Singapore Strategy - RHB Invest 2016-06-27: A Modest Direct Impact From Brexit For Now

Singapore Strategy - RHB Invest 2016-06-27: A Modest Direct Impact From Brexit For Now CAPITALAND LIMITED C31.SI  CDL HOSPITALITY TRUSTS J85.SI  HO BEE LAND LIMITED H13.SI  OXLEY HOLDINGS LIMITED 5UX.SI  SEMBCORP INDUSTRIES LTD U69.SI 

Strategy - Singapore: A Modest Direct Impact From Brexit For Now

  • While the Brexit referendum results and announcement of Prime Minister David Cameron stepping down stunned markets on Friday, Singapore should come through this episode with few scratches. 
  • ASEAN indices fell 0.36-2.27% on Friday, with the STI dipping -2.1% vs minus 7-8% for indices in Europe and Japan. 
  • Trade exposure to the UK is modest for Singapore, but further downside may prevail if the broader EU were to see a slump in demand following Brexit. 
  • Singapore companies are mostly focused in Asia and have limited direct UK exposure. 
  • Watch out for ComfortDelGro (CD SP, BUY, TP: SGD 3.25) and City Developments (CIT SP, BUY, TP: SGD9.04), which has a more significant UK exposure within our coverage universe.



Modest direct impact on Singapore for now. 

  • Singapore’s direct export exposure to the UK is equivalent to ~1.1% of GDP, which is modest compared to ~9.6% for the whole of EU. 
  • Most of the UK bank lending in Singapore by British financial institutions (eg Barclays, Standard Chartered, HSBC) are also primarily financed via local deposits, which implies minimal lending risks. 
  • The UK was Singapore’s 20th largest merchandise trading partner in 2014, accounting for c.1.3% of Singapore’s total merchandise trade and 13% of Singapore’s merchandise trade with the EU. From what we can see, Singapore companies are mostly focused in Asia and have limited direct UK exposure. 
  • Nonetheless, the full impact of Brexit on the UK, the EU and the global economy would be heavily dependent on the UK's subsequent trade arrangements with the EU and other markets (including Singapore) as it is no longer covered by existing trade agreements. 
  • There are only a handful of Singapore-listed companies with presence in UK. Those using the UK as a springboard to access Europe especially will have to watch the developments carefully as the UK’s current trade, capital and human access advantages it enjoys with the EU bloc may be renegotiated.


ComfortDelGro (CD) and City Developments (CDL) in the spotlight. 

  • We have trimmed our TPs for ComfortDelGro (CD) and CDL. For CD, businesses in the UK accounted for 25% of FY15 revenue and 21% of operating profit, of which 90% of revenue and 97% of operating profit accrues from the operation of bus services and the rest from the operation of taxi services. For CDL, the UK market accounted for about 11% of its assets and 12% of total revenue.
  • Other Singapore companies that could see further downside include:
    1. CDL Hospitality Trusts (CDREIT SP, BUY, TP: SGD1.48), with 5.4% of assets and 3.9% of 1Q16 net property income (NPI) derived from the UK through Hilton Cambridge City Centre.
    2. CapitaLand (CAPL SP, NEUTRAL, TP: SGD3.15) with 8% of FY15 revenue and 5.9% of total assets from Europe, primarily through The Ascott Limited and its REIT (Ascott Residence Trust).
    3. Sembcorp Industries (SCI SP, BUY, TP: SGD4.00), with 4.9% and 1.7% of FY15 revenue and assets respectively attributed to business done in the UK.
    4. Keppel DC REIT (KDCREIT SP, NR) with one data centre in London (GV7 Data Centre) accounting for c.6.6% of FY15 NPI and 7.5% of assets.
    5. Ho Bee (HOBEE SP, BUY, TP: SGD 2.75), with 30.5% of FY15 revenue and 34.6% of non-current assets derived from the UK.
    6. Oxley (OHL SP, BUY, TP: SGD 0.91), with its Royal Wharf mixed development project in London expected to have a temporary occupation permit in 3Q16-3Q17 that has an unbilled contract value of SGD850m.
    7. GuocoLeisure Ltd (GLL SP, NR), with 91.6% of FY15 revenue and 93.7% of non-current assets derived from the UK.




Ong Kian Lin RHB Invest | Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-06-27
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.91 Same 0.91
BUY Maintain BUY 2.75 Same 2.75
NEUTRAL Maintain NEUTRAL 3.15 Same 3.15
BUY Maintain BUY 4.00 Same 4.00
BUY Maintain BUY 1.48 Same 1.48


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