Update 6 June on IOIPG & YTL Power
US stocks closed slightly lower Thursday as traders reacted to trade war news and focus on the Initial Jobless Claims report. A subdued trading session gave way to headline-driven anticipation yesterday, as unexpected news from Chinese media revealed a call between President Trump and President Xi - something markets had anticipated for later in the week.
The early timing of the call injected a burst of optimism, with traders eager for any signs of thawing tensions or economic coordination between the US and China. However, official readouts left markets slightly underwhelmed. While there was no breakthrough, both sides agreed to initiate high-level meetings, potentially laying the groundwork for a broader, more comprehensive agreement in the months ahead.
Initial Jobless Claims report showed that 247,000 Americans filed for unemployment benefits in a week, compared to analyst forecast of 235,000. The recent ADP Employment Change report has also missed analyst expectations, so traders may start to worry about the situation in the job market ahead of Friday’s Non Farm Payrolls report.
Nasdaq moved lower Thursday as Tesla stock went down by 12%. Elon Musk and Donald Trump criticized each other, and traders worry that this situation may have a negative impact on Tesla.
Economic News
Trade: U.S. imports fell sharply in April as tariffs weighed on global trade. Canada posted a record trade deficit.
Europe: The European Central Bank cut interest rates to the lowest level in two and a half years.
Energy: European leaders have sought to break away from Russian natural gas, but U.S. investors may have other ideas.
Shipping: Despite a recent cease-fire agreement between the U.S. and the Houthis, Red Sea ship traffic remains down.
Tech: ASML, the Dutch maker of high-tech lithography machines, worries that U.S. trade restrictions could actually strengthen Chinese chipmakers.
Trump, Xi hold long-awaited phone call on trade conflict
AFP, June 6, 2025
US President Donald Trump and Chinese leader Xi Jinping spoke yesterday, with both sides agreeing to talks to prevent an all-out trade war over tariffs and global rare earth supplies.
Trump said the call reached a “very positive conclusion” and that they agreed to meet in person – but Beijing issued a more muted readout saying that Xi spoke of a need to “correct the course” of ties.
The call – the first to be publicly announced since Trump returned to power in January – comes after Beijing and Washington accused each other of jeopardizsng a trade war truce agreed last month in Geneva.
Trump said a high-level US trade team including his treasury secretary, commerce secretary and US trade representative would meet Chinese officials soon.
“The call lasted approximately one and a half hours, and resulted in a very positive conclusion for both Countries,” Trump said on Truth Social.
“President Xi graciously invited the First Lady and me to visit China, and I reciprocated. As Presidents of two Great Nations, this is something that we both look forward to doing,” he added.
Trump said they would announce the time and place later.
But the leaders did not discuss Russia’s invasion of Ukraine, Trump said, despite long-standing US hopes that Beijing could exert influence over Moscow to end the war.
“The conversation was focused almost entirely on TRADE,” said Trump, adding that they hoped to have resolved issues over crucial rare earth minerals used in tech products.
Relations between superpower rivals Beijing and Washington have been fraught since April, when Trump introduced sweeping worldwide tariffs that targeted China most heavily.
At one point the US hit China with additional levies of 145% on its goods as both sides engaged in tit-for-tat escalation. China’s countermeasures on US goods reached 125%.
Trump had described Xi as recently as Wednesday as “extremely hard to make a deal with”.
Chinese state media said Trump had requested the call.
There was no immediate confirmation from the White House.
‘Correcting the course’
In its more restrained readout, Beijing said that relations needed more work.
“Correcting the course of the big ship of Sino-US relations requires us to steer well and set the direction, especially to eliminate all kinds of interference and even destruction, which is particularly important,” Xi told Trump, according to state news agency Xinhua.
The agency reported that the pair discussed the self-ruled democratic island of Taiwan, which China claims as part of its territory and has threatened to seize by force.
Xi warned his US counterpart that Washington should handle the issue “with caution” to avoid Taiwanese separatists “dragging China and the US into the danger of conflict”, Xinhua said.
