Singapore Monthly Strategy

Refer to important disclosures at the end of this report

DBS Group Research . Equity

5 Mar 2020

The only thing to fear is fear itself STI : 3,025.03

• Earnings cut on COVID-19 impact, STI YE target lowered to 3350 Analyst • Emergency rate cut put REITS back in focus, add pressure on banks’ Kee Yan YEO, CMT +65 6682 3706 NIM [email protected]

• COVID-19 resilience list - AIMS, ESR REIT, StarHub, Netlink, AREIT, Janice CHUA +65 6682 3692 FCT, Sheng Siong and Thai Beverage [email protected]

• China’s COVID-19 recovery and Singapore malls’ footfall recovery - Sunpower, Frencken, YZJ, CRCT, CapitaLand, CMT, MCT &Koufu Key Indices Current % Chng Another rate cut ahead? Global monetary and fiscal support continues STI Index 3,025.03 0.2% as COVID-19 was spreading across the globe over the past two weeks. FS Small Cap Index 338.16 0.8% On top of the 50bps emergency cut, consensus expects the FED to USD/SGD Curncy 1.38 0.0% lower rates by a further 25bps at the 18 March FOMC meeting. The Daily Volume (m) 1,631 drop in the US 10-yr yield below 1% is positive for REITs/yield stocks Daily Turnover (S$m) 1,911

while banks face NIM pressure. Downgrade UOB to HOLD, TP cut to Daily Turnover (US$m) 1,380 S$25.50. Source: Bloomberg Finance L.P.

Earnings slashed on viral outbreak uncertainties. EPS growth for stocks Market Key Data (%) EPS Gth Div Yield under our coverage was cut by 3.4% and 1.9% for FY20F and FY21F 2019 2.1 4.4 respectively vs the previous quarter. The drag came from consumer 2020F 1.6 4.5 discretionary (Genting, Jumbo), consumer services (SingTel, SPH), 2021F 7.0 4.6 industrials (Keppel Corp, SCI, SMM, SIA, SATS) and banks (UOB, OCBC). On a positive note, Venture Corp, AREIT, UOL, Wilmar and (x) PER EV/EBITDA Sunpower saw upward earnings revisions. 2019 13.7 13.6 2020F 13.5 13.5

STI year-end target 3350. The COVID-19 situation in China has 2021F 12.6 12.5 improved tremendously over the past month even as more countries

are affected. STI earnings are slashed by 6.3% and 5.6% for FY20F and STOCKS FY21F respectively, leading to almost zero growth for STI this year. We 12-mth Price Mkt Cap Target Performance (%) thus lower our STI year-end target to 3350 (from 3500) pegged to S$ US$m S$ 3 mth 12 mth Rating 12.89x (-0.25SD) FY21F PE. Technical support at 2960.

COVID-19 playbook. We identify the five phases (fear, anger, AIMS APAC REIT 1.42 720 1.50 0.0 1.4 BUY relief/acceptance and finally recovery) of COVID-19 experience and the ESR-REIT 0.54 1,347 0.59 (1.8) (0.8) BUY StarHub 1.50 1,876 1.72 7.1 (5.7) BUY sector outperformers/underperformers. We believe that China has Ascendas REIT 3.33 8,688 3.45 11.4 20.7 BUY started its recovery phase, where sector outperformers are Thai Beverage manufacturing and domestic demand (F&B and retail). Singapore is at Public Company 0.79 14,224 1.04 (11.3) (1.3) BUY the relief/acceptance phase, and its sector outperformers are telecom Sunpower and domestic demand (F&B and retail). Group Ltd 0.52 302 0.84 (4.6) (12.7) BUY Venture 17.05 3,552 18.50 9.8 (10.7) BUY Two-pronged strategy. (1) COVID-19 resilience list - Stocks that are CapitaLandCorporation resilient to the supply chain disruption, sharp drop in consumer Retail China Trust 1.45 1,266 1.75 (7.1) (3.8) BUY discretionary spending and impact of travel restrictions. Our picks are CapitaLand 3.64 13,255 4.50 1.1 4.3 BUY AIMS, ESR REIT, StarHub, Netlink, AREIT, FCT, Sheng Siong and Thai CapitaLand Mall Beverage, (2) China’s COVID-19 recovery and Singapore malls’ footfall Trust 2.46 6,553 2.95 (1.2) 1.7 BUY recovery. Our picks are Sunpower, Frencken, Yangzijiang, CRCT, Koufu Group 0.71 284 0.84 (6.6) 8.4 BUY CapitaLand, CMT, MCT and Koufu. Others include Hi-P (HOLD) and MapletreeLimited Valuetronics (not covered). Commercial Trust 2.24 5,349 2.60 (3.5) 24.9 BUY Source: DBS Bank, Bloomberg Finance L.P. Closing price as of 4 Mar 2020

ed: TH/ sa: DT, PY, CS/contributed by YWB Market Focus The Only Thing to Fear is Fear Itself

