R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

STRATEGY – SINGAPORE KEY RECOMMENDATIONS

Company Rec ------ Price (S$) ------ Up/(down)
Alpha Picks: Adding Sea Ltd and ComfortDelGro, Ascendas Reit BUY
3 Jun 21 Target
2.92 3.82
to TP (%)
30.8
remove Singtel ComfortDelGro
Far East HTrust
BUY
BUY
1.67
0.595
1.95
0.71
16.8
19.3
Our Alpha Picks portfolio narrowly beat the STI in May with a 1.5% mom decline vs the Food Empire BUY 0.915 1.30 42.1
G.H.Y Culture BUY 0.71 1.18 66.2
latter’s 1.7% mom decline. For June, we add one newly-initiated stock, Sea Ltd as well Hong Leong Asia BUY 0.975 1.38 41.5
as potential re-opening play ComfortDelGro, and remove Singtel. InnoTek BUY 0.96 1.20 25.0
OCBC BUY 12.42 15.50 24.8
WHAT’S NEW Sea Ltd * BUY 258.35 314.48 21.7
SGX BUY 10.39 12.35 18.9
• A narrow win in May. For the month of May, our Alpha Picks portfolio outperformed the SIA SELL 4.93 4.15 (15.8)
Yangzijiang BUY 1.49 1.76 18.1
STI by 0.2ppt, losing 1.5% mom vs the STI which fell 1.7%. Following the lead of global
Note: *US$
and regional markets, the STI dipped in mid-May to trough at 3,032 on 14 May only to Source: UOB Kay Hian
recover in the last week as MSCI Singapore Index revisions led to increased fund inflows.
CHANGE IN SHARE PRICE
With the Singapore Government potentially relaxing Phase 2 (Heightened Alert)
Company Rec** May 21 To-date*
restrictions in mid-Jun 21, there appears to be upside to some re-opening plays. (% mom) (%)
Ascendas Reit BUY (5.8) (3.0)
• Banks and industrials outperformed but industrial and hospitality trusts were a Far East HTrust BUY (7.1) 21.4
drag. Only three companies in our portfolio showed a positive return for May: Yangzijiang Food Empire BUY (2.1) 34.6
G.H.Y Culture BUY (0.7) (1.4)
(+4.9% mom), OCBC (+1.3% mom) and Innotek (+0.5% mom). On the negative side, Far Hong Leong Asia BUY (4.3) (4.4)
East Hospitality Trust (-7.1% mom) and Ascendas REIT (-5.8%) were key drags on the InnoTek BUY 0.5 45.5
OCBC BUY 1.3 23.0
portfolio for the month. SGX BUY (1.1) (0.4)
SingTel BUY (3.6) 2.6
• Adding Sea Ltd and ComfortDelGro. We add newly initiated Sea Ltd to our Alpha Picks SIA SELL (1.6) 11.5
as we like the Tencent-backed company’s position as it is one of Southeast Asia’s largest Yangzijiang BUY 4.9 47.5
FSSTI (1.7)
internet companies, and is making inroads into Latin America. Its strong position in the * Share price change since stock was selected as alpha pick
digital entertainment market could be augmented by digital banking growth opportunities Source: UOB Kay Hian
in the near to medium term. We also add ComfortDelGro as we expect a recovery in land
PORTFOLIO RETURNS
transport ridership as Singapore appears to be on track to relax COVID-19 stay-home 2020 1Q21
restrictions. FSSTI return -11.8 11.3
Alpha Picks Return
• We remove Singtel from the portfolio as we do not see meaningful upside for the - Price-weighted 0.0 5.9
- Market cap-weighted -1.3 7.0
company post its disappointing FY21 results that were below our and street estimates. In - Equal-weighted 3.9 8.6
addition, the company guided for 60-80% dividend payout ratio for FY22 vs expectations Assumptions for the 3 methodologies:
for a 100% payout ratio. 1) Price-weighted: Assuming same number of shares for each stock;
a higher share price will have a higher weighting.
ANALYSTS’ TOP ALPHA* PICKS 2) Market cap-weighted: Weighting based on the market cap at
inception date; a higher market cap will have a higher weighting.
Analyst Company Rec Performance# Catalyst 3) Equal-weighted: Assuming same investment amount for each
Jonathan Koh Ascendas REIT BUY -3.0 Resiliency from business parks and logistics stock; every stock will have the same weighting.
segments Source: UOB Kay Hian