But Xi also extended Trump a welcome to return to China, according to the agency, following an earlier trip during his first term in 2017.
Until yesterday, the two leaders had not had any confirmed contact since the Republican returned to power in January, despite frequent claims by the US president that such a call was imminent.
Beijing and Washington agreed in Geneva last month to slash their staggeringly high tariffs for 90 days, but the two sides have since traded blame for derailing the deal.
Trump argued last week that China had “totally violated” the terms, without providing further details.
China’s commerce ministry hit back by saying the Trump administration had introduced “discriminatory restrictive measures”, including revoking some Chinese student visas in the US.
Trump has separately ramped up tensions with other trade partners, including the European Union, by vowing to double global tariffs on steel and aluminium to 50% from Wednesday.
CDL to book gain of $465 mil after selling stake in South Beach to JV partner IOI Properties Group
The Edge Singapore, June 4, 2025
City Developments will be selling its 50.1% stake in South Beach development to joint venture partner IOI Properties Group for $834.2 million and book a gain on disposal of some $465 million in the current FY2025.
The partners now own this mixed-use integrated development along Beach Road via an entity called Scottsdale Properties.
At this agreed purchase price, South Beach has an implied property value of $2.75 billion, which is a 3% premium over the valuation of $2.67 billion accorded by Edmund Tie & Company as of last December.
Upon completion of the transaction expected by Q3 2025, IOIPG will gain full ownership of South Beach’s commercial components, which consists of the 34-storey South Beach Tower Grade A office, the 634-room JW Marriott Hotel Singapore South Beach, restaurants and cafes.
The development also features the strata-titled South Beach Residences, with all 190 units sold since September 2021. The residences are located in the same 45-storey tower as the hotel.
As of March 31, South Beach’s office and retail components achieved a committed occupancy of 92.4% and 92.5%, respectively.
CDL and IOIPG, blue-chip developers from opposite sides of the Causeway, co-developed South Beach back in 2011.
CDL's divestment of its stake in South Beach will help realise value from this asset as it continues with its asset monetisation bid to unlock value from its portfolio and to hold down debt levels.
According to CDL, net gearing ratio will drop from 117% to 103% following the sale.
On the other hand, IOIPG's acquisition will help boost its portfolio of investment properties here in Singapore. On its own IOIPG has developed the IOI Central Boulevard Towers, and also the W Residences Marina View – Singapore and 350-room W Singapore – Marina View.
In an interview with The Edge Singapore back in Oct 2023, IOIPG's group CEO Lee Yeow Seng sketched out plans to list a REIT comprising properties from its growing portfolio, as part of a broader strategy to generate more recurring income from mature markets, especially Singapore.
CDL shares, following the news, was up 2.46% to close at $4.99 on June 4; Bursa-listed IOIPG closed at RM1.90, unchanged for the day.
'Exceptional value'
In a joint statement, CDL's executive chairman Kwek Leng Beng recalls how South Beach began as a "bold vision" to create a new icon blending modern, sustainable architecture while preserving the site’s conserved buildings, namely, the former NCO Club, a landmark along Beach Road, where an army base was sited.
Kwek made it a point to acknowledge IOIPG’s late founder and executive chairman, Tan Sri Dato' Dr Lee Shin Cheng, his "esteemed" partner who shared his conviction to make South Beach one of "Singapore’s most iconic developments."
Besides IOIPG, Lee Shin Cheng was known for building a sprawling palm oil business organised under IOI Corporation, which is headed by Lee Yeow Chor, brother of IOIPG's Yeow Seng.
"Today, South Beach is a testament to our long-standing collaboration, foresight and resilience. As this property reaches maturity, we have fulfilled our promise," says Kwek.
He believes that the divestment of South Beach enables CDL to realise "exceptional value" while entrusting the ownership to a partner who knows the development well.
CDL group CEO Sherman Kwek says South Beach represents the "shared commitment and fruitful partnership" CDL and IOIPG have enjoyed for over a decade.
"Having fulfilled our vision for South Beach – from securing the land site via a rigorous tender process in 2007, navigating macroeconomic challenges, to transforming it into the high-performing, stabilised asset it is today – it is now time to crystallise its value.