March Market Outlook

Nowhere to hide FTSE ST Indices’ relative performance for February ▪ STI stumbled 4.5% m-o-m to 3011.18 as the spread of YTD Return COVID-19 to Europe, Middle East and US ignited fear of a Energy -11.8 Consumer Discretionary -11.2 global recession even as the situation in China has Communication Services -10.3 Real Estate -10.0 improved significantly over the past month Industrials -9.3 Consumer Staples -8.9 ▪ Consumer goods outperformed buoyed by positive DBS Coverage -7.1 STI Index -6.7 earnings surprises from Thai Beverage and Wilmar Banks -6.3 Information Technology -4.6 International REITs -3.1 Utilities -2.9 ▪ Telecommunications underperformed after SingTel reported Financial -2.1 Health Care 3.5 much weaker-than-expected earnings -14.0 -12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 ▪ Consumer services stocks Genting, Singapore Airlines, Source: DBS Bank Jumbo underperformed on continued worries about the impact of COVID-19 on the travel and tourism industry

Another rate cut on the cards March event calendar ▪ The annual meeting of the National People’s Congress Date Event Comments - Event has been postponed due to COVID-19 5 Mar Meeting of the Postponed due ▪ March FED Meeting (Postponed) National People’s to the COVID-19 Congress in China virus - FED cut rates by 50bps to 1.25% in an ‘emergency’ move 18 Mar FOMC Rate Consensus amid Covid-19 risk Decision expects another - Consensus expects a further 25-bp cut at the 18 March 25-bp cut to 1% FOMC meeting to 1% FED funds rate on COVID-19 - Positive for REITs/yield stocks (AREIT, AIMS, ESR REIT, uncertainties

CRCT, Starhub - Negative for banks given NIM pressure (OCBC, UOB) Source: Bloomberg Finance L.P., DBS Bank

Generous and far reaching Singapore Budget 2020 Singapore’s overall fiscal position ▪ Overall deficit of S$10.9bn (2.1% GDP), the deepest since 2009 GFC - Stabilisation and Support Package of S$4bn to help sectors affected by COVID-19 - Property tax rebates and temporary bridging loan programmes for the tourism sector (Genting Singapore, CDL HT, FEHT) - Rebates for the aviation sector (SIA, SATS) - Property tax rebates for qualifying commercial properties

(e.g. Mapletree Commercial Trust, Suntec REIT) ▪ S$1bn over three years to build up government’s cyber and Source: DBS Bank data securities (Silverlake) ▪ S$1.6bn Care and Support Package (Sheng Siong, Koufu)

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Market Focus The Only Thing to Fear is Fear Itself

4QFY19 results review

A balanced quarter Earnings relative to expectations Sector Above Below In-line ▪ More companies beat earnings expectations compared to Banking 2 those that disappointed Comm. Svcs 1 3 ▪ Financials (Above): Results beat forecasts on strong growth in Consumer Disc. 2 2 fixed income, currencies and commodities volumes (SGX) and Consumer Staples 2 1 4 Energy 1 assets under administration (iFast) Financials 2 ▪ Industrials (Below): Write-offs and impairments dragged on Health Care 2 1 earnings (Keppel, SCI, SMM, SIA) Industrials 4 7 3 Info Technology 3 3 ▪ Information Technology (Above): Better-than-expected results Real Estate 4 1 4 due to higher orders (AEM) and improvements in operational REITs 7 4 20 efficiencies (Venture) Utilities 1 1 Total 25 18 43 ▪ Real Estate (Above): Higher earnings largely due to higher

gains from asset recycling (CapitaLand) Source: DBS Bank ▪ Industrial REITs (Above): Earnings outperformed due to cost- control measures and past acquisitions (MINT) ▪ Commercial REITs (Above): Earnings surprise led by strong positive commercial rental reversions (OUECT) and earlier- than-expected opening of Festival Walk (MNACT)