Lucas Teng ComfortDelGro BUY - Reopening play with potential unlocking of value in PORTFOLIO RETURNS IN THE PAST 12 MONTHS
Australia (WE OUTPERFORMED FSSTI 7 OUT OF 12 MONTHS)
Jonathan Koh Far East BUY 21.4 Recovery in occupancy, ADR and RevPAR in 2022 (%)
Hospitality Trust 20
Clement Ho Food Empire BUY 34.6 Stronger-than-expected recovery in volume
consumption 15

Lucas Teng/ John G.H.Y Culture & BUY -1.4 Resumption of concerts; contract wins for drama 10
Cheong Media productions; M&A; wider analyst coverage
John Cheong Hong Leong Asia BUY -4.4 Established track record; strong recovery for 5
building materials segment
0
John Cheong InnoTek BUY 45.5 Better-than-expected results; higher dividends
Jonathan Koh OCBC BUY 23.0 OCBC’s dividend yield improving from 4.8% for -5
2021F to 5.4% for 2022F Jun Jul Aug Sep Oct Nov Dec 2021 Feb Mar Apr May
Clement Ho Sea Ltd BUY - One of SE Asia’s largest internet companies with
digital banking growth opportunities
FSSTI Alpha Picks Portfolio

Lucas Teng SGX BUY -0.4 Multi-asset exchange supports a resilient revenue Source: Bloomberg, UOB Kay Hian
stream
Ajith K SIA SELL 11.5 Trading at high valuations ANALYST(S)
Adrian Loh Yangzijiang BUY 47.5 Continued new order wins, strong 1H results
Singapore Research
* Denotes a timeframe of 1-3 months and not UOBKH’s usual 12-month investment horizon for stock recommendation +65 6535 6868
# Share price change since stock was selected as Alpha Pick
Source: UOB Kay Hian
research@uobkayhian.com

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

Sea Limited – BUY (Clement Ho)

• One of Southeast Asia’s largest internet companies. Backed by Tencent of China,
Sea operates the market-leading Garena and Shopee in Southeast Asia and Taiwan, and
is making inroads into Latin America.
• Digital financial services to be next engine of growth. Branded as SeaMoney, it is
licensed to offer electronic money services in Vietnam, Thailand, Indonesia, the
Philippines and Malaysia. This segment has expanded beyond e-wallet service to include
consumer lending, which is a natural extension of its e-commerce business.
• Expanded digital entertainment business to maintain competitiveness. Recent
investments show that Sea is seeking to expand and enhance its self-developed hit game
Free Fire as a long-term strategy to maintain profitability (by saving on licensing fees).
• On 31 May 21, we initiated coverage on the stock with a BUY rating. We value the
company at US$314.48/share, implying 93x 2021F adjusted operating earnings. The high
multiple is in line with the PEG multiples of comparable industry peers, supported by
Sea’s 5-year adjusted operating profit CAGR of 50.9% over 2020-25.
Share Price Catalysts
• Earlier-than-expected reduction in cash burn

• Further market share gains for Shopee in their operating regions

• Timeline: 3-6 months.

ComfortDelgro – BUY (Lucas Teng)

• Looking forward to recovery. Barring another big cluster of COVID-19 cases, the
authorities are on track to bringing the local outbreak under control, which will likely see a
relaxation of COVID-19 restrictions in mid-Jun 21. Preparations for the new normal,
including expanded vaccinations and testing, could also see the return of land transport
activities at a faster rate compared with the lifting of the circuit breaker in 2020. A
recovery in 2H21 could mitigate a possible short-term impact for CD in 2Q21.
• Value unlocking in Australia. The group also recently announced that it is exploring
various options to unlock value of its assets in Australia (including a partial sale of assets
or an IPO), where it is one of the largest privately-owned bus operators. The group’s total
investment in Australia is S$1.17b to date.
• Limited downside risk. 1Q21 saw overseas buses picking up traction, in the UK and
Australia. We are less concerned with Australia operations regarding potential outbreaks,
given resilient public transport contracts have kept revenue steady in 2020 (only down
3% yoy) despite COVID-19 restrictions. UK operations will likely continue to see a
recovery given the high vaccination rates (60% with at least 1 dose), while we opine that
London’s public transport funding will continue to be place
Share Price Catalysts
• Lifting of COVID-19 stay-home restrictions in Singapore, unlocking of value in Australia
business, regulatory changes for Downtown Line financing.
• Timeline: 3-6 months.

