Singapore Stock Strategy - RHB Invest 2018-06-26: Investment Themes For 2H18

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HRNETGROUP LIMITED SGX:CHZ APAC REALTY LIMITED SGX:CLN JAPAN FOODS HOLDING LTD. SGX:5OI SILVERLAKE AXIS LTD SGX:5CP

Strategy - Singapore - Investment Themes For 2H18

• Given the macro backdrop of late cycle investing, our 2H18 investment themes for Singapore include:
  1. Stocks that will be beneficiaries of rising interest rates (SIBOR);
  2. Defensive late cycle plays;
  3. Stocks that have the potential to deliver earnings upsides;
  4. Undervalued, out of favour stocks.

Beneficiary of rising interest rates (Banks: UOB)

• Singapore’s 3-month Singapore Interbank Offered Rates (SIBOR) tends to mirror the US Fed Fund rates. We believe the US Fed could raise rates four times over the next 12 months (see our Making The USD Great Again report published on 18 Jan and Monetary Policy Updates report published on 18 June), which should push the SIBOR higher as well.
• This bodes well for Singapore banks (see our report Singapore Banks - NIMs Expansion and Loans Growth On Track published on 16 May), which should see widening of net interest margins (NIMs). We are forecasting DBS and UOB to book 2018 loans growth of 8% each. While the fundamental outlook for banks remains positive, the sector does seem like a ‘crowded trade’. 
• We like UNITED OVERSEAS BANK LTD (SGX:U11)  UOB (SGX:U11) Share Price  UOB (SGX:U11) Target Price  UOB (SGX:U11) Analyst Reports  UOB (SGX:U11) Corporate Actions  UOB (SGX:U11) Announcements  UOB (SGX:U11) Latest News  UOB (SGX:U11) Blog Articles, given its greater share of housing loans – which is likely to gain from optimism in the domestic residential property market – and high Capital Adequacy Ratio (CAR), which provides scope for more dividends. DBS’ valuations are relatively high, in comparison.

Defensive late cycle plays (Consumer: Dairy Farm International, Sheng Siong Group. Industrials: Moya Holdings, ST Engineering)

Top-down sector picks.

• Based on the analysis of past economic cycles, we identified the financials, telecoms, industrials and consumer staples in Singapore as sectors that tend to outperform the broader market during the late stages of US economic growth. Given the rise in competition, we do not view Singapore’s telecoms sector as defensive anymore. 
• Among consumer staples, we prefer 
  1. DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)  Dairy Farm (SGX:D01) Share Price  Dairy Farm (SGX:D01) Target Price  Dairy Farm (SGX:D01) Analyst Reports  Dairy Farm (SGX:D01) Corporate Actions  Dairy Farm (SGX:D01) Announcements  Dairy Farm (SGX:D01) Latest News  Dairy Farm (SGX:D01) Blog Articles
  2. SHENG SIONG GROUP LTD (SGX:OV8)  Sheng Siong (SGX:OV8) Share Price  Sheng Siong (SGX:OV8) Target Price  Sheng Siong (SGX:OV8) Analyst Reports  Sheng Siong (SGX:OV8) Corporate Actions  Sheng Siong (SGX:OV8) Announcements  Sheng Siong (SGX:OV8) Latest News  Sheng Siong (SGX:OV8) Blog Articles
  while in the industrials space, we expect 
  1. SINGAPORE TECH ENGINEERING LTD (SGX:S63)  ST Engineering (SGX:S63) Share Price  ST Engineering (SGX:S63) Target Price  ST Engineering (SGX:S63) Analyst Reports  ST Engineering (SGX:S63) Corporate Actions  ST Engineering (SGX:S63) Announcements  ST Engineering (SGX:S63) Latest News  ST Engineering (SGX:S63) Blog Articles
  2. MOYA HOLDINGS ASIA LIMITED (SGX:5WE)  Moya Holdings Asia (SGX:5WE) Share Price  Moya Holdings Asia (SGX:5WE) Target Price  Moya Holdings Asia (SGX:5WE) Analyst Reports  Moya Holdings Asia (SGX:5WE) Corporate Actions  Moya Holdings Asia (SGX:5WE) Announcements  Moya Holdings Asia (SGX:5WE) Latest News  Moya Holdings Asia (SGX:5WE) Blog Articles
  to outperform the market.

Bottom-up stock picks: net cash companies with high yields.

