Singapore Monthly Strategy - DBS Research 2018-03-05: Positive Earnings Revision; 6 Stocks To Buy Post 4Q17 Earnings

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Singapore Stocks To Buy Post 4Q17 Earnings ROXY-PACIFIC HOLDINGS LIMITED E8Z.SI NETLINK NBN TRUST CJLU.SI RIVERSTONE HOLDINGS LIMITED AP4.SI BREADTALK GROUP LIMITED 5DA.SI UOL GROUP LIMITED U14.SI

Singapore Monthly Strategy - Positive Earnings Revision

• 4Q earnings season delivers positive revision.
• STI 2018 year-end base objective raised to 3715, optimistic 3816, support 3440-3465.
• Six stocks to buy post 4Q results season - ST Engineering, SIA, Venture Corp, NetLink Trust, Riverstone, UMS.
• Favour mid- to late-recovery cycle play - Wilmar International, Breadtalk, Genting Singapore, SIA, Keppel Corp.
• Eyeing sell-through rates for upcoming launches – Roxy Pacific, City Dev, UOL.

Looking back at February 

• Volatile February 2017 that ended with STI down 0.4% as investors overcame worries about faster-than-expected rate hikes 
• STI recovered 5.3% from low, our conviction call to bargain hunt at 13.6x (ave) 12-mth fwd PE @ 3,350 paid off 
• Banks (DBS, UOB, OCBC) and industrials (e.g. ST Engineering, Venture Corp) recovered the most 
• O&G (e.g. SCI, SMM, POSH), consumer goods (e.g. Thai Bev) and S-REIT sectors recovered the least. 

March Key Events 

China’s NPC Meeting - 

• Xi Jinping's political grip further entrenched with central committee's recent proposal to remove constitutional clause limiting presidential service to two consecutive terms  
• Stocks related to Xi JinPing’s economic projects to benefit – Gaobeidian project by Oxley, KSH, Heeton and Lian Beng are next to the latest Special Economic Zone at Xiongan 

FOMC meeting – 

• Expect FED to hike its funds rate by 25bps to 1.75%. We see FFR at 2.25% by year-end.     

4Q earnings season delivers positive revision. 

• The 4Q results season concluded with an overall +2.5% q-o-q FY18F and +1.5% q-o-q FY19F earnings revision for stocks under our coverage. 
• OCBC, SIA, Best World, Wilmar International, Olam, ST Engineering, SIA Engineering, Chip Eng Seng, Hi-P, NetLink NBN Trust, UMS and Venture Corp led the upward revision.
• Downward earnings revision came from Thai Bev, HPH Trust, SMM, SCI, POSH and Starhub.

STI year-end base objective raised to 3715. 

• STI FY18F earnings revised up by 1.5%, FY19F earnings revised up 0.7% post results season. At 3480, STI currently trades below 13.89x (+0.25SD) 12-month forward PE, which is reasonably attractive given positive earnings revision trend.
• We peg near-term support at 3440-3465. We lift 2018 base-case year-end objective to 3715 (previously 3688), optimistic 3816 (previously 3800).

Strategy 

Six stocks to buy post 4Q results season 

• We look for stocks that offer upside potential from the just concluded 4Q results season. The filter criterions that we use are
  1. earnings above expectations,
  2. > 5% upward earnings revision for either FY18F or FY19F,
  3. Upward Target Price adjustment, 
  4. Upside to Target Price: > 15% for SMCs, > 8% for large caps,
  5. BUY recommendations.
• Our large caps picks are ST Engineering, SIA, Venture Corp while that for small caps are NetLink Trust, Riverstone, UMS.

Favour mid- to late-recovery cycle play 

• The synchronised global recovery has entered its second year. Meanwhile, Singapore’s recovery is expanding from the manufacturing to services and construction sectors while inflation expectations are rising.
• The backdrop favours mid- to late-cycle plays such as capital goods, construction, basic materials, commodities related, consumer services. Our picks are Wilmar International, Breadtalk, Genting Singapore, SIA, Keppel Corp.   

Eyeing sell-through rates for upcoming launches 

• Developers put up a strong performance in 2017 driven by a rebounding property market and land-banking story. This year though, the FTSE ST Real Estate Holdings Index (-0.7%) has underperformed STI (+3.2%) YTD. 2018 is about delivering strong project sell-through rates for newly land-banked sites.
• Investors will be eying the slew of new launches in 1Q18, three from Roxy Pacific (The Navian already > 50% sold) and The Tapestry by City Dev. 
• A strong sell-through rates could power next leg up for developers Our picks are City Dev (2-3 launches in 2018), Roxy Pacific (up to seven launches in 2018), UOL (three launches in 2018).

Kee Yan YEO CMT DBS Vickers | Janice CHUA DBS Vickers | http://www.dbsvickers.com/ 2018-03-05

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.690 Same 0.690

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BUY Maintain BUY 10.150 Same 10.150