Consumer Sector, Cache Logistics Trust: SG Market Updates

We downgrade the consumer sector to UNDERWEIGHT in light of the weaker SG retail sales figures for Apr and the potential threats to regional consumer spending (i.e macro-overhang, government policy changes and greater foreign competition). With sales figures likely to showcase unimpressive results for May, 2QCY13 could well shape out to be a muted quarter in terms of top-line growth for consumer companies. Furthermore, operating cost pressures resulting from higher wage costs and advertising and promotional spending still remain so operating margins are likely to stay depressed. Within the sector, we favour counters with defensive qualities such as Sheng Siong [BUY; FV: S$0.82] or counters with potential M&A activity Viz Branz [BUY; FV: S$0.74]. (Lim Siyi) MORE REPORTS Cache Logistics Trust: Valuation looks undemanding Summary: We are reiterating our prognosis that Cache Logistics Trust (CACHE) is likely to continue to deliver sustainable growth for FY13. CACHE has a portfolio of quality assets which has a 100% occupancy rate and strong weighted average lease to expiry of 3.7 years. Together with the recent acquisition of Precise Two, CACHE is likely to meet our growth projection for 2013. Since 22 May, the S-REITs sector, including CACHE, has recently experienced a sell-down on fears that the US Federal Reserve may reduce the pace of its bond purchase programme and raise the interest rates in the coming months. However, we believe that the market reaction on CACHE is overdone, given its strong financial position and active capital management. At current price, CACHE offers a FY13-14F DPU yield of 6.8-7.1%, which represents an attractive spread of 471-500 bps to Singapore's 10-year bond yield. While we now revise our fair value to S$1.40 from S$1.45 on higher risk-free rate assumption, we still see good upside potential on CACHE. Maintain BUY. (Kevin Tan)

NEWS HEADLINES - Asian stock futures fell, signaling a possible extension of declines amongst Asian equities after the International Monetary Fund cut its US growth forecast and ahead of the Federal Reserve meeting this week. - Singapore may gain from its first-mover position for business trusts in the region, market watchers say, even if historical performance is mixed and amid a recent dip in sentiment for yield plays. - Singapore's monetary authority censured banks for trying to rig benchmark interest rates and orders the setting aside of as much as S$12b at zero interest pending steps to improve internal controls. - Far East Orchard has been awarded a tender for a residential land parcel with FCL Topaz Pte. Ltd., a member of Frasers Centrepoint and Sekisui House, Ltd. The total tender price for the land was S$256.9m. - First Ship Lease Trust demands the redelivery of its two crude oil tankers, after lessees default on their lease payments. - Freight Links Express expands the scope of its logistics business by entering the commodity logistics segment