Singapore Strategy - RHB Invest 2016-03-08: December 2015 Quarter Results Review

December 2015 Quarter Results Review

Dec 2015’s earnings quarter was broadly in line.
Earnings downgrade revision trend continued, albeit at a slower pace than previous quarters.
Recent risk appetite appears to have improved – spurred by the optimism of further easing in China and a strengthening SGD, while developments in the crude oil market have also allowed oil prices to stabilise, helping to generate trading opportunities.

Dec 2015’s quarter results were generally in line, Nonetheless, earnings revisions continued to be negative, with FY16F earnings trimmed by 2.4% YoY – with the most cuts coming from the banks, oil & gas, plantations, telecos and consumer.
Two out of the 17 sectors disappointed overall (oil & gas and plantations), while rubber products surprised on the upside. The remainder were in line.

Following the changes in earnings revision on the back of the recently concluded reporting season, we upgrade the property sector to OVERWEIGHT (from Neutral) on the back of resilient results and attractive valuations.
We agree with the Minister of National Development (MND) that it may be too early to relax cooling measures now, but still view end-2016 as a probable timeframe after:
1. property prices corrected 12- 15% from its peak, and
2. QC extension charges and ABSD remission start to bite more developers.
Of the 20 STI component stocks under our coverage, all reported earnings in line with expectations with the exception of Keppel Corp, SembCorp Industries and SembCorp Marine which reported below (impairments by offshore divisions) and Golden Agri-Resources which reported above.
Following this round of earnings revisions we now estimate FY16-17 STI earnings growth at 1.0% and 2.5% respectively vis-a-vis consensus of 5.6% and 5.6%. We thus lower our STI FY16 forecast to 3,100 (previous: 3,200), which represents an implied 14x FY16F P/E, which is inline with the historical average. (Previous report: Singapore Strategy 2016 – A Stock-Picking Market in 2016)

Institutional funds remain mostly net sellers for Singapore over the past six months since Sep 2015, but we are likely to see a reversal this month. The recent improvement in risk appetite has been driven by the continued optimism of further easing in China with the start of the National People’s Congress (NPC) and the stabilisation of crude oil prices.
On valuation ground, Singapore certainly looks attractive, having fallen 20.2% from its previous peak in Apr 2015 and trading at -1SD P/E of 12.7x (historic: 14x), although expectations could be tempered by:
1. lacklustre domestic earnings growth,
2. MAS likely to weaken SGD in April’s monetary policy statement, and
3. within ASEAN, investor interest is still weighted toward Indonesia and Thailand.
Nonetheless, we expect the market to progressively post a rebound on the back of Singapore’s safe haven status and laggard play. We expect the recovery plays in Singapore’s large cap companies to step up first, before the upswing percolates down to small-mid caps.

Below is the list of our Top Picks.

Ong Kian Lin RHB Invest | Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-03-08

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.29 Same 0.29

BUY Maintain BUY 0.57 Same 0.57

BUY Maintain BUY 9.20 Same 9.20

BUY Maintain BUY 0.93 Same 0.93

BUY Maintain BUY 3.20 Same 3.20