Phillip Securities Research Morning Call 26Th May 2020

Phillip Securities Research Morning Call 26th May 2020

Stock Counter Updates Macro/Sector Outlook

. IREIT Global . Singapore REITs Sector . EC world REIT . Singapore Banking Monthly . Propnex Ltd . Singapore Weekly . ComfortDelGro Ltd . ThaiBev PLC

The information contained in this presentation has been obtained from public sources which Phillip Securities Research Pte Ltd (“PSR”) has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in this presentation are based on such information and are expressions of belief only. PSR has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in this presentation is subject to change, and PSR shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSR be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages.

This presentation is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person.

You should seek advice from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.

Tay Wee Kuang Research Analyst Phillip Securities Research Pte Ltd 26th May 2020

1Q20 banking results snippet

DBS OCBC UOB

S$mn 1Q20 (YoY) 1Q19 1Q20 (YoY) 1Q19 1Q20 (YoY) 1Q19

4,026 2,490 2,407 Total Income 3,551 2,676 2,406 (+13%) (-7%) (-)

2,470 1,355 1,321 PPOP 2,053 1,556 1,333 (+20%) (-13%) (-1%)

1,086 657 286 Allowances 76 249 93 (+ >100%) (+ >100%) (+ >100%)

1,165 698 855 Earnings 1,651 1,231 1,052 (-29%) (-43%) (-19%)

Banking operations largely unaffected in the quarter . UOB comparable, while DBS saw robust growth across all segments . OCBC largely affected by contribution from GEH

1Q20 banking results snippet

DBS OCBC UOB

S$mn 1Q20 (YoY) 1Q19 1Q20 (YoY) 1Q19 1Q20 (YoY) 1Q19

3,232 2,314 2,362 Regulatory Cumulative GP 2,947 1,708 2,054 (+10%) (+35%) (+15%) Requirement

CET-1 CAR 13.9% 14.3% 14.1% 9%

Tier 1 CAR 15.1% 14.9% 15.1% 10.5%

Total CAR 16.8% 16.4% 17.2% 12%

NPL Ratio 1.6% 1.5% 1.6% -

NPA Coverage 92% 90% 88% -

Unsecured NPA 173% 234% 206% - Coverage

LCR 133% 151% 139% 100%

NIM DBS OCBC UOB (%) Current 1.86 1.76 1.71 2015 1.77 1.67 1.77 2014 1.68 1.68 1.71 2013 1.62 1.64 1.72 2012 1.70 1.77 1.87 2011 1.77 1.84 1.92

Lending rates under pressure . Current 3M-SIBOR/SOR stands at 0.69% and 0.26% respectively, back to FY13-FY14 levels . Further compression of 10 bps from current levels for FY20 . Impact will equate to 5 to 6% impact on NII, which makes up roughly 65% of total income

Loans growth taper in March to 2.41% YoY

. Consumer loans fall 2.43% YoY, in particular housing and credit card seeing steeper declines

. Business loans increase 5.52% YoY, expected to hold up

. FY20 loans growth to remain at 2 – 3%, and increased credit spread may provide buffer to NIM

Loans growth (YoY %) March 2020 2.41 February 2020 3.05 January 2020 2.97 December 2019 3.08 November 2019 3.10

SDAV DDAV YoY (+/-) YoY (+/-) ($mn) (mn) May (MTD) 1,326 +20% - -

April 1,411 +35% 0.83 -19%

March 2,193 +114% 1.53 +34%

February 1,377 +30% 1.24 +11%

January 1,219 +24% 1.07 +23%

SGX business momentum slowing . Fatigue in derivatives volumes; 35% below average of 1Q20 (1.2mn contracts per day) . SDAV fall off peak but remains at heightened level, with institutional clients net selling and retail clients net buying

