In this article, we continue to highlight another investment theme that DBS recommends for investors in 2019: Yield plays with growth potential.
Investors Takeaway: 5 Yield Plays With Growth Potential By DBS
The greatest concern about investing in ComfortDelgro Corporation (ComfortDelgro) is the impending full entry of Go-Jek. Go-Jek’s entry will create increased competition from the private hire cars on ComfortDelgro’s core business. However, DBS is confident that competition is unlikely to heighten back to the times when Grab and Uber were both competing in the space.
Heading into 2019, DBS is forecasting positive year-on-year growth for ComfortDelgro, which may be surprising to some investors. DBS notes that ComfortDelgro has been showing positives signs of turning around its profits with smaller magnitude of profit decline in 3Q18 compared to 1Q18 and 2Q18. With the bottoming out in taxi fleet contraction, earnings contribution from recent acquisitions and public transport fare increases, DBS expects ComfortDelgro to be growing its profits in 2019.
BUY, TP $2.56; Current share price $2.14
Mapletree Logistics Trust
It has been a busy year for Mapletree Logistics Trust as it continues to be on an acquisition spree. Mapletree Logistics Trust recently acquired a portfolio of modern logistics properties in Singapore. It also made value-accretive deals for properties in Hong Kong and China, which brings back investors’ confidence on Mapletree Logistics Trust’s growth prospects.
Heading into 2019, DBS is confident that Mapletree Logistics Trust will continue to look for inorganic growth drivers. DBS notes that the Sponsors’ extensive pipeline remains as a key source, given that Mapletree Investments has a sizeable and growing pipeline of development properties which are approaching maturity.
With the market not yet accounted for Mapletree Logistics Trust’s improved fundamentals (post-acquisition), upside from organic growth and inorganic growth, Mapletree Logistics Trust is currently priced at a discount for bargain hunters to capitalize on.
BUY, TP $1.50; Current share price $1.32
CapitaLand Mall Trust
The main draw of CapitaMall Trust has been the resilient yield that it provides to investors. As 2019 approaches, DBS believes that CapitaMall Trust is ready to shed its safe harbour image and emerge as a growth play. 2019 will be the year where the retail sector bottoms out, which will give CapitaMall Trust a chance to shine. Full contributions from Westgate and the return of Funan is set to take CapitaMall Trust’s distribution per unit (DPU) back on a multi-year growth path. DBS foresees CapitaMall Trust’s share price to break out of its historical trading range and reach new heights as earnings are delivered.
DBS also notes that current expectations for CapitaMall Trust is low. The market is barely anticipating any rental reversion growth. Any sustained uptick in retail sales could further enhance the investment merit of CapitaMall Trust.
BUY, TP $2.45; Current share price $2.32
NetLink NBN Trust
With interest rate on the rise despite an impending trade war, DBS believes that it will catalyse a hunt for higher yields. According to DBS, Netlink NBN Trust fits into the profile of a yield play that the market will be looking to target.
Netlink NBN Trust’s unique business structure gives it an advantage over traditional REITs and Business Trusts. Due to the regulated nature of its business, Netlink NBN Trust’s earnings are largely independent of the economic cycle. Any potential rise in cost of capital will only lead to higher regulated returns in the future, which translates to higher distribution for unitholders. Moreover, Netlink NBN Trust has also hedged interest rates till March 2021, which further translates into higher 2019F yield.
With Starhub set to embark on an accelerated migration to fibre, it could turn into a potential catalyst for Netlink NBN Trust. In addition, with gearing of less than half of S-REITs, Netlink NBN Trust has ample debt headroom to fund future growth, especially in Smart Nation initiatives.
BUY, TP $0.87; Current share price $0.77
United Overseas Bank (UOB) is DBS’ preferred pick in the financial sector. DBS notes that UOB is in a strong capital position to benefit from the rising rate cycle in 2019. UOB’s strong capital position continues to provide opportunities to tap quality loan growth as broad-based loan growth outlook for the year continues to stand tall, with mid-to-high single-digit growth expected in 2019.
UOB is also less exposed to volatility in wealth management fees as its customers invest mostly in non-leveraged products. DBS also notes that UOB has deliberately built up SGD deposits ahead of the curve as it anticipates further increases in cost of deposits.
BUY, TP $29.50; Current share price $26.14