Singapore Market Monitor - Maybank Kim Eng 2018-05-31: A Fifth Quarter Of Growth

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Stock Market Singapore 1Q18 Earnings Summary HEALTH MANAGEMENT INTL LTD SGX: 588 SHENG SIONG GROUP LTD SGX: OV8 SINGAPORE POST LIMITED SGX: S08

Singapore Market Monitor - A Fifth Quarter Of Growth

Quarter Mar-2018 building on the 2017 rebound

• Highlights of the quarter:
  • Quarter Mar-2018 aggregate revenue, EBITDA and core profit for MKE Singapore coverage (c70% of index capitalisation) grew 7% y-o-y, 3% and 10% respectively.
  • The top 5 y-o-y core profit growth stocks were 
    • Singapore Airlines, 
    • Bukit Sembawang, 
    • Singapore Medical Group, 
    • Health Management International and 
    • Genting Singapore 
    while the bottom five were 
    • Singapore Post, 
    • Centurion, 
    • GuocoLand, 
    • IHH, 
    • Best World International and 
    • First Resources.
  • EBITDA margin ex-Property and financials stood at 27.5% for the quarter, down from the 29.3% a year ago but up sequentially from the 26.9% in q/e Dec-2017.
  • Around 69% of results were in line, 23% missed and 8% beat our expectations. In comparison, the ratio of met/missed/beat versus Street expectations was 59%/25%/16%. We had more forecast downgrades than upgrades mostly in TMT and property sectors although the adjustments for the latter are largely to do with asset acquisition or divestment transactions in the various REITs. 
  • We had one rating downgrade (Hi-P International from BUY to HOLD) and one upgrade (Mapletree Commercial Trust from SELL to HOLD).
  • The 10% core profit growth was driven by a narrow set of sectors – financials accounted for the lion’s share followed by industrials and consumer & agri. TMT, healthcare and property sectors saw small core profit declines.

FSSTI ex-Jardine Group companies tracking at lower levels

• We note that for the FT Straits Times Index components basket (excluding the Jardine Group companies as most of them report only semi-annually), revenue and EBITDA growth in the quarter closely tracked the levels of our coverage universe but core profit growth was almost half the level at 5.1%. This was mainly due to a material drop in the core profit of four stocks that we do not cover 
  • Golden Agri Resources at -63% y-o-y, 
  • Keppel Corp at -52% y-o-y, 
  • Wilmar International at -36% y-o-y and 
  • Yangzijiang Shipbuilding at -21% y-o-y.

MKE macroeconomic forecasts

• The MKE economics team expects GDP growth to moderate into the second half of the year as the high-base effects of the strong manufacturing rebound during 2017 kick in. That said, we forecast 2018 growth to remain at a healthy level of 3.5% (vs. 3.6% in 2017) and 2.7% in 2019 (Report: Services Boost, Raising GDP Forecast to 3.5% in 2018, 24 May 2018). MKE expects the electronics manufacturing and export-led growth of last year to broaden to other domestic sectors with services contributing a greater proportion of overall growth in 2018.

FSSTI valuations, end-2018 index level scenarios

• FSSTI performance YTD 2018 at around +1.2% is quite mediocre following the strong 2H17. It has been in part weighed down by the more recent ASEAN and Emerging Markets jitters, concerns over a tech sector de-rating and risks of a trade-war escalation. 
• That said, from a valuation standpoint on trailing long-term price multiples, we believe the index holds upside headroom due to a supportive macro backdrop, good earnings growth outlook and dividend yield support of 3.8% in 2018, amongst the highest in ASEAN.
  • FSSTI 12M trailing P/E of 10.9x is 15% and 12% below the respective 5 and 10-year mean multiples, while its 12M trailing P/BV of 1.19x is 11% and 5% below the respective 5 and 10 year mean.
  • In an ASEAN markets context, FSSTI has the lowest prospective P/E for 2018 and 2019 of 13.7x and 12.6x with underlying consensus core profit growth outlook of around 18% and 8.6% respectively.
• Our end-2018 base case Straits Times Index target estimate is 3,790 derived from an equal weighting of:
  1. top-down estimate at +1sd 5Y trailing mean P/E of 14.1x on 2019 consensus EPS; and
  2. bottom-up target 12-month based on MKE Target Price for covered stocks and consensus Target Price for non-covered stocks.
• Our base-case estimate holds 10% appreciation upside, and combined with 2018 dividend yield expectation of 3.8%, would provide a total return of c.14% in SGD terms.

Sector outlook and preferences

• We remain positive on cyclical sectors and suggest overweighting financials, property developers, industrials (selectively), consumer and tech. Almost all our Singapore top stock pick ideas are from these sectors. 
• We would suggest Neutral weightings for the agricommodities, healthcare and industrial REITs sectors and Underweight office REITs, retail REITs and telecoms & media.
• Top 10 Stock Ideas @ SG Got Its Groove Back ~ Top 10 Stock Ideas
• Positives and Negatives by Sector @ A Fifth Quarter Of Growth ~ Sector Outlook

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 (MKE Singapore GDP growth forecast for 2018/2019 is 3.5%/2.7%) with no material variations to our baseline macro assumptions for benign interest rate hikes, a moderate appreciation in SGD vs USD, a relatively accommodative policy environment and no major disruption in global trade trends.

Neel Sinha Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-31

SGX Stock Analyst Report BUY Maintain BUY 0.800 Same 0.800

BUY Maintain BUY 1.200 Same 1.200

BUY Maintain BUY 1.500 Same 1.500