05th April 2014 Market Outlook 2Q2014 - UniPhillip · Snapple and Starbucks as potential candidates –causing price to spike 8% on Wednesday. • Still a rumor as SS has declined

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05th April 2014 – Market Outlook 2Q2014

Market StrategistsJoshua Tan, Head of Research

Kenneth Koh, Market Analyst & Equities

Soh Lin Sin, Macro Economist

Osama Bakhteyar, Research Assistant

SG & US Equity AnalystsNicholas Ong, O&M & CPO

Lucas Tan, Real Estate

Wong Yong Kai, US Equities

Colin Tan, Telcos

Caroline Tay, Real Estate

Ben Ong, Financials

Richard Leow, Research Assistant

By Phillip Securities ResearchMr. Chan Wai Chee, CEO

Jermaine Tock, Operations Exec



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3

India – Upgrade from NW to OW

GDP growth remains stagnant at 4.7%y-y with reduced

downside risk due to a good monsoon season translating

into a better than expected agriculture sector growth.

Inflation remains at the high end but trending lower at

8.1% after RBI took measures by increasing the interest

rates. WPI index looking better at 4.7%.

Current Account Deficit surprisingly much reduced now

after cutting gold and oil imports which roughly accounts

for 35 % and 11% of the total imports respectively.

Key Financial Summary

2011 2012 2013 2014F Average

EPS %y-y 22.74 21.4 19.6 26.35 22.52

P/E, year avg 19.02 17.7 17.4 14.23 17.09

USD:IDR, year avg 46.61 53.36 58.53 62 55.13

Real GDP %y-y 7.88 4.9 4.39 4.7 5.47

Inflation %y-y 8.87 9.69 10.07 9.5 9.53

Policy Rate, year avg 7.58 8.13 7.52 8 7.81

C % GDP 67.03 68.27 67.03 - 67.44

G % GDP 6.99 7.6 8.45 - 7.68

GFCF % GDP 31.14 30.23 28.37 - 29.91

X % GDP 16.19 16.12 16.67 - 16.33

M % GDP -24.83 -26.95 -24.94 - -25.57

CA % GDP -3.36 -4.97 -2.63 -2.05 -3.25

Budget % GDP -4.45 -5.56 -4.81 -4.8 -4.91

Total Govt. Debt % GDP

42.7 44.76 44.88 - 44.11

Govt. Ext/ Debt % GDP 14.99 15.13 14.39 - 14.84



4

India – Upgrade from NW to OW

Election season is underway and it looks like BJP

might turn out to be an imminent ruling party. The

BJP candidate Narendra Modi is heavily supported

by the business and investment community.

Currency depreciation has stabilized and FDI has

rebounded as well.

Stock Market has already started to pick up and

YTD has managed to earn returns of 5.86%.

Forward valuations of 14.2x P/E are cheap relative

to the historical average of about 17.1x.

Key risk would be post-election reform promises

not going through.

Unit Trust that proxy India

Aberdeen – India Opportunities SGD

Fidelity – India Focus A SGD

Lion Global – India Acc SGD

ETFs that proxy India

MSCI India – I98 SGX

DBX India – LG8 SGX



5

SodaStream (Accumulate, CP: US$39.9 TP: US$46)

Rumor on major drink company buying a 16% stake at $52

• Israeli financial news Calcalist reported (citing no sources) that SS was in early talks

to sell up to 16% of the company at $52. Specifically mentioning Pepsi, Dr Pepper

Snapple and Starbucks as potential candidates – causing price to spike 8% on

Wednesday.

• Still a rumor as SS has declined comment.

Growth plans in place – Investor brief (Apr 9th, 2014)

• Plans to expand into Mexico and India in near future

• Samsung to have 4 “powered by SS” refrigerators

• US grocery stores push in 2014, in process to build 1-million sq foot production

facility to meet forecasted demand

• Del Monte flavor partnership starting this month in UK, then Italy.

Investment actions

• Despite the recent 8% gap up, market sentiment on SS is still volatile - accumulate

on pullbacks. TP S$46.



