Market Pulse: A Comprehensive Analysis of Key Companies

Broker: OCBC Investment Research

Date: 4 Nov 2024

Starhill Global REIT (SGREIT SP) – A Stable Set of Results

Starhill Global REIT (SGREIT) has commenced FY25 on a positive note. The REIT’s 1QFY25 gross revenue increased by 1.9% YoY to SGD48m, driven by stronger contributions from assets in Singapore and Perth, alongside a favorable MYR. Net property income (NPI) saw a narrower rise of 1.4% YoY to SGD37.9m, reflecting higher operating expenses, particularly at Myer Centre Adelaide.

Portfolio committed occupancy remained stable at 97.6%, though tenant sales at Wisma Atria (retail) declined 7.7% despite an 11.7% increase in shopper traffic. This decline was partly due to tenant transitions and vacancy, with a strong SGD possibly affecting consumer sentiment amidst a surge in tourist numbers.

The REIT’s gearing ratio stood steady at 37.2%, with 81% of debt on fixed rates or hedged. SGREIT completed the divestment of approximately 7,653 square feet of net lettable area at Wisma Atria (office) for SGD16.1m, a 22.2% premium to the latest property valuation. This move is expected to slightly nudge up FY25 DPU by 0.2% while FY26 DPU may slip 2%. The fair value (FV) estimate has been increased from SGD0.50 to SGD0.55.

On the ESG front, SGREIT’s corporate governance practices trail global peers, but the REIT has significant green investment opportunities, with over half of its portfolio certified to green standards.

Schneider Electric (SU FP) – What Good Looks Like, With Market Recognition

Schneider Electric continues to outperform, delivering total returns of 53% since September 2023 against the market’s 14%. The company’s strong fundamentals have supported this growth, with FY23 results surpassing consensus and positive quarterly updates underlining the robust order backlog.

The potential for growth acceleration remains, with earnings growth projected to approach 15% in some quarters of 2025. Despite a re-rating, the stock promises further upside, maintaining a BUY rating with a revised FV estimate of EUR270 from EUR262.

Schneider’s ESG rating has been consistently strong, with notable achievements in clean technology and pollution management. The company targets 80% revenue from environmentally friendly solutions by 2025, reflecting its commitment to sustainable practices.

First REIT (FIRT SP) – FX Coming Back to Haunt

First REIT’s 9M24 performance was impacted by FX headwinds, with rental income and NPI down 5.3% and 6% YoY, respectively. The REIT declared a 3Q24 DPU of 0.58 Singapore cents, 3.3% lower QoQ and below expectations.

Credit metrics remain stable, with the gearing ratio improving slightly to 39.3% as of 30 Sep 2024. However, the high proportion of fixed-rate debt hedges is expected to fall to under 60% by year-end.

Despite reducing risk-free rate assumptions and adjusting equity risk premiums, the FV estimate remains at SGD0.28. On the ESG front, First REIT continues to engage in environmental initiatives, aiming to improve the energy efficiency of its assets and promote social good within its workforce.

Parkway Life REIT (PREIT SP) – The Start of Something New

Parkway Life REIT (PLIFE) has made its first foray into Europe by acquiring 11 nursing homes in France for EUR111.2m. Funded through a private placement raising gross proceeds of SGD180m, the acquisition is expected to be accretive to DPU despite being equity-funded.

The acquisition marks a strategic expansion into Europe as a third key market, with the sale and leaseback arrangement with DomusVi providing income stability. Post-acquisition, PLIFE’s portfolio will be more diversified, reducing revenue concentration from its top tenant and geography.

PLIFE’s decision to fund the acquisition with equity aims to reduce its leverage, providing debt headroom for future acquisitions. The FV estimate has been adjusted to SGD4.49, reflecting the potential for growth driven by the strong demand for aged care facilities in France.

On the ESG front, PLIFE’s rating remains stable, with ongoing efforts to promote energy conservation among tenants and enhance corporate governance practices.

HK Strategy: HK Banks Deliver Positive Surprise in Shareholders’ Return and Revenue Growth

Hong Kong banks, particularly HSBC and Standard Chartered Bank (SCB), have reported strong results, reinforcing their preference among investors. Despite potential challenges from the Federal Reserve’s rate cuts, both banks are expected to deliver significant shareholders’ returns through dividends and share buybacks.

HSBC and SCB’s robust capital positions and strong revenue momentum support their growth outlook, with share buybacks projected at USD11b and USD2.5b, respectively, in 2024. The focus on asset quality is likely to shift towards Hong Kong’s commercial real estate market, with provisions expected to increase for domestic banks.

HKEX’s strong quarterly results, driven by a rebound in average daily turnover, suggest continued growth potential, with a focus on attracting more A-share listed companies to raise funds in Hong Kong.

Latest OIR Reports

• Starhill Global REIT: A stable set of results. BUY. FV: SGD 0.55
• Schneider Electric: What good looks like, with market recognition. BUY. FV: EUR 271.00
• First REIT: FX coming back to haunt. BUY. FV: SGD 0.28
• Parkway Life REIT: The start of something new. BUY. FV: SGD 4.49
• HK Strategy: HK banks delivered positive surprise in shareholders’ return and revenue growth.
• Alphabet Inc: AI narrative still in play. BUY. FV: USD 211.00
• Standard Chartered PLC: Strong revenue growth and guidance lifted. BUY. FV: HKD 108.00
• Mapletree Industrial Trust: Good results but upcoming non-renewals to deal with. BUY. FV: SGD 2.77
• CapitaLand Ascott Trust: Portfolio reconstitution efforts bearing fruits. BUY. FV: SGD 1.06
• CapitaLand China Trust: A balancing act between occupancy and rental reversions. BUY. FV: SGD 0.87
• Sinopharm Group Co. Ltd: Soft 3Q24 results. BUY. FV: HKD 24.20
• HSBC: Solid results with strong revenue growth and capital position. BUY. FV: HKD 86.00 / GBp 867.18
• CapitaLand Ascendas REIT: Acceleration in rental reversions an offset to lower occupancy. BUY. FV: SGD 3.32
• Kweichow Moutai Co: Risk of downside pressure on wholesale price. BUY. FV: CNY 2,076.00
• Mapletree Pan Asia Commercial Trust: Drag from overseas operations. BUY. FV: SGD 1.54
• CapitaLand India Trust: Data centre development on the horizon. BUY. FV: SGD 1.28
• Suntec REIT: Balance sheet metrics unlikely to improve in near term. HOLD. FV: SGD 1.19
• Frasers Centrepoint Trust: Stable 2HFY24 DPU and asset valuations. BUY. FV: SGD 2.53
• Enphase Energy: Longer recovery timeline needed. BUY. FV: USD 95.00
• Dyna-Mac Holdings: Accept the offer. HOLD. FV: SGD 0.665