Singapore Strategy - CIMB Research 2016-03-24: Calibrated Budget keeps focus on long term

OVERSEA-CHINESE BANKING CORP O39.SI SINGAPORE AIRLINES LTD C6L.SI THAI BEVERAGE PUBLIC CO LTD Y92.SI

Singapore Strategy - Calibrated Budget keeps focus on long term

We view the 2016 Budget as one that is focused on long-term transformation needs of Singapore, spiced up with targeted aids for struggling sectors/workers.
Budget deficit of 1.2% for 2015. 2016 spending will increase by 7%, supported by higher operating revenues (one-off factors) and net investment returns.

Main investment implications:
1. likely slower bank NPLs from SMEs and stretched households; and
2. no reprieve for property stocks from unwind of measures.

The past two Budgets evolved from one with a heavy social safety net slant, to one that was focused on the long-term repositioning needs of the country.
2016 Budget did not represent a major directional change to the long-term aim, but it did add incremental measures to help distressed segments of industries and workers.

2016 Budget remains focused on helping companies and workers evolve, and be relevant to changes in business models and technology. Initiatives are mainly in the mold of:
1. helping enterprises transform to new business models;
2. making use of new technologies; and 3) assisting SMEs to internationalise.
The initiatives aim to foster some economies of scale advantages in capital investments. The Finance Minister noted that industry level modernisation works best, if companies work in a group. An example was the use of robotics in manufacturing, where a single company might not be able to roll out initiatives alone. The Budget will put aside funds to set up the Singapore Innovation Center to facilitate innovation.
There is also a new trade finance platform to cut costs and improve information share. The centralised platform provides an environment for development of new apps (useful for multiple companies), which will improve productivity for multiple companies.

Outside of industry support measures, measures to support workers include:
1. more SkillsFuture initiatives to help people acquire new skills to match the demand of new sectors/deepen skills in focused sectors;
2. expansion of wage support scheme to encourage firms to hire Singaporeans; and
3. new approaches to job matching.

2016 Budget is one with calibrated measures for particular segments of industries and the workforce. Implications for the stock market include:
1. some shield in banking NPLs (SMEs and stretched households);
2. no unwind of property measures ; and
3. mild relief for offshore and marine.
Our top picks remain OCBC, SIA and THBEV.

Banks are cheap and asset quality concerns are overblown, in our view. OCBC is our top pick for its joint-lowest NPL ratio, despite booking oil and gas NPLs in 3Q. OCBC also has the highest provision coverage for unsecured NPLs.

SIA is a late beneficiary of low oil price. In addition to low er fuel costs, other initiatives such as the launch of premium economy and fuel-efficient new planes will contribute to positive earnings surprise potential.

Thai Beverage delivered strong execution for beer in 4Q and is creating a second division to generate cash flow to fund its fierce fight in the non-alcoholic segment and M&As to expand earnings contribution from outside of Thailand

Kenneth NG CFA CIMB Securities | http://research.itradecimb.com/ 2016-03-24

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