OCBC Investment Research April 8, 2025
Navigating the Turbulent Tides: A Comprehensive Market Outlook
United Overseas Bank Ltd (UOB SP) – Dividend and Buyback Support Amid Global Volatility
Dividend and Buyback Provide Price Stability
• Trade tensions have generated immense price volatility for Singapore equities, with UOB’s share price seeing significant swings. • While the economic outlook is uncertain, higher consumer prices appear likely, leading to potential interest rate cuts by the Federal Reserve. • However, UOB’s share price should be supported by its decent dividend yield of 5.4% and a SGD2 billion share buyback program. • During President Trump’s first term, UOB delivered strong earnings growth, averaging SGD3.7 billion per year. Even if earnings revert to that level, the current selloff appears overdone. • The trade situation remains fluid, with the possibility of negotiations and new regional partnerships. UOB’s diversified earnings base and stronger balance sheet should help cushion any further deterioration.
ESG Ratings Remain Strong
• UOB’s ESG rating has been maintained for a second year, in line with domestic peer DBS and above the industry median. • Key positives include robust consumer protection mechanisms, transparent lending policies, and strong corporate governance. • The bank also has a sustainability financing target of SGD30 billion by 2025 and achieved operational carbon neutrality in 2021.
China State Construction Intl (3311 HK) – Selective Approach Amid Cautious Expansion
Cautious Expansion, Focus on Quality Projects
• China State Construction International (CSCI) has adopted a more conservative strategy in mainland China, leading to a 26% year-over-year decline in mainland revenue in the second half of 2024. • The company is focusing on tech-driven projects rather than highly capital-intensive ones, prioritizing quality over scale. • Risks include potential execution challenges, slower-than-expected contract awards, and the buildup of receivables.
Extending Modular Construction Technology
• CSCI plans to continue expanding its Modular Integrated Construction (MIC) business to Tier 1 cities and provinces in China, leveraging the shorter construction time as a key advantage.
Longer-Term Outlook
• In Hong Kong, the infrastructure and construction market is expected to be around HKD300 billion annually, with CSCI aiming to maintain a 20-30% market share. • For Macau, demand is likely to come mainly from old building/city renovations and public facilities construction, with the market size stabilizing at around HKD20-30 billion annually.
ESG Improvements
• CSCI’s ESG rating was upgraded in September 2024, driven by improvements in corporate governance, including a say-on-pay policy and the addition of industry expertise to the audit committee. • However, the company still trails most global peers in overall governance.
First REIT (FIRT SP) – Navigating Foreign Exchange Headwinds
FX Headwinds Impacting Distribution Per Unit
• First REIT’s distribution per unit (DPU) has suffered from foreign exchange headwinds in recent years, with the weakening of the Japanese yen and Indonesian rupiah against the Singapore dollar. • Further IDR weakness is a risk, especially if a global growth slowdown puts pressure on commodity prices. • This could lead to further DPU declines for First REIT in 2025, though the impact may be partially mitigated by JPY appreciation.
Strategic Review and Potential Opportunities
• First REIT has initiated a strategic review to assess a preliminary non-binding letter of intent from existing tenant Siloam to acquire the REIT’s Indonesian asset portfolio. • While the outcome of the review is uncertain, the potential sale and redeployment of capital could present a near-term catalyst, depending on the details.
ESG Initiatives
• First REIT continues to engage with its operators to implement environmental-friendly initiatives, allocating over SGD1.3 million in CAPEX for this purpose in 2024. • The REIT also remains committed to fostering a diverse, equitable, and inclusive workplace, with women making up 70% of its workforce as of December 2024.