6

Results update: M1

(S$3.37, Accum. TP S$3.68)

• 1Q14 revenue down 1.2%y-y due to lower handset sales volume.

• However, service revenue (excl. handset sales) up 2.1%y-y at S$240m.

• Net profit grew 4.4% y-y to S$42.8m on:

increasing subscribers and higher mobile data usage,

offset from lower int’l call services (more calls to lower-rate countries).

• Avg data usage per smartphone user at 2.8GB/mth

• 54% of postpaid now on tiered plans; 16% exceeded data allowances.

• Future developments:

Network enhancements: VoLTE (better voice quality), LTE-advanced(faster speed)

Build up enterprise offerings in fixed services segment

On track to 10K subs target on MiBox by mid 2014 BPL cross-carry?

• Catalyst: 4G re-pricing (StarHub to charge 4G at S$2.14/mth from 1-Jun 14)

• Attractive dividend yield > 4%; trading at fwd PE ~18.9x



7

Keppel Corp (Neutral, TP: S$11.35)

1Q14: Another quarter of steady O&M margins

• 1Q14 sales of S$3.0bn (+9% YoY, -17% QoQ) and net profit of S$339mn (-5% YoY,

-51% QoQ), with decline due to higher taxation expense at O&M division in 2014

and write-back of tax provision at Property division in 1Q13.

• Excluding reversal of provision due to the sale of the power barge and Property’s

write-back of tax provision from 1Q13 results, net profit would be largely in line.

• Record O&M net order book as of end-1Q14 – S$14.4bn (4Q13: S$14.2bn).

• 1Q14 O&M margin of 14.2% (vs. 14.2% in 4Q13 and 14.0% in 1Q13) remains

stable at a healthy level, despite conservative profit recognition for the 2nd Sete

Brasil semi-submersible unit, where initial recognition begun in 1Q14

Potential upside risks

• Better-than-expected O&M cycle

Investment actions

• Maintain Neutral, TP S$11.35.



CROESUS RETAIL TRUSTUnique opportunity: Japan Real Estate – Retail

8



Overview

9

Share Price: S$0.880

52W Range: $0.845 – S$1.180

Market Cap: S$ 377.3 mil

P/B: 0.98x



Company Background

• First Asia Pacific Business Trust with initial portfolio of Japan retail real estate assets

• Pays out 100% of distributable income in FY14 and FY15 (from listing date-10 May 2013 till 30 June 2015)

• Thereafter, pay out ≥90% of distributable income

• Aim: deliver a competitive return on investment to unit holders of CRT through

• (i) regular, growing distributions &

• (ii) long-term capital value growth of CRT’s portfolio of assets

• Current Portfolio: 6 retail assets in Japan

10



Japan Macro Outlook

11

• Ranks third in the world – US$5.96 trillion GDP in 2012

• December 2012: Liberal Democratic Party won the election

• Shinzo Abe (Japan’s Prime Minister and the leader of LDP) immediately

established a range of fiscal and monetary policies to stimulate the

economy

• Notable measures: 1) JPY 10.3tn stimulus bill, 2) mandate to bring a ~2

percent inflation rate through quantitative easing

USD 0.00 TnUSD 2.00 TnUSD 4.00 TnUSD 6.00 TnUSD 8.00 Tn

USD 10.00 TnUSD 12.00 TnUSD 14.00 TnUSD 16.00 TnUSD 18.00 Tn



Japan Macro Outlook

12

JPY vs. USD Nikkei 225

TOPIX



Japan Retail Sector

• 2nd largest retail market in the world

• Consistent spending patterns & resilience annual growth

• Strong economic growth – indicative of purchasing/spending ability

• Consumption tax hike

• April’14: 5% 8%

• Oct’14: 8%10%

• Rental rates: bottom out in 2012

• Expect reversion to longer term average

• Current: JPY 30000/tsubo/mth (S$10.60 psfpm)

• Long term average: JPY 35,900/tsubo/mth (S$12.60 psfpm)