1Q20 banking results snippet

DBS Group Holdings Oversea-Chinese Banking Corp United Overseas Bank Limited ACCUMULATE (Maintained) ACCUMULATE (Maintained) ACCUMULATE (Maintained) BLOOMBERG CODE DBS SP BLOOMBERG CODE OCBC SP BLOOMBERG CODE UOB SP LAST TRADED PRICE SGD 19.18 LAST TRADED PRICE SGD 8.49 LAST TRADED PRICE SGD 19.46 FORECAST DIV SGD 1.32 FORECAST DIV SGD 0.56 FORECAST DIV SGD 1.10 TARGET PRICE SGD 20.60 TARGET PRICE SGD 9.14 TARGET PRICE SGD 20.70 DIVIDEND YIELD 6.88% DIVIDEND YIELD 6.60% DIVIDEND YIELD 5.65% TOTAL RETURN 14.29% TOTAL RETURN 14.25% TOTAL RETURN 12.02%

Reduce Singapore banking sector to Neutral . Earnings impact for FY20 expected to come in at around 20-30% . Revised TP by adjusting NIM compression and increased credit costs . Preference for DBS with stronger business momentum and commitment to stable dividend pegged to operational performance than targeted payout ratio or CET-1 ratio

Tan Jie Hui Research Analyst Phillip Securities Research Pte Ltd 26th May 2020

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Phillip Securities accepts no liability whatsoever with respect to the use of this document or its contents. IREIT GLOBAL BUY (Upgraded), TP: $0.77, Last: $0.67 + The Positives . Stable results expected for 1H20; 1Q20 was . Sponsors and new strategic investor, AT investments, minimally impacted by Covid’19. increased stake to show support; IREIT’s non-  100% of rental income has been collected from executive director bought shares from market. tenants in 1Q20 with no dips in occupancy  Tikehau Capital and CDL increased their unitholding to  98% of April’s rents have been collected, with only 29.2% and 20.87%, from 16.64% and 12.52% 2% of arrears coming a handful of tenants from the respectively. AT Investments’ acquired a 5.5% stake. Spanish portfolio.  Mr Bruno de Pampelonne who is IREIT’s non-executive director purchased 200,000 units of IREIT at S$0.6075. . Proactive asset management mitigated lease break  These transactions are testaments of the sponsors’, fears of key tenants. investor’s and management’s confidence in IREIT’s The manager secured a 9-yr future lease with a strong portfolio. tenant for the entire 2 floors of Munster South building that will commence on 1 March 2021 post lease break by GMG on 29 Feb 2021. WALE of Munster Campus is to increase from 2.9 to 4.1 years, which will help to provide the portfolio with greater income visibility.

- The Negatives Outlook . Few requests for rental rebates amidst Covid’19 . Limited growth expected from CPI-linked escalations.  No requests for rent rebates or deferrals from the German portfolio, but there are a few requests from tenants in the  Germany’s and Spain’s GDP are expected to decline Spanish portfolio. by 6.3% and 9.2% respectively in 2020 amidst the  These tenants contribute less than 2% of IREIT’s total Covid’19 outbreak. income.  Rental escalations for most of the leases linked with their nations’ CPI. . Office take-up and leasing activity are expected to slow across both European states . Depreciation of EUR to impact 2020 DPU.  Tenants and investors take on a more cautious approach IREIT hedges approximately 80% of its income to be towards relocation and expansion in this economic repatriated from overseas to Singapore on a quarterly basis, climate. one year in advance. We are expecting translation loss to impact DPU by 3-5% . IREIT’s portfolio presents defensiveness given that as EUR generally depreciated against SGD throughout 2019. 95% of the current income stream is locked in till 2022.  0.9% and 2.6% of the leases due to expire and 2.6% and 2.4% eligible for lease break in FY20 and FY21 respectively Upgraded to BUY with a lower TP of S$0.770.