"This transaction gives a strong boost to CDL’s efforts to accelerate capital recycling so as to reduce gearing and redeploy capital. We will continue to unlock value across our diversified portfolio and pursue future growth opportunities," adds Sherman.
IOIPG's Lee says South Beach "holds immense significance" for his company. "This development presented us with the opportunity to change the skyline of Singapore, while building a good relationship with CDL, a leader in the real estate industry.
"The exemplary leadership of Mr Kwek Leng Beng, his grit and steadfast vision were instrumental in transforming this site, a place of great historical and sentimental value to many of the Singaporeans and visitors alike," he adds.
Lee says 100% ownership of South Beach marks a "significant strategic expansion" for IOIPG in Singapore.
"Combined with the IOI Central Boulevard Towers (ICBT) and the W Singapore – Marina View hotel, this acquisition will elevate the group’s profile as one of the major landlords of premium office space and a prominent player in the hospitality industry within the Republic,” says Lee.
Inclusive of this acquisition, IOIPG's total net lettable area (NLA) of its investment assets in Singapore would stand at 1.8 million sq feet.
Company-wide, the total NLA of its property investment segment would stand at 9.82 million sq feet across 5 malls and 6 offices in Malaysia, Singapore and China.
As of March 31, the total assets of IOIPG, including investment properties, hotel assets and property development assets, was RM47.93 billion.
IOIPG says it is keeping its "options open" for "any opportunities by leveraging and optimising its position in creating additional value" for its stakeholders.
My take: The news report shows that it was CDL who wants to sell off its stakes in South Beach to de-gear the group, and IOIPG is the natural party to take over the remaining 50.1% stakes in the project that both companies have jointly developed since 2011.
As CDL will recognise a disposal gain of SGD465 million from this disposal, that means IOIPG will also be able to recognise a revaluation gain for its existing 49.9% stakes in South Beach. Potential revaluation gain will be S$465m x 49.9%/50.1% = S$463 million or RM1.52 billion. But the revaluation gain to be booked in this Q4 FY2025 by IOIPG will likely be lower than this amount as I suspect the company has booked in some gains before in previous revaluation exercise.
On the other hand, the latest update report from Hong Leong research reveals some operating metrics of South Beach assets:
Office tower - committed occupancy of 92.4%, though actual occupancy stood at 80% as of March 2025
Retails space - actual occupancy of 92.5%, average rental rate of about S$10 psf
Hotel - JW Marriot achieved actual occupancy rate of 76%, with average room rate of S$470 per night
So, I can re-calculate the net property income as:
509k x 92.4% x S$11.00 psf x 12 mths x 80% NPI margin = S$49.6m a year from the office tower
30.5k x 92.5% x S$10 psf x 12 mthsx 80% NPI margin = S$2.7m a year from the retails space
634 rooms x 76% x 365 days x S$470 x 55% EBITDA margin = S$45.5m a year from the hotel
Total net property income will amount to S$98 million a year based on current occupancy rates.
In Hong Leong projections, the analyst has assumed an occupancy rate of 97% for the office and retails space with rental rate revised up to S$11.50 psf in FY2026, and 80% occupancy rate for the hotel with average room rate of S$500. Hence the total property income amounts to S$108.7m as projected by Hong Leong.
The analyst estimates that the average interest rate for the S$1.0 billion loan sitting at South Beach at just 2.50%, which I am a bit skeptical of. Though 3-month SIBOR has dropped to 2.25%, I would think a real estate corporate borrowing rate might need at least a premium of 50-75 bps. So, I will use an interest rate of 3.0% for South Beach, and hence the interest expenses at South Beach will be about S$30m a year. Minus depreciation charge of S$18.5m a year, South Beach should register a pretax profit of S$60 million a year.
Net profit should stand at S$50 million a year after accounting for 17% taxation.
