PhillipCapital analyst Helena Wang has initiated a “buy” call on CSOP iEdge S-REIT Leaders Index ETF (CSOP iEdge S-REIT ETF) with a target price of 87 cents, emphasising the exchange-traded fund’s (ETF) position as the deeper discounted REIT ETF in Singapore.
Alongside Lion-Phillip S-REIT ETF, Wang notes that CSOP iEdge S-REIT ETF is one of the only two listed REIT ETFs on the Singapore Exchange S68 (SGX) that focuses solely on Singapore. The REIT ETF tracks the performance of the iEdge S- REIT Leaders Index, which features the largest, most liquid, and tradable REITs listed on SGX.
“This ETF offers investors stable income, attractive book value, and diversified, convenient, and efficient access to REITs across Singapore,” says the analyst.
Since its establishment in 2021, the REIT ETF now comprises 22 securities with a market cap of $69 million as of June 12.
Wang expects dividends from the REITs to remain under pressure from higher interest rates “Due to interest rate hedges, effective interest rates will still creep up until 2025. In contrast, property valuations in Singapore have been stable, supported by transaction prices,” says the analyst.
“Interest rate cuts can provide REITs the triple benefit of a yield that is more attractive to bonds, lower interest expenses, and increase valuations as cap rates compress,” she adds.
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Additionally, Wang identifies several investment merits to CSOP iEdge S-REIT ETF which include the opportunity for investors to participate in the potential income and capital appreciation created by Singapore markets which offers convenient and efficient access to this segment of the real estate sector.
Since its IPO, the fund has experienced sustainable income through the years, with dividends that have been steadily increasing and currently maintaining at around 5 to 6 cents.
Over the last two years, Wang notes that the REIT ETF’s book value has become increasingly attractive, with the ETF currently trading at a 5% discount to book.
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The analyst values CSOP iEdge S-REIT ETF using a combination of historical dividend yield spread and price-to-book (P/B) ratios. Utilising these two valuation methods, the target prices are at 93 and 81 cents respectively. With the application of equal weightage to both valuations, Wang arrives at the target price of 87 cents.
As at 11.53am, units in CSOP iEdge S-REIT ETF are trading at 0.4 cents higher or 0.55% up at 72.8 cents.
