Singapore Market Monitor ~ Strategy & Outlook - Maybank Kim Eng 2017-06-08: Growth Ahoy?(!)

Singapore Market Monitor - Maybank Kim Eng 2017-06-08: Growth Ahoy?(!) Singapore Stock Market 2H17 Strategy & Outlook DBS GROUP HOLDINGS LTD D05.SI JUMBO GROUP LIMITED 42R.SI VENTURE CORPORATION LIMITED V03.SI COMFORTDELGRO CORPORATION LTD C52.SI

Singapore Market Monitor - Growth Ahoy? (!)


Improving confidence in corporate growth recovery 

  • The March 2017 results quarter provided us with an inflection point for core profit growth after many successive periods of decline. 
  • Consensus FSSTI EPS expectations also seem to be quite moderate suggesting the downgrade cycle is likely at its tail end. 
  • We raise our 12 month index outlook and believe valuations could still hold some headroom yet.
  • Property Sector and Healthcare Sector are our top sector preferences and we highlight key stock picks from within these two sectors.


Earnings growth shows inflection in q/e March 2017 

  • Core profit for MKE coverage finally grew 3.7% y-o-y in 1Q17 after four quarters of decline. The macro outlook has gotten better too during 1Q17 driving GDP expectation upgrades to 3% for the year. 
  • FSSTI consensus core profit growth estimates are at 12% and 7.6% for 2017, 2018 respectively – the street has upgraded from 4.4% and 6.7% one quarter ago. 
  • Our own coverage universe core growth profit forecast is 14.3% (vs. 12% a quarter ago) and 9% for 2017, 2018 respectively (we are higher than FSSTI consensus for 2017 due to a larger proportion of non-index SMIDs under coverage).


FSSTI profits grew too in q/e March 2017



Outlook - cyclical profit recovery forecast for 2017 

  • FSSTI consensus core profit growth estimate at 12% and 7.6% for 2017, 2018 respectively – the street has upgraded from 4.4% and 6.7% one quarter ago. 
  • FSSTI 12m forward EPS expectation appears to be at relatively conservative levels compared to 2013-2016 years. 
  • MKE coverage universe core growth profit forecast at 14.3% and 9% for 2017, 2018 respectively – higher than FSSTI due to a larger proportion of non-index SMIDs.

The macro has gotten better through 1Q17 

  • Two sequential upgrades during 1Q17 in our GDP growth expectation for upswing driven by electronics. 
  • Tourism, exports data points incrementally positive in 1Q17 too. 
  • Property sector tightening measures have started easing. 
  • CFE report has limited immediate implications for economy but should see benefits over the 2-3 year medium term FSSTI may still have some headroom to run. 

Base case index target estimate of 3,180 

  • Base case derived from equal weight range of outcomes of three approaches 
    • Target #1 assumes consensus earnings growth at 5 year trailing PE mean on 2018 EPS 
    • Target #2 assumes MKE bottom-up TP of covered stocks and consensus TP for non-covered stocks 
    • Target #3 assumes a target EY-DY yield gap factoring in expected interest rate increases (50bps annually) through to end-2018 

Various approaches yield outcomes from 2,902 to 3,419 

  • Our bull and bear cases are based on 1sd spread P/E multiple spread around our implied base case multiple.



Raising our FSSTI target outlook

  • With better underlying earnings expected compared to the beginning of 2017, we raise our base case 12m forward index target derived from an equal weight outcome of three approaches to 3,180 (up 6% from 3,000 previously). 
  • FSSTI has been a strong performer y-t-d, up 12% and trailing P/E valuation multiples are above the 5-year mean as well as our base case 12-month target. That said, expectations of a broad based recovery in the economy could likely fuel the index towards our bull case scenario by the end of the year which holds c5-6% upside. 


Property and Healthcare key sector overweight’s 

  • Our main sector overweight's are in Property and Healthcare while our key underweight sectors are TMT and consumer. 
  • Within our overweight sectors, our top stock picks are UOL SP, HOBEE SP, AREIT SP, MINT SP, HMI SP, SMG SP
  • Four other stocks that we like from different sectors but do not hold adequate (i.e. 10%+) at this point are DBS SP, VMS SP, JUMBO SP and CD SP
  • The risks to our moderately positive market outlook are external growth and/or trade headwinds, sustainability of the manufacturing-driven economic growth recovery and interest rates in 2017/2018 rising much more than our expected c50bps increase in SIBOR to end-2018.







Neel Sinha Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-06-08
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 19.180 Same 19.180
HOLD Maintain HOLD 0.660 Same 0.660
BUY Maintain BUY 13.350 Same 13.350
HOLD Maintain HOLD 2.640 Same 2.640



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