Singapore Strategy - DBS Research 2016-12-14: Back On Growth Track

Singapore Strategy - DBS Vickers 2016-12-14: Back on growth track Singapore Strategy 2017 Market Outlook

Singapore Strategy - Back on growth track

  • Watch for 10 domestic and external drivers.
  • Bottoming signals and prospects of earnings recovery in an inexpensive market.
  • 4 themes to ride the volatility.
  • Top 10 picks : Global Logistics, City Developments, OCBC, ST Engineering, Genting Singapore, Comfort Delgro, Thai Beverage, Venture Corp, Ezion, MM2.

Domestic drivers are positive. 

  • Bottoming signals in key economic sectors point to a cyclical upturn, while the unveiling of proposals from the Committee of Future Economy will chart Singapore’s longer term sustainability.
  • Rising interest rates could move the government’s hands to relax property tightening measures. We expect M&A deals to be sweetened by inexpensive valuation as bargain hunters seek higher returns.

Brace for volatility spiked by external headwinds. 

  • Market volatility will be spiced up as the world watches Trump’s policies unfold. The threat of anti-globalization, rise of populism impacting results of several upcoming elections in Europe, and possible liquidity outflows are negative headwinds to watch for. 
  • Oil price recovery could provide a breather, sustaining banks and oil and gas stocks.

Earnings recovery, inexpensive valuation. 

  • With October bank loan growth finally turning positive after a year of contraction, regional PMIs on the uptick, the Singapore government offering financial aid to the beleaguered O&G sector, oil and commodity prices heading for recovery, we are optimistic that the worst of the earnings cut cycle has passed.
  • After two years of earnings contraction, we project earnings growth of 8.7%, a reversal from the 7.6% earnings contraction this year. Valuations are undemanding at 12.8x on FY07 earnings. We peg an STI objective of 3150 based on 13.64x (average) blended FY17/18F PE by mid-2017.

4 themes to ride the volatility. 

  • We pick 
    1. proxies to growth and earnings turnaround (Genting, Ezion, OCBC, MM2), 
    2. companies with sustainable dividend yield and cash flow (ComfortDelgro
    3. Beneficiaries of US recovery and strong US$ (Venture, ST Engineering) and 
    4. M&A plays (GLP, Thai Beverage).
  • City Developments is undervalued, and will be re-rated if the government relaxes the property cooling measures.

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Janice CHUA DBS Vickers | Yeo Kee Yan CMT DBS Vickers | Lee Keng LING DBS Vickers | 2016-12-14