REITs a silver lining Earnings revision by sector (q-o-q) Current vs Previous Quarter ▪ Communication Services: Lower advertising expenditure (SPH) FY20 Chng FY21 Chng coupled with margin erosion in Australia consumer business Banking -3% -2% and weakness in enterprise business led (Singtel) to a 15% Comm. Svcs -15% -16% FY20F earnings cut Consumer Disc. -10% -4% Consumer Staples 0% 3% ▪ Consumer Discretionary: Earnings cut of 9% for FY20F due to Energy -2% 0% COVID-19 impact on tourism and consumer sentiment Financials 0% 3% (Genting, Jumbo) Healthcare 7% 1% Industrials -9% -5% ▪ Industrials: 9% cut in FY20F earnings on weak orderbook Info Technology 2% 2% (Keppel, SMM) and lower regional tourism (SATS, SIA) Real Estate 1% 0% ▪ Information Technology: 2% FY20F upward revision in REITs 3% 4% earnings due to higher revenue from increased Intel capex Utilities -13% -18% DBSV Coverage -3.4% -1.9%

guidance (AEM) and new production introductions and partners (Venture) Source: DBS Bank ▪ REITs: Earnings to be boosted by larger acquisitions due to enlarged debt headroom from merger (ART) and new project completions (AIT) ▪ Banks : 3% (FY20F) cut in earnings on lower loan and fee income, higher provisions assumptions ▪ Utilities: -13% FY20F earnings revision due to change in depreciation policy (KIT)

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Market Focus The Only Thing to Fear is Fear Itself

STI’s EPS growth slashed Sector earnings and valuations Earnings Div Yld ▪ STI EPS growth slashed to just +0.2% (previously +6.2%) for PER (x) Growth (%) (%) FY20F 20F 21F 20F 21F 20F - Double-digit negative revisions for Genting, SingTel, Banking -4.4 5.0 10.0 9.5 5.1 Yangzijiang, Keppel Corp, SATS Comm. Svcs 1.8 2.2 19.7 19.3 5.3 ▪ STI’s FY21F EPS growth edged higher to +6.5% (previously Consumer Disc. -4.7 15.0 11.3 9.8 4.9 +5.6%) Cons. Staples. 7.4 7.2 15.6 14.5 3.2 - Positive revisions for UOL, Ascendas REIT, Wilmar, Energy 3.3 6.0 6.8 6.4 4.4 Sunpower and Venture Corp Financials 6.0 8.2 22.1 20.4 3.5 ▪ Base view is for 2Q recovery, but longer-than-expected Health Care 31.7 13.0 43.3 38.3 0.8 COVID-19 outbreak could lead to further earnings cuts as Industrials 9.3 12.2 14.2 12.7 4.0 global economies are disrupted Info Tech 5.9 6.8 11.8 11.0 4.2 ▪ Earnings resilient companies (Sheng Siong, Thai Bev) appeal Real Estate 1.7 9.0 10.7 9.8 3.4 as pandemic worries rise REITs 11.3 4.5 17.2 16.5 5.8 ▪ Banks (UOB, OCBC), REITs (Ascendas, AIMS, ESR REIT) and Utilities 32.0 14.6 19.3 16.8 6.3 communication services (SingTel, StarHub, Netlink NBN) offer Grand Total 1.9 6.9 13.4 12.5 4.5 good yield STI DBS 0.2 6.5 12.3 11.6 Forecast

Source: DBS Bank

Lower STI year-end objective to 3350 STI at various forward PE levels ▪ STI earnings slashed by 6.3% q-o-q and 5.6% q-o-q for FY20F and FY21F respectively on worries of COVID-19 disruption ▪ STI currently trades at slightly above 12x (-1SD) 12-month forward PE ▪ Our view is for a 2Q V-shaped recovery

- While COVID-19 has spread to more countries, the situation in China has improved tremendously over the past month Source: DBS Bank

and factories are resuming operations ▪ Lower STI year-end target to 3350 (from 3500) pegged to 12.89x (-0.25SD) FY21F PE ▪ Technical support at STI 2960, slightly below 12x (-1SD) 12- month forward PE

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Market Focus The Only Thing to Fear is Fear Itself

Insights into the COVID-19 experience

Two weeks from containment measures to show results Singapore daily new infections