Singapore Exchange – BUY (Lucas Teng)

• Volatility and hedging needs remain. Trading volume for Singapore Exchange (SGX)
remains elevated with 3QFY21 cash equities’ daily average value (DAV) traded of
S$1.52b almost 50% higher compared with FY19 levels. May 21 trading velocity has
likely edged up mom given the changes to the MSCI Singapore Index. The group also
has a wide range of liquid derivative products in key asset classes such as equities,
currencies and commodities, which assure customer stickiness.

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

• MSCI changes to boost derivatives volume; higher average fee per contract. The
coming changes for the MSCI Singapore Index could see higher volumes with the
addition of foreign listed entities. In addition, introductory fees for the FTSE Taiwan Index
will also be reduced from 3QFY21, raising average fee per contract.
• Below peers’ valuation. SGX currently trades at 24x FY22F PE, below peers’ average
multiple of 28.0x. New initiatives (eg SPACs, secondary listings) could potentially rerate
SGX to trade closer towards its developed markets counterparts of similar size (eg ASX,
Japan Exchange Group).
Share Price Catalysts
• M&As, secondary listings of foreign listed entities, longer-than-expected period of trading
volatility.
• Timeline: 3-6 months.

Hong Leong Asia – BUY (John Cheong)

• Established track record and strong recovery for building materials segment. Hong
Leong Asia (HLA) has been listed in the SGX since 1998 and is part of Hong Leong
Group conglomerate, one of the largest globalised corporations in Asia. HLA started as a
building materials supplier before venturing into the diesel engine segment. HLA’s
building materials unit is one of the largest integrated players in Singapore, providing
ready-mix concrete and precast concrete elements for public housing construction. Its
subsidiary, Tasek, is the fourth-largest cement producer in Malaysia. We expect the
earnings of the building materials segment to grow by 55% yoy for 2021, driven by better
sales volume as well as better ASPs for precast and ready-mix concretes as construction
activity resumes.
• Diesel engine segment to benefit from accelerating demand due to a new product
version. HLA’s 44.7%-owned subsidiary, China Yuchai International Ltd (CYD US;
UNRATED) is the second-largest engine manufacturer in China. It manufactures and
sells engines for trucks, buses passenger vehicles, industrial equipment and agricultural
applications. Despite major disruptions due to COVID-19, China Yuchai recorded a
14.4% yoy increase in the number of engine units, as a result of the growth in China’s
agriculture segment. We expect China Yuchai’s 2021 earnings to grow by 17% yoy, as
the growth momentum should continue in 2021 from greater buying activity in National
VI(a) compliant diesel engines before its full implementation on 1 Jul 21.
• New energy solutions could drive long-term growth, formed partnership on 2 Jun 2021
to develop EV. To tap on the EV market in the longer term, China Yuchai is developing
alternative new energy solutions in new generation hybrid power, integrated electric
bridge and fuel cell system. On 2 Jun 21, China Yuchai formed a partnership with
Guangxi Shenlong Automobile Manufacturing to develop new energy vehicles based
upon China Yuchai's four new energy powertrain systems including the ISG power
generation powertrain (YC IE-Power), e-CVT power-split hybrid powertrain (YC e-CVT),
integrated electric drive axel powertrain (YC e-Axel), and a fuel cell system (YC FCS).
Both parties will also leverage each other's supply chains and distribution networks,
especially in international markets, with a focus on entering Southeast Asian markets.
• Expect robust growth in 2021; restructuring completed for loss-making segment.
Given the strong growth for both the building materials segment and China Yuchai, we
expect HLA’s earnings growth to grow 52% yoy for 2021. The disposal of the loss-making
air-conditioning business, expected to complete in 1H21, will also provide a further
earnings lift and allow management to concentrate on the profitable segments.
• Attractive valuation given the strong upcycle of both key segments. Our target price of
S$1.38 is pegged to 12x 2022F PE, 1SD above HLA’s historical five-year average. We
think current valuations of 9x 2022F PE for HLA are attractive, given that both its key
segments will ride on an industry uptrend.

