Strategy Singapore - UOB Kay Hian 2016-11-21: Positioning In A Growth-challenged Year

Strategy Singapore - UOB Kay Hian 2016-11-21: Positioning In A Growth-challenged Year Singapore Strategy

Strategy Singapore - Positioning In A Growth-challenged Year

  • We are hopeful that corporate earnings would recover in 2017, but cognisant of growth headwinds. 
  • Our 2017 year-end FSSTI target is 3,000 and we would position defensively on elevated volatility and an uncertain macro outlook.


WHAT’S NEW

  • We have just issued our 1H17 Strategy for Singapore. This report focuses on the key highlights and investment themes.


ACTION


Another growth-challenged year; modest 2017 year-end FSSTI target of 3,000. 

  • We see another challenging year ahead, with 2017 GDP growth ranging slightly higher than 2016’s 1-2%, which is a reflection of weak global demand as well as structural issues.
  • The external environment remains mixed and volatility is likely to remain elevated, pointing to a buy on weakness and stock-picking strategy, yet again. Based on a 15% discount to long-term mean P/B and PE, we have a 2017 year-end target of 3,000, pointing to a modest 5.7% upside. Earnings disappointments could see the FSSTI range coming down to 2,870-2,900.

Hopeful for end to earnings recession. 

  • After two consecutive years of earnings recession, we forecast 2017 EPS to recover 7.7% yoy, led by plantation, aviation and telecommunications. However, there remains downside risks to our and consensus estimates on muted growth outlook, regulatory changes and disruption from technology.
  • In our view, top-line remains under downward pressure and costs are stubbornly high.

Look for laggard blue chips. 

  • Given the lacklustre recovery and moderate valuations, we are selective on blue chips, favouring laggards with earnings visibility and dividend yield.
  • In this bucket, we like OCBC, Singtel and ComfortDelGro. These stocks are projected to offer a 2017 dividend yield of 3.8-5.4% and valuations are reasonable. Venture also looks compelling as its gradual shift towards new growth areas has also resulted in sustainable margin improvements with a dividend yield of more than 5%.

Investment themes for a profitable 1H17. 

  • Investment themes that could drive outperformance include: 
    1. new economy beneficiaries, 
    2. scalable companies, 
    3. earnings visibility and yield, and 
    4. stock-specific catalysts.

Stocks for your 1H17 portfolio. 

  • Large-cap BUYs include OVERSEA-CHINESE BANKING CORP, SINGTEL, VENTURE CORPORATION LIMITED, CAPITALAND LIMITED , FRASERS LOGISTICS & IND TRUST, RAFFLES MEDICAL GROUP LTD, SINGAPORE TECH ENGINEERING LTD, CAPITALAND COMMERCIAL TRUST, SEMBCORP INDUSTRIES LTD, and ASCENDAS REAL ESTATE INV TRUST. 
  • Mid-cap gems include KEPPEL TELE & TRAN, CHINA AVIATION OIL(S) CORP LTD, UNITED ENGINEERS LTD ORD and DUTY FREE INTERNATIONAL LIMITED. 
  • SELL SIA ENGINEERING CO LTD, STARHUB LTD and M1 LIMITED. 
  • Switch out of SATS LTD  into SINGAPORE TECH ENGINEERING LTD.



UOB Kay Hian Singapore Key Stock Recommendations 2016-11-21


Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-11-21




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