20 100 ▪ Singapore imposed travel restrictions to all Chinese visitors 18 90

from 2 Feb 16 Singapore imposed 80 travel restrictions on all - Daily new infections peaked 2 weeks later at 15 Feb and 14 visitors with recent Dailynew infections 70 travel history to China peaked 2 weeks later on 12 from 2 Feb 15 Feb and have been 60 have been declining since declining since 10 50

▪ China started unprecedented lockdown measures on 23 Jan 8 40

(see chart below) 6 30 - Daily new infections peaked two weeks later on 5th Feb 4 20 and have been declining since 2 10 0 0 ▪ Two-week delay logically coincides with the virus incubation

period of up to 14 days New Cases (SG) (LHS) Cumulative Cases Reported (SG)

Source: DBS Bank

About 1 month to ‘minimise’ Covid-19 China daily new infections

16,000 ▪ China’s daily new infections fell to an average 450 on 23 One-off spike due to new 14,000 infection classification to include 'clinically diagnosed' cases Feb, one month after the Wuhan lockdown 12,000

10,000 Daily new infections peaked 2 - Majority of daily new infections occur at the epicentre city Wuhan weeks later have been lockdown 8,000 declining since 5 Feb of Wuhan in Hubei started 23 6,000 January - For example, China saw 411 new infections on 26 Feb, of 4,000

which 401 were in Hubei (source: China national and local 2,000 health committees) 0 ▪ Singapore’s daily new infections fell to an average of 1.2 on China - Change in infected cases (LHS) 22 Feb, three weeks after it imposed travel restrictions on all Source: DBS Bank visitors from China

Life returning to ‘normal’ for the locals Carpark vacancy rates over 3 weekends ▪ Empirical evidence suggests that locals have started to return to heartland malls - Bedok Mall and Junction 8 @ Bishan had ‘limited’ parking availability on weekend evenings - Ground checks reveal that the crowd has returned at heartland hubs - Suburban malls footfall recovered to 95% before COVID-

19 outbreak, according to CapitaLand Source: DBS Bank ▪ But tourists are still ‘missing’ due to China travel restrictions - Ground checks reveal low crowd levels at Chinatown and Chinatown MRT station - Ample parking availability at Suntec (Suntec REIT), Vivocity (Mapletree Commercial Trust), Ngee Ann City (Starhill Global) and Marina Square (UOL)

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Market Focus The Only Thing to Fear is Fear Itself

Global spread not unexpected Distribution of COVID-19 cases as on 26 Feb 2020 ▪ Pandemic fear has risen as COVID-19 cases rise in Europe, Middle East and US ▪ COVID-19 propagation from China to Asia-Pacific and now to the rest of the world does not come as a shock given air passengers’ travel pattern ▪ The current sell-off in DM markets of US and Europe is the ‘last shoe to drop’ with regards to the impact of COVID-19 on global equities

Source: World Health Organization

The biggest fear is fear itself Comparison between COVID-19, US seasonal flu and 2009 H1N1 ▪ Managing fear is as important as managing the COVID-10 Event Hospitalisations Deaths spread COVID-19 83,385* 2,859 ▪ Putting things to perspective US Flu (2018-19) 490,561 34,157 - US 2019/2020 seasonal flu has resulted in at least 280,000 US Flu (2017-18) 810,000 61,000 US Flu (2016-17) 500,000 38,000 hospitalisations and killed at least 16,000 since 15 Feb US Flu (2015-16) 280,000 23,000 2020 (estimates by CDC) US Flu (2014-15) 590,000 51,000 - US seasonal flu has caused at least 12,000 deaths per US Flu (2013-14) 350,000 38,000 annum since 2010 with the highest number of death US Flu (2012-13) 570,000 43,000 US Flu (2011-12) 140,000 12,000 recorded at 61,000 during the 2017/2018 season US Flu (2010-11) 290,000 37,000 - 2009 H1N1 pandemic killed an estimated 151,700 to H1N1 (2009-10) 10,000,000 – 284,500 575,400 globally during its first year and specifically 200,000,000*

targeted people below 65 years old Source: World Health Organization, US CDC - 2009 H1N1 killed 18 in Singapore and infected 420,000 residents from May 2009 to Feb 2010 - When WHO declared the H1N1 global pandemic on 11 Jun 2009, global equities fell 8% over a 4-week period and recovered 29% by end-2009 - Global equities are down 6.8% from YTD high on COVID- 19 worries

