Singapore Strategy - CIMB Research 2016-09-19: Feedback from marketing

SINGTEL Z74.SI VENTURE CORPORATION LIMITED V03.SI THAI BEVERAGE PUBLIC CO LTD Y92.SI

Singapore Strategy - Feedback from marketing

“Any good news in Singapore?” was a common question during our recent marketing trip to Singapore and Malaysia.
No major pushback on our defensive high-yield names, with Venture Corp, ST Engineering and Singtel as our three must-own top picks.
We replaced Best World with Thai Bev in our 10% hit list, given its recent surge.

Maintain Overweight on REITS and property, and identified two other themes to play the Singapore market:
1. ASEAN domestic consumption, and
2. new technology.

Among the regional funds, investors were mostly underweight on Singapore, with a minority sticking to index names such as Singtel and ComfortDelgro. Singapore funds were generally receptive to our must-own, high-yield top picks of Venture Corp, ST Eng and Singtel.
In a weak economic growth environment, investors do not mind paying a premium valuation for stocks with earnings growth, such as SATS, Sheng Shiong and Raffles Medical. Investors were unanimously negative on offshore, marine and banks.
The common questions were:
1. Will Singapore continue to ease monetary policy?
2. What could re-rate the FSSTI?
3. Any government-linked companies to be listed?
4. What company will be the next Swiber?
5. Banks are cheap, is it time to buy?
6. Will government relent on property cooling measures?
7. Is Sheng Shiong’s margin sustainable?
8. Will there be oversupply of data centres in Singapore?
9. What will Leo do to maintain or raise its beer market share against Thai Bev?

With projected core inflation of around 1% and GDP of 1-2% for 2016, we do not foresee more easing measures after the Monetary Authority of Singapore’s (MAS) Apr 16 move to keep the rate of Singapore dollar appreciation to zero %. Current core inflation (0.8% for 7M16) and GDP (2.1% for 1H16) still track our forecasts. Hence, we believe the policy will be unchanged unless inflation and growth falls out of range.
We expect to see more initiatives and emphasis on information, communication and technology (ICT) to set Singapore apart from its regional peers in the end-16 report from the Committee of Future Economy (CFE), spearheaded by the Ministry of Finance, together with 30 members from different industries. The CFE will build upon and update its 2010 report, in which one of the stark recommendations implemented was lower reliance of foreign labour over the years.

We maintain Overweight on REITS and property, and see two additional themes to play the Singapore equity market: Firstly, companies with ASEAN exposure, including Thai Bev, Courts Asia, Dairy Farm, Delfi and Singtel, as they benefit from rising domestic consumption in Thailand, Malaysia and Indonesia, spurred by pump priming and infrastructure spending by the government.
Secondly, increase in demand for niche technologies such as life sciences, smart nation spending and big data cloud, could shape Singapore’s future economy. To this end, Venture Corp, STE, and KDC Reit are names that we think will benefit from this trend.

SingTel is the least at risk among its local peers of being negatively affected by the entry of a fourth mobile operator in Singapore due to its diversified operations.
We forecast core net profit to be flat in FY17, then rise by a decent 8.4%/10.1% in FY18/19.

Thai Bev would benefit from market share gain in beer segment, as we believe its competitor is unlikely to roll out drastic rebranding measures.
Margin expansion from lower depreciation could also catalyse the stock.

Base DPS of S$0.50 remains defensible, given the company’s limited capex, translating into 5.4% dividend yield in FY16. Increasing demand for niche technology and life sciences could drive Venture’s earnings growth.
Stronger 2H16 earnings are a key catalyst.

LIM Siew Khee CFA CIMB Research | http://research.itradecimb.com/ 2016-09-20

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