Natalie Ong Research Analyst Phillip Securities Research Pte Ltd 26th May 2020

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Phillip Securities accepts no liability whatsoever with respect to the use of this document or its contents. EC World REIT BUY (Maintained), TP: $0.77, Last: $0.68 Results at a glance + The Positives (SGD mn) 1Q20 1Q19 YoY Comments Gross revenue 23.5 23.9 -1.4% Lower due to rental rebates of RMB23.7mn . High income visibility due to portfolio occupancy Net property income 21.1 21.2 -0.2% of 99.1% (-0.8ppts QoQ), and WALE by GRI of 3.8 Distributable income 9.8 11.9 -17.9% Lower due to higher interest expense ($9.7mn vs years. 74% of FY20e revenue is secured through 4 $7.0mn) on higher loan quantum, and higher master leases to the Sponsor, with build-in rental unrealised FX loss ($4.0mn vs $0.9mn) escalations ranging 1% to 3% DPU (cents) 1.16 1.50 -22.9% Lower payout ratio of 95% (prev. 100%) as DI was retained for working capital and unforseen . Running cost of interest fell QoQ from 4.4% to contingencies, and 50% of management fees paid in 4.3%. This is likely attributed to ECW increasing units (prev. 100%) the interest rate hedge in 1Q20 from 72.2% to Source: Company , PSR 100% Outlook - The Negatives . Trade receivables ballooned by S$18.8mn (roughly 51%) QoQ, . Accretion from the acquisition of Fuzhou E- indicating that 80% of 1Q20’s revenue of S$23.5mn has not been commerce wiped out. DPU -22.9% YoY in 1Q20 collected - some of the arrears could be attributed to Sponsor, given due to RMB23.7mn of rental rebates granted, that the Sponsor was responsible for 73.6% of 1Q20’s revenues higher finance expense and 5% retention of distributable income (DI)

Maintain BUY with lower TP of S$0.77 (prev. $0.83). . FY20e/FY21e DPU trimmed by 5.6% and 3.9% which translates to DPU yield of 9.0% and 9.6% respectively Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197501035Z © PhillipCapital 2019. All Rights Reserved. For internal circulation only.

Natalie Ong Research Analyst Phillip Securities Research Pte Ltd 26th May 2020

Healthcare Hospitality Retail Commercial Industrial Diversified Covid Drawdown -33.4% -52.5% -38.5% -38.5% -35.9% -38.3% Price Recovery 54.6% 20.8% 29.6% 37.4% 58.7% 28.7% Source: Bloomberg, PSR

Dividend yield: 5.14% FED rate: 0% - 0.25%, after150bps cut 2019 Ave: 4.6% 3M SOR: 0.23% (Sep 2014 lows) Div. yield spread: 4.42% (+1.4 SD level) 2019 Ave: 2.6% 10YSGS: 0.72%

Source: Bloomberg, PSR

Impact to landlords vary by: Hospitality Retail Commercial Industrial Occupancy: % Tenants Operating 20% - 25% 10% - 30% 60% - 70% 40% - 80% 1. The underlying tenant's reliance on the premise to generate Property Tax Rebate 100% 100% 30% 30% income Amount of Rental Selectively, Selectively, NA 2 - 3 months Rebates Given 0.5 - 1.5 months 0.5 - 1.5 months 2. Degree of business disruption 3Q20: Domestic Higher vancancy rates, lower rents secures, and amount of rental assistance Impact 4Q20: right-sizing of space rendered International Source: Respective company announcements, PSR 3. Future demand for space (i.e. behavioural shifts, ecommerce and telecommuting)

Source: Bloomberg, PSR

Outlook Mitigants

. Slower leasing activity, mostly renewals . Tenants are locked in by existing leases

. Higher vacancy rates . Relatively low supply coming online across the subsectors . Lower rents and/or negative rental reversions

. According to CBRE’s April 2020 cap rate flash survey, investors are expecting cap rates for shopping malls to expand up to 30bps while cap rates for logistics and Grade A office are expected to hold steady

Retail Rental Index and Occupancy . Occupancy dipped by 0.5ppts while the rental index fell by 2.3pts

. Market expectation for landlord to have more “skin in the game”

. High reliance on premise to generate revenue

. Highest amount of rental rebates offered (2 to 3 months)

