With increasing concerns over recession fears and uncertainties over the impact of higher trade tariffs thanks to the Trump administration, CGS International Research analysts think it is time to switch into S-REITs.
In a Singapore strategy note released March 13, the CGSI analysts are “more bullish” on REITS but stay “overweight” on capital goods, consumer, construction, gaming, technology, gloves, internet and commodities within Singapore equities.
“Although the bear market does not seem to be upon us yet, the noises of flip-flopping and higher trade tariffs can change conditions quickly,” say CGSI’s Lock Mun Yee, Lim Siew Khee and Melvin Lim.
They point to “generally visible” core earnings per share (EPS) growth of 5% to 6% for 2025 and 2026.
Over the next three to six months, they believe market trends could mimic the downcycle during Trump 1.0 in 2018, where investors adopt a more risk-off strategy, preferring names with certainty in earnings, such as S-REITs.
“Amid peaking fund costs and positive rental reversions from organic growth, we anticipate S-REITs to resume distribution per unit (DPU) growth of 1% in 2025. As interest rates start to pivot, lower cost of capital should also increase S-REITs’ ability to tap into accretive acquisition opportunities,” add the CGSI analysts.
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Dividend yield is also set to grow among Singapore-listed stocks aside from S-REITs. Among CGSI’s coverage, for example, 53% to 60% will see dividend yield growth in 2025 and 2026.
Outside of banks, there have been efforts among the Singapore companies to return higher capital to investors via higher distribution per share (DPS), payout ratio or new dividend guidance. These include ST Engineering, Sembcorp Industries , Yangzijiang Shipbuilding, CapitaLand Investment, UOL Group and DFI Retail Group .
Focus on small-caps
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CGSI has “refined” its picks by removing those that have been “well-played over the past six months”. These removals are Sembcorp, Singtel, ST Engineering, Seatrium and United Overseas Bank (UOB).
CGSI has also removed SATS given the impact of trade war uncertainty on global cargo volumes, while CSE Global and SingPost have “limited near-term catalysts”. Hong Leong Asia and PropNex have also been “well-played”, adds CGSI.
Instead, CGSI believes the $5 billion equity market development fund and moves to focus on non-index stocks means small-cap names will “continue to be in vogue”.
Hence, CGSI’s new picks are UOL (with a target price of $8.20) and Keppel DC REIT ($2.48), which join existing picks iFast Corporation ($9.50), CapitaLand Ascendas REIT ($3.10), Keppel ($9.28), Yangzijiang Shipbuilding ($3.62), Pan-United Corporation (75 cents), Food Empire ($1.71), Marco Polo Marine (8 cents) and Q&M Dental (43 cents).
UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings, says CGSI. “It has good office exposure through [separately listed] Singapore Land Group . UOL is now trading at a 58% discount to revalued net asset value (RNAV).”
Separately, Keppel DC REIT had a high portfolio occupancy of 97.2% at end-2024. It enjoyed strong 39% rental reversion in FY2024 and CGSI anticipates further rental uplifts in FY2025. Keppel DC REIT is trading at 4.8% FY2025 dividend yield.
Table: CGSI
