Top Story : MREITS – A new “norm” to propel valuations to new highs Overweight
Sector Update
♦ M-REITs are currently already trading at a slight premium to the historical average. However, we remain bullish on the sector as we expect a new “norm” to gradually emerge, taking the premium higher to match or even surpass the high end of the historical range, propelled by a buoyant stock market, and more importantly, the continued narrowing of the yield gap with S-REITs.
♦ Our belief is supported by narrowing yield gap between M-REITs and S-REITs as well as between MREITs and risk free debt. In view of a buoyant stock market and a new “norm” that is taking shape with the rising relative investability of M-REITs vis-à-vis S-REITs, we expect M-REIT yields to soon revisit the lows of 6.8-7.0% pre-crisis level.
♦ We are maintaining Overweight stance on M-REITs due to: (1) The bright prospects of the investment property sector in Malaysia underpinned by economic growth, rising consumerism backed by a young demographic structure in Malaysia and growing tourist arrival; (2) Rising M-REITs’ relative investability visà- vis S-REITs and risk-free debt on the back of an expanding publicly traded M-REIT sector; and (3) Rising investors’ appetite for asset classes that provide a hedge against inflation such as REITs.
RHB Equity 360° (MREITS, Motor, Mah Sing, KFC, BAT; Technical: Gamuda)-23/04/2010
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