In this briefing:
- Singapore REIT – The Draft Master Plan 2019 Boost and Q1 Scorecard
- More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
- Hong Kong FX
- Summit Ascent’s Slippery Slope
- Ronshine (融信集团) Placement – Back for a Equity Raise
1. Singapore REIT – The Draft Master Plan 2019 Boost and Q1 Scorecard
Singapore REITs (S-REITs) are up about 13% year-to-date in 2019 on a total returns basis against the Straits Times Index’s (STI) 8.3%. S-REITs is expected to continue its outperformance on the back of a pause in the US interest rate hike cycle, falling Singapore government bond yields, and improving demand and supply dynamics in the underlying sub-markets. Valuations of many S-REITs, however, may be appearing stretched as S-REITs’ yields have compressed significantly in the last six months, leaving the yield spread over the 10-year Singapore government bond yield at about 350 basis points, which is lower than the historical average spread of about 370 basis points.
Contrary to the popular belief that retail malls are no longer relevant, we view the outlook of the retail space market as positive due to the limited new supply from 2020 and new trend towards omnichannel retailing. Our preference remains on selected retail REITs with exposure to suburban malls such as Frasers Centrepoint Trust (FCT SP) .
Office REITs are given more legs to run with the new CBD incentive scheme in the URA Draft Master Plan 2019. The sustained office upcycle may also spill over to the business parks and hi-specs industrial space, benefiting some of the business parks/industrial REITs.
We prefer selected industrial REITs with a diversified geographical exposure such as Mapletree Logistics Trust (MLT SP) and those with greater exposure to business parks and high-specs industrial space.
Referring to our earlier report Singapore REIT – Preferred Picks 2019 , two of our preferred picks, Mapletree Logistics Trust and Mapletree Greater China Commercial Trust (MAGIC SP) (now known as Mapletree North Asia Commercial Trust), were among the top five S-REITs performers year-to-date, having achieved the same total return of 17.6%. Manulife Us Reit (MUST SP) and Frasers Centrepoint Trust (FCT SP), also did well, beating the STI with total returns of 10.4% and 9.5%, respectively.
2. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.
Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.
3. Hong Kong FX
We will be the first to admit some of our best ideas for reports come from subscribers. That is the story of today’s report on Hong Kong FX. Regular readers know we write extensively on China FX, but rarely touch on Hong Kong. To that end we got a request to look into FX currency and to a less extent rates in Hong Kong. At this point in history, while the HKD is tied directly to the USD, it more accurately reflects the CNY leaving the whole thing in a bit of a bind.
4. Summit Ascent’s Slippery Slope
Back in September 2017, Lawrence Ho, Summit Ascent Holdings (102 HK)‘s major shareholder, reduced his stake to 18.75% from 27.06% (at between $1.13-$1.60/share, but mainly at the low end of this range), according to Hong Kong Exchange disclosure of interest filings. The share price of this Russian integrated gaming play declined 34% to $1.06/share in the following five trading days. Who bought those shares was not disclosed – CCASS shows these shares moving out of VC Brokerage into at least 10 different brokerage accounts.
Shortly after, Howard Klein quoted one insider in his insight Melco Resorts: A Gem Hiding in Plain Sight Offers an Entry Point After a Recent Dip that the sell-down wasn’t likely a sign “Ho has lost confidence in the area.“
On the 15 December, Ho announced a complete exit from Summit, selling 17.37% of shares out. Concurrently Ho resigned from his NED and chairman positions. Those shares moved from VC Brokerage to Sun Hung Kai Investments on the 20 December 2017. Shares traded unchanged on the news.
At the same time, First Steamship (2601 TT) disclosed it held 12.67% on the 18 December 2017. Concurrently, Kuo Jen Hao was appointed as NED and Chairman of the Board, with effect from 28 December 2017. Kuo is also the chairman and the general manager of First Steamship. First Steamship gradually increased its stake to 19.11% as at 24 October 2018.
The New News
Yesterday, Summit Ascent announced it has been informed that First Steamship and Kuo are in talks to sell their entire shareholdings. No numbers were disclosed. This stake sale would not trigger an MGO and there was no reference to the release of an announcement pursuant to the Codes on Takeovers and Mergers and Share Buy-Backs in Hong Kong. Shares are up 24%.
With increased liquidity surrounding the news, this looks like a great opportunity to exit.
5. Ronshine (融信集团) Placement – Back for a Equity Raise
Ronshine China Holdings (3301 HK) is looking to raise about US$122m in a top-up placement.
The deal scores marginally positive on our framework owing to its decent track record, and price and earnings momentum.
Its past deals have done well in the long run. Even though it did not perform well over the one-month period, its first week returns have tend to hold up above the deal price.
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