THAI BEVERAGE PUBLIC CO LTD
SGX:Y92
GENTING SINGAPORE LIMITED
SGX:G13
FIRST RESOURCES LIMITED
SGX:EB5
SIA ENGINEERING CO LTD
SGX:S59
SINGAPORE AIRLINES LTD
SGX:C6L
Singapore Monthly Strategy - Will The US$200bn T-Bomb Drop?
- Tariffs in focus - failure of 3180 support level could send STI to 3050 low if US proposed tariffs are fully enacted in the next 1-2 months.
- Bank stocks UOB and OCBC vulnerable if trade war worsens.
- Watch rigbuilders SembCorp Marine, SembCorp Industries and Keppel Corp with oil market yet to price in impact of Iran sanction.
- Thai Beverage, SIA, Genting Singapore, First Resources and SIA Engineering are five bombed-out stocks to bargain hunt.
Telco outperformed in seasonally weak August
- Our view for a weak August panned out as trade war worries resurfaced and 2Q results lacked lustre.
- STI fell 3.2% m-o-m to 3213 in Aug 2018.
- Technology (Venture Corp), telecom (SingTel) and S-REITs (CMT) outperformed while consumer goods (Thai Beverage) underperformed.
Market Outlook
Lacklustre 2Q results priced in
- Earnings cuts after 2Q18 results season are priced in – FY18F and FY19F earnings lowered by 1.4% and 3.7% respectively but STI has fallen to trade at close to 12x (-1SD) 12-month forward PE level of 3207.
- Earnings cuts largely from consumer services (e.g. Jumbo Group, Breadtalk, SIA, Best World), S-REITs (e.g. Ascott Residence, Starhill Global, Frasers Hospitality Trust, OUE Hospitality Trust), and technology (e.g. Venture Corp, UMS, Hi-P) sectors. Others were O&G (Sembcorp Marine) and consumer goods (Thai Beverage).
- Three stocks with upward revisions to earnings for both FY18F and FY19F are UOB, Yangzijiang, and Genting Singapore.
- Plantation sector most consistent in delivering results above expectations (e.g. Wilmar International, First Resources, Bumitama Agri).
~ SGinvestors.io ~ Where SG investors share
FED expected to hike rates this month
- FED is expected to hike FED funds rate by 25bps to 2.25% at the 27 September FOMC meeting.
- Powell reaffirmed gradual rate increases in recent Jackson Hole speech.
- DBS Research sees one hike per quarter till end-2019 that will lift FED funds rate to 2.5% by end-2018 and 3.5% by end-2019.
Is the US-China trade war set to intensify?
- September/October are crucial months
- Enactment pace of the proposed 25% tariffs on US$200bn China imports and China’s retaliatory move will be closely watched this month.
- If the proposed 25% tariffs on US$200bn China imports are fully enforced within the next 1-2 months and USD/RMB rises beyond 6.94 that weighs down on Asian currencies, we do not rule out STI falling below 3180 to c.3050 that coincides with 11.24x (-1.5SD) 12-month forward PE.
- Fall to c.3050 would provide a buying opportunity as we expect the US-China trade war to ease post mid-term election.
Strategy
Bank stocks to lead the way down if trade war worsens
- We think bank stocks will be the main culprits dragging down the benchmark STI should the US rapidly enforce the 25% tariffs on US$200bn China imports within the next 1-2 months. Under this backdrop, business sentiment will be negatively affected and the pace of business loans may slow down.
- The FED could also moderate the pace of interest rate hikes going forward. Bank stocks OCBC and UOB will be vulnerable to profit taking should macro uncertainties worsen as the sector trades at a 5-year average P/BV valuation and sector earnings growth is set to moderate significantly from a strong 32% this year to 6.4% next year.
Positive near-term trend for oil price underpins O&G stocks
- Our O&G analyst has revised the average Brent crude oil forecasts for 2018 and 2019 to US$74pbl (from US$73pbl) and US$76pbl (from US$70pbl) respectively and thinks price could rise above US$80pbl in the near term on the back of supply-side constraints.
- We think the market may not have fully factored in the impact of the US sanctions on Iran as the rest of the OPEC cartel may not have enough spare capacity to ramp up sufficiently to fully offset the 2.5mmbbls export losses from Iran, as Venezuelan production continues to fall and unplanned outages could be expected from the likes of Libya, Nigeria and Angola.
- Singapore rigbuilders have largely ignored the current oil price recovery as the latest 2Q results season disappointed. But sector interest could pick again should Brent crude continues to edge up to test or exceed the US$80pbl level.
- SembCorp Marine is the most sensitive to changes in oil prices as it has the highest revenue exposure to the O&G segment, followed by SembCorp Industries and Keppel Corp. Sembcorp Marine's strong order pipeline could translate into S$3bn or more in new orders this year from the current S$730m.
Five bombed-out stocks to bargain hunt
- With the US-China trade tariffs threatening to take a turn for the worse over the next 1-2 months, we believe that stocks that are currently trading near ‘bombed-out’ valuations should outperform as value investors look for bargain-hunt opportunities.
- Our top picks are:
- Thai Beverage (SGX:Y92) – At $0.64, the stock is trading at 16.7x FY18F PE and 14.1x FY19F PE, which is near/below the - 2SD of its 5-year average forward PE of 16x. While overall domestic consumption remains weak, we are hopeful for a gradual turnaround on the back of improving agricultural prices and farm income.
- Singapore Airlines (SGX:C6L) – At $9.79, it trades at just 0.83x P/BV, which coincides with -2SD of its 5-year average of 0.84x. Going forward, sequential earnings should improve as airlines globally try to push through higher fares and surcharges to offset rising fuel costs, and yields improve. Our analyst foresees 1-2% yield improvement per annum in FY19F and FY20F for SIA’s flagship passenger business
- Genting Singapore (SGX:G13) – At $1.11, the stock trades at 8.4x FY18F and 7.7x FY19F EV/EBITDA that is between the - 1SD forward EV/EBITDA of 9.1x and -2SD forward EV/EBITDA of 6.2x. Going forward, our analyst thinks the weak VIP win rate that affected its 2Q results should normalize and the company will continue to report a sustained increase in profitability over the next 2-3 years.
- First Resources (SGX:EB5) – At $1.59, the stock trades at 12.6x FY18F PE that is not far from the -2SD (11.1x) of its 4-yr average. P/B of 1.8x is slightly below the -2SD (1.87x) of its 4-yr average. Going forward, volume output will drive earnings besides CPO price as First Resources enter its prime age production phase over the next 5 years
- SIA Engineering (SGX:S59) – At $2.95, the stock trades at 18.8x FY19F PE that is slightly below the -2SD of its 4-yr average fwd PE of 19.1x. Downside is limited, the stock trading at attractive dividend yield of 4.4%. Positive earnings drivers include :
- an upswing in the engine MRO cycle, with workload boosted further by visits from the problematic Trent 1000 engines
- cabin retrofitting work on SIA’s legacy A380s ;
- the new GE engine collaboration which should be operational in 2019 or early 2020 ; and
- expansion of the line maintenance segment in Japan.
Kee Yan YEO CMT
DBS Group Research
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Janice CHUA
DBS Research
|
https://www.dbsvickers.com/
2018-09-06
SGX Stock
Analyst Report
0.940
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0.940
1.550
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1.550
2.000
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2.000
3.920
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3.920
12.400
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12.400
