Singapore Strategy - UOB Kay Hian 2017-01-03: Positioning In A Growth-challenged Year

Singapore Strategy - UOB Kay Hian 2017-01-03: Positioning In A Growth-challenged Year 2017 Outlook Singapore Market Strategy

Singapore Strategy - Positioning In A Growth-challenged Year

  • Corporate earnings could recover in 2017 but growth headwinds and external risks remain. 
  • Our end-17 FSSTI target is 3,000 and we would position defensively on elevated volatility and an uncertain macro outlook.


  • We highlight key issues and investment themes in our 1H17 Singapore Strategy.


Another growth-challenged year; modest end-17 FSSTI target of 3,000. 

  • We see another challenging year ahead, with 2017 GDP growth expected to be slightly higher than 2016’s 1-2%, a reflection of weak global demand as well as structural issues. 
  • The external environment remains mixed and volatility is likely to remain elevated, pointing to a buy on weakness and a stock-picking strategy, yet again. 
  • Based on a 15% discount to long-term mean P/B and PE, our end-17 FSSTI target is 3,000, pointing to a modest 4.1% upside. 
  • Earnings disappointments could see the FSSTI range come down to 2,890-2,960.

External outlook also bears a close watch. 

  • Events such as the inauguration of the new US president (on 20 Jan 17) as well as policy changes will also be watched. In addition, we would look for implications from populist movements in the EU, the aftermath of Brexit as well as China’s growth outlook as it forges ahead with supply-side reforms. 
  • While a gradual global recovery is envisioned (2017F GDP growth of 2.8% vs 2.4% in 2016F and the 10-year average of 3.95%), it is likely to come in below trend as a result of the external issues highlighted above.

Hopeful for an end to earnings recession. 

  • After two consecutive years of earnings recession, we forecast 2017 EPS to grow 10.5% yoy, led by the plantation, aviation and telecommunications sectors. However, there remain downside risks to our and consensus estimates on muted growth outlook, regulatory changes and disruption from technology. 
  • In our view, top-line remains under pressure and costs are stubbornly high.

Look for laggard blue chips. 

  • Given lacklustre recovery and moderate valuations, we are selective on blue chips, favouring laggards with earnings visibility and dividend yields.
  • In this bucket, we like OCBC, Singtel and ComfortDelGro. These stocks are projected to offer 2017 dividend yields of 3.8-4.6% and valuations are reasonable. Venture also looks compelling as its gradual shift towards new growth areas has resulted in sustainable margin improvements with a dividend yield of more than 5%.

Investment themes to navigate 1H17. 

  • Investment themes that could drive outperformance include: 
    1. New Economy beneficiaries - Keppel T&T, SingPost, Venture.
    2. scalable companies - Keppel T&T, Raffles Medical.
    3. earnings visibility and yield - FLT, SingTel and Venture.
    4. stock-specific catalysts - Duty Free International.

Stocks for 1H17. 

  • Large-cap BUYs include A-REIT, CapitaLand, CCT, FLT, OCBC, Raffles Medical, Sembcorp Ind, Singtel, STE and Venture. 
  • Mid-cap gems include CAO, Duty Free International and Keppel T&T. 
  • SELL M1, SIAEC and StarHub. Switch out of SATS into STE.

Key Stock Recommendations. 

Andrew Chow CFA UOB Kay Hian | Singapore Research Team UOB Kay Hian http://research.uobkayhian.com/ 2017-01-03
UOB Kay Hian SGX Stock Analyst Report