Assuming IOIPG take up 85% financing to fund the acquisition, IOIPG may raise new borrowings of S$834m x 85% = S$709m. Hong Leong estimates the IOIPG group borrowings in Singapore fetch an average interest rate of 3.5% currently, not far from my earlier estimate of 3.6%. Hence, IOIPG may incur additional interest expenses of S$709m x 3.5% = S$24.8m a year.
As a result, this acquisition of 50.1% stakes in South Beach will be just earnings accretive: additional net profit of S$50m x 50.1% = S$25.0m minus additional interest expenses from the acquisition loan of S$24.8m a year.
It looks like the only way for the IOIPG group to make substantially higher profits out of South Beach will be: 1) to revise up rental rate for the office and retails space in the next rental revision, perhaps in 2028, to above S$12.00 psf (note that IOI Central Boulevard is doing rental rates of S$13.00 psf), 2) to bet on reducing interest rates in Singapore, and 3) to monetise the assets by injecting them into a commercial REIT in Singapore at a yield of 3.5% or lower.
Though the 3-month SIBOR has dropped from a high of 3.6%-3.8% in 2024 to now 2.25%, it is still high compared to the SIBOR rates of 0.1%-0.3% in 2020-2022 (pandemic times) and 1.5% in early 2019 before the pandemic.
If SIBOR falls by another 100 bps in next 2 years, IOIPG will be looking to save some S$18 million in interest expenses a year at South Beach. Then only South Beach can contribute meaningful earnings to IOIPG.
Based on above projections, South Beach will have operating cashflows of S$108.7m minus S$10m tax = S$98.7m a year (before interest servicing). At a listing yield of 3.5%, South Beach may fetch a valuation of S$2.82 billion if injected into a REIT in Singapore. Listing of 40% stakes will be sufficient to raise enough cash proceeds to retire all borrowings at South Beach. For the balance 60% stakes in South Beach REIT, IOIPG will recognise earnings contribution of S$80.2m x 60% = S$48 million a year, which is significant.
YTL Power shares staged a strong rebound
YTL Power shares staged a strong rebound yesterday on relatively high volumes to hit the RM3.50 mark. YTL shares also traded higher to break above RM2.00.
The trigger, as I suspected earlier, was likely a good analyst report on YTL Power issued on Tuesday / Wednesday by UBS who initiated a BUY call on the stock. While I have not been able to access to the report, I think the likely trigger for the initiation was the successful commission of the first 20MW AI data centre by YTL Power on May 30.
As I earlier commented, the successful commissioning of the all-important 20MW AI data centre will pave the way for YTL Power to secure more AI data centre jobs in near future. Many hyperscalers (such as Microsoft, AWS, Google, Oracle and Chinese AI players like Alibaba and Huawei) were watching if YTL Power could deliver the first AI data centre on time, as YTLP had not done it before. The successful commissioning of the first phase AI data centre shows to the world that YTL Power is able to secure the latest Blackwell AI chips from Nvidia in a short order time and to construct and commission the data centre in less than 12 months.
Incidentally, Maybank research issued an update report on YTL Power this morning, reiterating a Buy call with the same price target of RM4.20. The report says that YTL Power’s first AI data centre is on track for a launch in 3Q 2025, and it anticipates a net profit uplift of 4%/6% to FY2026/FY2027 net profit of YTLP from this AI data centre.
Maybank estimates that the capex for the AI data centre is in the range of USD25m/MW, implying a capex of RM2.1 billion for the 20MW AI data centre. It notes that while the AI data centre is substantially more capex intensive (than colocation data centre), the gestation period is likely minimal, with GPUs (biggest cost item) typically only procured upon the securing of off-takers. Thus upon commissioning, AI compute is likely to be immediately earnings-accretive to YTLP.
“Assuming a 5-year useful life, each MW of AI compute could generate annual PAT (profit after tax) of c.USD1.6m/MW, implying overall project IRR of c.23%.” Maybank projects for a net profit of RM130 million annually to YTL Power from the 20MW AI data centre.
Net short positions on YTL Power remained at 25.2m shares at close Thursday while net short positions on IOIPG increased slightly to 17.5m shares. Net short positions on YTL dropped by 700k shares to 23.9m shares.