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MARKET Morning Call PULSE 29 Jul 2019

Index Last Close % Change Market Recap Day YTD US Market Recap (Previous trading session) Straits Times 3,364 (0.5) 9.6 Index Robust earnings from Alphabet and Starbucks pushed the S&P 500 and Nasdaq indexes to record highs on Friday, with support from data showing U.S. economic Hang Seng Index 28,398 (0.7) 9.9 growth slowed less than expected in the second quarter. The U.S. Commerce Department said GDP Shanghai SE increased at an annualized rate of 2.1% in the second 2,945 0.2 18.1 quarter, higher than a 1.8% rate forecast by Composite Index economists polled by Reuters. Shenzhen SE 1,573 0.0 24.1 Composite Index Asia Pacific Update (Previous trading session) Nikkei 225 Index 21,658 (0.5) 8.2 Southeast Asian stock markets ended lower on Friday, with falling the most, as risky assets lost their sheen after the European Central Bank (ECB) S&P 500 3,026 0.7 20.7 unexpectedly left interest rates unchanged. ECB on Thursday supported the view of needing economic stimulus but did not deliver the 10 basis point cut that Dow Jones 27,192 0.2 16.6 was widely anticipated, with focus now shifting to the U.S. Federal Reserve which is set to review its monetary policy next week. NASDAQ 8,330 1.1 25.5

Sources: Reuters, Media

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Latest Company and Sector Reports

 Suntec REIT: More positive outlook ahead (29 Jul 2019)  SIA Engineering: 1QFY20 PATMI up 2.7% YoY (29 Jul 2019)

 TAL Education: Investment for future (26 Jul 2019)  Sands China: Disruption at SCC kicking in (26 Jul 2019)

 Mapletree Commercial Trust: Steady start but positives likely priced in (26 Jul 2019)  Trust: Outlook remains subdued (26 Jul 2019)

 Melco International: Strong beat in 2Q (25 Jul 2019)

Please refer to important disclosures at the back of this document.

OCBC Investment Research Market Pulse 29 Jul 2019

Key Research Idea

Suntec REIT: More positive outlook ahead Suntec REIT‟s 2Q19 DPU fell 4.6% YoY to 2.361 S cents due largely to lower capital distribution, but met our expectations. Operationally Suntec REIT had a good quarter on the rental reversions front for its Singapore office and retail portfolios. We expect this positive momentum to be sustained ahead. In Jul, Suntec REIT proposed the acquisitions of two high quality freehold Grade A assets in Sydney (still under development with practical completion expected in 1Q20) and Adelaide, with initial NPI yields of 5.5% and 8.0%, respectively. Both properties come with annual rental escalations. After adjustments (lower risk-free rate and higher terminal growth assumptions), we bump our fair value estimate from S$1.83 to S$2.07. Upgrade from „Hold‟ to BUY (Research Team)

STI Stocks Sorted by Market Capitalization (US$m) Eqy Price on Mkt Cap Div Yield (%) P/E Ratio (x) Recommendation Code Company Beta 26 Jul 19 US$m (x) Hist F1 Hist F1 F2 Buy Hold Sell Total 1 DBS SP DBS Group Hldgs SGD 26.88 50,152 1.2 4.5 4.6 11 11 11 8 13 0 21 2 JM SP Hldgs USD 64.65 47,664 0.7 2.6 2.8 14 13 13 2 4 1 7 3 JS SP Jardine Strategic Hldgs USD 36.79 40,766 0.8 0.9 1.0 11 11 10 3 1 0 4 4 ST SP Spore Telecoms SGD 3.30 39,347 0.7 5.3 5.5 17 17 16 13 7 1 21 5 OCBC SP OCBC SGD 11.76 37,075 1.2 3.7 4.0 11 11 10 10 10 0 20 6 UOB SP SGD 26.93 32,804 1.3 3.7 4.6 11 11 10 13 7 0 20 7 WIL SP Wilmar Int'l SGD 4.05 18,727 0.8 2.6 2.8 15 15 13 11 5 2 18 8 THBEV SP Thai Beverage SGD 0.835 15,312 0.8 2.0 2.7 21 19 17 10 9 0 19 9 HKL SP USD 6.40 15,058 0.7 3.4 3.5 6 14 13 9 1 4 14 10 CAPL SP CapitaLand SGD 3.64 13,389 1.1 3.3 3.4 9 16 14 16 2 0 18 11 JCNC SP Jardine Cycle & Carriage SGD 35.55 10,260 0.9 3.4 3.7 17 11 9 3 1 1 5 12 DFI SP Dairy Farm Int'l Hldgs USD 7.48 10,118 0.7 2.8 2.9 n.a 22 19 2 6 0 8 13 STE SP ST Engrg SGD 4.29 9,776 0.8 3.5 3.6 26 23 21 12 2 0 14 14 KEP SP Keppel Corp SGD 6.55 8,691 1.2 3.5 3.6 17 13 11 16 2 0 18 15 SIA SP Spore Airlines SGD 9.62 8,324 0.8 3.1 3.9 17 14 14 9 6 0 15 16 GENS SP Genting Spore SGD 0.945 8,320 1.2 3.7 3.9 15 16 16 13 7 1 21 17 CT SP CapitaLand Mall Trust SGD 2.66 7,164 0.5 4.5 4.5 16 21 19 6 14 3 23 18 AREIT SP Ascendas REIT SGD 3.03 6,887 0.6 5.4 5.4 19 19 18 9 12 3 24 19 CIT SP City Developments SGD 9.49 6,284 1.3 0.8 2.1 14 15 15 14 4 0 18 20 SGX SP Spore Exchange SGD 8.02 6,265 0.8 4.7 3.9 23 22 21 4 8 4 16 21 CCT SP CapitaLand Commercial Trust SGD 2.12 5,805 0.6 4.2 4.2 20 24 24 8 10 5 23 22 UOL SP UOL Group SGD 7.50 4,618 1.2 2.3 2.4 15 17 15 9 3 0 12 23 CD SP ComfortDelGro SGD 2.76 4,365 0.8 3.8 4.0 19 19 18 9 5 0 14 24 YZJSGD SP Yangzijiang Shipbldg SGD 1.44 4,149 1.1 3.5 3.3 7 9 9 5 4 2 11 25 SATS SP SATS SGD 4.93 4,025 0.9 3.9 3.8 23 22 21 6 5 3 14 26 VM S SP Venture Corp SGD 15.81 3,329 1.4 3.2 4.5 13 12 12 4 4 2 10 27 SCI SP Industries SGD 2.45 3,197 1.1 1.6 2.2 14 11 10 10 3 1 14 28 GGR SP Golden Agri-Resource SGD 0.31 2,883 1.0 1.9 1.8 n.a 32 19 0 4 7 11 29 SPH SP Spore Press Hldgs SGD 2.240 2,612 0.8 3.8 5.5 14 19 18 0 5 1 6 30 HPHT SP Hutchison Port Hldgs Trust USD 0.230 2,004 1.0 6.7 7.6 n.a 29 26 0 3 3 6

