Phillip Singapore Monthly - Phillip Securities 2018-08-23: August 2018 ~ Global Growth Has Peaked

Phillip Singapore Monthly - Phillip Securities Research 2018-08-23: August 2018 ~ Global Growth Has Peaked Singapore Stock Market CAPITALAND COMMERCIAL TRUST SGX:C61U SHENG SIONG GROUP LTD SGX:OV8 DBS GROUP HOLDINGS LTD SGX:D05 CAPITALAND LIMITED SGX:C31 SATS LTD. SGX:S58

Phillip Singapore Monthly - August 2018 ~ Global Growth Has Peaked


  • The STI was up 1.6% in July 2018. Macro data point to a peak in global growth rates.
  • Almost all PMIs worldwide are decelerating. Singapore’s electronic exports have turned negative this year against an 8% expansion in 2017. Manufacturing new-order PMI has also rolled over. Germany IFO business expectations index is at the weakest in two years and Japan industrial production contracted for the first time in twenty months. Only the U.S. economy defies the trend. Healthy employment has sparked a rebound in consumer spending. Retail sales growth in the U.S. is close to a 7-year high. Small-business optimism is at its second-highest ever on record. The only side effect is, inflation is at a 6-year high and close to the Federal Reserve’s 2% target. The pressure on interest rates is irreversible at least this year.
  • The big macro event has been the spiralling mess in Turkey. Its exchange rate collapsed 30% against the US$ in a week. This was accompanied by an 18% spike in its benchmark interest rates. Turkey is important because it holds US$466b of external debt. This is not very far from Lehman’s US$620b of liabilities when it collapsed in September 2008. The most exposed to Turkish debt are European banks and bondholders. The worst case is a contagion onto other emerging markets, though Turkey is still less than 1% of emerging- market equity indices. In any contagion, the impact on Southeast Asia could be a liquidity flight and tightening interest rates to stem currency volatility. A trigger to contagion could be any decision by Turkey to implement capital controls.
  • This deflation threat from emerging markets, softer global growth, trade-war fears and anxieties over China have weighed on commodity prices. The CRB index is down almost 5% in three weeks. Copper is trading at year lows.
  • In summary, the three large macro trends are a strengthening US$, sliding commodity prices and rising interest rates. All negative for emerging markets.

~ SGinvestors.io ~ Where SG investors share

The 2Q18 reporting season in Singapore has drawn to a close.

  • Apart from banks, few industries offered cheer. Banks are riding an upswing in the credit cycle and NIMs. Healthcare and consumer demand in Singapore is sluggish. Any growth realised was through market-share gains.
  • Sheng Siong is gaining share from wet markets and mall- based supermarkets. Thai Beverage disappointed due to weak rural spending in Thailand, as agriculture prices remained subdued. The earnings of most electronic companies were down, with the exception of Venture. SembCorp Industries’ bottom line was supported by more buoyant power prices in China and India. Sembcorp Marine was a let-down as vessel oversupply is unlikely to be resolved in the medium term.
  • In property, we favour CapitaLand's continued pursuit of recurring revenue streams where returns on equity can be higher with better predictability. Among the REITs, CapitaLand Commercial Trust benefitted from a 4% rebound in Grade A office rents in 2Q18 and compressing cap rates.
  • SATS’ earnings surprised nicely as its overseas and non-aviation operations turned around faster than anticipated. Its core aviation business in Changi is also profiting from passenger growth and operating leverage.
  • Our STI target remains at 3700. Any hopes of reaching this target is dependent on a rally in banking stocks.

PHILLIP ABSOLUTE 10 – Our Top 10 Picks for absolute returns 

  • Our inaugural Phillip Absolute 10 Model portfolio began in January. It started well with a rise of 4.9% in January. Banyan Tree and CapitaLand led gains in January. DBS has been a significant contributor to our performance with a gain of 15% for the period of Jan-Feb18. We then switched to OCBC in March due to the higher upside to our target price and a beneficiary of higher interest rates (in particular through insurance business).
  • July experienced a rebound for most of our stocks. Only Dairy Farm was the weakest performance month for us. The 1H18 results were subdued. Company still undergoing a restructuring of their supply chain, store formats and IT infrastructure. South East Asia remains a key source of weakness for the group. Chip Eng Seng has been the other negative performer this month. It is still reeling from the after-effects of the property cooling measures.
  • Our portfolio for August, we will exit Asian PayTV Trust, Dairy Farm and OCBC, replace it with CapitaLand Commercial Trust (CCT), Sheng Siong and DBS.
  • We favour CapitaLand Commercial Trust (CCT) as our yield stock over Asian PayTV. CapitaLand Commercial Trust is riding on the improving office demand-supply in Singapore. We removed Asian PayTV Trust as subscribers, revenue and capex have disappointed. We are not expecting any immediate rebound.
  • We replaced Dairy Farm with Sheng Siong as our consumer proxy. Sheng Siong is enjoying some tailwinds by expanding their fresh product sales (at the expense of wet markets) and rebuilding the store portfolio after some closures last year.
  • We replace OCBC with DBS. DBS has higher operating leverage to rising interest rates than OCBC due to the large current account and savings account source of low-cost funds.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2018-08-23
SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.880 1.880
ACCUMULATE Maintain ACCUMULATE 1.130 1.130
BUY Maintain BUY 33.320 33.320
ACCUMULATE Maintain ACCUMULATE 4.190 4.190
ACCUMULATE Maintain ACCUMULATE 5.580 5.580