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High fives all round … not quite
Event
For the first time since December 2010, we saw a positive performance for all
major countries in the EPRA/NAREIT Index. However, the shine of this result
is somewhat offset by the continued underperformance of the Asia-Pacific
Real Estate sector against the broader market and World real estate. At the
risk of sounding like a broken record, we continue to believe the sector
remains compelling, with deep discounts to NAV and with momentum
maintained in April with strong net earnings upgrades.
Impact
Earnings upgrades accelerate, but growth moderates. The earnings
revision ratio recorded very strong net upgrades of 1.37x in April, driven by
significant upgrades in China, Australia and Hong Kong. By contrast, Japan
and India showed 100% downgrades and Singapore showed significant net
downgrades. The first four months of the year showed strong results for the
sector, with a cumulative net upgrade ratio of 1.23x. However, consensus
earnings growth forecasts for FY11 contracted sharply in April to 3.3% from
11.2% in March due to better-than-expected FY10 results. We note that
consensus earnings growth forecasts for FY12 accelerated slightly in April to
13.0% from 12.7% in March.
Trading multiples below long-run average. The start of 2011 has been
very disappointing for the real estate sector in Asia ex. Japan. In USD, it is
down 1.6% and underperforming the broader market by ~665bp CYTD. The
12-month forward PER for MSCI Asia ex. Japan real estate increased slightly
in April to ~13.72x, which is well below the long-run average of ~14.79x. The
sector is currently trading at a price to book value of 1.11x, marginally below
the long-run average of 1.12x. The sector P/CF ratio continued to improve in
April to 13.45x, down from 16.50x in January and is now well below the longrun
average of 15.89x.
Tightening bias across the region supports continued skew to landlords.
The tightening bias has continued to play-out across the Asia-Pacific region,
and the Macquarie Economics team has been highlighting for some time that
‘policy settings look too loose and there is a need to tighten policy to limit the
risk of an inflation overshoot’. Since 1 April, we have seen Bangko Sentral ng
Pilipinas raise rates by +25bp to 4.50%, Bank Negara Malaysia raise interest
rates by +25bp to 3.00%, People’s Bank of China raise rates by +25bp to
6.31% and the Reserve Bank of India raise rates by +50bp to 6.25%.
Furthermore, we have seen multiple ‘administrative controls’ which tend to be
clumsy and distorting.
Regional portfolio: Overweight Hong Kong and Singapore
Overweight: China, Hong Kong, Singapore, the Philippines and Indonesia.
Underweight: Japan, Australia and New Zealand.
Large-caps: Sun Hung Kai, Cheung Kong, Mitsubishi Estate, Hongkong Land,
Swire Pacific, CapitaMall Trust, KREIT Asia, COLI.
Small-caps: Charter Hall, ARA Asset Management, Alam Sutera,
Summarecon Agung and Kenedix Realty Investment
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High fives all round … not quite
Event
For the first time since December 2010, we saw a positive performance for all
major countries in the EPRA/NAREIT Index. However, the shine of this result
is somewhat offset by the continued underperformance of the Asia-Pacific
Real Estate sector against the broader market and World real estate. At the
risk of sounding like a broken record, we continue to believe the sector
remains compelling, with deep discounts to NAV and with momentum
maintained in April with strong net earnings upgrades.
Impact
Earnings upgrades accelerate, but growth moderates. The earnings
revision ratio recorded very strong net upgrades of 1.37x in April, driven by
significant upgrades in China, Australia and Hong Kong. By contrast, Japan
and India showed 100% downgrades and Singapore showed significant net
downgrades. The first four months of the year showed strong results for the
sector, with a cumulative net upgrade ratio of 1.23x. However, consensus
earnings growth forecasts for FY11 contracted sharply in April to 3.3% from
11.2% in March due to better-than-expected FY10 results. We note that
consensus earnings growth forecasts for FY12 accelerated slightly in April to
13.0% from 12.7% in March.
Trading multiples below long-run average. The start of 2011 has been
very disappointing for the real estate sector in Asia ex. Japan. In USD, it is
down 1.6% and underperforming the broader market by ~665bp CYTD. The
12-month forward PER for MSCI Asia ex. Japan real estate increased slightly
in April to ~13.72x, which is well below the long-run average of ~14.79x. The
sector is currently trading at a price to book value of 1.11x, marginally below
the long-run average of 1.12x. The sector P/CF ratio continued to improve in
April to 13.45x, down from 16.50x in January and is now well below the longrun
average of 15.89x.
Tightening bias across the region supports continued skew to landlords.
The tightening bias has continued to play-out across the Asia-Pacific region,
and the Macquarie Economics team has been highlighting for some time that
‘policy settings look too loose and there is a need to tighten policy to limit the
risk of an inflation overshoot’. Since 1 April, we have seen Bangko Sentral ng
Pilipinas raise rates by +25bp to 4.50%, Bank Negara Malaysia raise interest
rates by +25bp to 3.00%, People’s Bank of China raise rates by +25bp to
6.31% and the Reserve Bank of India raise rates by +50bp to 6.25%.
Furthermore, we have seen multiple ‘administrative controls’ which tend to be
clumsy and distorting.
Regional portfolio: Overweight Hong Kong and Singapore
Overweight: China, Hong Kong, Singapore, the Philippines and Indonesia.
Underweight: Japan, Australia and New Zealand.
Large-caps: Sun Hung Kai, Cheung Kong, Mitsubishi Estate, Hongkong Land,
Swire Pacific, CapitaMall Trust, KREIT Asia, COLI.
Small-caps: Charter Hall, ARA Asset Management, Alam Sutera,
Summarecon Agung and Kenedix Realty Investment
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