Singapore Equity Strategy - RHB Invest 2019-03-13: Headwinds Persist; Stick With Quality!

Singapore Equity Strategy - RHB Investment Research | SGinvestors.io SILVERLAKE AXIS LTD (SGX:5CP) HRNETGROUP LIMITED (SGX:CHZ) FU YU CORPORATION LTD (SGX:F13) SHENG SIONG GROUP LTD (SGX:OV8) GENTING SINGAPORE LIMITED (SGX:G13)

Singapore Equity Strategy - Headwinds Persist; Stick With Quality!

Weak 4Q18 results




Earnings downgrade continues

  • Downgrade in 2019 consensus earnings eased during 3Q18. However, the pace of downgrades picked up as the 4Q18 results season progressed. Based on Bloomberg estimates, in last four weeks, 2019 consensus EPS has been downgraded by 2%. The consensus EPS growth for 2019 now stands at 4.2%.
  • From Sep 2018, the telecom, transport, consumer staples and banking sectors have seen the most downgrades to consensus earnings.


Key rating changes after the recent results season



Key Target Price changes after the recent results season



Markets may have performed well, but…

  • Expectations of slower US federal fund rate hikes and therefore slower rise in the Singapore Interbank Offered Rate, as well as a positive impact from a likely resolution of the trade war between the US and China have supported the STI Index.
  • With an YTD positive return of 5%, Singapore has been the best performing ASEAN market in local currency terms. In USD terms, it has lagged Thailand, which has delivered 7% YTD returns.


…macro headwinds persist

  • However, we remain cognisant of macro headwinds from slowing non-oil domestic exports and slowdown in GDP growth to a tad below 2.5% (from 3.2% in 2018) – based on guidance provided by Singapore’s Ministry of Trade & Industry.
  • Historical trends suggest that Singapore’s stock index returns follow the country’s nominal and real GDP growth closely. As we expect a slowdown in GDP growth to extend into 2019 and 2020, we believe it will be tough for the STI to generate strong positive returns, especially with continuing downgrade to earnings estimates.


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Market valuation


Maintain STI target of 3,300 for end-2019.

  • We use a top-down method to derive our STI target, based on a P/E multiple on 2019’s forecast EPS. The STI’s 12.5x 1FY P/E sits at slightly above its -1SD band, which has only been breached twice since the global financial crisis – each time, the market witnessed a sharp rebound. With expectations of a slowdown in GDP growth, we believe a strong P/E expansion will be difficult to pencil in.
  • We value the STI based on 2019 year-end target P/E of 13x, which is slightly below its 1FY average of 13.3x. Applying this to our 2019 EPS estimate, we derive an index target of 3,300 for end-2019.
  • (see also STI Constituents Price Target & Stock Ratings)





Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-03-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650
BUY MAINTAIN BUY 1.060 SAME 1.060
BUY MAINTAIN BUY 0.240 SAME 0.240
BUY MAINTAIN BUY 1.270 SAME 1.270
BUY MAINTAIN BUY 1.220 SAME 1.220



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