Singapore Market Focus - DBS Research 2017-05-16: Positioning For The Shift

Singapore Market Focus - DBS Vickers 2017-05-16: Positioning For The Shift Singapore Market Outlook Straits Times Index STI Forecast UOL GROUP LIMITED U14.SI GENTING SINGAPORE PLC G13.SI SEMBCORP INDUSTRIES LTD U96.SI SINGAPORE TECH ENGINEERING LTD S63.SI

Singapore Market Focus - Positioning For The Shift

  • Late contraction to early expansion sectors outperformed YTD - Banking, property, technology.
  • STI limited near-term upside above 3250, pullback support 3150.
  • Banks susceptible to short-term pullback.
  • Mixed performance ahead for property stocks – Preferred pick UOL.
  • Interest shift to consumer discretionary and industrials – Picks Genting Singapore, ST Engineering and SembCorp Industries.

Rally YTD focused on late contraction to early expansion outperformers 

  • Singapore stock market rally year-to-date has been led by banking, property and technology stocks. The FTSE ST Real Estate Holdings Index gained 22% and the FTSE ST Finance Index added 16%, outperforming STI’s 13% rise. 
  • Defensive sectors such as telecommunications and consumer goods/staples underperformed.
  • The relative sector performances are consistent with a typical stock market behaviour during the late contraction to early expansion phases of an economic cycle.

STI limited near-term upside 

  • While it is possible for the STI to head for 3350 by year-end pegged to 14.02x (+0.25SD) FY18F PE, we expect resistance and limited upside above 3250 in the near term with pullback support at 3150.

Banks susceptible to short-term pullback 

  • Banks are heavyweights among the index component stocks.
  • Despite their strong 1QFY17 earnings, our bank analyst is keeping her earnings forecasts for both UOB and OCBC. Their strong YTD performances have lifted stock prices beyond our fundamental TPs pegged to 1.1x FY17F BV. Technically, both stocks are overbought with 8-week RSIs above 80. We believe bank stocks are susceptible to a short-term pullback.

Property stocks – Mixed performance ahead, positive on UOL, least for City Dev 

  • Property stocks have also performed well YTD, riding on M&A activities and optimism that the Singapore residential property sector may have found bottom. 
  • Our property analyst has lifted the Target Prices for UOL, City Developments and Capitaland, post-1Q results by narrowing the discount to their respective RNAVs while keeping the RNAVs unchanged. 
  • City Developments currently trades at 15% discount, CapitaLand at 25% discount, and UOL at 35% discount to RNAV.
  • Among the three large-cap property stocks, we think City Developments is most susceptible to a consolidation of its YTD gains as it trades at the narrowest discount to RNAV. 
  • On the other hand, UOL shares should continue to be underpinned given the steep 35% RNAV discount.

Interest switch to consumer discretionary and industrials 

  • We see the likelihood of a shift in sector relative performance as the YTD equity market rally further progresses. Interest in banking and property (example of consumer discretionary) stocks that are late economic contraction leaders should shift to other consumer discretionary stocks and industrial sectors.
  • Among the STI component stocks in these two sectors, our picks are Genting Singapore, ST Engineering and SembCorp Industries.

Yeo Kee Yan CMT DBS Vickers | http://www.dbsvickers.com/ 2017-05-16
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