Singapore Monthly (Mar 2019) - DBS Research 2019-03-04: Deepening Cuts, Improving Macros

Singapore Monthly Strategy - DBS Group Research  | SGinvestors.io HI-P INTERNATIONAL LIMITED (SGX:H17) SILVERLAKE AXIS LTD (SGX:5CP) UMS HOLDINGS LIMITED (SGX:558) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Singapore Monthly (Mar 2019) - Deepening Cuts, Improving Macros




Uplift from trade talks and dovish FED



Few winners from Budget 2019



Banks, telco and real estate led earnings cut 



Earnings revision recession trend continues

  • STI suffered a 5% earnings cut for FY19F and 4.3% earnings cut for FY20F.
  • Earnings downtrend deepens -> We maintain our view that the earnings recession trend will extend for another quarter into 1QFY19 given the US-China trade uncertainties, before it ends.
  • At its February high of 3286, STI traded at slightly above 12.89x (-0.25SD) 12-month forward PE -> near-term valuation cap given the current earnings downward revision trend.
  • Barring a negative turn in macro developments (e.g. re-ignition of US-China trade war), we peg firm valuation support at between 3123 (12.3x 12-month forward PE, -0.75SD) and 3200 (12.59x 12-month forward PE, -0.5SD) for bargain hunters.


A temporary pause

  • Optimism of US-China trade deal and a dial-back in rate hikes already played out well in the past two months, the devil is in the details if a deal is signed.
  • But we expect a higher-low pullback on a dial-back in macro risks (e.g. FED policy stance, low likelihood of an all-out US- China trade war) even as global growth slows.
  • Upcoming ex-dividend period in April-May should also attract bargain hunters on pullback for component stocks with attractive payouts (e.g. UOB, ST Engineering, ComfortDelGro (SGX:C52), Venture Corp (SGX:V03)) .
  • We peg likely support at 3180 (38.2% downward retracement), strong support at 3140 (50% downward retracement).
  • Our bull-case scenario of 3500 by year-end remains a possible outcome.


Strategy



Large-cap stocks with attractive upcoming dividend pay outs

  • The stock market is likely to consolidate its YTD gains in the near term, following the strong YTD run-up. Against this backdrop, we think stocks with a relatively good dividend payout during the upcoming ex-dividend period of April and May should attract bargain hunters and find support on pullback. Among the lists of large-cap stocks with upcoming dividends, Venture Corp, UOB, ST Engineering and ComfortDelGro have an upcoming dividend/price ratio of > 2.5%.


5 stocks most impacted by the latest results season



4 stocks to take profit on given strong YTD run-up

  • We apply the following criteria to identify stocks to take profit on given their strong run-up since end-2018:
    1. strongest 3- month relative performance with STI,
    2. less than 10% upside to Target Price.
  • The stocks identified through this filter are Hi-P International (SGX:H17), Silverlake Axis (SGX:5CP), Thai Beverage and UMS Holdings (SGX:558). We use the exponential moving averages (refer to table in attached PDF report) to identify possible pullback support levels for these stocks.





Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-03-04
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.120 SAME 1.120
BUY MAINTAIN BUY 0.620 SAME 0.620
FULLY VALUED MAINTAIN FULLY VALUED 0.550 SAME 0.550
BUY MAINTAIN BUY 0.870 SAME 0.870



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