. Rise in vacancy rates, lower rental reversions

. Flexible leasing strategies: shorter lease term, higher risk-sharing

. In the long run, higher risk-sharing may increase the demand as the lower fixed rents makes it more economically viable for new-to-market

Source: CEIC, PSR brands to give the brick-and-mortar model a go

. The rental index fell 1.3pts QoQ to 168.7pts

. Office prices also showed some weakness, falling 4.0% QoQ

. Low reliance on premise to generate revenue

. Potential positives: Lower desk-density and split office may increase demand, demand for flex-space

. Potential negatives: Risk of rightsizing due to adoption of telecommuting

Source: CEIC, PSR

. Rental index for biz parks unchanged while the multiple and single-user factory and warehouse index fell by 0.2 to 0.4pts

. Low reliance on premise to generate revenue for business parks

. High reliance on premise to generate revenue for light industrial, hi-spec, factories, warehouse, data centres

. High percentage of tenants operating in premise during circuit breaker

. Risk: Relatively high percentage of SME tenants

. Potential positives: Heightened demand for

Source: CEIC, PSR logistic and data centre assets Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197501035Z © PhillipCapital 2019. All Rights Reserved. For internal circulation only.

. High reliance on premise to generate revenue

. Extension of lockdown in other countries and bans on international visitors keeping occupancy at depressed levels

. Alternative source of income (Block booking by govt, self-isolation)

. Lingering fear and caution even if international travel bans are lifted, domestic demand to supplement demand

. MICE events, which have been pushed back to the second half of the year, should help in the recovery of the sector once event-hosting

Source: CEIC, PSR restrictions are lifted (Phase 3) Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197501035Z © PhillipCapital 2019. All Rights Reserved. For internal circulation only.

Previous New % Previous New % Previous New Target % FY20e DPU FY21e DPU FY20e DPU FY20e DPU Change FY21e DPU FY21e DPU Change Target Price Price Change Yield Yield Ascott Residence Trust 8.15 6.87 -15.7% 8.52 8.14 -4.5% 1.53 1.17 -23.5% 7.9% 9.4% CapitaLand Mall Trust 12.51 10.78 -13.8% 13.11 12.81 -2.3% 2.70 2.22 -17.8% 5.8% 6.9% Frasers Centrepoint Trust 12.76 9.88 -22.6% 14.14 13.56 -4.1% 3.11 2.22 -28.6% 4.6% 6.2% CapitaLand Commercial Trust 9.03 7.67 -15.1% 9.20 9.12 -0.9% 2.18 1.74 -20.2% 4.8% 5.7% Ascendas REIT 16.11 16.74 3.9% 16.25 17.06 5.0% 3.31 3.18 -3.9% 5.5% 5.6% Keppel DC REIT 7.79 8.99 15.4% 9.50 9.55 0.5% 2.06 2.20 6.8% 3.7% 3.9% IREIT Global 5.54 5.47 -1.3% 5.58 5.54 -0.7% 0.885 0.77 -13.0% 8.0% 8.1% EC World REIT 6.27 5.92 -5.6% 6.59 6.33 -3.9% 0.83 0.77 -7.2% 8.7% 9.3% Source: Bloomberg, PSR, updated 19 May 2020

Paul Chew Head Of Research Phillip Securities Research Pte Ltd 26th May 2020

Positives • 3x jump in project marketing - 8 to 12 weeks for revenue from the booking of a new project, the growth this quarter comes from the health project sales in 4Q19. For the Top 3 selling projects in 1Q20 (The M, Treasures at Tampines, Jadescape), PropNex market share ranged from 46% to 60% • Cash keeps piling up - cash from operations increased S$8.7mn in 1Q20. Capital expenditure was less than S$100k in 1Q20. Net cash on the balance sheet rose to a record S$89.8mn (~50% market cap). • Huge operating leverage - Gross profits doubled YoY to S$15mn whilst staff cost only increased S$560k (or +17.8% YoY). The rise was due to salary increment and additional 1 headcount to 175.

