Kenanga Research downgraded Malaysia's real estate investment trusts (REITs) to "neutral" from "overweight" as it believes there is limited room for further yield compressions.
"As investors seek safe havens in defensive stocks this year, we note that most Malaysia's REITs are trading at historically low gross yields, not to mention record low spreads to the 10-year Malaysian Government Securities (MGS) yields," the research house said in a note on Tuesday.
Assuming the 10-year MGS yields trend lower to 3.3 percent based on historical trends in 2013, and Malaysia's REITs continue to demand current record low spreads, the brokerage said it had increased the target prices on Malaysia's REITs under its coverage.
"However, our new target prices only provide less than 10 percent total returns, implying limited share price upsides."
Kenanga downgraded Capitalmalls Malaysia Trust to "market perform" from "outperform", though it raised the target price to RM1.80 per share from RM1.69.
It maintained "market perform" on Sunway REIT, but raised the target price to RM1.51 from RM1.42. It also maintained "market perform" on Axis REIT, with a higher target price of RM3.08.
"We prefer KLCC Property (outperform rating; target price of RM6.87) as an alternative to Malaysia's REITs as our target price reflects a REIT payout structure and a target 2013 gross dividend yield of 4.6 percent," it added. -- Reuters