Singapore Stock Picks
CAPITALAND LIMITED
SGX:C31
DBS GROUP HOLDINGS LTD
SGX:D05
FRASERS CENTREPOINT TRUST
SGX:J69U
FRASERS LOGISTICS & IND TRUST
SGX:BUOU
KEPPEL CORPORATION LIMITED
SGX:BN4
MAPLETREE NORTH ASIA COMM TR
SGX:RW0U
SATS LTD.
SGX:S58
SINGAPORE TECH ENGINEERING LTD
SGX:S63
SINGTEL
SGX:Z74
UNITED OVERSEAS BANK LTD
SGX:U11
UOL GROUP LIMITED
SGX:U14
Singapore Strategy - Great Summer To Cherry Pick
- STI fell 12% in 3 months.
- Value is starting to emerge.
- Cherry pick to position for long term.
From hero to zero…
- The Straits Times Index went from this year’s high of 3615 in May 2018 to a recent low of 3192 post the latest property cooling measures, a plunge of 423 points or 12%. This happened over a short period of 3 months.
- The last time the Singapore market saw a > 10% decline in a 3-month period was in Jan 2016 due to China’s stock market crash and the drop in the Yuan. The devaluation of the Yuan in Aug 2015 also dragged equities down with a double-digit decline for the STI.
- From up 6.2% this year at the high, the STI is now down some 5% for the year.
Pockets of sunshine
- Banks could benefit from a potential hike in lending rate, which could possibly result in better net interest income growth and better margin. Despite the cooling measures, we have a tactical overweight on the sector and current price levels also translate into dividend yields of 3.8% to 4.6%.
- Competition will be tough, and this is particularly acute for the telecommunications sector. The entry of a new player, TPG Telecom, is likely to mean price wars ahead as telcos act to defend the departure of their subscribers.
- Companies with regional businesses also have to contend with weaker regional currencies, which is beneficial if these are manufacturing bases but is negative if these are their key exports markets.
Buyers have choices!
- Here, we are referring to both local and foreign buyers. The recent cooling measures have the twin effect of cooling demand as well as keeping away foreign investors. The combination of a hike in Additional Buyer’s Stamp Duty (ABSD) and the drop in Loan-to-Value (LTV) is a destructive move that will cause buyers to stay away from the market. See
- As a recap, the last round of onerous cooling measures in 2013 took more than 4 years for green shoots to start sprouting. This round, with even more onerous measures, it means that potential buyers will have to come up with even more cash. While the LTV ratio is a factor to consider, its impact is less significant as it means a buyer has to fork out a higher percentage of cash upfront and to take up a lower amount of loans. However, ABSD is not refundable and has added heavily to the cost of owning a property.
- While locals (first time buyers, new families, etc.) will still buy properties, foreign investors and developers are likely to stay away for a while.
STI is trading at -1SD for P/B – historically a good level to re-enter the market
- The ongoing threat of markets are still dependent on exporting to China. A trade war could mean that goods become more expensive and less competitive.
- Volatility, as measured by the VIX index, remains low despite the potential threat of a full-blown trade war.
Headwinds remain, but growth is still healthy
- While headwinds remain, we do not think that global economic growth is headed for a major slowdown. Based on consensus estimate, economic growth rate is still healthy.
- PMI numbers are still fairly positive and capex is still holding up.
The dream stock?
- Last year, we saw several mega trends/themes and this included cryptocurrency, blockchain, electric vehicle, lithium batteries, artificial intelligence (AI), e-commerce, mobile payment, etc. Unicorns and disruptors were touted as the next big thing.
- For this year we expect more corporates to jump on to the bandwagon.
- Since it is impossible to have an ideal stock offering all the key mega trends and still provide stability, good cash flow, dividend, etc., a more realistic approach in the current uncertain time is to focus on stock picks.
- The STI accumulate stocks for longer term investors.
- With the recent sell-down due to trade tensions, we are opting to be more prudent and have included several defensive stocks with good dividend yields into the list.
Singapore Stock Picks
Carmen Lee
OCBC Investment Research
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https://www.iocbc.com/
2018-07-18
SGX Stock
Analyst Report
4.260
Same
4.260
32.670
Same
32.670
2.490
Same
2.490
1.210
Same
1.210
9.400
Same
9.400
1.42
Same
1.42
5.500
Same
5.500
3.900
Same
3.900
4.100
Same
4.100
31.020
Same
31.020
8.480
Same
8.480
