Stock Strategy Singapore - RHB Invest 2018-08-21: Refreshing Our 2H18 Top Picks

Strategy - Singapore - RHB Securities Research 2018-08-21: Refreshing Our 2h18 Top Picks

Singapore Stocks Recommendation CHINA AVIATION OIL(S) CORP LTD SGX:G92 FU YU CORPORATION LTD SGX:F13 HRNETGROUP LIMITED SGX:CHZ MOYA HOLDINGS ASIA LIMITED SGX:5WE SINGAPORE MEDICAL GROUP LTD SGX:5OT

Stock Strategy - Singapore - Refreshing Our 2H18 Top Picks

As we earlier highlighted, risks relating to weaker-than-expected GDP growth and slower EPS growth from weakening SGD is now apparent. This comes as consensus has begun lowering 2018-2019 EPS for STI Index.
We keep our 2H18 investment themes unchanged and recommend investors stick with defensive plays like consumer and late-cycle industrials.
Banks remain the best exposure to rising interest rates.
Our bottom-up picks include stocks that should deliver profit growth despite macroeconomic headwinds.
Recommend SingTel for sustainable high yield.

Downgrades in consumer sector.

Dairy Farm was downgraded to NEUTRAL after 1H18 results missed. In Dairy Farm: Inadequate Food To Be Healthy And Beautiful , we highlighted our concerns on the losses from its ASEAN supermarket business, which would require increased investments and higher operating expenses to ensure a sustained turnaround. We also foresee potential headwinds in 2H18 from rising rents and depreciation of ASEAN currencies against USD.
We downgraded Food Empire to NEUTRAL, amidst continuing concerns of depreciation in operating currencies, especially the RUB against the USD. While we remain positive on ongoing diversification into Asia, in Food Empire: Re-Evaluating Russia’s Risk , we cut profit estimates by 26-28% for FY18-20 to account for higher opex and currency devaluation.

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Add DBS and Wilmar to our Top Picks.

We maintain that while banks are a “crowded trade”, they remain the best exposure to rising interest rates. DBS, with its higher earnings sensitivity to rising interest rate, is now part of our Top Picks. In DBS : Management Raises 2018 NIM Guidance, we noted that during the previous Federal Funds Rate (FFR) upcycle during 2003-2007, DBS’ P/BV rose as high as 1.9x from 1.04x. DBS now trades at 1.2x 2019F book. In Banks: Widening NIM Remains Catalyst Going Forward, we also noted our limited concerns with banks’ future earnings being significantly weakened by a possible reduction in residential property sales.
In Wilmar International: Stronger Dividend, a Positive Signal, we noted that the higher interim dividend and guidance for a slightly higher full-year dividend is a sign of management’s confidence in 2H18 results. Also the IPO of its China operations, which remains on track for completion in 2Q-3Q19, will lead Wilmar to unlocking of additional value.

Small- Mid- Cap team sees better value in Fu Yu Corp vs GSS Energy.

While our SMID Cap team remains positive on GSS Energy’s outlook, it now sees better value in Fu Yu Corp, which was upgraded to BUY from Neutral in the report Fu Yu Corp : The Time Is Now. The team expects Fu Yu to deliver 72% profit growth in 2018, aided by improvement in gross margin, driven by new projects and privatisation of its Malaysian subsidiary.

Investment Themes.

We keep our investment themes for Singapore unchanged, as identified in our report Singapore Strategy: Switching To Late Cycle Plays dated 26 June on:

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-08-21

SGX Stock Analyst Report BUY Maintain BUY 1.750 Same 1.750

BUY Maintain BUY 0.220 Same 0.220

BUY Maintain BUY 1.180 Same 1.180

BUY Maintain BUY 0.130 Same 0.130

BUY Maintain BUY 0.560 Same 0.560

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