Source: Bloomberg

OCBC Investment Research Market Pulse 29 Jul 2019

Research Ideas

Suntec REIT: More positive outlook ahead risk-free rate and higher terminal growth  2Q19 DPU -4.6% YoY assumptions), we bump our fair value estimate from S$1.83 to S$2.07.  Robust rental reversions (Research Team)  Proposed two acquisitions in Australia in Jul

2Q19 results within our expectations Suntec REIT reported its 2Q19 results which met our expectations. Gross revenue and NPI fell 2.3% and SIA Engineering: 1QFY20 PATMI up 2.7% YoY 7.2% YoY to S$88.4m and S$56.4m, respectively. This  Results within expectation was due to lower convention revenue and a sinking fund contribution of S$3.2m which has no  Recent share price action impact on Suntec REIT‟s distributable income. DPU  Fair value remains at S$2.43 fell 4.6% YoY to 2.361 S cents as a result of a lower distribution from capital (-38.1% to 0.232 S cents). However, it was noteworthy that DPU from 1QFY20 results in line operations actually rose 1.4% YoY to 2.129 S cents. SIA Engineering Company (SIAEC) reported a 0.2% For 1H19, Suntec REIT‟s NPI was down 7.4%, while YoY increase in revenue to S$258.1m. Meanwhile, DPU of 4.795 S cents represented a decline of 2.3% operating profit increased by 73.5% or S$7.5m to and represented 49.0% of our FY19 forecast. S$17.7m, mainly due to a reduction in material costs. Share of profits of associated and joint

ventures companies decreased S$6.4m to S$26.0m Robust rental reversions outlook for both Singapore mainly due to lower contributions from the engine office and retail and component segment on the back of higher Operationally, Suntec REIT had a good quarter on expenses incurred by the engine centre. Overall, the rental reversions front. Committed rents at PATMI increased 2.7% YoY or S$1.1m to S$41.6m. Suntec City Office came in at S$8.92-S$11.00 1QFY20 PATMI came up to 25.2% of our full-year psf/month in 2Q19, versus average expired rents of forecast, which we consider to be in-line with S$8.52 psf/month. From our understanding, rental expectations. reversions were solid at +7.9%. Rental uplifts were

also recorded at One Raffles Quay and MBFC Properties and momentum is expected to be Line maintenance joint venture with NokScoot sustained in 2H19. For retail, Suntec City Mall‟s SIAEC announced earlier this month that it has committed occupancy stood at 98.3%, while incorporated a line maintenance joint venture positive rental reversions of 5.3% were achieved in company in with NokScoot Airlines Co., 1H19. Looking ahead, management is targeting Ltd (NokScoot), an associate of rental reversions to remain around the mid-single (SIA). With this addition, SIAEC will have a portfolio digit level. Footfall and tenants‟ sales psf for the of 25 joint ventures across eight countries with mall rose 3.9% and 1.7% in 1H19, respectively. original equipment manufacturers (OEMs) and Another positive from Suntec City Mall arose from other strategic partners. Recall that the group the AEI at basement 1 (~15k sq ft). New units have continues to extend its line maintenance network started trading from end Jun and ROI is estimated in different countries as it believes that the number to be ~50%. of heavy checks required by newer aircraft will decrease going forward while more line maintenance work will be done during any spare Deepening Australia presence downtime that is available for aircraft. Suntec REIT has proposed acquisitions of two high

