Singapore Strategy - DBS Research 2016-12-14: 2017 Outlook ~ Top 10 Stock Picks

Singapore Strategy - DBS Vickers 2016-12-14: 2017 Outlook ~ Top ten stock picks Singapore Market Strategy 2017 Top Stock Picks

Singapore Strategy - 2017 Outlook ~ Top ten stock picks

  • Top 10 Picks : Global Logistics, City Developments, OCBC, ST Engineering, Genting Singapore, Comfort Delgro, Thai Beverage, Venture Corp, Ezion, MM2 Asia. 

Thai Beverage (BUY; TP: S$1.09) 

  • We see Thai Beverage in a transformational mode to morph into a regional player. We expect ThaiBev to leverage on its Singapore-listed associate company, Fraser and Neave Ltd (FNN) to seek inorganic growth for the Group. 
  • On the earnings front, Spirits, beer growth and non-alcoholic beverage turnaround would be a key driver of stock price. Dividend payout ratio has been > 50% in the last few years.

ST Engineering (BUY; TP: S$3.68) 

  • We expect reasonable earnings rebound in FY17, following a kitchen sinking year in FY16 associated with a management transition. ST Engineering will also benefit from an increase in defense spending in the US. Its investments in the US will benefit from any cut in corporate tax rate, and the strengthening US$. 
  • With a healthy balance sheet to boot, we believe the total dividend payout for FY16 should be similar to FY15 levels of 15 Scts.

Venture (BUY; TP: S$10.90) 

  • Fixed dividend commitment of 50Scts (5.3% yield) coupled with high digit earnings growth prospects in FY17F is attractive. Venture Corp will also benefit from both a recovery in the US, with 55% of exports to the US, and the strengthening US$. Cost are in ringgit while almost all of sales are in US$. 
  • A well-managed company with fragmented ownership, it is an attractive takeover target.

OCBC (BUY; TP: S$10.30) 

  • Expectations on rising interest rates from December 2016 should start to spell a new phase for higher NIM. We expect credit costs to decline in FY17F as the bulk of NPL issues have been addressed. Asset quality is expected to stabilise in 2017.All these factors should drive earnings higher. 
  • OCBC's Dividend payout has been sustainable; with attractive forward yield of about 4%.

Genting (BUY, TP: S$1.15) 

  • Genting Singapore’s cashflow generation and net cash of c.S$3.7bn, balanced against the redemption of its perpetual securities and potential bid for a Japanese casino, we estimate that Genting has the ability to increase its dividend to 6 Scts per annum in FY18F, (translating to a 6.2% yield) up from our FY16F DPS 3 Scts. 
  • Following two tough years, we believe 2017 will mark a recovery in earnings.

ComfortDelgro (BUY; TP: S$3.09) 

  • With lower capex needs, we are expecting dividend payout ratio to conservatively creep up to 66% and 68% in FY17F/18F, and thus yielding 4.4% and 4.8%, respectively. In the current climate, ComfortDelgro CD is one of few companies projected to have an increase in DPS. 
  • We project earnings growth of 5%/ 8% for FY16F/17F driven by higher ridership, rental rates for its taxis, coupled with lower energy costs (on the back of lower oil prices).

Global Logistics Properties (BUY; TP: S$2.47) 

  • Global Logistics Properties (GLP) could be a M&A / privatization or takeover play. The attractiveness in GLP is in its leading position in the warehouse logistics space in key markets of China, USA, Japan. 
  • GLP is also a beneficiary of the strengthening USD via its stake in three US funds.

mm2 Asia (BUY, TP S$0.56) 

  • mm2 Asia has a high-margin business model (gross margin: 40- 50%, net margin: c.20%) with an impressive growth outlook.
  • We expect mm2 to grow at an EPS CAGR of 50% from FY16- FY19, underpinned by growth in local productions, expansion into the China market, and contribution from cinema operations and entertainment company, UnUsUal Group.

City Developments (BUY; TP: S$9.90) 

  • City Developments remains one of the best proxies to ride on any possible relaxation of property cooling measures in Singapore. Trading at 30% discount to its RNAV, it has one of the largest land bank among local developers, while earnings are augmented by hotel operations, which account for 54% of its revenue. 
  • Diversification into China, UK, Australia, Japan, Korea and US are bearing fruit as projects are expected to complete from 2017 onwards.

Ezion Holdings (BUY; TP: S$0.56) 

  • We believe Ezion is one of the best proxies to ride the recovery, given its earnings resiliency and growth potential.
  • Besides the delivery rescheduling, ten of Ezion’s service rigs have been withdrawn from its fleet for repairs/upgrades/ conversions. The resumption of these rigs in 2016 should drive earnings recovery. Its balance sheet has been strengthened by rights issues of US$100m completed in July 2016.
  • With a positive operating cash flow and lower gearing, Ezion is among the stronger players with good assets, decent cash balances and successful diversification of its customer base (windfarm contracts) to win new charter contracts

Janice CHUA DBS Vickers | Yeo Kee Yan CMT DBS Vickers | Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2016-12-14
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