Changes to CPF contribution rates from January 2015

Medisave contribution rates for Self-Employed Persons (SEPs) with annual net trade income of $18,000 and above will be raised by 1%. 

The rates in the table below are applicable to SEPs for annual net trade income from 2015.


Contribution rates applicable to SEPs from 2015 

Annual net trade income (from 2015)	Age as at 1 January of work year
	Below 35 years	35 to below 45 years	45 to below 50 years	50 years and above
Above $6,000 to $12,000	4%	4.5%	5%	5.25%
Above $12,000 to $18,000	Phased in*from 4% to 8%	Phased in*from 4.5% to 9%	Phased in*from 5% to 10%	Phased in* from 5.25% to 10.5%
Above $18,000	8% (Maximum $4,800)	9% (Maximum $5,400)	10% (Maximum $6,000)	10.5% (Maximum $6,300)

Global Logistic Properties - Tie-up to provide strategic value

What Happened 
GLP has entered into an agreement with a group of China domestic institutions to co-invest in its logistics property business in China. GLP’s China assets will all be held under a China holding company (holdco) in which the consortium, together with a group of GLP employees and management team, will invest c.US$2.36bn. This will result in the two parties owning 30.3% and 3.7% stakes in the holdco respectively, with GLP’s stake reduced from 100% to 66%. The purchase consideration values GLP’s China assets at a c.1% premium to its last NAV. The consortium comprises a large Chinese insurance company, Bank of China Group and a group of China SOEs and investors known as “HOPU". GLP will also place out US$163m of new GLP (GLP listco) shares to HOPU at S$2.755 (1.2x P/BV), representing 1.5% of its outstanding shares. This transaction is subject to regulatory and shareholder approval.   
  
What We Think 
We think this move is a strategically-positive one, even though there may not be immediate NAV upside. While GLP can arguably fetch better pricing in the open market, we believe tying up with this consortium provides better longer- term strategic value in the form of new relationships, and potentially gaining access to landbank in the future. We believe this deal will position GLP as the undoubted leader in China logistics property and could pave the way for a potential China listing in the longer-term. GLP plans to use the proceeds for reinvestment in China and has already guided for a 40% yoy growth target in FY15. Its recent 3Q14 results suggest that leasing demand for logistics facilities in China remains robust. We estimate that this deal will shave off 7-15% of our FY15-16 core profits, though an acceleration in land acquisitions could eventually more than recover this initial shortfall.

OCBC - Deposit influx did not kill NIM

What stood out for us? 
Operating trends. NII rose 5.5% qoq as loans grew 4.8%, trade-driven. 4Q numbers show why OCBC wants to get into HK. China-related trade finance opportunities are just booming. Non-NII was, as expected, seasonally weaker (-13.1% qoq), partly capital markets and partly due to lower qoq GEH’s accounting contributions. GEH’s NBEV growth was particularly impressive.Positive data points. Time deposit competition stiffened at end-2013 and OCBC seems to be a beneficiary of that, chalking up a big quarter for deposit growth (+8% qoq), mostly time deposits. Yet, this did not squeeze NIMs (+1bp qoq). We think this has positive margin implications. Management guided that funding cost pressures can be mitigated by 1) higher mortgage spreads as we reach the end of a refinancing cycle for a vintage of high-spreads mortgages, and 2) ability to raise corporate spreads. Another positive is NPL improvement, implying that the higher 3Q NPL is not an early harbinger of trouble.   
  
Outlook for 2014 
Management guided for 1) loan growth of 11-13% in 2014, still driven by trade, 2) stable NIMs, 3) cost pressures from compliance costs and IT investments, and 4) no asset quality issues. Domestic loan growth is likely to be weak and OCBC will focus on faster-growing markets in ASEAN and Greater China.   
  
Upgrade to Add 
OCBC’s share price has underperformed YTD on concerns that it is overpaying for Wing Hang Bank. We see limited downside from here. We are impressed with its margin resilience despite a deposit influx, pristine credit quality and strong NBEV growth for GEH. We upgrade it from reduce to Add.

Is it worth shopping for Sheng Siong?

Sheng Siong Group (SSG) has kicked off its e-commerce business in limited areas. The group is waiting for the pilot phase to be successfully completed before expanding to cover the whole of Singapore. This could be a prudent move as it shows how SSG makes calculated risks. 

SSG’s 90 per cent payout ratio dividend policy expires in FY14, and questions remain over its continuation. Should the payout ratio be decreased, SSG would lose some of its attractiveness as a yield play which would possibly affect the share price. In 2013, unfavourable rental markets saw SSG reluctantly attempting to acquire properties. This includes the Yishun Junction 9 which is awaiting final authority approval. 

Yishun is a mature estate but is set to benefit from URA's plan to rejuvenate the area. Another 40,000 homes will be added over the next decade to the existing 131,000 homes. The store's location in the upcoming Junction 9 itself sees captive shoppers in the form of the 186 residential units on the higher floors. Also, the decent car park size of 136 lots and its proximity to the Yishun ring road should provide strong traffic flow. OCBC says the acquisition price does appear to be on the high end with an implied capital value of $2,968 psf and yield of 2.8 percent. 

OCBC maintains its buy call with a target price of $0.70. CIMB maintains its outperform call with a target price of $0.74. It sees catalysts coming from earnings delivery from new stores. The average uplift expected among analysts is for a 24.4 percent rise in the share price.