quality freehold Grade A assets in Jul. The first is 21 Harris Street in Sydney. It is still under development, Unchanged fair value of S$2.43 with expected completion in 1Q20. Acquisition cost The stock‟s recent price action has been notable – of ~A$297m is expected to be paid after practical SIAEC‟s share price rallied 15.1% from S$2.51 on 3 completion. Initial NPI yield is estimated to be 5.5%, Jul to S$2.89 on 5 Jul, before correcting 8.3% to with annual rent escalation of 3%-4%. The second close at S$2.65 on 26 Jul. We had previously property is 55 Currie Street in Adelaide. The mentioned that a potential privatization by SIA is a purchase consideration of S$148.3m is expected to possible catalyst for the stock. However, in provide an initial NPI yield of 8.0%, with annual response to an SGX query on the “unusual price escalations of 3.5%-3.75%. After adjustments (lower and volume movements”, SIAEC replied that it was

OCBC Investment Research Market Pulse 29 Jul 2019

not aware of any information not previously above (lower hedged exchange rate of A$1.00: announced which would explain the trading S$0.9663, versus A$1.00: S$1.0466 in 9MFY18) . The movement. Given the in-line set of results as well as latter formed 74.4% of our FY19 forecast. In AUD the lack of further indication that a privatization is terms, 9MFY19 DPU rose 5.6% to 5.45 A cents. on the horizon, our fair value remains unchanged Operationally, FLT‟s portfolio remained resilient, with at S$2.43 for now. Looking ahead, more an occupancy rate of 99.5%. Two forward lease transformation initiatives are to be progressively renewals were signed in 3QFY19, representing 1.4% implemented over the next three years. of portfolio GLA and rental reversions were positive Nonetheless, we believe the MRO environment at 1.6%. FLT has completed its lease renewals for remains challenging. We maintain our HOLD rating. FY19, and there are only 5.5% of its leases expiring (based on gross rental income) in FY20. On the (Chu Peng) financing front, FLT secured a new A$170m 5-year term green loan, and this has been swapped to EUR to take advantage of the negative Euribor interest rates. As a result, its average cost of debt will be lowered from 2.4% to 2.1%. We currently DBS: 2Q beat consensus have a HOLD rating fair value of S$1.20 on FLT. Summary: DBS reported 2Q19 net earnings of (Research Team) S$1.60b, up 20% YoY and -3% QoQ. This was higher than market consensus expectation for 2Q19 net earnings of S$1.51b (based on Bloomberg poll). This gives 1H19 net earnings of S$3.25b, +14% YoY. Net Interest Income delivered an expected strong performance, up 9% YoY and 5% QoQ to S$2.43b and accounted for 65.5% of total income. Non- interest Income also performed well, up 31% YoY and 3% QoQ to S$1.28b. However, allowances rose from S$76m in 1Q19 to S$251m in 2Q19. An interim dividend of 30 cents was declared. Management is maintaining its outlook for 2019, that is, mid-single- digit loans growth, mid-single-digit basis point NIM improvement with modest impact from 2H interest rate cuts, high-single-digit percent income growth, cost-to-income ratio of 43%, and ROE approaching 13%. Please note that DBS trades ex-dividend on 5 Aug 2019. (Research Team)

Frasers Logistics & Industrial Trust: 3QFY19 results within expectations Frasers Logistics & Industrial Trust (FLT) reported its 3QFY19 results which came in within our expectations. Revenue and NPI jumped 21.6% and 20.7% YoY to A$60.0m and A$49.6m (adjusted NPI +24.4% YoY), respectively. This was driven largely by acquisitions but partially offset by divestments. DPU in AUD terms grew 3.4% YoY to 1.82 A cents. However, in SGD terms, DPU fell 3.9% to 1.73 S cents as a result of a lower hedged exchange rate of A$1.00: S$0.9504, versus A$1.00: S$1.0214 in 3QFY18. On a 9MFY19 basis, FLT‟s adjusted NPI surged 37.3% to A$145.7m, while DPU in SGD terms declined 2.6% to 5.27 S cents due to similar reasons highlighted

OCBC Investment Research Market Pulse 29 Jul 2019

ANALYST DECLARATION:

For analysts’ shareholding disclosure on individual companies, please refer to the latest reports of these companies.

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RATINGS AND RECOMMENDATIONS:

- OIR’s technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total expected return in excess of 10% based on the current price; a HOLD rating indicates total expected returns within +10% and -5%; a SELL rating indicates total expected returns less than -5%. - For companies with market capitalisation of S$150m and below, OIR’s BUY rating indicates a total expected return in excess of 30%; a HOLD rating indicates total expected returns within a +/-30% range; a SELL rating indicates total expected returns less than -30%.

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