Singapore Strategy - CIMB Research 2017-08-16: Old Economy Is Out, New Economy Is In

Singapore Strategy - CIMB Research 2017-08-16: Old Economy Is Out, New Economy Is In Singapore Stocks Picks 2017 WILMAR INTERNATIONAL LIMITED F34.SI CAPITALAND LIMITED C31.SI SEMBCORP INDUSTRIES LTD U96.SI UOL GROUP LIMITED U14.SI GENTING SINGAPORE PLC G13.SI

Singapore Strategy - Old Economy Is Out, New Economy Is In

  • Singapore corporates are increasingly being disrupted by asset light, lower cost new economy disruptors.
  • 2Q17 results were a mixed bag. Although there were more misses than beats, bulkier earnings upgrade still led to overall market earnings upgrade of c.2% qoq.
  • We streamlined our Alpha picks, whittling the list down to 10 names that should still see more than 10% upside in the next six months.
  • Maintain OVERWEIGHT on property, tech and gaming; downgrade consumer sector to NEUTRAL.
  • ALPHA PICKS: UOL, Capitaland, Genting, Wilmar, SCI, AEM, HMI, Memtech, mm2 and Valuetronics. 



2Q17: A mixed bag of cyclicals 

  • There were more misses than beats in 2Q17 but we take comfort that we still see a net +2% qoq earnings upgrade to our forecasts for FY17 and FY18, led by results out-performers (Genting Singapore, Yangzijiang, SIA, Venture). 
  • The disappointment of the quarter award goes to Capital goods sector, especially small-caps with no turnaround in sight and increasingly being forced to restructure. We think this may have some repercussions on banks’ 2H17 performance as the pressure on asset quality and credit cost remains.


Dance while the music is on - Overweight on property, tech, gaming 

  • We maintain Overweight (OW) on property and tech/manufacturing. Though these stocks have done well YTD, they are still less overpriced than others. Anticipation of rising ASPs from higher land replacement cost and dwindling inventory are consensus' themes for developers; we concur. 
  • We expect strong order backlog and M&As to propel tech/manufacturing, and see more alpha from smaller caps. We also OW gaming after it beat our forecasts sequentially for three quarters and as earnings are on track to recover.


Will supermarkets survive the clash between e-commerce giants? 

  • We turn less positive on the consumer sector and downgrade it to Neutral. A stronger 2H17 could have been priced in. 
  • We see risk of de-rating as the sector is trading at c.20x 12M forward P/E vs. low single-digit growth, leaving little room to manoeuvre if operating leverage worsens. 
  • Supermarkets (Dairy Farm and Sheng Siong) are starting to feel the threats from e-commerce. Thai Bev is removed from our Alpha list as we get melancholic over its unclear acquisitions/restructuring strategy and slight dip in beer market share.


Telcos and transport continue to be disrupted – UW remain 

  • We keep telcos as Underweight (UW) although share prices have plunged YTD and dividend yield looks decent at c. 6%. Valuations, at 16x 12M forward P/E (above LT mean of 15x), are still not a bargain against multi-year year earnings decline. 
  • Transport remains an unloved sector, led by ComfortDelgro with more earnings pitfalls ahead. FY17F could be its first earnings decline post GFC, with a shrinking taxi pool and higher idle rate.
  • SATS is a better pick given its lion share in Changi and underperformance YTD.


Shuffling of Alpha picks for 2H17 







LIM Siew Khee CIMB Research | Singapore Research CIMB Research | http://research.itradecimb.com/ 2017-08-16
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.520 Same 4.520
ADD Maintain ADD 4.210 Same 4.210
ADD Maintain ADD 3.470 Same 3.470
ADD Maintain ADD 9.030 Same 9.030
ADD Maintain ADD 1.350 Same 1.350



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