Singapore Monthly (Apr 2019) - DBS Research 2019-03-29: Dividends In Focus

VENTURE CORPORATION LIMITED (SGX:V03) STARHILL GLOBAL REIT (SGX:P40U) SINGAPORE TECH ENGINEERING LTD (SGX:S63) MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Singapore Monthly (Apr 2019) - Dividends In Focus

STI was flat m-o-m as investors juggled between worries about higher US recession risks and the impending outcome of the US-China trade talks.
SREITs outperformed as the FED forecasted nil hikes this year and just one hike from now till end-2021.
Consumer goods outperformed, led by THAI BEVERAGE PUBLIC CO LTD (SGX:Y92).

MAS monetary policy statement –
- We expect MAS to keep monetary policy unchanged given the tame inflation and uncertain global growth outlook
Start of 1QFY19 results season –
- Expect another quarter of earnings cut as US-China trade talks could turn out to be inconclusive, global growth could slow down and weak business sentiment could persist
Possible US-China trade deal
- Enforcement of agreements remain tricky, Trump had said existing tariffs will be in place 'for a substantial period of time' even after a deal is struck to ensure that China abides by its agreement.
- Tariffs likely to be removed in stages depending on how much both sides abide by their part of the agreements.
- A trade agreement between the US and China could provide relief for technology stocks (e.g. VENTURE CORPORATION LIMITED (SGX:V03)) whose business sentiment had been negatively affected by the current US-China trade war.

FED changes rate hike forecast to none (previously two) this year, and just one hike from now till end-2021.
Cites growth uncertainty, tame inflation and uptick in unemployment rate as reasons for the change in forecast.
Impact: Bond yields fell, USD weakened against major currencies, oil/commodities rose.
Implications ceteris paribus
- Negative for banks – OVERSEA-CHINESE BANKING CORP (SGX:O39), UNITED OVERSEAS BANK LTD (SGX:U11).
- Positive for REITs – e.g. FRASERS CENTREPOINT TRUST (SGX:J69U), MAPLETREE COMMERCIAL TRUST (SGX:N2IU), MAPLETREE LOGISTICS TRUST (SGX:M44U), MAPLETREE NORTH ASIA COMM TR (SGX:RW0U), MAPLETREE INDUSTRIAL TRUST (SGX:ME8U), ASCENDAS INDIA TRUST (SGX:CY6U), OUE COMMERCIAL REIT (SGX:TS0U) and KEPPEL-KBS US REIT (SGX:CMOU).
- Positive for defensive stocks with yield – e.g. NETLINK NBN TRUST (SGX:CJLU), SINGAPORE TECH ENGINEERING LTD (SGX:S63).
- Positive for yards/CPO – e.g. SEMBCORP INDUSTRIES LTD (SGX:U96), FIRST RESOURCES LIMITED (SGX:EB5).

ED’s ‘stop hike’ forecast doesn’t come free – lowers 2019 GDP growth forecast to 2.1% (prev 2.3%), inflation to 1.8% (prev 1.9%) and sees unemployment rate rising to 3.7% (prev 3.5%).
'Partial inversion' of US yield curve and yield on US 10-yr treasuries dipping 2bps below that of 3-month bills have ignited recession fears 6-18 months down the road.
DBS rates strategist sees a close to 30% chance of the US economy dipping into recession in next 12 months.
Risk off → Negative for cyclicals.
Yield and defensive stocks are likely to outperform.

At 3190, STI trades at 12.59x (-0.5SD) 12-mth fwd PE.
Rangebound from 3155 to 3250, pending outcome of US-China talks and 1QFY19 earnings revision.
April/May ex-dividend period to lend immediate support at 3155.
Directional break from current range determines next level
- Fall below 3155 would point to 3080.
- While rise above 3250 points to 3340.

The URA just unveiled the Draft Masterplan 2019. The highlights are:
1. Higher plot ratios in CBD and rejuvenation of the area from a commercial district to an increase in live-in population
2. STARHILL GLOBAL REIT (SGX:P40U) is a key beneficiary with a 29% jump in plot ratios for its properties in Orchard – Wisma Atria and Ngee Ann City. The increased CBD plot ratio also benefits office REITs
3. Other developers with exposure in the CBD include the likes of
4. The Greater Southern Waterfront development will start, spanning the next 5 to 10 years. MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s VivoCity may benefit from an expected increase in residential in this area over the longer term.
See also report: Singapore Property - Remake, Reposition & Refurbish.

The FED’s dot plot forecasts zero hikes this year and just one hike from now till end-2021. The FED cited growth uncertainty, tame inflation and uptick in unemployment rate as reasons for the change. The USD could continue to come under pressure in light of the FED’s further dovish swing. Against this backdrop, yield and defensive stocks are the likely beneficiaries of funds inflow while bank stocks could underperform.
As SREITs sector has already done well YTD, our large-cap SREITs picks are
while small caps are
Defensive stocks with good yields are
Ceteris paribus, while interest in SREITs should sustain a while longer, we do note that the current nil rate hike expectation is already a ‘blue skies’ scenario for the sector in so far as the interest rates direction is concerned.

Large-cap stocks with relatively good upcoming dividend payouts should be highly favoured, ahead of the April/May ex-dividend period. Among these, VENTURE CORPORATION LIMITED (SGX:V03), UNITED OVERSEAS BANK LTD (SGX:U11) and SINGAPORE TECH ENGINEERING LTD (SGX:S63) are expected to deliver a dividend/price ratio of > 2.5% in the upcoming dividend window.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-03-29

SGX Stock Analyst Report BUY MAINTAIN BUY 21.700 SAME 21.700

BUY MAINTAIN BUY 0.750 SAME 0.750

BUY MAINTAIN BUY 4.150 SAME 4.150

BUY MAINTAIN BUY 2.000 SAME 2.000