Singapore Stock Monthly Market Strategy (June 2018) - DBS Research 2018-06-04: 5 STI Component Stocks To Accumulate In June 

Singapore Stock Monthly Strategy (June 2018) - DBS Vickers 2018-06-04: Five Sti Component Stocks To Accumulate In June  STI Component Stocks Singapore Yield Stocks YANGZIJIANG SHIPBLDG HLDGS LTD SGX: BS6 WILMAR INTERNATIONAL LIMITED SGX: F34 GENTING SINGAPORE PLC SGX: G13 HUTCHISON PORT HOLDINGS TRUST SGX: NS8U SINGAPORE AIRLINES LTD SGX: C6L

Singapore Stock Monthly Strategy (June 2018) - 5 STI Component Stocks To Accumulate In June 

Five STI component stocks to accumulate in June 

  • While the World Cup and June school holidays are likely to divert attention from the stock market, the good news is that post May’s tumble, downside for the STI should be rather limited given that the Singapore market now trades at near 12.76x (-0.5SD) 12-mth fwd PE that is seen as attractive. 
  • We look at STI component stocks to accumulate in anticipation of a relatively quiet month of June. 
  • Firstly, we like outperforming stocks that are up when the rest are mostly down. Our criteria are
    1. positive m-o-m May price performance,
    2. > 10% upside to TP, and
    3. BUY recommendation.
  • The stocks that fit are Wilmar International, Singapore Airlines and Genting Singapore. All three outperformers are also in our Singapore Model Portfolio. 
  • Next, we look at the other end of the performance spectrum for bargain-hunting opportunities. But that alone is not enough. There must also be a reasonable assumption that the selling pressure has eased, and that value has emerged. These stocks are Yangzijiang and HPH Trust

Yangzijiang Shipbuilding

  • Our analyst yells out that the stock’s recent sell-down was due to overblown concerns on forex and steel cost pressure, as well as a slow sector recovery. It is now trading at a rock-bottom valuation of 0.7x P/BV, attractive 5% yield and higher ROE of 8-9% vs peers’ 4-5%. 
  • It also has a solid balance sheet, sitting on net cash of 76 Scts/share (including financial assets), representing ~52% of NTA as opposed to shipyard peers that are mostly heavily indebted. Echoing this view and putting it into action, Yangzijiang bought 5m shares at the ‘bottom’ price of $0.90/share and said it is ready to conduct ongoing share buybacks. 

HPH Trust (tactical buy call) –

  • The stock got slammed down because of its removal from MSCI Singapore Index. The one-off massive selling exhaustion that coincided with the ‘cut-out’ date has passed. Fundamentally, it is still the same company. 
  • Meanwhile, shares of other listed Chinese port operators such as Cosco Shipping Ports and China Merchants Port were up 8.9% and 1.35% m-o-m respectively. This further reinforces our view that HPH Trust’s weak performance last month is likely one-off due to the MSCI Index removal. 
  • HPH Trust now trades at FY18F yield of 9.6%, making it the highest yielding large-cap stock in Singapore. Technically, we see a price recovery towards $0.32. 

Flight to safety underpins yield play in near term 

  • US 10-yr yields are off mid-May highs of 3.11% on political uncertainty in Italy, rekindling of trade war concerns and a FED that is more tolerant of inflation. Technically, we see US 10-yr yield capped below 3%, ranging from 2.7% to 2.95% in the short term. MAS 10-yr yield is also down from May’s high of 2.68%. Yield stocks could be underpinned as bond yields turn sideways. 
  • With interest rates looking to trend higher till end-2019, we look at yield stocks with
    1. net cash or zero debt,
    2. FY18F yield > 4%,
    3. BUY recommendation, and
    4. > 15% upside to Target Price.
  • These are UMS, APAC Reality, HL Finance, Yangzijiang and SIA Engineering

Kee Yan YEO CMT DBS Vickers | Janice CHUA DBS Vickers | https://www.dbsvickers.com/ 2018-06-04
SGX Stock Analyst Report BUY Maintain BUY 1.820 Same 1.820
BUY Maintain BUY 3.650 Same 3.650
BUY Maintain BUY 1.490 Same 1.490
BUY Maintain BUY 0.380 Same 0.380
BUY Maintain BUY 13.700 Same 13.700