Singapore Monthly (Feb 2019) - DBS Research 2019-02-08: Truce Outcome And Earnings In Focus

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STARHUB LTD (SGX:CC3) SINGAPORE TECH ENGINEERING LTD (SGX:S63) YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6) NETLINK NBN TRUST (SGX:CJLU) COMFORTDELGRO CORPORATION LTD (SGX:C52)

Singapore Monthly (Feb 2019) - Truce Outcome And Earnings In Focus

• Key events - Outcome of US-China trade talks & Budget 2019.
• S-REITs remain in favour, interest should spill to small-mid caps – Large caps: Mapletree Commercial Trust, Mapletree Logistics Trust, Frasers Logistics & Industrial Trust and Mapletree North Asia Commercial Trust; small caps: OUE Commercial REIT, Ascendas India Trust, and CapitaLand Retail China Trust.
• Sembcorp Marine key beneficiary if merger speculation returns to Singapore yards.
• Earnings season picks after January’s rally – ST Engineering, Yangzijiang, ComfortDelGro, Netlink Trust, StarHub.

Expansionary budget expected

• Singapore’s FY18 budget position could surprise with a S$3.3bn surplus. Our Singapore economist says Budget 2019 could touch on 3 areas:
  1. review of existing guidelines pertaining to skilled foreign workers;
  2. prepare Singaporeans for the future via upgrading of skills, education & healthcare investment, strengthening social safety net;
  3. help companies venture regionally.

January’s gains hard to match

• At 3200, STI trades at slightly above 12x (- 1SD) 12-month forward PE. The outcome of the 90-day trade truce that ends on 1 March is a key focus this month. The YTD global stock market rally leaves little room for disappointment.
• We are watchful that US stock market indices have limited near-term upside. Rotational interest could surface here, supported by regional funds inflow with the USD pullback.
• The STI support level is at 3123, resistance at c.3225, 3270.

S-REITs stay in favour, interest should spill to small-mid caps

• Sector interest should sustain after FED Chairman Powell re-iterated the FED’s dovish stance. Consensus now expects the FED to hold rates steady this year.
• We continue to like MAPLETREE COMMERCIAL TRUST (SGX:N2IU), MAPLETREE LOGISTICS TRUST (SGX:M44U), FRASERS LOGISTICS & IND TRUST (SGX:BUOU) and MAPLETREE NORTH ASIA COMM TR (SGX:RW0U), and recommend to take profit on CAPITALAND MALL TRUST (SGX:C38U) given the stock’s limited 2% upside to our S$2.44 Target Price.
• Interest should spill to the small-mid caps, and our picks are OUE COMMERCIAL REIT (SGX:TS0U), ASCENDAS INDIA TRUST (SGX:CY6U), and CAPITALAND RETAIL CHINA TRUST (SGX:AU8U).

Rotational interest could turn to yards

• Sector interest should pick up if merger speculation between Singapore Yards. This is after merger news of Korean juggernauts Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering Co., Ltd (DSME); and merger of CAPITALAND LIMITED (SGX:C31) and Ascendas Singbridge.
• SEMBCORP MARINE LTD (SGX:S51) is our top pick in the event of merger speculation.

Earnings season picks after January’s rally

• We prefer stocks with
  1. earnings visibility backed by a strong order book (SINGAPORE TECH ENGINEERING LTD (SGX:S63) and YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6))
  2. companies with yield and earnings growth trend (COMFORTDELGRO CORPORATION LTD (SGX:C52) and NETLINK NBN TRUST (SGX:CJLU)), and
  3. bombed out stocks with prospects of earnings or operational improvements going forward (STARHUB LTD (SGX:CC3)).

Janice CHUA DBS Group Research | Kee Yan YEO CMT DBS Research | https://www.dbsvickers.com/ 2019-02-08

SGX Stock Analyst Report BUY MAINTAIN BUY 2.450 SAME 2.450

BUY MAINTAIN BUY 4.150 SAME 4.150

BUY MAINTAIN BUY 1.820 SAME 1.820

BUY MAINTAIN BUY 0.870 SAME 0.870

BUY MAINTAIN BUY 2.560 SAME 2.560