Singapore Market Strategy - DBS Research 2017-07-03: (4) Investment Theme ~ Defensive & Yield

Singapore Market Strategy - DBS Vickers 2017-07-03: Turning Defensive Singapore Defensive & Yield Stocks KEPPEL REIT K71U.SI MAPLETREE GREATER CHINACOMM TR RW0U.SI SHENG SIONG GROUP LTD OV8.SI MAPLETREE LOGISTICS TRUST M44U.SI SINGAPORE TECH ENGINEERING LTD S63.SI

Singapore Market Strategy - Investment Theme ~ Defensive and Yield



Continue From ... Singapore Market Strategy - DBS Research 2017-07-03: (3) Turning Defensive


A) Defensive and Yield. 

  • This includes defensive names, consumer goods /services ST Engineering and Sheng Siong. 
  • Despite its strong 1H performance, REITS remain a relevant investment class with a yield spread of 4% above the risk free rate. There is potential for earnings upside with early signs of recovery in the office and hospitality sectors. We look for REITS which offer > 5% upside and growth potential. 
  • Our picks are KREIT, MAGIC and MLT.



Sheng Siong (BUY; TP: S$1.20) 

  • We remain positive on Sheng Siong on the back of better visibility of higher margins ahead. We believe expansion of its distribution centre will grow and sustain gross margins.
  • Margins remain on the uptrend, supported by the increase in direct sourcing, bulk handling, and fresh mix, contributing to its earnings growth. 
  • The stock’s valuation is attractive at 20.6x FY18F PE compared to historical average of 23x since listing. Yield remains appealing at 4.1%.

ST Engineering (BUY; TP: S$4.12) 

  • ST Engineering’s focus on smart city solutions to chart its longer term growth. ST Engineering is undergoing a strategic shift, increasingly directing its focus towards a plethora of ‘smart’ products of the future (e.g. autonomous vehicles, smart healthcare systems), while rationalising its loss-making businesses (e.g. disposal of loss-making Chinese specialty vehicle subsidiaries in FY16). 
  • The smart city market is expected to expand significantly, and could represent a key growth driver for ST Engineering, 
  • We believe the share price re-rating will be supported by: 
    1. smart city M&A, funded by a more aggressive balance sheet, which could propel growth; 
    2. strong order wins boosting the orderbook to near all-time high levels, providing near-term visibility; 
    3. reduced earnings drag post-divestment of loss-making Land Systems entities, and minimal oil & gas projects remaining on the marine orderbook; and 
    4. tailwinds from the US in the form of higher defence spending and tax cuts. 
  • The rise in terrorism activities could fuel higher defence spending across the globe and we believe ST Engineering deserves a scarcity premium for its defence-related engineering capabilities.

Keppel REIT (BUY; TP: S$1.23) 

  • KREIT is attractive on a per square foot (psf) basis and as investors position themselves for a potential recovery in the office market in 2018. KREIT’s Singapore Grade A office portfolio is trading at an implied value of c.S$2,450 psf compared to recent office market transactions at between S$2,700 to S$3,500 psf. 
  • With abundant liquidity as well as long term investors’ positive view on the Singapore office market looking beyond short term supply headwinds, we believe capital values for office properties will remain resilient in the near term. Hence, KREIT’s discount to the physical market is unwarranted. Besides compelling valuations, KREIT also offers an attractive yield of 5% to 6%.

Mapletree Logistics Trust (BUY; TP: S$1.28) 

  • Mapletree Logistics Trust (MLT) offers investors a diversified but rising exposure to growth in the Asia Pacific region's logistics sector. 
  • MLT remains on a growth path, and supportive capital markets and acquisition opportunities from its Sponsor could drive earnings estimates higher. MLT offers yields of 6% to 7%.

Mapletree Greater China Commercial Trust (BUY; TP: S$1.25) 

  • The market has historically placed MAGIC at a large discount to book given the lack of familiarity of Singapore investors with the HK and China commercial markets and FX risks. However, we believe MAGIC’s strong four-year track record since its listing in March 2013 warrants this discount to close. 
  • With a portfolio located in irreplaceable locations, we believe MAGIC will re-rate towards 6% forward yield consistent with its HK peers, from its current 6.9% yield.








Janice Chua DBS Vickers | Yeo Kee Yan CMT DBS Vickers | Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2017-07-03
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.230 Same 1.230
BUY Maintain BUY 1.250 Same 1.250
BUY Maintain BUY 1.200 Same 1.200
BUY Maintain BUY 1.280 Same 1.280
BUY Maintain BUY 4.120 Same 4.120



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