Singapore Market Monitor - Maybank Kim Eng 2018-05-11: SG Got Its Groove Back ~ Top 10 Stock Ideas

Singapore Market Monitor - Maybank Kim Eng 2018-05-11: Sg Got Its Groove Back ~ Top 10 Stock Ideas Singapore Stocks Market Monitor Top 10 Stock Picks 2018 CITY DEVELOPMENTS LIMITED SGX: C09 GENTING SINGAPORE PLC SGX: G13 SATS LTD. SGX: S58 SINGAPORE POST LIMITED SGX: S08 HEALTH MANAGEMENT INTL LTD SGX: 588 SHENG SIONG GROUP LTD SGX: OV8 SINGAPORE TECH ENGINEERING LTD SGX: S63 UNITED OVERSEAS BANK LTD SGX: U11 VENTURE CORPORATION LIMITED SGX: V03 CITY DEVELOPMENTS LIMITED SGX: C09

Singapore Market Monitor - SG Got Its Groove Back ~ Top 10 Stock Ideas


Building on the 2017 recovery

  • Preliminary trends from the ongoing quarter Mar-2018 results season suggest low-teens y-o-y aggregate core profit growth, levels seen just once since 2016. Consensus FSSTI core profit growth expectation for 2018 at 18% has been witnessing upgrades since 3Q17. 
  • The macro is ticking along and our GDP growth forecast for the year is a healthy 3.1%, albeit moderating somewhat y-o-y from high-base effects. 
  • We remain positive on the stock market and maintain our preference for cyclical sectors.



Core profit growth consistency not seen in years

  • With less than a third of our companies under coverage yet to report, preliminary aggregate core profit growth estimates for quarter Mar-2018 stand at c13% y-o-y and, barring unforeseen negative surprises, should result in a fifth consecutive quarter of core profit growth after over three years of volatility and downturns. 
  • We forecast c18%/12%/9% core profit growth for 2018/2019/2020. The consensus upgrade cycle for 2018 is still ongoing in our view having witnessed estimates inch upwards from 10% to 18% in the past six odd months. 
  • FSSTI P/E, PBV and bottom-up target price estimates suggest further headroom to run and our base case end-2018 Straits Times Index target of 3,790 holds c7% appreciation upside and 10.7% TSR potential, including dividends (in SGD terms).


POSITIVE: Banks, Developers, Industrials, Consumer, Tech

  • Six broader macro and industry trends influence our sector preferences for 2018/2019: 
    1. rising interest rates, 
    2. the rebound in home prices, 
    3. recovery in consumer confidence helped by a broadening economic growth base, 
    4. explosive ASEAN e-commerce growth, 
    5. record global aircraft fleet levels with robust traffic growth and 
    6. the tech capex upcycle. 
  • We remain positive on cyclical sectors and suggest overweighting financials, property developers, industrials (selectively), consumer and tech. Almost all our top stock pick ideas are from these sectors. 
  • Our 10 stock picks trade at a market cap weighted average P/E of 15.6x/13.8x for FY18/FY19, underpinned by core profit growth estimates of around 25%/14% for the two forecast years.


Key risks are rates, currency, policy and trade issues

  • Company specific factors aside, our market view and profit growth outlook for 2018 and 2019 are predicated on the economy delivering on our growth expectations with 
    • no material variations to our baseline macro assumptions for benign interest rate hikes, 
    • a moderate appreciation in SGD exchange rate versus the USD, 
    • a relatively accommodative policy environment and 
    • no major disruption in global trade trends 
    – these factors are the key risks that could derail our thesis.


Our Top 10 Stock Ideas

  • Most of our top stock picks discussed below lie in our suggested
    • Overweight sectors of financials, property developers, industrials, consumer & gaming and technology. 
    • We would suggest Neutral weightings for the agricommodities, healthcare and industrial REITs sectors and, 
    • Underweight office REITs, retail REITs and telecoms & media.
  • We have made a few changes to our key BUY ideas for 2018 that we highlighted late last year (see report: Singapore Market Monitor: Shifting Up A Gear). 
  • From our prior top picks selection GuocoLand, Ascendas REIT, Mapletree Industrial Trust and ComfortDelGro have been dropped. 
    • We are still very positive on GuocoLand and it offers attractive value but it has been replaced with a more attractive alternative with clearer price catalysts like ST Eng, in our view. 
    • We are also still positive on Ascendas REIT and Mapletree Industrial Trust but believe REITs as an asset class may struggle for price performance this year with further interest rate increases expected to feed through. 
    • And finally for ComfortDelGro its stock price has rallied (+7% in one month, +11% YTD) post the news of the proposed Uber acquisition by Grab and upside levels are not as attractive anymore.
  • Our top BUY recommendations list is shown below. The 10 stock picks trade at a market cap weighted average P/E of 15.6x FY1 and 13.8x FY2, underpinned by core earnings growth estimates of c25% and c14% for the two successive years.

