Singapore Stocks Strategy - CGS-CIMB Research 2018-06-08: Indexed Stocks Well-owned

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Singapore Stocks Strategy Analysts' Stock Picks SHENG SIONG GROUP LTD SGX:OV8 CHINA SUNSINE CHEM HLDGS LTD. SGX:CH8 MM2 ASIA LTD. SGX:1B0 YONGNAM HOLDINGS LIMITED SGX:AXB RIVERSTONE HOLDINGS LIMITED SGX:AP4

Singapore Stocks Strategy - Indexed Stocks Well-owned

• We recently completed our marketing trip to Tokyo and Hong Kong. Investors were generally Overweight on Singapore banks and technology (mainly Venture Corp).
• Names held in the country portfolios were DBS, OCBC, UOB, ComfortDelGro, Venture Corp and City Developments.
• Investors generally wondered which banks to switch to from DBS given its relatively pricey valuations. There were also questions on the ‘right’ P/E to pay for Venture Corp.
• Among our top 3 picks of turnaround stories, investors were open to SPH (potential transformation from asset management), but less keen on ThaiBev and SingPost.
• We reiterate our top picks: DBS, Keppel Corp, ST Engineering, UOL, SingPost, ThaiBev, Sheng Siong, China Sunsine, mm2 Asia, Yongnam, Riverstone and Sunningdale.

Overweight on Singapore banks and indexed names

• Investors with Singapore investment mandates stuck to a few tried-and-tested benchmark names, mainly DBS, OCBC, UOB, ComfortDelGro, Venture Corp, City Developments. There was also interest in ST Engineering, Keppel Corp, Sembcorp Marine and Wilmar. 
• Those with stock-picking mandates lamented the lack of high-conviction stocks with more than 30% returns that are reasonably priced. There were concerns over the banking space getting too crowded and risk of global fund flow exiting emerging ASEAN markets which could also have a negative spillover to Singapore.

Banks – which bank to switch to?

• The most common questions asked on Singapore banks were
  1. which bank is an alternative for DBS given its relatively higher valuations,
  2. is the digitisation effort by DBS paying off and apparent and
  3. how long will OCBC be the laggard? 
• We sensed that investors were not prepared to completely switch out of DBS given the relatively stronger ROE and its leading market share in the local property mortgage market.
• There were some investors who hedged the risk of DBS by owning a second laggard - UOB or OCBC.

Venture Corp - what is the right P/E? Are there any more tech names to play?

• Venture Corp is widely held. Investors were cognisant of the Phillip Morris issue and slower y-o-y earnings growth after its super profit in FY17. We highlighted that to beat consensus earnings expectations of +15% y-o-y in FY18F, Venture Corp needs to consistently achieve +20% y-o-y in 2Q-4Q18F profits, which could be a tall order in 4Q18F as 4Q17 net profit was S$143m. 
• Interest in the remaining tech space was mixed. Some were curious if AEM has room for earnings growth while some would play the tech space via US markets.

Property: interest rates, supply/demand and policy

• Most investors agreed that physical prices in Singapore are ‘value’ vs. HongKong. Concerns were over the impact of higher interest rates and policy control. 
• We argued that household affordability is still firm – private mass market households only allocate c.35% of their income to their mortgages. Demand is strong from the c.6,300 displacement households as only a handful of enbloc projects (S$16.5bn proceeds) were handed over.
• S-REITS have also been on an acquisition trail to ensure DPU growth.

Capital goods – when will orders return

• Investors were still hoping to see rig orders returning given the oil price trend. There was also interest in Sembcorp Marine’s margins vs. Korean yards. 
• Some investors asked about ST Engineering as valuation is below mean. 
• No interest in Sembcorp Industries.

Transport and others

• Singapore Airlines (SIA), being our preferred pick in the transport sector, was not contested on improving yield and higher final dividend.
• There was pushback on ThaiBev on its ability to turn around Sabeco.
• SingPost’s ability to turn around its e-commerce segment was questioned. Some investors were open to the idea of telco being a sector on the watchlist in 2019.

Other FAQs/ Discussions

More on property & REITS.

• Some investors questioned why UOL (and not CityDev) is our top pick if we are Overweight on the sector. We argued that UOL is also a proxy for both the hospitality and office sectors which are seeing the tailwinds of tapering supply. On policy, we think the current measures are sufficient to curb speculative buying.

Impact of the new Malaysian government on Singapore.

• There were questions on whether Malaysia will pay the fine for cancelling the High Speed Rail (HSR) project; if Singapore is highly dependent on Malaysia for its natural resources (water, oil/gas) and the alternative development plan for the plot of land that the Singapore government had purchased for the HSR.
• We reiterated that the market has not factored in the HSR project given that c.10% is to be incurred in Singapore and the remaining 90% in Malaysia.

Healthcare.

• There were questions on the impact of Turkey on IHH’s earnings. 
• Investors were receptive to our idea that Raffles Medical Group’s gestation period in China could take longer than expected.

Consumer and gaming.

• There was a mixed response to Sheng Siong (SSG) as an ADD call as it could be a saturated market and only confined to Singapore. There were others who deemed that as household mortgages rise due to interest rates, consumers could turn to ‘value’ supermarkets like SSG.
• For Genting Singapore, investors were doubtful about the quick resolution of the Japan Gaming Bill.

LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-08

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