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Market Focus The Only Thing to Fear is Fear Itself

Covid-19 playbook

5 Phases of Covid-19 experience

Relieve or Complacency Fear Anger Recovery Acceptance •Current examples: •Current examples: •Current example: •Current example: Germany, Bahrain, Italy, South Korea, Singapore China Kuwait, Australia, Japan •Outperformers: •Outperformers: US •Outperformers: Suburban malls, Manufacturing, •Outperformers: Medical supplies, F&B, e-commerce domestic consumer Medical supplies, pharmaceuticals, and internet services, domestic pharmaceuticals, groceries, telecom, services, telecom demand (F&B, groceries, telecom, e-commerce and •Underperformers: retail) e-commerce, internet services Travel and tourism •Underperformers: internet services •Underperformers: (depending on Groceries, •Underperformers: Travel and tourism, global Covid-19 consumer staples Travel and tourism, cyclicals, consumer situation) cyclicals, consumer discretionary discretionary

Source: DBS Bank

We identify the following phases of public/investor emotions - Countries currently in this phase are likely South Korea, through the COVID-19 experience and the associated sector Italy, Japan outperformers/underperformers: - Outperformers: Medical supplies (mask and glove manufacturer), hospitals, pharmaceuticals, groceries, 1) Complacency telecom, e-commerce and internet services - This occurs when there is no COVID-19 local - Underperformers: Travel and tourism, cyclicals, consumer transmission, imported cases are very few discretionary - With pandemic worries rising, no global regions are currently at this phase 4) Acceptance or Relieve - Outperformers: Cyclicals, consumer discretionary – Relieve occurs when community transmission is arrested; - Underperformers: Consumer staples and the number of daily new infections fall to a very low figure 2) Fear – Acceptance occurs when community transmission is - This occurs when local community transmission begins, embedded in the local population and the healthcare infection sources cannot be identified, and local health strategy shifts from virus containment to mitigation, until authorities introduce containment measures a vaccine is found, or the virus ‘fades off’ with the warm - There is panic buying of personal healthcare products summer months in the northern hemisphere such as masks, hand sanitisers, vitamin-C pills – Domestic consumer demand starts to build up within the - There is a ‘knee jerk’ stocking up of basic household local population essentials as health authorities introduce containment – Singapore is in this phase measures – Outperformers: Domestic demand such as F&B and - Countries currently in this phase are likely Germany, retail, e-commerce and internet services, telecom Kuwait, Bahrain, Australia and US – Underperformers: Travel and tourism (depending on - Outperformers: Medical supplies (mask and glove global COVID-19 situation) manufacturers), hospitals, pharmaceuticals, groceries, telecom, e-commerce and internet services 5) Recovery - Underperformers: Travel and tourism, cyclicals, consumer – Life steadily returns to normal with slight adjustments discretionary (e.g. wearing masks, personal hygiene vigilance) – Factory production recovers, ‘pent-up’ domestic demand 3) Anger unfolds - This occurs when local community transmission is – China has just started this phase as the number of new spreading at an increasing speed Covid-19 cases has fallen to a low level for all provinces - Public anger mounts as personal medical/healthcare except in Hubei. supplies (e.g. masks, hand sanitisers) run out of stock – Outperformers: Domestic demand (F&B and retail), and there is perceived (or actual) inability of local health domestic consumer services, manufacturing authorities to stop the spread of the virus – Underperformers: Groceries, consumer staples

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Market Focus The Only Thing to Fear is Fear Itself

Strategy

We observe the following developments in the COVID-19 6. We expect huge pent-up consumer demand to be situation: unleashed once Chinese authorities lower the alert level across more provinces and ease movement 1. The virus has spread to 68 countries from just 23 restrictions within cities countries at 23 Feb less than two weeks ago, raising 7. ‘pandemic’ concerns Against the backdrop of COVID-19 infecting more 2. On a positive note, the number of new daily infections countries even as the situation in China has recovered within China is now much lower than that outside of drastically, we advocate having a ‘COVID-19 immunity China. list’ among investors and also to position themselves 3. In the past three days, the ratio of new cases in China for the nascent shift to the recovery phase. versus outside of China is less than a quarter 4. Even within China, more than 90% of new cases COVID-19 resilience list remain within Wuhan, and we observe consistently fewer than 10 cases throughout the rest of China These include stocks that are resilient to the short-term outside of Hubei province supply chain disruption, sharp drop in consumer 5. Unconfirmed sources suggest that factory activities discretionary spending and impact of travel restrictions. In may have recovered to 70-80% of pre-COVID-19 addition, we think S-REITs/yield stocks remain resilient levels and are rising in provinces such as Guangdong, given the plunge in US 10-year yield to below 1.2%. Our Shandong, Zhejiang, Fujian and Jiangsu → Barring a picks are AIMS, ESR REIT, StarHub, Netlink, AREIT, FCT, sudden surge in new cases, factory activities could Sheng Siong and Thai Beverage. recover to pre-epidemic levels in the second half of March.

