Singapore Strategy - CIMB Research 2017-04-07: Expect lacklustre 1Q17

Singapore Strategy - CIMB Research 2017-04-07: Expect lacklustre 1Q17 Singapore Market Strategy Singapore Stock Alpha Picks FRASERS CENTREPOINT LIMITED TQ5.SI CHINA AVIATION OIL(S) CORP LTD G92.SI SINGAPORE TECH ENGINEERING LTD S63.SI

Singapore Strategy - Expect lacklustre 1Q17

  • We could see some negative surprises in the capital goods and transport sectors.
  • Potential misses are: KEP, STE, SCI and SATS.
  • Potential beats are: Singtel, SMM, SIE, Best World and Valuetronics.

May not be a stellar 1Q17

  • Our preliminary assessment on indexed names and Alpha picks showed potential for negative surprises in the upcoming results season. However, EPS is unlikely to be cut significantly on hopes for a pick-up in subsequent quarters. 
  • We keep our SSTI target of 3,195 (based on 14x on CY18 market core EPS).

Sector preview

  • Financials: we expect 1Q17 earnings to remain under pressure in the face of limited NIM expansion and high provisions for the Ezra group of companies. As such, ROEs could come in at c.9%, similar to 4Q16. SGX is our preferred pick in the sector.
  • Telcos: Sector earnings are expected to be higher qoq due to higher roaming usage and lower handset subsidies/marketing costs.
  • Capital goods: Other than YZJ, the Singapore yards have not announced significant orders. This sector could lead the earnings disappointment with provisions and weak margins. Small caps O&M may still see impairment overhang and weak utilisation.
  • Transport: CD should see earnings coming in at the lower end of expectations on a competitive landscape. SIA could face added pressure from higher oil prices.
  • Manufacturing/tech: momentum favours the tech exporters given the improvement in the US economy. However, the weakening US$ versus the S$ could be a bane.
  • REITS: could be the best place to hide on steady DPUs with no major surprises.

Beat potentials

  • SMM could beat our forecast but meet consensus if margin is not compromised by forex fluctuation. Singtel and SIE could see stronger earnings contribution from associates/JV. Best World is likely to do well on Taiwan and Chinese momentum.
  • Valuetronics’s volume growth could continue from new product-wireless lighting.

Miss potentials

  • SCI could see widening losses in India and gestation in its new coal plant in Chongqing. Urban development land sale could provide some buffer. KEP could miss on provision for mothballing Singapore yards. STE’s marine division could be loss-making if full provision (c.S$56m) is required for the arbitration proceedings with Hornbeck Offshore.
  • SATS is likely to see weaker gateway earnings from lower freight and passenger volumes in Changi. A weakening SGD vs. Yen in 1Q17 could unwind gains seen in previous quarters.
  • Stocks to watch: SingPost on impairment risk and cost pressure, Dairy Farm’s sales growth to be on track and Venture Corp’s ability to maintain volume growth.

Reshuffling Alphas

  • Big-caps: FCL, STE, UOL, First Resources and CAO (new). 
  • Small-caps: Best World, Cityneon, CSE Global, Talkmed, Valuetronics, MM2 (new), Boustead Projects (new), HMI (new). 
  • Venture Corp, UMS, Sunningdale are removed on outperformance.

Highlighted companies 


  • Add, TP: S$2.02 S$1.78 close 
  • Strong earnings visibility and reinvestment into new projects are key catalysts. It is trading at a 38% discount to RNAV (dividend yield of 4.8%). Restructuring of ThaiBev’s associates stake in FCL could re-rate the stock.

China Aviation Oil 

  • Add, TP: S$2.28 S$1.64 close 
  • We see potential for inventory gains on higher jet fuel price (benchmarking crude oil). The stock currently trades at a CY18 P/E of 9.8x, a 37% discount to the global peer average of 15.5x. It also has net cash of US$0.216/share.

ST Engineering 

  • Add, TP: S$3.82 S$3.65 close 
  • We still like STE as a proxy for a better US economy and its net cash position. 1Q17 earnings could be under pressure from potential for provision for arbitration with Hornbeck Offshore.

LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-04-07
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.020 Same 2.020
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