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Singapore Exchange (SGX SP)
1HFY25 Results Preview: Expect A Strong Half As Trading Volumes Improve
We expect SGX to report strong 1HFY25 revenue (+15% yoy) and adjusted PATMI (+16% yoy), driven by broad-based outperformance from most business segments. The cash equities and equity derivatives segments are poised to post strong results as trading value and volumes improve while the FICC segment is set to post record-high revenue driven by robust volumes. The ongoing stock market review is set to be completed in 2HFY25. We maintain HOLD with the same target price of S$11.83.
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Property – China
Sales Pull Back mom Before Chinese New Year; Updates Of 2024 Operational Data Of COLI And Longfor
In Jan 25, both new homes sales in 14 major cities and second-hand home transactions in Tier 1 cities saw a mom decline, which is within our expectation and partly due to the holiday factor. Potential policy catalysts, especially fiscal easing, remain key drivers. Maintain OVERWEIGHT. We lower our earnings forecasts and cut our target price by 30% for Longfor on lower property development margins. We update COLI’s land investment for 2024 and maintain our target price and outlook for COLI.
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Gamuda (GAM MK)
Secures Penang LRT E&C
Maintain BUY with a MYR5.25 TP
Gamuda’s latest MYR5b E&C win for the Penang LRT Mutiara Line has lifted its outstanding orderbook to MYR37b, further strengthening its earnings visibility. This contract win (and value) is expected; now formalised after SRS Consortium (60% owned by Gamuda) was offered the construction after the Cabinet approved the Penang LRT project on 22 Mar 2024. We make no change to our earnings forecasts, having imputed job win assumptions. Maintain BUY with an unchanged MYR5.25 RNAV-TP.
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TRUE Corp (TRUE TB)
Expect strong 4Q24E; TRUE remains our top sector pick
Reiterate BUY with a slightly higher TP of THB13.9 We reiterate BUY on TRUE due to: i) strong core profit growth in 4Q24E and FY25E (+73% YoY); and ii) attractive valuation when compared to ADVANC. Strong 4Q24E core profit of THB3.4b (+17% QoQ) should be supported by revenue increases, synergy delivery and declining interest expenses. We raise our DCF-based TP slightly to THB13.9 (7.4% WACC, 2.0% terminal growth) after raising FY25-26E core profit by 1%.
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Summary: US Office REITs - Still a Bumpy Ride
Key Highlights:
- Manulife US REIT (MUST):
- Portfolio Valuation Decline: Indicative valuations as of Dec-24 declined by ~9.3% to USD 1,137.2 million, pushing gearing to 61%.
- Financial Stress: Consolidated unencumbered debt ratio at 64:100, within the temporarily relaxed financial covenant of 80:100.
- Disparity in Valuations: Sharp declines in properties like Penn (-26.8%) and Plaza (-24.7%) due to market weakness and asset-related challenges, while others like Phipps (+2.4%) showed stability.
- Immediate Focus: Asset divestment to reduce gearing below 50%. Three potential divestments targeting USD 200 million in debt repayment by 2025.
- Comparative Analysis:
- Peers (Prime US REIT & Keppel Pacific Oak REIT - KORE):
- Likely to experience devaluations, though at a lesser magnitude due to stronger operational and financial metrics.
- KORE has the strongest financial position among the three, trading at a lower Price-to-Book (P/B) ratio of 0.28x.
- Investor Outlook:
- MUST faces heightened financial stress, reflected in its NAV decline from USD 0.33 to USD 0.24.
- MUST trades at a forward P/B of 0.37x, similar to Prime (0.35x) but higher than KORE (0.28x).
- KORE’s robust metrics, higher occupancy rates, and stronger liquidity position may help mitigate valuation pressures better than MUST.
Outlook:
While MUST struggles with financial strain and asset devaluations, stabilizing trends in certain markets offer some hope. KORE appears best positioned among the three US Office REITs to navigate current challenges.
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Summary of the Report:
Market Performance and Geopolitical Tensions
- HK and Chinese equities fell 1.0%-3.9% last week due to geopolitical tensions.
- Tencent and other Chinese firms were added to the US Chinese Military Companies (CMC) list, increasing market uncertainty.
Policy Updates and Opportunities
- China's National Development and Reform Commission (NDRC) and Ministry of Finance (MOF) announced details of the 2025 consumer goods trade-in and equipment upgrade program, exceeding market expectations.
- Funding specifics for this program will be clarified during the National People's Congress in March.
Market Outlook and Strategy
- Geopolitical risks may escalate, especially after the US presidential inauguration on January 20, with potential new tariffs.
- A policy vacuum in the near term suggests adopting a defensive strategy favoring sectors like e-commerce and consumer goods.
Recommended Investments
- Preferred companies: BYD, JD.com, Alibaba, Midea, and Haier Smart.
- JD.com is well-positioned due to its strong supply chain and experience.
- Alibaba benefits from its Tmall platform’s partnerships with major brands.
Tencent's Situation
- Inclusion on the US CMC list weighs on Tencent’s stock, but removal from the Notorious Markets List (NML) is a positive development.
- Tencent demonstrates commitment to shareholder returns through significant buybacks, including doubling daily buybacks to HKD 1.5 billion recently.
Overall Recommendation
- Favor defensive yields and policy beneficiaries in the near term while monitoring geopolitical developments and upcoming policy announcements.
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