adds to A-REIT’s stability. On top of that, A-REIT also has in-built annual rental escalations for its Australian assets. BUY TP $2.90
SATS – Growth Opportunities Abound
A number of local research houses believe that SATS is in a perfect confluence of growth factors.
SATS’ proposed joint venture with AirAsia is one of the factor in UOBKH’s choice of SATS as one of the investable blue chips. The joint venture will provide SATS access to the Malaysian market for gateway services. According to Maybank Kim Eng, acquiring new airline customers in the 15 odd Malaysian airports that AirAsia has operations in will be the real upside in this proposed joint venture.
Another factor is the return of Qantas to Singapore’s Changi airport. After a hiatus of five years, Qantas is moving its connecting hub for UK flights back to Singapore starting from March 2018. This will be financially positive element for SATS, and that is excluding healthy growth the group is registering in key non-aviation ventures.
With Istanbul’s new airport opening, SATS will be targeting to operate in one of the largest airport in the world. Istanbul’s new airport will have a capacity of 90 million passengers in the first phase of development alone. Over the medium term, this translates to a lot of potential to target new airline customers. BUY, TP $5.70