• We screened our coverage universe to look for high yielding stocks that offer forward yields of more than 4%, have a net cash balance, are BUY rated and offer more than 15% upside based on our target prices. 
• The bottom up defensive stock picks include 
  1. APAC REALTY LIMITED (SGX:CLN)  APAC Realty (SGX:CLN) Share Price  APAC Realty (SGX:CLN) Target Price  APAC Realty (SGX:CLN) Analyst Reports  APAC Realty (SGX:CLN) Corporate Actions  APAC Realty (SGX:CLN) Announcements  APAC Realty (SGX:CLN) Latest News  APAC Realty (SGX:CLN) Blog Articles
  2. JAPAN FOODS HOLDING LTD. (SGX:5OI)  Japan Foods (SGX:5OI) Share Price  Japan Foods (SGX:5OI) Target Price  Japan Foods (SGX:5OI) Analyst Reports  Japan Foods (SGX:5OI) Corporate Actions  Japan Foods (SGX:5OI) Announcements  Japan Foods (SGX:5OI) Latest News  Japan Foods (SGX:5OI) Blog Articles
  3. SILVERLAKE AXIS LTD (SGX:5CP)  Silverlake Axis (SGX:5CP) Share Price  Silverlake Axis (SGX:5CP) Target Price  Silverlake Axis (SGX:5CP) Analyst Reports  Silverlake Axis (SGX:5CP) Corporate Actions  Silverlake Axis (SGX:5CP) Announcements  Silverlake Axis (SGX:5CP) Latest News  Silverlake Axis (SGX:5CP) Blog Articles
  4. SINGAPORE EXCHANGE LIMITED (SGX:S68)  SGX (SGX:S68) Share Price  SGX (SGX:S68) Target Price  SGX (SGX:S68) Analyst Reports  SGX (SGX:S68) Corporate Actions  SGX (SGX:S68) Announcements  SGX (SGX:S68) Latest News  SGX (SGX:S68) Blog Articles
  5. SINGAPORE TECH ENGINEERING LTD (SGX:S63)  ST Engineering (SGX:S63) Share Price  ST Engineering (SGX:S63) Target Price  ST Engineering (SGX:S63) Analyst Reports  ST Engineering (SGX:S63) Corporate Actions  ST Engineering (SGX:S63) Announcements  ST Engineering (SGX:S63) Latest News  ST Engineering (SGX:S63) Blog Articles
  6. VALUETRONICS HOLDINGS LIMITED (SGX:BN2)  Valuetronics (SGX:BN2) Share Price  Valuetronics (SGX:BN2) Target Price  Valuetronics (SGX:BN2) Analyst Reports  Valuetronics (SGX:BN2) Corporate Actions  Valuetronics (SGX:BN2) Announcements  Valuetronics (SGX:BN2) Latest News  Valuetronics (SGX:BN2) Blog Articles
  7. VENTURE CORPORATION LIMITED (SGX:V03)  Venture Corp (SGX:V03) Share Price  Venture Corp (SGX:V03) Target Price  Venture Corp (SGX:V03) Analyst Reports  Venture Corp (SGX:V03) Corporate Actions  Venture Corp (SGX:V03) Announcements  Venture Corp (SGX:V03) Latest News  Venture Corp (SGX:V03) Blog Articles

Potential to deliver earnings upsides (CAO, FEH, GSSE, HRNET, SMG)