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Market Focus The Only Thing to Fear is Fear Itself

COVID-19 resilience list Div Net 12-mth PER PER EPS P/BV Price Target Yield Debt / Company Target 20 21 Growth 19 Comments 27 Feb Return Rcmd 20 Equity Price (x) (x) 20 (%) (x) (%) 20 AIMS 1.420 1.50 6% BUY 14.6 14.1 3.3 7.3 0.6 1.1 Rental revisions bottoming out, APAC Boardriders Asia Pacific HQ REIT (Gold Coast) and 3 Tuas Ave 2 to start contributing income from Jan’20 onwards ESR REIT 0.545 0.59 7% BUY 14.6 14.4 35.2 7.2 0.4 1.3 Rental revisions bottoming out, able to deliver higher earnings organically from flat rental reversions in 2019 (as compared to -15.8% in FY17 and -2.9% in FY18) StarHub 1.550 1.72 11% BUY 16.3 15.8 -15.4 5.8 1.3 7.0 Yield support, expect 9-Sct dividend per share or payout of 80% of profit, whichever is higher NetLink 1.000 1.05 5% BUY 40.0 37.2 13.0 5.2 0.2 1.3 Earnings visibility and decent yield of 5.2% Ascendas 3.210 3.45 7% BUY 18.7 18.7 6.5 5.1 0.4 1.3 Recent acquisition of Reit US/Singapore office park portfolio accelerates DPU growth, look out for potential Singapore-based asset injections in 2020 FCT 2.910 2.95 1% BUY 24.0 23.4 20.1 4.4 0.3 1.3 Footfalls for suburban malls resilient and almost back to pre-COVID-19 levels Sheng 1.280 1.45 14% BUY 22.0 20.6 15.5 3.2 cash 6.1 FY20F to benefit from Siong Stabilisation and Support Package, and Care and Support Package in Budget 2020 ThaiBev 0.805 1.04 29% BUY 17.7 16.5 11.2 3.0 1.1 4.0 Robust domestic spirits volume and NAB profitability, COVID- 19 unlikely to have major impact Wilmar 4.150 4.60 11% BUY 15.5 15.1 -0.6 2.9 1.0 1.1 Strong presence in China staple food market means its well-diversified product line is irreplaceable, even amid the current COVID-19 situation

Source: DBS Bank

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Market Focus The Only Thing to Fear is Fear Itself

Positioning for China’s COVID-19 recovery phase and (CRCT, CapitaLand) are likely to be unleashed when Singapore malls’ footfall recovery movement restrictions within China are eased. We are also positive on the recent footfall recovery in Singapore malls Stocks that are positioned to ride the current recovery in (CapitaLand Mall Trust, Mapletree Commercial Trust, China’s manufacturing activity (Sunpower, Frencken, Hi-P, Koufu). Yangzijiang) and the anticipated pent-up domestic demand

Positioning for China’s COVID-19 recovery phase and Singapore malls’ footfall recovery EPS Div Net 12-mth PER PER P/BV Price Target Growth Yield Debt / Company Target Rcmd 20 21 19 Comments 27 Feb Return 20 20 Equity Price (x) (x) (x) (%) (%) 20

Sunpower 0.545 0.81 49% BUY 10.3 8.7 -0.6 0.3 0.9 1.2 Demand for steam utilisation should rise as factories in textile, chemical and food industries come back on stream Yangzijiang 0.975 1.68 72% BUY 6.3 6.5 -3.1 5.1 cash 0.6

Hi-P 1.130 1.37 21% HOLD 11.5 11.2 -1.8 3.5 cash 1.5 Nine factories in China gradually resume operations

Frencken 0.865 1.06 22% BUY 8.2 7.6 -3.7 3.7 cash 1.2 Its six factories in China have resumed operations

