Singapore Market Monitor - A Fifth Quarter Of Growth ~ Sector Outlook
Continued from...
... Singapore Market Monitor: A Fifth Quarter Of Growth.
Sector summary outlook factors
| Sector | Positives | Negatives |
|---|---|---|
| Agricommodities | Fossil fuel price strength should cushion CPO price downside. Palm oil-gasoil prices trading near parity which could boost discretionary biodiesel demand. Valuations attractive after recent de-rating | CPO price will be under pressure in the near term given seasonal peak production period from June and high CPO inventory levels |
| Consumer | Consumer confidence improved significantly through 2H17 with strong economic growth. Retail sales index (ex-motor) turned around in 2017 at +1.8% from the -2.6% prior year decline; YTD 2018 growth indicators encouraging | Competitive intensity in retail and F&B remains high with on- line channels continuing to disrupt specific segments for the former. Ongoing overseas expansion for most of the companies holds execution risk |
| Gaming | Positive read through from better Macau VIP performance for Singapore VIP volumes. Recovering MYR/SGD exchange could be positive for mass market share gain for Resorts World Sentosa | Competition from the region remains stiff and new casinos (e.g. Cambodia) may divert VIP business, albeit temporarily. Broader recovery in mass market, more meaningful for margins, still to be seen |
| Financials | Expected system loan growth of c9-10%, NIM expansion from higher lending yields and NII growth driven by a fast growing wealth management sector in Asia Pacific | Risk of rate increases being on a much steeper path than expected could de-rail loan growth expectations. Higher credit costs if the credit cycle changes |
| Healthcare | Secular industry growth from a number of factors like ageing demographics and higher healthcare spend from a growing middle-class in the region. Underleveraged balance sheets allowing for M&A | Rich valuations relative to 3Y history. High level of competition in Singapore. Execution and market risk from greenfield hospital expansion in new geographies and M&A |
| Industrials | Global passenger traffic and fleet growth fuelling a recovery in aviation services. Increasing penetration of retail e-commerce in APAC driving smart warehousing and logistics demand. The worst is probably over for provisions and write-downs in the O&M sector | Legacy airlines face overcapacity issues and heavy reliance on long haul. Maintenance cycles are longer for the new generation longer range aircraft. O&M order growth likely to struggle from overcapacity issues in the near term regardless of oil price rise |
| Property Developers | Singapore home prices in early stages of recovery and balance sheets of most developers have significant capacity to reinvest for growth in the market rebound | Occupier market gradually recovering but still weak. High land prices to likely weigh on developer margins and profitability of new projects |
| Industrial REITs | Industrial sector demand-supply fundamentals improving evidenced by rising occupancies and stable/positive rental reversions. Acquisitions / consolidation a potential theme with the larger REITs having clear mandates and substantial debt headroom | Sharper than expected rise in interest rates will negatively impact earnings (0.4-5% downside to FY19-20 DPUs on further 50bps increase over base-case assumptions) |
| Office REITs | On a recovery path with the market nearing the tail end of a supply glut; rents have only just started to pick up in 3Q17. But valuations are not compelling with yields and spreads over governments bond yields at historically low levels and sector P/BV at 0.95x | Flat to slightly negative reversions likely in the near term as market rents are currently hovering around the same levels as expiring rents. |
| Retail REITs | Cyclical macro factors of improvements in consumer sentiment and the job market and growth in GDP and tourism are positive. Near term demand from new-to- market international brands, discount retailers and F&B should be firm | The structural threat from growing e-commerce weighing on requirements for retail space is the single largest negative facing the sector |
| Telecoms | Enterprise and government sector driven growth has been a bright spot in an otherwise uninspiring growth outlook, weighed by rising competition in consumer wireless | Risk of an exacerbation in consumer wireless competition exists with new entrant TPG yet to enter the market in late 2018. M1 most exposed to a potential tariff war. |
| Technology | Attractive secular growth prospects for the EMS companies from a combination of new and existing customers and involvement in early growth stage products | Stock prices for most companies have done extremely well in the past 18 months and growth expectations are high, which leaves room for market disappointment / de-rating in the near term. Customers have reportedly turned more cautious on volumes amid the risks of a US-China trade war. |
Neel Sinha
Maybank Kim Eng
|
https://www.maybank-ke.com.sg/
2018-05-31