• In addition to the top down approach of identifying key sectors that could outperform the broader market, we also assessed stocks on individual merits. We looked at stocks that could deliver strong earnings growth during the forecast period or have the potential to deliver earnings surprises.
• CHINA AVIATION OIL(S) CORP LTD (SGX:G92)  China Aviation Oil (SGX:G92) Share Price  China Aviation Oil (SGX:G92) Target Price  China Aviation Oil (SGX:G92) Analyst Reports  China Aviation Oil (SGX:G92) Corporate Actions  China Aviation Oil (SGX:G92) Announcements  China Aviation Oil (SGX:G92) Latest News  China Aviation Oil (SGX:G92) Blog Articles is expected to see the return of earnings growth in 2018, which will be aided by strong contribution from its associates, supply of jet fuel to Chinese aviation traffic and a more rationalised approach on its trading business. We believe CAO’s dedicated M&A team could deliver earnings-accretive M&A during 2H18 or early 2019.
• Post impairment of its loss-making Korean associate, FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)  Food Empire (SGX:F03) Share Price  Food Empire (SGX:F03) Target Price  Food Empire (SGX:F03) Analyst Reports  Food Empire (SGX:F03) Corporate Actions  Food Empire (SGX:F03) Announcements  Food Empire (SGX:F03) Latest News  Food Empire (SGX:F03) Blog Articles is set to deliver strong earnings growth aided by higher consumption spending at its core commonwealth independent states (CIS) markets. The recovery of oil prices and the hosting of the FIFA World Cup in Russia could further boost the appreciation of the RUB. We believe this could mean potential upside to our earnings estimate. Moreover, FEH’s diversification into new Asian markets like China and Myanmar, along with plans to build a second coffee plant in India could drive growth over the medium term.
• After a weak 2017, we expect GSS ENERGY LIMITED (SGX:41F)  GSS Energy (SGX:41F) Share Price  GSS Energy (SGX:41F) Target Price  GSS Energy (SGX:41F) Analyst Reports  GSS Energy (SGX:41F) Corporate Actions  GSS Energy (SGX:41F) Announcements  GSS Energy (SGX:41F) Latest News  GSS Energy (SGX:41F) Blog Articles to deliver 61% earnings growth in 2018 aided by a strong pickup in new automotive and consumer projects at its precision engineering business, as well as potential oil findings, and monetisation of oil and hydrocarbons. Growth could be stronger with higher-than-estimated earnings at its oil & gas business.
• HRNETGROUP LIMITED (SGX:CHZ)  HRnet Group (SGX:CHZ) Share Price  HRnet Group (SGX:CHZ) Target Price  HRnet Group (SGX:CHZ) Analyst Reports  HRnet Group (SGX:CHZ) Corporate Actions  HRnet Group (SGX:CHZ) Announcements  HRnet Group (SGX:CHZ) Latest News  HRnet Group (SGX:CHZ) Blog Articles is expected to deliver strong 24% earnings growth in 2018. This would stem from Singapore’s strong employment data, our recent channel checks that show Singapore’s flexible staffing strong growth momentum into 2Q18 and its earnings- accretive Chinese acquisition (REForce).
• After delivering strong growth over last two years, aided largely by M&A, SINGAPORE MEDICAL GROUP LTD (SGX:5OT)  Singapore Medical Group (SGX:5OT) Share Price  Singapore Medical Group (SGX:5OT) Target Price  Singapore Medical Group (SGX:5OT) Analyst Reports  Singapore Medical Group (SGX:5OT) Corporate Actions  Singapore Medical Group (SGX:5OT) Announcements  Singapore Medical Group (SGX:5OT) Latest News  Singapore Medical Group (SGX:5OT) Blog Articles is witnessing double-digit revenue growth at its existing private healthcare business despite an estimated drop in medical tourism numbers in Singapore. We believe SMG could be gaining market share in the private medical practice space at the expense of its competitors. Moreover, SMG has replenished its war chest recently after completing a rights issue and the group may pursue small sized (SGD5-10m) acquisition in the near future, thereby adding to its already strong growth.

Out of favour stocks (Telecoms: SingTel)

• Singapore’s telecoms market, which was locked up for 16 years, has witnessed the arrival of new players and increased competition over last two years. Three mobile virtual network operators (MVNOs) have already launched operations and the fourth telecoms operator is expected to start providing services by end-2018. This has led to increased price competition between the three incumbents – SingTel, Starhub and M1. As a result, all three telcos have witnessed weakness in their respective earnings.
• While competitive risks remain in Singapore (with the entry of TPG Telecom in 2H18) and across its mobile associates, we see improved risk-reward profile for SINGTEL (SGX:Z74)  SingTel (SGX:Z74) Share Price  SingTel (SGX:Z74) Target Price  SingTel (SGX:Z74) Analyst Reports  SingTel (SGX:Z74) Corporate Actions  SingTel (SGX:Z74) Announcements  SingTel (SGX:Z74) Latest News  SingTel (SGX:Z74) Blog Articles from a stronger Optus, sustainable dividends, and cost savings/avoidance initiatives totalling SGD500m for FY19. 
• We believe the guidance of absolute payout of SGD0.175 DPS for the next two FYs (FY19-20) is assuring, as it provides certainty to investors on the sustainability of the payout, and safeguards against further earnings headwinds from its regional mobile associates.

Continue Reading :

• Singapore Strategy - RHB Invest 2018-06-26: Switching To Late Cycle Plays

Shekhar Jaiswal RHB Securities Research | Singapore Research Team RHB Invest | https://www.rhbinvest.com.sg/ 2018-06-26

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