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

Share Price Catalysts

• Earnings surprise due to better-than-expected engine sales and building materials sales.

• Better-than-expected dividend.

• Value-unlocking activity of China Yuchai International Ltd (CYD US; UNRATED).

G.H.Y Culture & Media Holding – BUY (Lucas Teng, John Cheong)
• Stellar maiden results. 2020 core earnings surged strongly by 244% yoy. Revenue of
S$127.1m was up 93% yoy while gross margin was 44% (+15ppt) as the group noted
strong demand for its drama series. In 2020, GHY had six drama series sold and
completed, while two dramas and one online short drama series were in production as at
31 Dec 20.
• Pipeline with larger scale projects, higher episode count. GHY has another 13
dramas and one film series to be produced and released progressively through 2021-22.
Management also noted that potential drama series produced in 2021 are larger-scale
projects with higher episode count, which will contribute to sustainable growth and
earnings resilience
• Share purchases and potential M&As. GHY CEO Guo Jingyu recently purchased
approximately 0.66m shares at S$0.75/share, accumulating almost 1.74m shares since
the company’s listing. In addition, the group also has net cash of S$105m and is
positioned for growth with potential M&As.
• Valuations still attractive. GHY currently trades at 13x 2021F PE, below peers’ average
of 20x 2021F PE, while exhibiting stronger earnings growth.
Share Price Catalysts
• Events: Resumption of concerts, contract wins for the production of drama series, M&As,
wider analyst coverage
• Timeline: 3-6 months.

InnoTek – BUY (John Cheong)

• Positive outlook from venturing into the EV and parts assembly business. In the
outlook statement of InnoTek’s recent 2020 Annual Report dated 13 Apr 21, InnoTek
highlighted that its China auto division is experiencing great change, with a clear shift
towards electric vehicles (EV). InnoTek’s precision metal components division also serves
EV manufacturers. However, as the industry evolves holistically towards charging stations
and infrastructure support, InnoTek will seek to deepen its value proposition with existing
and develop new customers. This means moving beyond single-part manufacturing to
parts assembly. InnoTek has secured initial orders of the latter and expect orders to
increase as it establishes its foothold within the segment.
• Set to benefit from a strong recovery in China’s auto sales China has successfully
contained the COVID-19 outbreak, and this has led to a surge in passenger vehicle (PV)
sales back to pre-COVID-19 levels. CAAM estimates March auto sales at 2.38m units, up
67% yoy and 64% mom, and 1Q21 PV sales should reach 6.34m units, up 73% yoy.
InnoTek, which has large exposure to China’s automobile market (historically accounted
for >30% of annual revenue), is set to benefit.
• New CEO’s successful restructuring initiatives and strong major shareholder
backing. InnoTek’s new CEO and Non-Independent Director Lou Yiliang (who joined at
end-15) had implemented several restructuring initiatives to boost profitability, including
an incentive scheme which rewards employees based on units produced per day and
production yield. As a result, InnoTek managed to turn from a net annual loss of S$16.3m
in 2015 to decade-high annual net profits of S$20.2m/S$16.7m in 2018/19 respectively.
Meanwhile, its gross margins have also increased from 6.5% in 2015 to 24.6% in 2020.
As such, InnoTek has become more resilient during economic downturns due to the

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initiatives. The track record of its major shareholder, the Chandaria family which is
involved in the founding of Venture Corporation (Venture), has been underappreciated by
the market. Mr Neal Chandaria has been the Chairman since 2017 to date, which are
InnoTek’s most profitable years.
• Attractive valuation and balance sheet loaded with cash. Trading at 2022F 9.2x PE
(5x ex-cash 2021F PE), we opine this is unjustified as InnoTek has the third-best net
margins and net cash position among similar Singapore peers. Coupled with the lowest
P/B ratio, we believe InnoTek should be trading at a valuation nearer or on a par with its
Singapore peers at 2022F PE of 12.0x. As of end-20, InnoTek had a net cash position of
S$92m, up S$72m (+28% yoy) vs the level as at end-19, forming around 40% of its
current market capitalisation.
Share Price Catalysts
• Better-than-expected demand from automobile segments and winning of more EV
customers.
• Potential takeover target given its attractive ex-cash multiple.

