Brokers' call: DBS Bank

DBS BANK

Broker: CIMB

Target Price: $19.58

Call: Buy

DBS Bank's trade book has been on a consistent decline, shrinking from $62 billion in the second quarter of 2014 to $53 billion in the third quarter of last year.

Specifically, its China trade loans fell from $36 billion to $26 billion, largely due to a decline in offshore yuan export bills under letter of credit funding (EBLC).

Amid falling demand for EBLC, DBS has grown its operational acceptance testing (OAT) business to provide direct import/export financing and supply chain financing solutions to its corporate clients.

DBS expects its overall trade volumes to bottom out in the first half of this year, as growth in OAT offsets the decline in EBLC loans.

The bank has also proactively managed its expensive fixed deposits and grown its current and savings account proportion in its global transaction services from 41 per cent to 50 per cent in a year ending the third quarter of 2015.

DBS plans to invest $60 million in 2016-17 to offer new solutions and grow its cash management business.


PARKWAY LIFE REIT

Broker: DBS Research

Target Price: $2.50

Call: Buy

Parkway Life Reit (Plife Reit) offers one of the strongest earnings visibility profile among Singapore real estate investment trusts, with a weighted average lease expiry of close to nine years.

Revenue from Singapore, which is approximately 63 per cent of the total revenue, is forecast to grow 1 per cent more than the consumer price index, ensuring that rental income keeps pace with inflation growth. The remaining 36 per cent is derived from its nursing homes and healthcare facilities in Japan which offer long-term certainty given a weighted average lease expiry of 13 years.

After a portfolio recycling exercise in Japan, positive growth momentum is expected for Plife Reit in the country. The manager is aiming to acquire and bulk up its exposure in Japan.

Plife Reit has been proactively refinancing its maturing debts in advance to prevent any near-term refinancing risks. As a result, there is no refinancing until next year, with a weighted average debt to maturity of 31/2 years and a low 1.6 per cent cost of debt which is fully hedged.


OUE COMMERCIAL REIT

Broker: OCBC Investment Research

Target Price: 65 Singapore cents

Call: Hold

OUE Commercial Reit reported distributable income and distribution per unit of $17.63 million and 1.36 Singapore cents respectively for the fourth quarter of 2015, due to better operating performances across the portfolio, lower utilities costs incurred by OUE Bayfront and One Raffles Place, and also lower-than-forecasted finance costs.

Topline revenue came in at $40.3 million, which was 4.2 per cent higher than forecast. Note that the trust acquired an interest in One Raffles Place last October, which put in its maiden contribution over the latest quarter.

Including the newly acquired One Raffles Place, which has an occupancy of 90.1 per cent, OUECT's overall portfolio occupancy held fairly firm at 94.3 per cent.

Management reports that it has secured renewals and new leases for more than 25 per cent of portfolio leases due in 2016 and, as a result, about 15.1 per cent of the trust's gross rental income is due for renewal over financial year 2016.

As of the end of the 2015 financial year, the trust has a healthy balance sheet, with 40.1 per cent net gearing with 63.8 per cent of its interest rate exposure hedged into fixed rates.

A version of this article appeared in the print edition of The Straits Times on February 01, 2016, with the headline 'Brokers'Call'. Print Edition | Subscribe