Brokers’ take
Compiled by Leila Lai
CAPITALAND COMMERCIAL TRUST | BUY (MAINTAINED)
JAN 14 CLOSE: $1.82
TARGET PRICE: $2.11
UOB Kay Hian, Jan 14
Supply of new office space will taper to 1.2 million sq ft this year and 1 million sq ft in 2020, after a deluge of 2.7 million sq ft in 2017 and 1.7 million sq ft last year.
CapitaLand Commercial Trust is a prime beneficiary of an upturn in office rent as it is the largest landlord in Singapore's Central Business District with Grade A office buildings accounting for 81 per cent of its portfolio net lettable area.
We expect positive rental reversion for Asia Square Tower 2 in H1 2019 and CapitaGreen in H2 2019. Maintain "buy". Target price: $2.11.
TELECOMMUNICATIONS | NEUTRAL (MAINTAINED)
RHB Research, Jan 14
Maintain "neutral" sector rating. Singtel remains our preferred exposure due to its earnings diversity and dividend certainty.
We expect competition to remain elevated on the recent trial launch by TPG Telecom.
Sector valuation of nine times FY19F enterprise value/Ebitda (earnings before interest, tax, depreciation and amortisation) is minus 1.5 standard deviation from the five-year historical mean of 10.4 times, which we believe has priced in downside risks from the new entrant (TPG).
TPG quashed earlier talks that it may abort its mobile roll-out by launching a free 4G SIM-only data plan last month, offering 12 months of unlimited data .
While the trial offer is expectedly aggressive, the proof of the pudding, in our view, is whether TPG's network could match the incumbents' superior 4G networks, which ultimately defines end-user experience.
Recall that TPG reported $66.7 million cash capex for its Singapore mobile roll-out in FY18 (July) including $4.4 million in FY17 - significantly below the $200 million to $300 million guidance made in late 2016 for outdoor coverage.
This has raised doubts as to its ability to meet the roll-out conditions set by the Infocomm Media Development Authority.
The incumbent operators have introduced numerous data-upsized packages, recontracted subs on new handset bundles and forged strong collaborations with mobile virtual network operators (MVNO) over the past 12 months to pre-empt fresh competition.
We believe this has disrupted TPG's go-to market strategy, necessitating a review (partly explaining the delay).
As all three incumbents are utilising MVNOs to "hedge" against market share losses, TPG would have less room to manoeuvre and grab market share, in our view.
We expect the industry's mobile service revenue to remain under pressure from stronger take-up of SIM-only plans, extended weakness on usage/roaming revenues, and competition.
Higher data inclusions and upsized data plans would lend further pressure on data yields and average revenues per user.
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