Outlook: a. New launches: 1Q20 industry volumes rose 17% YoY to 2149. This will be supportive of 2Q20e earnings. FY20e industry transaction volumes may drop by around 20% to 7900. These are levels worst than the 12 months post July18. b. Private resale: 1Q20 volumes jumped 12% YoY to 2080 units. The resale market will be even worst hit than new launch. Without viewing the units physically, there is a higher risk for the buyer if there are issues with the unit. Resale units are unlike new launches where developers are reputable and there is the typical 1-year defect liability for developers. Expectations are for at least a 32% decline in transactions to 6100. c. HDB resale: 1Q20 volumes rose 22% YoY to 5893 unit and the highest in 9 years (for a March quarter). The circuit breaker will cause some postponement of purchases in the near-term and overall transaction for FY20e could fall by 10% to 21,500 units. Maintain BUY with higher TP of S$0.60 (prev. S$0.70): Our target price is lowered as we cut FY20e earnings forecast by 19%. We believe the company intends to position themselves as a high yield paying stock (7%). To maintain dividends at 3.5 cents per annum requires a payout of S$13mn

Paul Chew Head Of Research Phillip Securities Research Pte Ltd 26th May 2020

Positives (SGD mn) 1Q20 1Q19 YoY Comments • FCF of S$57.4mn in 1Q20 (1Q20: +S$0.4mn). Operating cash- Revenue 862.4 947.3 -9.0% flow of $S105.5mn during the quarter was higher than a year - Public transport 656.3 684.6 -4.1% Bus operations in Singapore were ago (1Q19: S$95.6mn). Turn net cash position of S$26.mn against the net debt of S$40mn as at end Dec19. - Taxi 127.8 171.9 -25.7% stable.Impact from China more significant. EBIT 55.9 107.4 -48.0% Negatives - Public transport 33.6 54.9 -38.8% UK swung into a loss. • Taxi operating profit plunged 92% to S$2.4mn. Rental rebates - Taxi 2.4 28.2 -91.5% and lockdowns depressed earnings and volumes respectively. PATMI 36.0 70.4 -48.9% Of the S$116mn of rental rebates to Singapore taxi drivers, we believe only S$13.7mn was incurred in 1Q20. Source: Company, PSR • Bus operations are not immune. The lower frequency in bus mileage will impact revenues. The service fee paid by the authorities is dependent on mileage travelled. Outlook: Taxi – Comfort taxi drivers will receive rental relief in stages from 13 February onwards. Taxi drivers will also receive 100% rental waiver from 7 April to 1 June, to coincide with the circuit breaker period. We estimate the rental rebates from Comfort in 2Q20 will be around S$68.9mn (Figure 2). Taxi operations are expected to be loss-making in FY20e. Public transport - Public bus and rail ridership was down between 70-75% during the circuit breaker period. Lower mileage operated will lead to less service fee to be received from the authorities. Downgrade to NEUTRAL with a lower target price of S$1.50 (prev. S$2.20): Social distancing behavior, working from home and the decline in tourist will all weight on passenger volumes. Our PATMI for FY20e is slashed by 62%. It excludes the job support scheme to be received from the government. Bus operations can recover faster as revenue depends on capacity, not passenger volumes. However, rail and taxi will suffer for a more prolonged period. The unknown for us will be the number of taxi drivers churning out of or into Comfort.

