Singapore Strategy - DBS Research 2016-02-23: Hitch hike the bounce

Singapore Strategy - DBS Research 2016-02-23: Hitch hike the bounce CAPITALAND LIMITED C31.SI  CITY DEVELOPMENTS LIMITED C09.SI  OSIM INTERNATIONAL LTD O23.SI  INNOVALUES LIMITED 591.SI  SHENG SIONG GROUP LTD OV8.SI 

Singapore Strategy - Hitch hike the bounce 

  • Valuation support and possible reversal of US$ trigger bear market rally  But market is not out of the woods yet 
  • Trade the bounce on oversold stocks – OCBC, OSIM, SCI and Capitaland. Trim oil and gas stocks on rebound. 
  • Stay safe with dividend plays– CD, STE, SIE, Sheng Siong, AREIT, MLT, Thai Bev. BUY Innovalues – new initiation. 


 More red ink in 4Q15. 

  • Kitchen sinking, higher provisions, asset impairment charges were the key drags on 4Q earnings so far, leading to a splash of red ink, particularly in the oil and gas sector. Earnings disappointment is taking a toll on dividends. 
  • Companies are conserving cash ahead of challenging times. 
  • Blue chips which have cut dividends include Keppel Corp, SCI and SMM, HPH Trust and M1. 
  • We shaved STI’s earnings growth estimate for 2016 from 6% to 3.4%, as volatility in cyclical sectors continues to pose challenges for 2016. 

 Bear market rally to provide temporary breather. 

  • Bear market rally to provide temporary breather. A counter-trend rally from the recent low of 2530 is in the making, supported by 
    1. US rate hike expectations have back-pedalled, a March rate hike is unlikely and consensus thinks that the FED may even hold off rate hikes this year; 
    2. strength of US$ is less of a worry; our currency strategist has lowered his USDSGD forecast to 1.43 by year-end as rate hike expectations are lowered. A pullback in USDSGD is short-term positive for Singapore equities as funds outflow reverses; 
    3. possible ‘buy-inanticipation’ trade ahead of expectations that the ECB will dish out more stimulus at the next policy meeting on March 10; 
    4. the oversold market that has led to PB and PE valuations matching several major market troughs in the past. 

 Longer term uncertainties linger on. 

  • While we are short-term positive, we believe that even in a ‘best case’ scenario, the magnitude of the current rise in the Singapore market is unlikely to stretch beyond the 2900 level for the STI over the next 2 months. 
  • Global growth remains uncertain despite rounds of QEs with global interest rates near zero or even negative in the case of Japan and the Eurozone. 
  • Closer home, Singapore faces the rising risk of a technical recession amid the challenging macro environment and weakness of our major trading partners. 

 Revisiting bear targets. 

  • We re-visited our bear case target prices; with downward revisions in banks, oil and gas and property companies. 
  • We are buyers of bomb out stocks trading close to their bear TPs - SCI, OCBC, OSIM and Capitaland, but will trim oil and gas plays (SMM, Vard, Nam Cheong, Mermaid) on oil price rebound. 
  • We continue to prefer companies that offer upside in terms of dividend yields in the current environment where economic growth is uncertain. 
  • Our preferred yield picks : Comfort Delgro, Thai Bev, SIA Engineering, ST Engineering, Sheng Siong, Ascendas REIT and Mapletree Logistics Trust. 
  • We initiated Innovalues(BUY, TP$1.01), demand growth for automotive sensors is supported by rising awareness and stricter regulatory standards on safety and emissions.


Janice CHUA DBS Vickers | YEO Kee Yan DBS Vickers | LING Lee Keng DBS Vickers | http://research.itradecimb.com/ 2015-12-17
DBS Vickers SGX Stock Analyst Report BUY INITIATE BUY 1.01 Same 1.01



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