• Better-than-expected dividend.

Food Empire – BUY (Clement Ho)

• Daily share buy-back underlines confidence in business outlook. Since the start of
the buy-back mandate on 23 Apr 20, a total of 3,483,600 shares has been purchased,
forming approximately 0.65% of its outstanding shares. This was mainly carried out in
4Q20 and Jan 21 where Food Empire bought back a total of around 3.0m shares for a
consideration of approximately S$2.0m, potentially signalling a strong confidence in its
2021 business outlook.
• Compelling valuation. Food Empire trades at an undemanding valuation of 11x 2021F
PE, a significant discount to peers’ average of approximately 25x 2021F PE despite its
growing presence in the Vietnam market and leading position in its core markets in
Eastern Europe.
• 2020 earnings growth amid COVID-19 pandemic reflects resilient product offering
and strong brand equity. Given the low price, relatively inelastic and consumer-staple
nature of its products, Food Empire is likely to be more resilient and sheltered from an
economic slowdown, in our view. Additionally, we highlight that in spite of the weaker
ruble against the US dollar, the group has managed to mitigate some of the adverse
impact on bottom-line through ASP hikes and cost management. We were encouraged
by the group’s core earnings (ex foreign exchange) growth in 2020 at 14% yoy despite
stringent lockdowns in 2Q20. We believe this is a testament to its strong brand equity in
its core markets that was developed over many years.
Share Price Catalysts
• Events: Stronger-than-expected recovery in volume consumption and improvement in
operating leverage.
• Potential takeover target given its attractive valuation and distribution network.

• Timeline: 3-6 months.

Singapore Airlines – SELL (Ajith K)

• Post our downgrade on SIA, the stock price has declined to S$4.41, just 1 S cent
away from our prior fair value of S$4.40. After the company’s announcement of its full-
year results and S$6.2b in Mandatory Convertible Bonds (MCB), we lowered our fair
value further to S$4.15 to factor in the MCB dilution. This effectively values SIA at 1.0x
FY22/FY23’s average book value.
• We have already factored in a recovery. In valuing SIA, we have already factored in
travel recovery in 4QFY22 (calendar 1Q22), whilst for the whole of FY22, we assume

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

that: a) pax traffic rises by 310% yoy, and b) that pax load factor improves from 13.4% in
FY21 to 25% in FY22. In the near term, SIA's stock price could rebound further due to
positive sentiments towards border re-openings; however we believe that the stock could
gradually decline towards our fair value.
Share Price Catalysts
• Events: Global vaccination by 3Q21.

• Timeline: 3-6 months.

Overseas - Chinese Banking Corporation – BUY (Jonathan Koh)

• New CEO, but unchanged focus to expand in Greater Bay Area. Ms Helen Wong is a
competent leader with a strong track record, having led HSBC’s Greater China
operations, which is the largest profit centre of HSBC. New CEO Helen Wong
emphasised focus on organic growth from: a) capturing investment and trade flows
between ASEAN and Greater China, b) retail wealth management, c) sustainable finance,
and d) accelerated growth in digitalisation.
• Maintain guidance. Management has upgraded its guidance to mid-to-high single-digit
loan growth for 2021 (2020: +0.5%). NIM is expected to stabilise at 1.50-1.55%.
Management expects credit costs to be at the lower end of guidance of 100-130bp over
the 2-year period (2020: 67bp).
• Further reduction of loan relief programmes. Exposure to loans under moratorium
dropped by 10.5% from S$5.7b (2.1% of total loans) in Jan 21 to S$5.1b (1.9% of total
loans) in Mar 21. 92% of the loans under moratorium are secured by collateral. Most
customers indicated they do not require additional assistance.
• Paying sustainable dividends. OCBC’s CET-1 CAR improved 0.3ppt qoq to 15.5% in
1Q21. OCBC estimated that by maintaining dividend payout at 40-50%, it would be able
to support growth in risk-weighted assets of 7-8% per year without impeding CET-1 CAR.
Management emphasised that dividend policy must be progressive and sustainable. As
such, we expect OCBC to gradually increase recurrent regular dividends. Having a high
CET-1 CAR also helped OCBC weather unexpected economic shocks, which has been
aptly demonstrated amid the COVID-19 pandemic.
Share Price Catalyst
• Events: OCBC’s dividend yield improving from 4% for 2021 to 4.5% for 2022.