Figure 1: Announcements of rental relief for taxis in Singapore by Comfort Figure 2: The S$116mn support from Comfort for taxi drivers

Annc. Comment Driver Total Relief Period Daily rental waiver from Comfort S$mn Date Relief Cost 13 Feb to 6 Apr S$10 per day x 54 days 5.4 S$/daily S$ mn 21 Feb to 6 Apr S$16.50 per day x 46 days 7.6 13-Feb S$900 rental rebate over the next 3 months 10 9 25 Mar to 6 Apr S$10 per day x 13 days 1.3 This is on top of the S$900 announced by the Government. 10 9 7 Apr to 1 Jun S$103 per day x 56 days 57.7 20-Feb Daily rental rebate of S$16.50 from 21 February to end March. 16.5 10 2 Jun to 30 Sep S$36.50 per day x 121 days 44.2 Followed by daily S$10 rebate for April. 116.1 25-Mar From 25 March to end April, additional S$10 daily rental relief on top 10 1Q20e S$10/day (54days) + S$16.50 (46days) + S$10/day (7days) 13.7 of the current S$36.50, inclusive Government Special Relief Fund. 2Q20e S$10/day (6days) + S$103/day (56days) + S$36.5/day (29days) 68.9 The S$16.50 will be extended to end-April. 3Q20e S$36.5/day (92 days) 33.5 30-Mar Extend the daily S$46.50 rental relief till end-September. 80 116.1 4-Apr All tax rental will be waived from 7 April to 5 May. All 19 22-Apr Extend the full rental waiver from 6 May to 1 June. All 17

Source: PSR, Company

Paul Chew Head Of Research Phillip Securities Research Pte Ltd 26th May 2020

Positives • Margin stable for spirits business despite weaker volumes. Operating profit for spirits business was flat YoY at TBH6.46bn despite the fall in revenue. The expansion in margins was due to a 10% YoY decline in distribution expenses to TBH1.69bn. Spirits PATMI was up 9.5% Negatives • Sabeco will remain problematic for a few quarters -volumes punished by three key events: fake news, decree 100 and Covid-19 economic hit. Decree 100 in Vietnam introduced stiffer penalties for drunk driving, ban advertising of alcoholic beverages (between 6pm to 9pm). This has hit the on-trade (aka on-premises) (i.e. pubs, clubs). Outlook: The ban in alcohol sales in Thailand from 10 April to 3 May, will temporarily suppress earnings in 3Q20. Off-trade consumption (i.e. consumed at home) of spirits contributes approximately 80% of spirit sales and less impacted by Covid-19 social distancing measures. Maintain BUY with lower TP: We favour THBEV for their dominant market share of around 90% in spirits. It has an unassailable distribution network in Thailand with 280k direct point of sales presence and another 150k covered indirectly via agents. Another near-term lever to earning in FY20e will be a cut in advertisement and promotion expenses to defend profitability. Phillip Securities Research Pte Ltd (A member of PhillipCapital) Co. Reg. No. 197501035Z © PhillipCapital 2019. All Rights Reserved. For internal circulation only.

Paul Chew Head Of Research Phillip Securities Research Pte Ltd 26th May 2020

COVID-19 New Daily Cases 120,000

100,000

80,000

60,000

40,000

20,000

World Largest Economies ROW

Source: CEIC, WHO, PSR; *Largest economies - US, China, Germany, UK, Spain, Italy, France, Japan, S Korea

Source: https://www.markiteconomics.com/Public/Home/PressRelease/63cdd746043d4473bd49c2730287049a

Source: CEIC, PSR

SG: SIA Passenger Carried (YoY) Impact of 9/11 and SARS 70,000 18,000 20% 65,000 17,000 60,000 16,000 0% 15,000 55,000 14,000 -20% 50,000 13,000 45,000 12,000 -40% 40,000 11,000 35,000 10,000 -60% 9/11 = 22 months SARS = 11 months 30,000 9,000 -80%

-100% US Passengers (000s) - LHS Changi Aircraft Movements - RHS 2006 2008 2010 2012 2014 2016 2018 2020

Source: CEIC, PSR, S$2.68 is cost of MCB if converted to shares after 10 year

Paul Chew, Head of Research

Natalie Ong, REITs | Property

Tay Wee Kuang, Banking & Financial | Healthcare

Tan Jie Hui, Small Mid Cap

Timothy Ang, Credit (Bonds)

Chua Wei Ren, Technical

Siti Nursyazwina, Research Admin

Have an opinion or questions on our reports? Post them in the comment section of the report!