Large Caps Stock Top Picks

  • City Developments (CIT SP; Target Price SGD14.20): Most liquid proxy to an impending rebound in Singapore's property market; Well-positioned to capture a home-price rebound with three projects due for launch in 2018.
  • Genting Singapore (GENS SP; Target Price SGD1.46): We expect the Macau VIP market recovery to spill over to Singapore. The high-margin mass market is still weak but should see improvements in coming quarters with a rebound in Singapore consumer confidence, as well as the possibility of a y-o-y stronger MYR catalyzing some visitor growth from across the border. Share price trading at -1sd to 12-month forward EV/EBITDA mean is at levels last seen during its foreign exchange losses and receivables impairment period a few years ago and unjustified, in our view.
  • SATS (SATS SP; Target Price SGD6.10): A number of medium-term growth catalysts are expected to pan out over the next 12-18 months, including the proposed JV with AirAsia (AIRA MK; MYR3.16; BUY; Target Price MYR3.75) for gateway services in Malaysia, catering for Turkish Airlines at Istanbul’s new international airport, Qantas (QAN AU; AUD5.57; NR) moving its connecting hub for UK flights back to Singapore, and non-aviation commercial kitchens in China ramping up to contribute.
  • Singapore Post (SPOST SP; Target Price SGD1.50): Three out of four key earnings contributors have shown clear sign of turnaround in the latest results and the ramp up in e-commerce logistics businesses from Alibaba (BABA US, HOLD, Target Price USD190) is an indicator that the existing business relation is working well.
  • ST Engineering (STE SP; Target Price SGD4.15): After three years of lackluster growth from tough market conditions and restructuring costs, growth catalysts are falling in place. The aviation services landscape has improved markedly and recent acquisitions hold exciting growth potential.
  • UOB (UOB SP; Target Price SGD32.88): Sensitive to re-pricing intervals on higher rates, pricing discipline and benign credit conditions. Highest CET1 capital of 14.9% among peers means that there will be scope for meaningful dividend upside amid continued earnings momentum to reward shareholders. Dividend yields of > 4% should lend support to share price. A laggard among Singapore banks, trading at ~1.2x P/BV, cheaper than 1.3-1.5x for peers.
  • UOL (UOL SP; Target Price SGD10.40): Most concentrated large-cap proxy to Singapore's property market (c.80% of valuation); Potential for value unlocking in the medium term with restructuring of holdings.
  • Venture Corp (VMS SP; Target Price SGD28.83): Venture should continue to be a beneficiary of multifaceted growth drivers in the form of:
    1. deeper penetration into existing customers;
    2. new customer wins; and
    3. contributions from an improved mix of products with greater R&D and design content.

Small-Mid Caps Stock (sub USD2b market cap) Top Picks

  • Health Management International (HMI SP; Target Price SGD0.80): Unique independent operating model and top market share for medical tourists differentiate it from peers. More than doubling of capacity for Johor hospital and potential acquisition could further lift growth.
  • Sheng Siong Group (SSG SP; Target Price SGD1.20): Beneficiary of further improvements in consumer spending and winning market share from convenience stores and traditional market grocers. A potential surge in in 2018 should also continue to drive growth.







Neel Sinha Maybank Kim Eng | Lai Gene Lih Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-11
SGX Stock Analyst Report BUY Maintain BUY 14.200 Same 14.200
BUY Maintain BUY 1.460 Same 1.460
BUY Maintain BUY 6.100 Same 6.100
BUY Maintain BUY 1.500 Same 1.500
BUY Maintain BUY 0.800 Same 0.800
BUY Maintain BUY 1.200 Same 1.200
BUY Maintain BUY 32.880 Same 32.880
BUY Maintain BUY 10.400 Same 10.400
BUY Maintain BUY 28.830 Same 28.830
BUY Maintain BUY 14.200 Same 14.200



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