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Key Research Idea

Golden Agri-Resources (GGR SP) – A strong quarter  

Golden-Agri’s (GAR) 9M21 revenue and EBITDA grew 46% and 164% YoY to USD7.3b and USD828m respectively, largely attributable to continued strong production and CPO market prices. Bottomline turned from a loss of USD162m in 9M20 to a profit of USD268m in 9M21, above our expectations. Planation and Palm oil mills segment benefitted from higher plantation output and sustained firm CPO prices. Management expects tight global vegetable oil supply and higher demand to remain supportive of CPO prices in 4Q21.  Separately, downstream sales volume grew 2% YoY in 9M21 on improving business environment. Management expects full-year cost of production to increase to ~USD300 per tonne, mainly driven by higher fertiliser prices which have increased by ~50%. As a result, this could bring GAR’s cost of production up by 10-15% in FY22. After adjustments to factor in higher CPO prices and cost estimates, our fair value estimate increases from SGD0.25 to SGD0.29. HOLD(Chu Peng)

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Research Ideas

Starhub Ltd (STH SP) – Better guidance; acquiring majority stake in HKBN JOS in Singapore and Malaysia  

Starhub’s 3Q21 revenue grew 5.6% YoY to SGD517.2m or 6.3% QoQ, coming in ~1% above consensus. EBITDA rose 7.9% QoQ to SGD132.9m, while PATMI (excluding JSS) grew 6.9% QoQ or 5.1% YoY to SGD40.0m. Starhub has revised its service EBITDA margin guidance from 24-26% to at least 26%, resulting from its disciplined approach to expenditure, postponement of opex relating to IT transformation, and higher contribution expected from Cybersecurity Services. Starhub has also announced that it has signed an agreement where it will be acquiring from HKBN a 60% stake in HKBN JOS Singapore and Malaysia for a total consideration of SGD14.9m. This move will further Starhub’s DARE+ strategy as it strengthens its regional ICT and enterprise business, create synergies, and deepen its partnership with HKBN for future growth. We keep our estimates for now, and maintain our FV of SGD1.36, which already incorporates a 10% ESG premium as the company scores well on a number of key issues relative to the industry average. HOLD(Research Team)Singapore REITs – Keeping our barbell strategy on sector positioning

The recently concluded 3Q/9M CY2021 earnings season was mixed from an operational standpoint, but there was mostly an improvement in financial metrics observed. For the 10 S-REITs under our coverage which reported DPU figures, nine met our expectations, only one missed and there were no beats. YoY DPU growth for these 10 S-REITs came in at 9.1% on a median basis, as there were still some elements of a low base effect.

We are now forecasting the S-REITs under our coverage to record a market cap-weighted DPU growth of 9.6% for the current financial year (FY21/22F depending on financial year end). Looking at the next financial year (FY22/23F), we forecast DPU growth of 8.1%.

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We previously concluded that a sudden and sharp spike in bond yields can cause an initial negative knee-jerk reaction in the share prices of S-REITs. We further delve into the impact on S-REITs’ performance against steepening yield curve scenarios. Whilst a steepening of the yield curve may typically be associated as a driver of negative share price performance of the S-REITs sector, our study of historical data showed that during the eight periods from 2004 to present day (as at 15 Nov 2021) when the Singapore yield curve (10Y-2Y) steepened by at least 50 bps, the FTSE Straits Times REIT Index (FSTREI) delivered positive share price performance (excluding dividend returns) in four instances and negative share price return on the other four periods. In our opinion, there are several factors that can affect the performance of the sector, such as economic growth outlook, geopolitical events and exogenous shocks such as the Covid-19 pandemic etc. The drivers and pace behind the yield curve steepening thus certainly matters.

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From a valuation standpoint, the forward yield spread of the FSTREI against the 10-year Singapore government bond yield is now 357 bps, or approximately one standard deviation below the 10-year average of 416 bps. In terms of sector positioning, we continue to recommend a barbell strategy. Our basket of reopening/recovery plays comprises mainly retail and hospitality REITs, namely Ascott Residence Trust [BUY; FV: SGD1.22]CapitaLand Integrated Commercial Trust (CICT SP) [BUY; FV: SGD2.53]Frasers Centrepoint Trust (FCT SP) [BUY; FV: SGD2.81] and Mapletree North Asia Commercial Trust (MAGIC SP) [BUY; FV: SGD1.15]. On the other hand, we would balance our reopening/recovery basket with REITs with more resilient and defensive income streams that are less susceptible to Covid-19 related restrictions. Names we like within this resilient/defensive basket are Ascendas REIT (AREIT SP) [BUY; FV: SGD3.83] and Mapletree Industrial Trust (MINT SP) [FV: SGD3.42]. We also add in Frasers Logistics & Commercial Trust (FLT SP) [FV: SGD1.71] following our recent fair value upgrade.  (Research Team)

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