Singapore Monthly (May 2019) - DBS Research 2019-05-06: Come What May

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FRASERS PROPERTY LIMITED (SGX:TQ5) NETLINK NBN TRUST (SGX:CJLU) SINGTEL (SGX:Z74) FRASERS COMMERCIAL TRUST (SGX:ND8U) KEPPEL-KBS US REIT (SGX:CMOU)

Singapore Monthly (May 2019) - Come What May

• STI range bound from 3300-3450 as PE valuation caps short-term upside.
• 4 large-cap stocks with limited upside – ComfortDelGro (SGX:C52), Ascendas REIT (SGX:A17U), Mapletree Commercial Trust (SGX:N2IU), Wilmar International (SGX:F34).
• 5 dividend stocks to look at other than large-cap S-REITS – Frasers Property (SGX:TQ5), NetLink NBN Trust (SGX:CJLU), SingTel (SGX:Z74), Frasers Commercial Trust (SGX:ND8U), Keppel-KBS US REIT (SGX:CMOU).

Valuation caps near-term upside.

• Our Singapore economist thinks 1Q19 likely marked a low point in growth slowdown, expecting a gradual pick-up in performance going forward. However, the stock market has done well YTD with STI trading beyond 13.19x (average) 12-month forward PE.
• With PE valuation no longer cheap, we think the present rally has limited upside and is vulnerable to a correction unless the earnings recession trend can be halted or reversed. STI should trade within 12.89x (-0.25SD) to 13.49x (+0.25SD) 12-month forward PE in the coming month/s.
• We see resistance at 3450 with support levels at 3340 and 3300.

4 large-cap stocks with limited upside.

• Large-cap stocks that have done well YTD are ComfortDelGro (SGX:C52), Ascendas REIT (SGX:A17U), Mapletree Commercial Trust (SGX:N2IU), Wilmar International (SGX:F34). But they now have limited or even negative returns to their respective target prices and trade above their own historic average valuations.
  • ComfortDelGro shares now trade at 4% above our Target Price and at around its 5-year average valuation of 18x FY19F PE. See ComfortDelGro share price.
  • Shares of Ascendas REIT now trade at a dividend yield of 5.4% (slightly below -2SD) and 1.4x P/BV (beyond +2SD). See Ascendas REIT share price.
  • Likewise, shares of Mapletree Commercial Trust currently trade at 4.8% (slightly below -2SD) and 1.17x P/BV (+2SD). See Mapletree Commercial Trust share price.
  • Wilmar International shares are trading at > 1% above our Target Price and 15.5x (+1SD) forward PE with 15% dip in FY19F EPS. See Wilmar International share price.
• However, any news of progress in its China operations listing could pose upside risk to our view.

5 dividend stocks to look at other than large-cap S-REITs.

• With an increasing number of large-cap S-REITs trading at or approaching relatively unattractive yield and P/BV, we look at alternatives to dividend picks.
  • Frasers Property (SGX:TQ5) offers a dividend yield of 5% that is the highest among developers and trades at an attractive 0.7x P/NAV.
  • NetLink NBN Trust (SGX:CJLU) trades at 6.1% yield versus average yield of 5.8% for large-cap industrial S-REITs.
  • SingTel (SGX:Z74) has an assured DPS of 17.5 Scts that translates into 5.7% yield even as its regional associates are expected to return to earnings growth after two years of decline.
  • Frasers Commercial Trust (SGX:ND8U) current yields 6.4% and could have potential catalyst from filling up its space at Alexandra Technopark.
  • Finally, Keppel-KBS US REIT (SGX:CMOU) trades at attractive valuations of 10% discount to book value during the upturn and high 8.3% yield.

LATEST:

• The US will raise tariffs on USD200billion worth of Chinese goods to 25% from 10% by this Friday and threatens to impose tariffs on the remaining USD250billion worth of Chinese imports ‘soon’ as Trump signals his impatience on the slow progress of the current trade talks.
• Knee-jerk impact on financial markets: Risk-off with Dow futures currently down around 450pts, Asian equities lower, USD rallies, USDSGD at 1.3653 that is near the YTD high.
• Our thoughts: Trump’s latest move could be his negotiation strategy to put pressure on China to agree to a deal very soon.
• Singapore market’s impact: Risk-off should send cyclicals lower, stocks likely down over the next 1.5 days before attention turns to China’s next move as Liu He is scheduled to return to the US for trade talks on Wednesday; a pullback to 3300 is on the cards.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-05-06

SGX Stock Analyst Report BUY MAINTAIN BUY 2.300 SAME 2.300

BUY MAINTAIN BUY 0.870 SAME 0.870

BUY MAINTAIN BUY 3.550 SAME 3.550

BUY MAINTAIN BUY 1.700 SAME 1.700

BUY MAINTAIN BUY 0.800 SAME 0.800