CapitaLand Ascott Trust (CLAS SP): Out with the Old, In with the New

CapitaLand Ascott Trust (CLAS) has announced the acquisition of two freehold hotels in Japan for a total purchase consideration of JPY21 billion (~SGD178.5 million), representing an 8.3% discount to their independent valuation of JPY22.9 billion. The properties acquired include the 224-unit ibis Styles Tokyo Ginza, located in Tokyo’s upscale Ginza shopping district, and the 392-unit Chisun Budget Kanazawa Ekimae, situated in Kanazawa’s historic castle town. Both properties will be operated under management contracts, enabling CLAS to capture potential income upside from strong operational performance.

The acquisition outlay, including associated fees and costs, totals JPY22.6 billion (~SGD192.1 million). Approximately 65.7% (JPY14.9 billion) will be funded with debt, while the remaining 34.3% (JPY7.7 billion) will be financed using proceeds from recent divestments of three WBF hotels in Osaka and Infini Garden in Fukuoka. This acquisition boasts a blended entry net operating income (NOI) yield of 4.3% for FY24, significantly higher than the blended exit NOI yield of ~2% for the divested properties.

On a pro-forma basis, the acquisition is expected to be accretive, with CLAS’s total distribution increasing by SGD3.9 million and distribution per stapled security (DPS) rising by 0.1 Singapore cents (+1.6%) to 6.2 Singapore cents. Post-acquisition, CLAS’s portfolio in Japan will grow to 30 properties, increasing its asset allocation in the country from 16% to 18%.

Despite its robust operational strategy, CLAS has faced an ESG rating downgrade due to concerns over corporate governance practices, such as higher-than-average employee turnover and recurring related-party transactions. However, the REIT remains a leader in Singapore, ranking first in the Singapore Governance and Transparency Index and winning the Singapore Corporate Sustainability Award in 2024. The fair value estimate for CLAS remains unchanged at SGD0.99, with a positive outlook.

Apple Inc (AAPL US): Better Than Feared Results

Apple Inc reported an impressive 1QFY25 performance, with revenue hitting an all-time high of ~USD124.3 billion, up 4% year-on-year (YoY). Operating profit surged by ~6% YoY to ~USD42.8 billion, with earnings per share (EPS) increasing by ~10% YoY to ~USD2.4. Product revenue grew by ~2% YoY to ~USD98 billion, driven by strong iPad and Mac sales, while product gross margins improved by 300 basis points to 39.3% from the previous quarter.

Apple’s services division also delivered record-breaking revenue of USD26.3 billion, reflecting a ~14% YoY increase, with gross margins rising 100 basis points to 75%. The company’s installed device base surpassed 2.35 billion active units, laying a strong foundation for future growth in services.

Key highlights from the earnings call included positive data points reinforcing the Apple Intelligence narrative. Markets with Apple Intelligence saw significantly higher iPhone performance compared to those without. The iPhone 16 series outpaced its predecessor, the iPhone 15, in cycle-to-date performance, with an all-time record for iPhone upgraders. Additionally, Apple expects fiscal stimulus in China and leaner channel inventory to act as tailwinds for revenue growth in the coming quarters.

From an ESG perspective, Apple remains ahead of its peers in managing end-of-life electronics recycling, with 22% of materials in its products sourced from recycled or renewable resources. However, the company lags in staff management, with non-pay benefits such as parental leave falling short of industry benchmarks. Despite these challenges, the fair value estimate for Apple has been revised upward to USD264, with a Buy recommendation.

China Strategy: A Tug of War Between Tariffs and Policy Support

Recent executive orders from President Trump imposed additional tariffs of 25% on imports from Canada and Mexico and 10% on imports from China, effective 4 February 2025. The US has also withdrawn de minimis treatment for these imports, with a broader tariff review set to conclude by 1 April. While the 10% tariff rate is lower than consensus estimates, it adds uncertainty to US-China geopolitical relations, likely clouding 1Q25 market performance.

On the policy support front, Chinese financial regulators have introduced measures encouraging medium- to long-term funds to increase allocations to onshore A-share equities. These measures include quantitative targets for insurers and mutual funds, potentially driving a CNY1.2 trillion (~1.6% of tradable market cap) fund inflow in 2025. These inflows are expected to remain consistent over the next few years, fostering market stability and supporting the development of a “slow-bull” market in A-shares.

Defensive yield stocks, particularly in the banking, energy, and telecommunications sectors, are expected to benefit from these policy measures. High-beta A-share market proxies such as Chinese brokers may also gain from improved investor sentiment and increased turnover. The strategy emphasizes a preference for domestic-focused industries while avoiding export-oriented sectors with high US revenue exposure.