CapitaLand 3.640 4.50 24% BUY 10.2 9.4 -22.3 3.3 0.5 0.8 CRCT 1.410 1.75 24% BUY 15.9 14.9 48.0 7.0 0.4 0.9 Anticipating huge pent-up demand in China CMT 2.400 2.95 23% BUY 19.0 18.6 4.4 5.1 0.3 1.2 Benefitting from recovery in footfall at malls

MCT 2.200 2.60 18% BUY 23.5 23.1 6.8 4.6 0.4 1.4 Local footfall at Vivocity recovering Koufu 0.720 0.84 17% BUY 14.6 14.7 -2.0 3.4 cash 3.8 Benefitting from recovery in footfall at malls

Source: DBS Bank

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Market Focus The Only Thing to Fear is Fear Itself

Fall in US 10-yr yield to record low underpins REITs, potential acquisitions driving distributions higher. puts pressure on banks We believe that suburban retail landlords (CMT, FCT) will hold their ground better than tourist-focused The US 10-yr yield fell below 1% after the FED malls given their focus on necessity shopping which slashed the FED funds rates by 50bps to 1.25% in a is more defensive. pre-emptive off-meeting move. Consensus still expects another rate cut at the 18 March FOMC However, banks UOB and OCBC will likely suffer meeting. The US 10-year yield fell below the 1% from further NIM pressure. In 4Q19, NIM had mark to 0.98%, the lowest on record. declined by 1-4bps q-o-q across Singapore banks amid a lower interest rate environment. This trend The tumble in the risk-free rate is positive for REITs should continue given the lower interest rates especially after the sector’s recent sell-off as yield backdrop. We lowered FY20F earnings by 1-2% spread widens. Among the larger cap REITs, our across the sector on 1-2bps NIM reduction. We REITs sector analyst prefers industrials (AREIT, MINT, currently forecast 6-9bps. NIM decline through FY20 AIT) for their longer weighted lease expiry (WALE) across the banks. NIM sensitivity: every 10bps supporting distributions, and selected SG & US office decline in NIM will reduce net profit by 6-8%. We REITs (KREIT, SUN, Prime, KORE and MCT) for have downgraded UOB to HOLD, TP cut to S$25.50.

SREITs picks 12-mth Net Debt Price Target Div Yield P/BV 19 Company Target Rcmd / Equity 27 Feb Return 20 (%) (x) Price 20 Ascendas India Trust 1.680 1.85 10% BUY 6.2 0.4 1.5 Ascendas Reit 3.210 3.45 7% BUY 5.1 0.4 1.3 CapitaLand Mall Trust 2.400 2.95 23% BUY 5.1 0.3 1.2 Frasers Centrepoint Trust 2.910 2.95 1% BUY 4.4 0.3 1.3 Keppel Pacific Oak US REIT 0.770 0.90 17% BUY 8.3 0.6 0.9 Keppel REIT 1.220 1.45 19% BUY 4.6 0.3 0.9 Mapletree Commercial Trust 2.200 2.60 18% BUY 4.6 0.4 1.4 Mapletree Industrial Trust 2.810 3.00 7% BUY 4.6 0.3 1.8 Prime US REIT 0.985 1.05 7% BUY 6.8 0.6 1.2 Suntec REIT 1.760 2.15 22% BUY 5.6 0.4 0.8

Source: DBS Bank

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Market Focus The Only Thing to Fear is Fear Itself

DBS Bank recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame) *Share price appreciation + dividends

Completed Date: 4 Mar 2020 15:06:31 (SGT) Dissemination Date: 5 Mar 2020 08:58:29 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the 2 content of this research report or his associate does not have financial interests in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have proprietary positions in StarHub, Ascendas REIT, Thai Beverage Public Company, Venture Corporation, CapitaLand Retail China Trust, CapitaLand, CapitaLand Mall Trust, Mapletree Commercial Trust, UOL Group, Wilmar International, NetLink NBN Trust, Frasers Centrepoint Trust, Sheng Siong Group, Yangzijiang Shipbuilding, Genting Singapore, SingTel, SPH, Keppel Corporation, Sembcorp Industries, Sembcorp Marine, Singapore Airlines Limited, SATS, UOB, OCBC, CDL Hospitality Trusts, Far East Hospitality Trust, Suntec REIT, Singapore Exchange, Mapletree Industrial Trust, OUE Commercial REIT, Mapletree North Asia Commercial Trust, Ascott Residence Trust, Keppel Infrastructure Trust, Starhill Global REIT, Keppel Pacific Oak US REIT, Keppel REIT, Prime US REIT, recommended in this report as of 31 Jan 2020.,