• Timeline: 6-12 months.

Ascendas REIT – BUY (Jonathan Koh)

• Positive rental reversion driven by Singapore and the US. AREIT achieved positive
rental reversion of 3% in 1Q21, driven by business & science parks (+2.8%) and logistics
& distribution centres (+5.6%) in Singapore and business parks (+6.2%) in the US.
• More acquisitions are forthcoming in 2021. AREIT secured accretive acquisitions
worth S$1.4b in Singapore, Australia and the US in 2020 (completed S$973m in 2020
and S$535m to be completed over the next two years). It has an optimal asset mix 60:40
between Singapore and overseas markets. Having expanded overseas at a frantic pace
over the past five years (investment mandate extended to overseas properties in Aug 15),
AREIT could refocus on expanding within Singapore in 2021.
• Potential acquisitions from sponsor CapitaLand include Ascent at Science Park I
(GFA: 555,030sf) and Galaxis (75% stake) at one-north (GFA: 742,050sf). Key tenants at
Ascent are Johnson & Johnson, Dyson, Merck and Prestige Biopharma. Key tenants at
Galaxis are Canon, Sea Ltd, Oracle and Avaloq.
• Data centres add a new engine for growth and expansion. AREIT has completed the
acquisition of 11 data centres located across the UK (four), Netherlands (three), France
(three) and Switzerland (one) from vendor Digital Realty Trust for S$905m in Mar 21. The

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acquisition of 11 data centres in Europe has injected a new dimension for growth. There
is room for asset enhancements for the 11 data centres via: a) repositioning some
powered shell data centres into co-location data centres, and b) converting ancillary office
spaces into data halls. Over the longer term, management intends to build scale for data
centres in Singapore and Europe, focusing on core and shell data centres.
Share Price Catalysts
• Events: a) Resiliency from business parks and logistic segments; b) contributions from
development projects and AEIs.
• Timeline: 6-12 months.

Yangzijiang Shipbuilding – BUY (Adrian Loh)

• 1Q21 NPAT and margins stronger than expected. Yangzijiang (YZJ) reported an 89%
yoy increase in 1Q21 NPAT at Rmb780m (26% of our full-year estimate) which was
driven by a 10ppt increase in gross profit margins and an 18ppt increase in net margins.
We were not perturbed by revenues that declined 25% yoy to Rmb2.62b due to lower
shipbuilding activities as shipbuilding margins expanded to 14.7% vs 8.4% in 1Q20 which
was affected by COVID-19. During the analyst briefing, management reiterated its belief
that its revenues will trough in 1Q21 and should increase from 2Q21 onwards.
• New order win outlook. With slightly over US$4b in new orders garnered ytd in 2021,
we note that management is targeting US$5b in new orders which, in our view, should be
easily achieved. The company noted that its smallest Changbo yard (to be reactivated by
mid-21) will build the smaller 1,000-3,000TEU containerships while the Yangzi and Xinfu
yards will focus on the mid- and large-sized vessels. Our 2021 and 2022 new order win
expectations remain at US$5.5b and US$3.5b respectively.
• We believe that YZJ remains a compelling stock for this year as its valuations remain
undemanding, with 2021 EV/EBITDA and P/B multiples of 6.0x and 0.8x respectively, a
2022 PEG ratio of 0.31 and net cash of S$0.47/share (or 32% of its current share price).
Share Price Catalysts
• Events: New order wins; better returns on its debt investments portfolio; strong 1H21
results
• Timeline: 3-6 months

Far East Hospitality Trust – BUY (Jonathan Koh)

