Singapore Market Daily Review: Navigating Opportunities and Challenges
Lim & Tan Securities
January 22, 2025
Singapore’s financial landscape presents a mix of opportunities and challenges, with various sectors experiencing diverse trends. This report delves into key market indices, interest rates, commodities, and specific company performances, offering insights for investors.
Major Market Indices: A Mixed Bag
The US market displayed strength, gaining between 0.6% and 1.2% due to continued optimism surrounding President Trump’s business-friendly policies. The FSSTI Index saw a slight dip of 0.3%, while other indices like INDU, SPX, CCMP, and UKX showed positive growth. Conversely, NKY and SHCOMP experienced declines. The VIX Index dropped significantly, indicating decreased market volatility.
Key Interest Rates and Commodities
The 3-month SGD SIBOR remained stable, while the SG 10-Year Bond Yield saw a decrease. US 10-Year Bond Yield held steady. In commodities, Gold and Crude Oil prices remained flat, while Baltic Dry and Crude Palm Oil experienced declines.
Idea of the Day: Mapletree Logistics Trust (MLT)
Deep Dive into MLT’s Performance
MLT announced a distributable income of S\$101.3 million and DPU of 2.003 cents for 3Q FY24/25. Gross revenue declined 0.9% year-on-year due to lower contributions from China, absence of revenue from divested properties, and currency depreciation. However, performance in Singapore, Australia, and Hong Kong SAR remained strong, along with contributions from new acquisitions. NPI decreased 1.4%. On a constant currency basis, revenue and NPI would have seen growth.
Impact of Borrowing Costs and Divestments
Increased borrowing costs and lower divestment gains negatively impacted MLT’s distribution level performance. DPU was down 11.1% on an enlarged unit base. For 9M FY24/25, gross revenue and NPI declined, though constant currency figures showed slight growth. Distributable income and DPU also fell.
Portfolio Rejuvenation and Acquisitions
MLT divested properties in China, Japan, and Singapore, with additional divestments in Malaysia and Singapore announced post-quarter. These divestments, executed at a premium to valuation, provide financial flexibility for acquisitions with higher growth potential. MLT acquired assets in Malaysia and Vietnam to capitalize on growing consumption in these markets.
Occupancy, Rental Reversions, and Debt
Portfolio occupancy improved, with positive rental reversions in most markets, excluding China. Total debt increased due to asset enhancement initiatives, partially offset by lower translated loans and loan repayments. Weighted average borrowing cost remained stable.
Valuation and Recommendation
MLT trades at a forward PE of 19.5x, PB of 0.9x, and offers a dividend yield of 6.3%. The consensus target price suggests a potential upside. Lim & Tan Securities assigns an “Accumulate” rating on MLT based on its yield and potential upside, with limited downside risk.
Other Highlights: Top and Bottom Performers
The report highlights companies with the highest consensus forward dividend yield, lowest consensus forward P/E, lowest trailing P/B, and lowest trailing EV/EBITDA. These metrics provide insights into relative valuations within the market.
Sabana Industrial REIT: Multiyear Highs Amidst Challenges
Financial Performance and Rental Reversions
Sabana Industrial REIT achieved all-time high gross revenue and a new high in NPI for FY2024. Strong positive rental reversions contributed to revenue growth in 2H 2024 and increased NPI. The REIT achieved a four-year high positive rental reversion in FY2024 and has seen 16 consecutive quarters of positive rental reversion since 1Q 2021.
Distribution and Internalization Impact
Total income available for distribution increased in FY2024. Declared DPU also grew. However, approximately 10% of distributable income was retained to fund internalization costs. The CEO highlighted the strong rental reversion track record and addressed the marginal drop in NAV due to depreciating leasehold land tenure.
Leasing Activity and Occupancy
Sabana executed numerous new and renewed leases, achieving a high tenant retention rate. However, the overall portfolio occupancy rate decreased due to property repossessions.
Financial Position and Outlook
Aggregate leverage increased slightly, with a stable weighted average debt maturity. The REIT maintained a healthy interest coverage ratio. Expenses related to internalization were significant. The outlook for 2025 is considered challenging due to rising costs, elevated interest rates, and geopolitical uncertainties.
Valuation
Sabana REIT trades at a price to book of 0.75x and a dividend yield of 7.6%. Uncertainties surrounding internalization and associated costs remain. The Bloomberg consensus target price suggests a potential downside.
Macro Market News: US, Hong Kong, and China
US Market Outlook
BCA Research anticipates further upward pressure on US bond yields due to President Trump’s fiscal agenda. Higher borrowing costs pose a risk to equities, but Trump’s pragmatism may lead to moderation of fiscal ambitions, potentially stabilizing yields and supporting modest equity gains.
Hong Kong Residential Property Market
Hong Kong’s residential property market is expected to stabilize due to lower interest rates, mainland Chinese talent influx, and robust rents. However, significant price growth is unlikely due to a supply glut. Analysts predict a bottoming out of home prices and a potential gradual rebound.
Share Transactions, Fund Flow Data, Dividends, and What’s Ahead
The report includes detailed tables of share transactions (acquisitions, disposals, and share buybacks), fund flow data, upcoming dividends and distributions, and a calendar of corporate events.
SGX Watch-List
The report provides a list of companies under SGX watch-list, including the latest additions. This information is crucial for investors to monitor potential risks associated with these companies.