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in StarHub, Ascendas REIT, CapitaLand Retail China Trust, CapitaLand Mall Trust, Mapletree Commercial Trust, NetLink NBN Trust, CDL Hospitality Trusts, Suntec REIT, Mapletree Industrial Trust, OUE Commercial REIT, Mapletree North Asia Commercial Trust, Ascott Residence Trust, Starhill Global REIT, Keppel Pacific Oak US REIT, Keppel REIT, Prime US REIT, recommended in this report as of 31 Jan 2020.

4. DBS Bank Ltd, DBS HK, DBSVS, DBSVUSA or their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of NetLink NBN Trust, CDL Hospitality Trusts, Suntec REIT, OUE Commercial REIT, Mapletree North Asia Commercial Trust, Starhill Global REIT, Keppel Pacific Oak US REIT, Prime US REIT, as of 31 Jan 2020.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Compensation for investment banking services: 5. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from AIMS AMP Capital Industrial REIT, Ascendas REIT, CapitaLand Retail China Trust, CapitaLand, CapitaLand Mall Trust, Koufu Group Limited, Mapletree Commercial Trust, UOL Group, Frasers Centrepoint Trust, SPH, Keppel Corporation, Sembcorp Industries, Singapore Airlines Limited, Suntec REIT, Mapletree Industrial Trust, Ascendas India Trust, Keppel Infrastructure Trust, Keppel Pacific Oak US REIT, Prime US REIT, as of 31 Jan 2020.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from Suntec REIT, as of 31 Jan 2020.

7. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for AIMS AMP Capital Industrial REIT, Ascendas REIT, CapitaLand Retail China Trust, CapitaLand, CapitaLand Mall Trust, Mapletree Commercial Trust, UOL Group, Frasers Centrepoint Trust, SPH, Sembcorp Industries, Singapore Airlines Limited, Suntec REIT, Mapletree Industrial Trust, Ascendas India Trust, Keppel Infrastructure Trust, Keppel Pacific Oak US REIT, Prime US REIT, in the past 12 months, as of 31 Jan 2020.

8. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Directorship/trustee interests: 9. Nihal Vijaya Devadas Kaviratne CBE, a member of DBS Group Holdings Board of Directors, is a Director of StarHub as of 31 Dec 2019. 10. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 31 Dec 2019. 11. Dave GLEDHILL, a member of DBS Group Management Committee, is a Director of Singapore Airlines Limited as of 03 Feb 2020. 12. Peter Seah Lim Huat, Chairman & Director of DBS Group Holdings, is a Director / Chairman of Singapore Airlines Limited as of 31 Dec 2019. 13. Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director / Chairman of SATS as of 31 Dec 2019. 14.Su Shan TAN, a member of DBS Group Management Committee, is a Director of Mapletree North Asia Commercial Trust as of 03 Feb 2020.

Disclosure of previous investment recommendation produced: 14.DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore.

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

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Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, International Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is Financial regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as Centre defined in the DFSA rulebook) and no other person may act upon it.

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for jurisdictions qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 Contact: Janice Chua 13th Floor One Island East, U) 12 Marina Boulevard, 18 Westlands Road, 19th Floor, Menara Multi-Purpose, Marina Bay Financial Centre Tower Quarry Bay, Hong Kong Capital Square, 3 Tel: 852 3668 4181 8 Jalan Munshi Abdullah 50100 Singapore 018982 Fax: 852 2521 1812 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 e-mail: [email protected] Tel.: 603 2604 3333 Fax: 65 65353 418 Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E

THAILAND INDONESIA DBS Vickers Securities (Thailand) Co Ltd PT DBS Vickers Sekuritas (Indonesia) Contact: Chanpen Sirithanarattanakul Contact: Maynard Priajaya Arif 989 Siam Piwat Tower Building, DBS Bank Tower 9th, 14th-15th Floor Ciputra World 1, 32/F Rama 1 Road, Pathumwan, Jl. Prof. Dr. Satrio Kav. 3-5 Bangkok Thailand 10330 Jakarta 12940, Indonesia Tel. 66 2 857 7831 Tel: 62 21 3003 4900 Fax: 66 2 658 1269 Fax: 6221 3003 4943 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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