• Downside protection from high fixed rent component. FEHT is the most defensive
hospitality REITs. All FEHT hotels and serviced residences are under master lease
agreements with subsidiaries within sponsor Far East Organisation (FEO). The fixed rent
component from its master leases totalled S$67m per year, which is equivalent to 72% of
total gross revenue from its hotels and serviced residences in 2019 (pre-COVID-19).
These master leases run till 2032. Sponsor FEO owns 61% of FEHT and has a strong
balance sheet.
• Aligned to unitholders’ interest. From 1 Jan 20, base fee was reduced from 0.3% to
0.28% of deposited property. Performance fee was also reduced from 4.0% of NPI to
4.0% of annual distributable amount. The reduction in management fees demonstrates
that sponsor FEO is closely aligned to unitholders’ interest.
• Redeveloping Central Square. FEHT has received an outline advice from the Urban
Redevelopment Authority (URA) for the redevelopment of Central Square, which
comprises a serviced residence and commercial spaces, including office and retail units.
FEHT and City Developments (owner of the adjacent Central Mall) have jointly submitted
a proposal to redevelop Central Square and Central Mall under the strategic development
incentive scheme. The proposed integrated development will rejuvenate the precinct and
involves a potential rezoning and uplift in gross floor area (GFA).

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

• An opportunity to create value through capital re-cycling. Management will evaluate

opportunities to divest Central Square given the substantial disruption to income
contribution from the property during the redevelopment. Potential buyers include Far
East Organisation and City Developments, who could take over the entire redevelopment
project. The divestment, if it materialises, will help FEHT reap potential divestment gain
and deleverage as well.
• Our target price of S$0.71 is based on the dividend discount model (cost of equity:
7.0%, terminal growth: 1.8%). We expect distribution yield to recover to 5.5% in 2022 and
6.7% in 2023. FEHT trades at 0.74x 2021F P/B, representing a steep 26% discount
against NAV/share of S$0.79.
Share Price Catalyst
• Event: a) Downside protection from fixed rents embedded in master leases with sponsor
FEO, b) recovery in occupancy, average daily rate and RevPAR in 2022.
• Timeline: 6-12 months.

VALUATION
Price Target Upside Last -------------------- PE ------------------- Yield ROE Market Price/
Company Ticker Rec 3 Jun 21 Price To TP Year 2020 2021F 2022F 2021F 2021F Cap. NAV ps
(S$) (S$) (%) End (x) (x) (x) (%) (%) (S$m) (x)
Ascendas Reit AREIT SP BUY 2.92 3.82 30.8 12/20 20.6 18.9 18.0 5.3 6.8 11,740.9 1.3
ComfortDelGro CD SP BUY 1.67 1.95 16.8 12/20 58.6 15.4 16.7 3.0 0.0 3,619.6 1.4
Far East HTrust FEHT SP BUY 0.595 0.71 19.3 12/20 34.1 30.0 21.1 4.2 2.5 1,171.8 0.8
Food Empire FEH SP BUY 0.915 1.30 42.1 12/20 13.2 11.9 11.2 2.5 13.5 491.9 1.7
GHY Culture GHY SP BUY 0.71 1.18 66.2 12/20 17.1 12.1 12.0 2.5 34.9 762.4 4.8
Hong Leong Asia HLA SP BUY 0.975 1.38 41.5 12/20 15.6 10.3 8.5 1.6 7.8 729.1 0.8
InnoTek INNOT SP BUY 0.96 1.20 25.0 12/20 15.7 11.2 9.5 2.6 10.5 219.7 1.2
OCBC OCBC SP BUY 12.42 15.50 24.8 12/20 15.5 11.3 10.7 4.0 9.6 55,583.1 1.1
Sea Ltd (in US$) SE US BUY 258.35 314.48 21.7 12/20 n.a. n.a. n.a. 0.0 (91.0) 96,172.8 39.1
S'pore Exchange SGX SP BUY 10.39 12.35 18.9 6/20 23.6 24.1 23.6 3.1 35.6 11,109.3 8.8
SIA SIA SP SELL 4.93 4.15 (15.8) 3/21 n.a. n.a. 5.5 0.0 (4.2) 14,617.3 0.9
Yangzijiang YZJSGD SP BUY 1.49 1.76 18.1 12/20 11.6 9.7 7.8 3.7 8.7 5,734.3 0.8
Source: UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

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R e g i o n a l M o r n i n g N o t e s Friday, 04 June 2021

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