• In line with broader economy

13

128.0 Tn

130.0 Tn

132.0 Tn

134.0 Tn

136.0 Tn

138.0 Tn

140.0 Tn

30.0 Tn

31.0 Tn

32.0 Tn

33.0 Tn

34.0 Tn

35.0 Tn

36.0 Tn

37.0 Tn

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Yr

Re

tail

Sa

les

Qtr

Re

tail

Sa

les

Retail Sales (Yr) Retail Sales (Qtr)

20000

25000

30000

35000

40000

45000

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

JPY

/Tsu

bo

/mo

nth

Tokyo RV LT Avg

Retail Sales Rental Value - Retail



Japan Retail Sector

• Final consumption expenditure

contributes approximately 60% of

Japan’s national GDP.

• Do not foresee a highly variant

change to this ratio in the

foreseeable future.

• Expect the total consumption

expenditure to show a sustainable

increase as the global economy

improves and ratio of job offers to

job seekers expand.

14



Japan Retail Sector

Location Net Opr Inc.

Cap Rate

10yr-Gov

Bond Yld

Spread

(bps)

Tokyo 5.75% 0.79% 496 bps

Washington 6.00% 1.76% 424 bps

Los Angeles 5.75% 1.76% 399 bps

London 5.75% 1.85% 390 bps

Singapore 5.00% 1.30% 370 bps

Hong Kong 4.25% 0.61% 364 bps

Munich 4.75% 1.32% 343 bps

Seoul 6.00% 3.03% 297 bps

Sydney 6.00% 3.29% 271 bps

Shanghai 6.00% 3.59% 241 bps

• Cap rate compression

expected

• Downward potential of cap

rate:

• Investment capital inflow

• Heighten commercial real

estate assets demand

15



Portfolio Assets

16



Portfolio Assets

17

Aeon Town

Moriya

Luz

Shinsaibashi

Luz Omori

Aeon Town

Suzuka

Mallage

Shobu

NIS Wave I



Portfolio Assets Summary

18

PropertyNLA

(sqm)Tenure

Occu-pancy

Appraised Value

Purchase Price

NPI WALE

Aeon Town Moriya 68,047 Freehold 100% JPY 12,800 M JPY 12,154 M JPY 820 M 14.5

Aeon Town Suzuka 43,501 Freehold 100% JPY 8,790 M JPY 8,439 M JPY 592 M 14.5

Luz Shinsaibashi 2,342 Freehold 100% JPY 9,380 M JPY 9,021 M JPY 448 M 9.2

Mallage Shobu 66,732 Freehold 100% JPY 21,500 M JPY 20,584 M JPY 1,430 M 6.1

Luz Omori 9,285 Freehold 97% JPY 3,560 M JPY 3,530 M JPY 214 M 16.6

NIS Wave 1 7,141 Freehold 100% JPY 11,400 M JPY 10,898 M JPY 652 M 4.8



Investment Merits: Above Market Yields

• Compare to J-REITs:

• Assets located in Japan

• Similar tax treatment

• Similar operating environment

• CRT providing above market yields

• Expect cap rate compression

19

+1 std

-1 std

+2 std

-2 std

mean

CRT

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Location Net Opr Inc. Cap Rates 10yr Gov Bond Yld Spread (bps)

