Singapore Markets - Maybank Research 2024-08-23: When Interest Rates Fall ~ Positive For S-REITs, Industrials & Telcos

• Expectations are high for Fed policy rate cuts come September. This should have positive impacts on Singapore listed companies with large debt servicing burdens. Our screening shows the biggest beneficiaries in property, industrials and agri-traders.
• Sustained and deep cuts should structurally influence upside risks to S-REITs and Industrials by lowering cost of capital and rotating investments away from fixed income.
• - Read this at SGinvestors.io -

Lower policy rates closer to reality

• Fed policy rates are at a two-decade high. Futures markets are pricing a 25bps rate cut in the Fed’s 17-18 September gathering, with a potential total cut of 100bps by end-2024E. Dovish signaling by the Fed Chair at Jackson Hole of imminent rate cuts further increases visibility.
• - Read this at SGinvestors.io -

Expect some easing of debt servicing burdens

• Companies with high gearing and interest costs burdens are likely to benefit the most from falling interest rates. We screen SGX listed corporates with >S$500m market cap against several debt servicing metrics.
  • We note SATS, Parkway Life REIT and iFAST had seen the largest (>100%) jumps in interest costs in 1H24. Falling rates should help reverse this trend, we think.
  • In terms of operating sensitivity, defined as EBITDA/Net interest costs, we note Wing Tai, Pacific Century and Hong Fok have the highest sensitivities. This means lower interest costs should give these companies more leeway to navigate operating profit volatility.
  • In terms of the biggest impacts to income, we note Golden Agri-Resources, Frasers Property and Olam have the highest net interest costs/net income ratios. Lower interest costs should support more income hitting the bottom-line.
• Nevertheless, we caution the benefit may flow with delays as fixed-rate debt may take time to reprice.

S-REITs, Telcos, Industrials beneficiaries

• Read more at SGinvestors.io.

Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2024-08-23 SGinvestors.io

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