Singapore Strategy - UOB Kay Hian 2016-06-03: Taking Careful Aim

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Singapore Strategy DBS GROUP HOLDINGS LTD D05.SI SINGTEL Z74.SI CITY DEVELOPMENTS LIMITED C09.SI

STRATEGY – SINGAPORE: Taking Careful Aim

• We see limited market upside and we think investors will need to take a “sniper” approach to outperform in a lacklustre equity market. 
• Outperformance-spurring themes include: a) M&A fever, b) dividend yields with catalysts, c) recovering tourist arrivals, and d) “going global”.

WHAT’S NEW

• We have just issued our 2H16 Strategy for Singapore (please refer to “Taking Careful Aim” dated 2 Jun 16 for more details). This report focuses on the key highlights and investment themes.

ACTION

Limited upside warrants a “sniper” approach. 

• Our blended (PE cum P/B) target of 2,910 for the FSSTI implies a limited 4% upside. Hence, we think investors will need to adopt a “sniper” approach to enjoy outperformance. We see intermittent bouts of market volatility from impending rate hikes, recovering oil prices and mixed macro data. This could provide attractive entry levels for patient and disciplined investors.

Hoping for an end to earnings disappointments in 2017. 

• Earnings are likely to remain disappointing in 2016 as headwinds continue to dampen top-line growth. We forecast a 2016 EPS change of -0.6% yoy before a recovery to +7.2% in 2017, led by plantation, telcos, healthcare and land transport stocks.

Active M&A market suggests that investors be selective on deep value. 

• The recent pick-up in privatisation and M&As suggests that investors be selective on deep-value stocks. Other than deep value, we look for stocks with earnings/dividend surprises, positive newsflow catalysts or macro data points to drive their share prices.

Investment themes for a profitable 2H16. 

• Investment themes we like are: 
  1. M&A fever, 
  2. dividend yields with catalysts, 
  3. recovering tourist arrivals, and 
  4. “going global”.

Stocks for action in 2H16. 

• Large-cap BUYs include CDL, DBS, Singtel, STE, A-REIT, CDREIT and Bumitama. 
• Mid-cap gems include CAO, NeraTel, Valuetronics and Innovalues. 
• SELL SIAEC, StarHub and M1.

KEY STOCK RECOMMENDATIONS

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-06-03