Stock Market Strategy
Singapore Stock Recommendation
CITY DEVELOPMENTS LIMITED
C09.SI
KEPPEL CORPORATION LIMITED
BN4.SI
UNITED OVERSEAS BANK LTD
U11.SI
Singapore Monthly Strategy - Uplift to 3,250 (Strategy)
- External factors to drive economy rather than domestic – Venture Corp.
- Interest picking up for hospitality REITs – Picks CDL HT and OUE HT.
- Three large caps vulnerable to profit taking at STI 3250 – City Dev, Keppel Corp and UOB.
A) External over domestic
- Singapore’s economic growth this year will be driven by the external trade-related sectors such as information technology and electronics (e.g. new mobile phone product launches) while recovery for the rest of the manufacturing sector remains patchy, this according to the latest semi-annual macroeconomic review by the MAS.
- The outlook for Singapore’s trading partners such as the US and regional economies are also looking up.
- Among the stocks under our coverage, contract manufacturer Venture Corp and UMS Holdings are the only technology related stocks with a BUY recommendation.
- For stocks outside our coverage, Hi-P comes to mind for companies with mobile phone exposure.
- Meanwhile, MAS sees a more muted growth for the domestic oriented sectors. For example, the retail and food services sub-sectors will face cyclical and structural challenges amid a soft labour market, subdued consumer confidence and greater competitive pressures. Stocks affected are restaurants/cafes operator Katrina Group and Singapore retail REITs CapitaLand Mall Trust, and SPH REIT.
B) Results season– focus on stocks with TP or earnings forecast uplift
- With growing optimism that the economy data point recovery in recent months is sustainable and the results season off to a positive start, stocks with either earnings forecast or TP uplift in the current results season should see interest sustaining.
- The table below shows the list of stocks with upward earnings revision and TP uplift in the current results season. These are Venture Corp, iFAST, M1, CDL HT and CapitaLand Retail China Trust (CRCT).
- Of this list, our preferred picks are Venture, M1 and CRCT.
- Although Venture has performed well, we believe its re-rating will be sustained by increased investors’ confidence in a solid management team riding on positive macro trends. Global recovery in the technology sector and favourable currency trends put the company in a sweet spot.
- M1 is the latest to join Singapore’s M&A party, after potential bidders from China and other countries emerged in recent weeks. Our target price of $2.54 translates to 8.4xEV/EBITDA multiple which is in line with recent Telco takeover transactions.
- We raised CRCT’s earnings and TP by 5% as we believe the market has underestimated its potential for positive rental reversion in its key assets - Xizhimen and Wangjing.
C) Interest uptick in Hospitality REITs – Picks are CDL HT and OUE HT
- Shares of CDL HT rose 5.4% last week after reporting 1Q17 DPU of 2.42 Scts (+9% y-o-y) that came in above expectations due to contributions from the New Zealand and Singapore hotels. Investors could also be positioning in anticipation of a potential sector recovery in 2018 as the oversupply situation in Singapore normalises. This could see interest in sector leader CDL HT spilling over to the rest of the Hospitality REITs.
- We prefer those with geographical focus in Singapore such as OUE HT and Far East Hospitality Trust. Between these two, we prefer OUE HT given its timely acquisition of Crown Plaza Changi Airport extension and the increased contribution from Mandarin Gallery following the opening of the Michael Kors and Victoria’s Secret stores in 2H16 that makes it one of the best-positioned hospitality REITs to ride out near term headwinds.
D) 3 large cap stocks to take profit at STI 3250
- Our short-term STI view is for a rise towards 3250 followed by a pulling back to 3150 that not likely to fall below 3115. We scan through the list of STI component stocks that are more vulnerable to profit taking as the STI head closer to 3250.
- We zoom in on stocks that have outperformed the index on a 6-month perspective and have risen to or even exceeded our fundamental TPs.
- Based on the latest analysts’ forecast (subject to change as the earnings season is still unfolding), the 3 stocks are City Developments, Keppel Corp and UOB.
Yeo Kee Yan CMT
DBS Vickers
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Janice CHUA
DBS Vickers
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http://www.dbsvickers.com/
2017-05-04
DBS Vickers
SGX Stock
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