Singapore Strategy - UOB Kay Hian 2016-01-12: Dividend Positioning In The Face Of Uncertainties

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Singapore Strategy ASCOTT RESIDENCE TRUST M1 LIMITED COMFORTDELGRO CORPORATION LTD ASCENDAS REAL ESTATE INV TRUST VENTURE CORPORATION LIMITED

STRATEGY – Dividend Positioning In The Face Of Uncertainties 

• We seek shelter in selective dividend plays in view of volatility. 
• Our focus is on stocks declaring final dividends soon or with potential special dividends as well as selected REITs. 
• Our key dividend picks include Venture, M1 and ART. 

WHAT’S NEW 

 Strategy for dividends. 

• Ahead of the 4Q15 reporting season and in view of the current market volatility, we highlight stocks with dividend yield support. 

ACTION 

 Final dividends to watch out for. 

• Within our coverage, we note selected stocks which are expected to release 4Q15 results with lumpy final dividends. 
• Under this category of stocks, we look for companies with sustainable dividends and dividend yield of at least 3%. Stocks we like in this basket include Venture, M1, ART and ST Engineering. 
• The table below highlights these companies’ previous final DPS in 1Q15 and the share price adjustments post the dividend ex date. Within these stocks, our preferred pick is Venture as we observed in the last two years, the ex-date adjustment tends to be lower than the final DPS of 50 S cents/share. 
• In addition, we like Venture for its US dollar-based revenue as well as its inexpensive valuation. 

 Special dividend in store? 

• In our view, several companies may consider paying special dividends in 2016. These include SIA and SIA Engineering (SIAEC). 
• We expect SIAEC to distribute the bulk of the divestment gains from the disposal of HAESL. We estimate SIAEC’s dividend payout (final+special) of 21 S cents per share, assuming a 90% payout ratio. 
• Similarly, we expect SIA to distribute a final dividend of 42 S cents per share, assuming full payout of SIAEC’s divestment gains. The timing for a potential special payout for SIA and SIAEC is expected in May. 
• Lastly, we think CD may also give out a special dividend, possibly in 2H16/1H17 upon the sale of its buses back to the government as part of the government contracting model (GCM). We estimate a potential special dividend payout of 21.6-25.0 S cents/share, assuming: 
  1.  the government buys bus assets from SBS Transit (SBS T) at 0.9-1.0x P/B, 
  2.  SBS T pays down 50% of its outstanding debt, and 
  3.  the remaining net cash is fully paid out as a special dividend. 

 Interesting trend for SPH. 

• We note that SPH offers an interesting trend, particularly for its final dividend, which is normally announced in the month of October (its year end is August). 
• We note that the stock tends to outperform one month before the announcement of the final results. 
• In the last three years, the share price of SPH rose by up to 4.5% one month prior to its final results announcement. 

 Prime hunting ground in S-REITs. 

• We think the S-REITs could be a prime hunting ground for yield seekers, notwithstanding expectations of a further rise in interest rates. Combing through REITs within coverage for dividend stripping candidates, our analysis indicates that dividend strip trade tends to work out two-thirds of the times yielding an average outperformance of 4.9%. 
• Ascott Residence Trust (ART), Parkway Life (PREIT), Ascendas REIT (AREIT) stand out, outperforming 84%, 78% and 74% of the observed time periods respectively since their IPO date. We assume that investors enter transactions one month prior to their results announcements and exit on the ex-dividend day. 

 Stay selective to outperform. 

• Though the FSSTI’s valuations are inexpensive (2016F PE of 12.2x and P/B of 1.08x, at a 21-33% discount to long-term mean), we remain selective given external uncertainties and limited earnings visibility. 
• We see the potential for further earnings cuts in 1H16 and would wait for the macro uncertainties to settle before we buy selectively or to bottom fish. 
• Our key picks include DBS, City Developments, ART, SingTel, M1, Raffles Medical and First Resources. 
• Key SELLs include SMM, SIA Engineering and Nam Cheong.

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-12

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