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Singapore ReitsOCBC Investment Research, Sept 9ON May 22, US Federal Reserve chairman Ben Bernanke first raised the spectre of a reduction in monthly purchases under the QE3 programme.迷你倉As the dust begins to settle after significant volatility in global markets, and with subsequent US data pointing to a moderate recovery, we now see fairly solid grounds for a base case that the Fed would taper QE3 this month or soon after.We now opt to downgrade the S-Reit sector to "neutral" for three key reasons.First, we believe this is the beginning of a long-term secular, not cyclical, trend of rising interest rates. We expect higher discount rates and liquidity factors, due to capital re-allocation across asset classes, to negatively impact Reit prices over the mid- to long term.To be clear, while history shows that S-Reits can outperform in periods of rising interest rates, we believe this is unlikely to happen ahead, which brings us to the second basis for our downgrade.Second, while distributions per unit (DPUs) are expected to grow 4.3 per cent in FY2014, this is to a large extent due to positive reversions off expiring leases signed near the last financial crisis troughs; rental outlooks across sub-sectors are generally only neutral to mildly positive.In addition, we see limited scope for much capital appreciation ahead, given current cap rate levels. Also, as interest rates rise, we believe Reit managers will also find it increasingly challenging to grow DPU through accretive mergers and acquisitions (M&As).Finally, a key proxy for cheapness - the sector's yield spread against the Singapore government 10-year bond - implies that the sector appears fairly priced now.At 379 basis points currently, the spread is within one standard deviation of the three-year average and to maintain this spread, we think that Reit prices would have to come down in an environment of decelerating liquidity, particularly as we begin to normalise out of ultra- low interest rates.Over the last three months, we have adjusted the discount rates in our valuation models upwards by 140 bps to 170 bps to reflect higher risk-free rates, and regional and sector betas, and have consequently reduced our fair-value estimates by 3 per cent to 20 per cent.Our most preferred sub-sectors are domestic retail and office where rental outlooks and valuations still appear appealing. Our top picks are CapitaCommercial Trust ("buy", fair value or FV: $1.61), Starhill Global Reit ("buy", FV: $0.95), and Suntec Reit ("buy", FV: $1.80).Sector - NEUTRALSingapore BankingPhillip Securities Research, Sept 9NET interest margins (NIMs) stabilised for second consecutive quarter. We see potential for gradual recovery in the medium term.Downward pressures on lending rates were mitigated by lower customer deposit costs, and higher efficiencies through high儲存r loan-to-deposit (LDR) ratios. Overseas loans growth will boost NIMs.YTD loans growth was strong, broad-based, at 10.3 per cent to 11.5 per cent.FY2013 guidance is increased to mid-double digit and mid-teens for DBS and UOB respectively. OCBC stood pat with single-digit growth guidance, citing a cautious outlook.We expect Q3 2013 loans balance to be affected by depreciating Asean currencies (rupiah, baht and ringgit).LDRs may further increase past current high levels for better efficiencies, and liquidity levels remain healthy.H1 2013 fees and commission were boosted by favourable market conditions and strong wealth management contributions. Growth of fees and commission may slow in Q3 2013 from a high base, due to economic concerns in the quarter.Non-interest income continues to be volatile. Higher recurring contributions from customer flow a positive. Q3 2013 contributions from overseas subsidiaries likely impacted by currency depreciation, macro headwinds.There were significant unrealised available-for-sale reserve losses in Q2 2013, and continued losses are expected. Non-performing loans remain low, with no credit- quality concern.We are positive on the stabilising of NIMs, with the potential for recovery in the medium term. Loans growth has also been stronger than expected, though likely negatively impacted by the recent depreciation of a few Asean currencies. Fees and commissions continue to grow, driven by wealth management fees.While market-related activities have likely slowed due to macro-economic concerns in the quarter thus far, global indicators point to a recovery in the global economic environment.Based on an increasingly positive global macro outlook, and strong fundamentals, we maintain "overweight" on the banking sector. We maintain our "accumulate" ratings on DBS and UOB, and "neutral" rating on OCBC based on our P/B derived valuations.Sector - OVERWEIGHT - Compiled by KENNETH LIMGlossary:EPS - earnings per shareEbit - earnings before interest & taxEbitda - earnings before interest, tax, depreciation & amortisationFY - fiscal/financial yearH1, H2 - first or second halfNAV - net asset value9M - nine monthsP/B - price/book value (ratio)PE - price/earnings (ratio)Q1, Q2, Q3 - first, second, or third quarterq-o-q - quarter-on-quarterROE - return on equityRNAV - revised net asset valueTP - target pricey-o-y - year-on-yearYTD - year to dateDisclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.Brokers who wish to send in their reports can email us at btnews@sph.com.sg新蒲崗迷你倉