Singapore Strategy - UOB Kay Hian 2016-01-04: Picking Up After Hitting Bottom

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SINGAPORE STRATEGY – Picking Up After Hitting Bottom 

• We see selective pickings after FSSTI’s lacklustre performance in 2015. 
• Valuations are below mean but partially justified on slower growth. 
• Themes to outperform include: 
  1. capacity growth, 
  2. secular-trend winners, 
  3. growth at a reasonable price (GARP), and 
  4. regulatory changes. 

WHAT’S NEW 

• We had recently issued our 1H16 Strategy for Singapore (please refer to “Picking Up After Hitting Bottom” dated 25 Nov 15 for full report). This note focuses on the key highlights and investment themes. 

ACTION 

• Back to stock picking after recent bounce. 

• With the FSSTI rebounding close to 5% from its Sep 15 low, the market could be range bound in 1H16. The FSSTI looks inexpensive but the 18% and 30% discounts to long-term mean PE and P/B valuations respectively look appropriate, given the mixed outlook and structurally weaker domestic growth prospects. 
• We have an end-16 target of 3,240 for the FSSTI. 

• Hoping for earnings recovery in 2016 but downside risks remain. 

• After a disappointing 2015, investors will be hoping for a recovery but we think any signs are only likely in 2H16 as near-term headwinds persist. 
• We forecast 2016 market EPS growth of 8.2% yoy, but see potential downside. 
• Consensus forecasts continue to trend down with a 5.4% EPS growth (-1.8ppt) after a lacklustre 3Q15 reporting season. 

• Buy on pull-backs as volatility remains elevated. 

• With limited earnings visibility, growing geo-political risks, rising rates and uneven growth, investors should buy on pullbacks when the VIX rises. 
• We look for companies with the potential to surprise on earnings, newsflow or deep discounts to intrinsic value. 

• Investment themes to consider in 1H16 include: 

1. capacity-driven growth, 
2. secular trend winners, 
3. growth at a reasonable price (GARP), and 
4. regulatory changes. 

• Investors should remain defensive, stay nimble and buy selectively on pull-backs. 

• Our picks for a profitable 1H16. 

• Large-cap BUYs include Ascott REIT, City Developments, DBS, First Resources, Raffles Medical, SATS, Singapore Post and SingTel. 
• Mid-cap picks include Jumbo, Singapore O&G, Triyards and Wing Tai. 
• SELL Nam Cheong, Sembcorp Marine and SIA Engineering.

KEY STOCK RECOMMENDATIONS

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-04

CIMB Securities SGX Stock Analyst Report BUY Maintain BUY 0.88 Same 0.88

BUY Maintain BUY 2.50 Same 2.50

BUY Maintain BUY 10.86 Same 10.86

BUY Maintain BUY 22.34 Same 22.34

BUY Maintain BUY 1.39 Same 1.39

BUY Maintain BUY 2.40 Same 2.40

BUY Maintain BUY 5.05 Same 5.05

BUY Maintain BUY 4.50 Same 4.50

BUY Maintain BUY 2.18 Same 2.18

BUY Maintain BUY 4.56 Same 4.56

BUY Maintain BUY 0.49 Same 0.49

BUY Maintain BUY 0.90 Same 0.90

SELL Maintain SELL 0.12 Same 0.12

SELL Maintain SELL 1.69 Same 1.69

SELL Maintain SELL 3.30 Same 3.30