Singapore’s Six-for-16 - Maybank Kim Eng 2016-01-03: Looking for Undulations in the Flatlands

SGinvestors.io

JUMBO GROUP LIMITED 42R.SI  RAFFLES MEDICAL GROUP LTD R01.SI  PACC OFFSHORE SVCS HLDG LTD U6C.SI  SEMBCORP MARINE LTD S51.SI  VENTURE CORPORATION LIMITED V03.SI  CORDLIFE GROUP LIMITED P8A.SI 

Singapore’s Six-for-16 - Looking for Undulations in the Flatlands 

• Looking for undulations in the flatlands Singapore could face an old conundrum in 2016. 
• Domestic growth has hit a wall. Many attempts have been made to beat this: remaking the landscape with glitzy casinos; intoning the productivity mantra; participation in AEC and TPP, the region’s latest cracks at economic cooperation. 
• The “Committee on the Future Economy” spearheaded by the new Finance Minister is studying longer-term solutions and its report should be out sometime in late 2016/early 2017. 
• Meanwhile, while we can’t reform the flatlands, we can attempt to look for undulations that could provide investor interest. 

Our three ideas for 2016 are: 

 Breaking out with Brand 

• Singapore Singapore companies need a hinterland and to do things not just better but uniquely. Their advantage is they have brands that are highly regarded in the region for providing good, clean deals. 
• We propose two companies – one in F&B and the other in healthcare - that are breaking out of familiar grounds, riding powerful brands honed and refined in the most open economy of all: Jumbo Group (JUMBO SP, BUY, TP SGD0.58) and Raffles Medical (RFMD SP, BUY, TP SGD5.22). 

 More M&As expected 

• After identifying the offshore industry as a major Achilles heel in our Unmasking Singapore stress tests last year, subsequent debt renegotiations and loss provisions drive home the point. 
• For 2016, we see M&As accelerating in the oil service industry, where some stocks are so devalued that owners may just decide to privatise. 
• Think PACC Offshore (POSH SP, BUY, TP SGD0.47) and Sembcorp Marine (SMM SP, SELL, TP SGD1.53). 
• Also, we have identified possible M&As in property & REITs, where depressed asset values could precipitate more value-unlocking. 
• Finally, we identify Cordlife (CLGL SP, BUY, TP SGD1.72) as a potential takeover candidate in healthcare. 

 When extremes meet: SGD1.60/USD + 4 rate hikes 

• The only sector that wholly benefited from USD strength and the bogeyman of higher interest rates in 2015 was manufacturing. But what if these two gather steam in 2016, instead of petering out? As the pain intensifies for companies, we would expect more aid from the government in Budget 2016. 
• The only sector that could emerge a winner on all counts is still manufacturing, in our view. Hence, our top pick of Venture Corp (VMS SP, BUY, TP SGD10.70). That said, we caution that everything is better in moderation; excessive USD strength could hurt end-demand, affecting topline growth.

Singapore Research Team Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-03

Maybank Kim Eng SGX Stock Analyst Report BUY Initiate BUY 0.58 Same 0.58

BUY Maintain BUY 5.22 Same 5.22

BUY Maintain BUY 0.47 Down 0.65

SELL Maintain SELL 1.53 Down 1.75

BUY Maintain BUY 10.70 Same 10.70

BUY Maintain BUY 1.72 Up 1.54