Singapore Strategy - Back on growth track
- Watch for 10 domestic and external drivers.
- Bottoming signals and prospects of earnings recovery in an inexpensive market.
- 4 themes to ride the volatility.
- Top 10 picks : Global Logistics, City Developments, OCBC, ST Engineering, Genting Singapore, Comfort Delgro, Thai Beverage, Venture Corp, Ezion, MM2.
Domestic drivers are positive.
- Bottoming signals in key economic sectors point to a cyclical upturn, while the unveiling of proposals from the Committee of Future Economy will chart Singapore’s longer term sustainability.
- Rising interest rates could move the government’s hands to relax property tightening measures. We expect M&A deals to be sweetened by inexpensive valuation as bargain hunters seek higher returns.
Brace for volatility spiked by external headwinds.
- Market volatility will be spiced up as the world watches Trump’s policies unfold. The threat of anti-globalization, rise of populism impacting results of several upcoming elections in Europe, and possible liquidity outflows are negative headwinds to watch for.
- Oil price recovery could provide a breather, sustaining banks and oil and gas stocks.
Earnings recovery, inexpensive valuation.
- With October bank loan growth finally turning positive after a year of contraction, regional PMIs on the uptick, the Singapore government offering financial aid to the beleaguered O&G sector, oil and commodity prices heading for recovery, we are optimistic that the worst of the earnings cut cycle has passed.
- After two years of earnings contraction, we project earnings growth of 8.7%, a reversal from the 7.6% earnings contraction this year. Valuations are undemanding at 12.8x on FY07 earnings. We peg an STI objective of 3150 based on 13.64x (average) blended FY17/18F PE by mid-2017.
4 themes to ride the volatility.
- We pick
- proxies to growth and earnings turnaround (Genting, Ezion, OCBC, MM2),
- companies with sustainable dividend yield and cash flow (ComfortDelgro)
- Beneficiaries of US recovery and strong US$ (Venture, ST Engineering) and
- M&A plays (GLP, Thai Beverage).
- City Developments is undervalued, and will be re-rated if the government relaxes the property cooling measures.
- Singapore Strategy - DBS Research 2016-12-15: 2017 Outlook ~ 4 Themes for investment
- Singapore Strategy - DBS Research 2016-12-14: 2017 Outlook ~ Top 10 Stock Picks