Tokyo 5.75% 0.79% 496

Washington 6.00% 1.76% 424

Los Angeles 5.75% 1.76% 399

London 5.75% 1.85% 390

Singapore 5.00% 1.30% 370

Hong Kong 4.25% 0.61% 364

Munich 4.75% 1.32% 343

Seoul 6.00% 3.03% 297

Sydney 6.00% 3.29% 271

Shanghai 6.00% 3.59% 241

vs. Japan REITs Yields



Investment Merit: Expect strong recurring income

20

22%

16%

12%

33%

4%

13%Aeon Town Moriya

Aeon Town Suzuka

Luz Shinsaibashi

Mallage Shobu

Luz Omori

NIS Wave 1

-

5

10

15

Aeon TownMoriya

Aeon TownSuzuka

LuzShinsaibashi

MallageShobu

Luz Omori NIS Wave 1

WALE (yrs) Portfolio-WALE

1. CRT acquires assets with the aim todeliver stable recurring dividend toits shareholders

2. Current portfolio has anextraordinary weighted averagelease expiry profile (~11 years)

3. Mallage Shobu (biggest asset):strong upside, expect substantialincrease in rental income

4. Strong portfolio occupancy; all arefully occupied except Luz Omori(97.2%)95.00%

95.50%96.00%96.50%97.00%97.50%98.00%98.50%99.00%99.50%

100.00%

Aeon TownMoriya

Aeon TownSuzuka

LuzShinsaibashi

MallageShobu

Luz Omori NIS Wave 1

Asset Occupancy Portfolio Occupancy



Investment Merit: Further Growth!

• CRT intends to provide further growth opportunities through value accretive acquisitions and better asset management.

21

• Voluntary Right Of First Refusals (ROFR)

Sponsor

• contributed two, out of the four properties in the initial portfolio

• Voluntary ROFR

Daiwa House (Strategic Partner)

• Initial: provided 4 potential assets for acquisitions

• Acquired 2 assets

Marubeni (Strategic Partner) & Third Party Vendors

Property Prefecture Use NLA (Sqm) Status

Mallage Saga Saga Retail 46,566 -

Luz Omori Tokyo Public / Retail 9,271 Acquired

Kyoto-Kawaramachi Kyoto Entertainment 2,423 -

NIS Wave 1 Tokyo Retail 7,141 Acquired

Property Location Property

Type

Expected

Completion

Expected GFA

(sqm)

Shengyang Project (P1) Shenhe Shenyang, Liaoning, China Retail Dec-13 31,799

Maluzhen Retail Project Jiading, Shanghai, China Retail Dec-15 42,171

Japan Property:

China Property:



Valuation

22

Total (JPY) Total (SGD) Per Share Percentage

Aeon Town Moriya 14,909 M 186 M 0.43 20.5%

Aeon Town Suzuka 10,755 M 134 M 0.31 14.8%

Luz Shinsaibashi 9,982 M 124 M 0.29 13.7%

Mallage Shobu 22,929 M 286 M 0.67 31.6%

Luz Omori 3,569 M 44 M 0.10 4.9%

NIS Wave 1 10,519 M 131 M 0.31 14.5%

Total GAV 72,663 M 905 M 2.11

Add: Cash 7,671 M 141 M 0.33

Less: Debt -39,727 M -554 M -1.29

RNAV 40,607 M 492 M 1.15

Discount to RNAV 10%

Target 36,546 M 442 M 1.03

Yield at TP 7.09%

AT-Moriya20%

AT-Suzuka15%

L. Shinsaibashi

14%

M.Shobu31%

L.Omori5%

N.Wave.I15%



Recommendation

• Buy:

1. Above market dividend yield ~8.4%

2. Stable recurring income/distribution

• CRT will distribute 100% of distributable income in FY14/FY15

• Distribute 90% thereafter

• Core asset demonstrate strong fundamentals

3. Further value/yield accretive growth

• Pipeline assets from sponsors/strategic partners/3rd party vendors

• Target Price: S$1.03

• Expected annualized yield: ~8.34%

23



24

Ask Questions!

Market StrategistsJoshua Tan, Head of Research

Kenneth Koh, Market Analyst & Equities

Soh Lin Sin, Macro Economist

Osama Bakhteyar, Research Assistant

SG & US Equity AnalystsNicholas Ong, O&M & CPO

Lucas Tan, Real Estate

Wong Yong Kai, US Equities

Colin Tan, Telcos

Caroline Tay, Real Estate

Ben Ong, Financials

Richard Leow, Research Assistant

By Phillip Securities ResearchMr. Chan Wai Chee, CEO

Jermaine Tock, Operations Exec

Documents

05th April 2014 Market Outlook 2Q2014 - UniPhillip · Snapple and Starbucks as potential candidates –causing price to spike 8% on Wednesday. • Still a rumor as SS has declined