Singapore Market Monitor - Maybank Kim Eng 2017-09-26: Sector Preferences And Stock Picks

Singapore Market Monitor - Maybank Kim Eng 2017-09-26: Sector Preferences And Picks Singapore Stock Top Picks SGX stocks to buy 2017 Stock Market Sector Outlook UNITED OVERSEAS BANK LTD U11.SI UOL GROUP LIMITED U14.SI GUOCOLAND LIMITED F17.SI GENTING SINGAPORE PLC G13.SI ASCENDAS REAL ESTATE INV TRUST A17U.SI

Singapore Market Monitor - Sector Preferences And Picks

Taking stock of sectors: OW banks, property, gaming

  • We are overweight cyclical sectors of banks, property and gaming – within these sectors our top picks are: UOB SP, UOL SP, GUOL SP, CCT SP, AREIT SP and GENS SP. 
  • We are neutral on the healthcare and agri-commodities sectors, and Underweight industrials, telecoms and consumer. 
  • Our key negative stock calls are STH SP and M1 SP.

We are broadly overweight cyclicals 

  • We are broadly overweight cyclical sectors of banks, property and gaming on the back of the following factors: 
    1. The economy performing better than our initial expectations at the beginning of the year from global technology sector tailwinds; 
    2. Anticipation recovery to spread to the services sector follow the growth in industrial production; 
    3. A earnings growth turnaround and subsequent acceleration since 1Q17; 
    4. Property fundamentals improving since the calibrated policy easing; 
    5. Sector-specific risks in O&M likely past their peak and the related impact to the financial sector subsiding.
  • We are Neutral on healthcare and agricommodities.
  • We are Underweight on industrials and telecoms.

Key Stock Picks 

Our key BUY Recommendations are the following: 

  • UOB (UOB SP; TP SGD26.40): Pricing strategy and discipline should help maintain best customer spreads in the sector. Loan growth expectation recently raised to 5-9% for the sector post 1H17 results.
  • UOL (UOL SP; TP SGD9.43): Most liquid proxy for expected higher property prices in Singapore with potential for value unlocking in the medium term with restructuring of holdings.
  • GuocoLand (GUOL SP; TP SGD2.75): Relatively under researched and a laggard versus the other Singapore developers in the sector; rallied in recent months despite having a significant c66% of its estimated NAV exposure to the Singapore market.
  • CapitaCommercial Trust (CCT SP; TP SGD1.81): Trading at a discount to underlying physical market transactions; recent Asia Square Tower 2 acquisition is positive in our view as it is a quality asset with occupancy upside.
  • Ascendas REIT (AREIT SP; TP SGD2.90): Best proxy to the recovery we expect in the business parks segment of industrial space with c60% of portfolio exposure to this area.
  • Genting Singapore (GENS SP; TP SGD1.35): Operating conditions have been improving with 2Q17 showing VIP volume growth for the first time in 14 quarters and mass market GGR was flat after four quarters of YoY declines.

Our key SELL Recommendations are the following: 

  • StarHub (STH SP; TP SGD 2.17): Both wireless and pay TV businesses under siege from new-entrant risks on the former and changing viewing habits on the latter. Expect two consecutive years of over 20% net profit declines.
  • MobileOne (M1 SP; TP SGD1.59): Most exposed to Singapore wireless competition risk over the next couple of years. Investments in fixed broadband and tapping the enterprise sector is progressing but still small in the scheme of things and not adequate to defray the pain. Core profits are forecast to fall c39% and 19 % over the next two years.

Off the beaten path; Unrated stocks that merit a look 

  • We also met with a number of Singapore SMIDs over the past quarter that we do not cover (no ratings or forecasts) – from amongst these meetings five companies stood out that merit a closer look given, we believe, sensible growth strategies to tap on medium-term structural growth drivers. These were: 
    • Valuetronics (VALUE SP; NR): Electronics manufacturing services provider with strong design capabilities and manufacturing flexibility for varying complexity and product mix. Growth outlook appears good from the industry growth being witnessed in in-car connectivity modules and IoT lighting. (Link to note: Valuetronics: Of auto accoutrements and fancy lights, 16 Aug 2016) 
    • AEM Holdings (AEM SP; NR): Back-end semiconductor equipment and component manufacturer that has co-developed the latest generation test handler for a global IC company; sales volumes of this test handler is ramping up. (Link to note: AEM Holdings: Sunshine after the rain, 14 Sep 2017) 
    • UMS Holdings (UNS SP; NR): Equipment components and modules manufacturer for a leading front-end semiconductor equipment company that is growing from the tech upstream capex cycle recovery. (Link to note: UMS Holdings: Pedal to the metal, 14 Sep 2017) 
    • China Aviation Oil (CAO SP; NR): One of the largest jet fuel traders in the region and the only licensed importer of bonded jet fuel into China and leveraged to the explosive growth in Chinese outbound tourism. (Link to note: China Aviation Oil: Fuelling China’s wanderlust, 6 Sep 2017) 
    • HRnetGroup (HRNET SP; NR): One of the largest Asia-Pacific based recruitment companies outside Japan operating a diversified business model and well positioned to tap behavioural and structural shifts in APAC recruitment through organic and M&A opportunities. (Link to note: HRnetGroup: Positioned for Region’s Growth, 12 Sep 2017)

Neel Sinha Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-09-26
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 26.400 Same 26.400
BUY Maintain BUY 9.430 Same 9.430
BUY Maintain BUY 2.750 Same 2.750
BUY Maintain BUY 1.350 Same 1.350
BUY Maintain BUY 2.900 Same 2.900