Comprehensive Market Insights: Deep Dive into Stocks Covered by OCBC Investment Research
Date of Report: 7 February 2025
Broker: OCBC Investment Research
CapitaLand Integrated Commercial Trust (CICT SP): An All-Rounded Performance
CapitaLand Integrated Commercial Trust (CICT) delivered a robust performance for FY24, with its distribution per unit (DPU) rising 1.2% year-on-year to 10.88 Singapore cents. The trust achieved strong rental reversions of 8.8% for its retail portfolio and 11.1% for its office portfolio. Notably, committed occupancy improved across all segments, with the overall portfolio reaching 96.7% occupancy. Suburban malls outperformed with a 9.0% rental reversion, while downtown malls posted an 8.6% increase. Shopper traffic showed positive growth, with suburban malls seeing a 1.3% uptick and downtown malls an 8% increase.
The aggregate leverage ratio fell by 0.9 percentage points to 38.5%, supported by valuation gains in Singapore and debt repayment. Management expects positive rental reversions to continue in FY25, albeit at a moderated pace. However, finance costs remain a concern with a flat average cost of debt at 3.6%, expected to trend higher in FY25 but likely to stay below 4%.
The fair value estimate for CICT has been revised down slightly from SGD2.41 to SGD2.35 due to adjustments in risk-free rate assumptions and lower management fees taken in units. The recommendation for CICT is a BUY.
CapitaLand China Trust (CLCT SP): An Uphill Task
CapitaLand China Trust (CLCT) faced a challenging FY24 as its DPU plunged 16.2% year-on-year to 5.65 Singapore cents, falling short of expectations. The trust’s gross revenue and net property income (NPI) fell 5.5% and 6.7% year-on-year, respectively, due to lost income from divested malls, lower occupancy, and weaker rents in new economy assets. Retail assets, however, showed signs of stabilization, with occupancy nudging up 0.3 percentage points to 98.2% and tenant sales increasing 0.8% year-on-year.
The logistics parks segment presented both opportunities and challenges. While occupancy improved significantly to 97.6% at Shanghai Fengxian Logistics Park due to a new master lease, rental reversions were deeply negative at -24.5%. Concerns remain over the substantial number of logistics park leases expiring in 2025, which represent over 56% of gross rental income and net lettable area.
CLCT’s gearing inched up to 41.9%, impacted by a 1.7% dip in portfolio valuation. The fair value estimate for CLCT has been reduced from SGD0.87 to SGD0.76. Despite the hurdles, the recommendation for CLCT remains a BUY.
Keppel Ltd (KEP SP): Relentless Reinvention
Keppel Ltd demonstrated resilience and adaptability in FY24, achieving a 5% growth in profit from continuing operations to SGD1.06 billion, with 72% of the profit being recurring. The company continued its transformation into a global asset manager, capitalizing on trends like the energy transition, digitalization, and AI-driven demand for alternative real assets.
The infrastructure segment remained the largest earnings contributor, generating SGD673 million in recurring income. Keppel has significantly reduced exposure to Chinese real estate, with its remaining landbank valued at SGD1.1 billion, down from SGD3.1 billion in 2017. The connectivity segment also gained traction, with plans to expand the data center portfolio from 650MW to 1.2GW in the coming years. Additionally, the Subsea Cable Systems project, including the Bifrost Cable System, is expected to deliver over 30% internal rate of return (IRR).
Keppel monetized SGD1.5 billion in assets in 2024, advancing its SGD17.5 billion asset monetization program. The board declared a total dividend of 34 cents per share for FY24. The fair value estimate for Keppel is maintained at SGD8.60, and the recommendation is a BUY.
Parkway Life REIT (PREIT SP): A Bountiful Harvest
Parkway Life REIT (PLIFE) achieved a 1% year-on-year growth in DPU to 14.92 Singapore cents for FY24, marking 17 years of uninterrupted recurring DPU growth since its listing. Despite a 1.3% year-on-year dip in 2H24 DPU due to an enlarged unit base, the REIT’s overall performance remained strong. Contributions from newly acquired properties and effective JPY income hedges helped mitigate the impact of JPY depreciation.
PLIFE’s gearing ratio declined to 34.8% after its maiden equity fund-raising exercise, providing significant debt headroom for future acquisitions and asset enhancement initiatives. The all-in cost of debt increased slightly to 1.48%, with 87% of interest rate exposure hedged. Management expressed confidence in stable DPU growth for FY25, supported by the acquisition of 11 nursing homes in France and potential rental growth from ongoing CAPEX works at Mount Elizabeth Hospital.
The fair value estimate for PLIFE has been revised upward from SGD4.49 to SGD4.60. The recommendation for PLIFE is a BUY.
