Singapore Market Monitor - Maybank Kim Eng 2019-07-15: Re-Jigging Our Top Picks

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SATS LTD. (SGX:S58) STARHUB LTD (SGX:CC3) MANULIFE US REIT (SGX:BTOU) CACHE LOGISTICS TRUST (SGX:K2LU) FIRST RESOURCES LIMITED (SGX:EB5)

Singapore Market Monitor - Re-Jigging Our Top Picks

Hunkering down for a rough 2H19

• Our defensive bias seeking cashflow and dividend certainty over growth highlighted in our previous report Singapore Market Monitor - Foggy with a hint of Sunshine, 17 Apr 2019, has gotten even more so in the past quarter with the macro growth outlook unravelling faster than expected and further earnings downgrades looking quite likely.
• We make changes to five of our earlier top 10 picks – two for achieving their price objectives and three to try and further reduce potential earnings volatility of the basket.

Valuations supportive but profit outlook at risk

• FSSTI valuations remain a bright spot within ASEAN with 2019 P/E and P/B of 13.2x and 1.1x relatively undemanding versus peers and its 10- year history. The index also offers the highest dividend yield in ASEAN. Also, we believe with the Fed likely on hold or potentially cutting rates during the rest of 2019, a normalization of dividend yield gaps towards the long-term average should continue and be supportive of further price appreciation to the c10% levels witnessed YTD.
• That said, the macro growth outlook is the weakest since the GFC and, we believe, posts further risks to consensus profit downgrades that we witnessed during 1H19.

Positive on Financials, Industrials, Industrial REITs

• We suggest overweighting Financials, Industrials (selectively) and Industrial REITs (previously NEUTRAL). We also recommend a neutral stance on Agricommodities, Hospitality REITs (previously OVERWEIGHT), Retail REITs and Telecoms & Media (previously UNDERWEIGHT), and would be underweight gaming, consumer (previously NEUTRAL), and technology.
• Seeking earnings and dividend certainty, the lion’s share of our top stock picks are comprised of ones we believe have:
  1. relatively low earnings volatility, a high degree of cashflow resilience, and dividend certainty over the next 4 quarters; and/or
  2. product and market diversification.
• While bottom-up company specifics play a large role in our stock picks, a number of them are from sectors we recommend an overweight on.

Key Risk: Further macro slowdown and trade issues

• Company specific factors aside, the downside risks to our profit growth outlook and valuations could arise if the economy materially deteriorates further from our existing sombre outlook and forecasts. The key unknown on the macro outlook is the extent of global trade disruption and diversion we are faced with given the US-China trade war impasse. Meanwhile, the upside risks to our view could stem from:
  1. a sharper-than-expected economic rebound; and
  2. stronger-than-expected near-term domestic stimulus from the record special transfers in the 2019 Budget for the Merdaka Generation/Bicentennial Bonus and proposed SGD7-8b investment in the Singapore integrated resorts.

Summary of changes to MKE Singapore Top Stock Picks

Stock	Current Market Price SGD	Target Price SGD	Price upside %	Div Yield %	Comments
MAINTAIN
DBS GROUP HOLDINGS LTD (SGX:D05)	25.61	29.46	15.0	5.5	No change to view; Target Price now sub-1% lower vs. in 17 Apr 2019 strategy note
UNITED OVERSEAS BANK LTD (SGX:U11)	26.44	28.97	9.6	4.5	No change to view; Target Price now c2.5% lover vs. in 17 Apr 2019 strategy note
NETLINK NBN TRUST (SGX:CJLU)	0.89	0.94	6.2	5.4	No change to view; Target Price now a marginal SGD0.01 higher
MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)	2.32	2.40	3.4	5.4	No change to view; Target Price now c9% higher from better funding costs
CDL HOSPITALITY TRUSTS (SGX:J85)	1.66	1.80	8.4	5.8	No change to view; Target Price unchanged
REMOVE
SINGAPORE TECH ENGINEERING LTD (SGX:S63)	4.27	4.30	0.7	4.2	Still positive on sector fundamentals but YTD 2019 +22% price performance leaves inadequate upside potential
FRASERS CENTREPOINT TRUST (SGX:J69U)	2.64	2.60	(1.6)	4.8	Acquisition-driven upside now largely factored in with the YTD +22% price performance.
VALUETRONICS HOLDINGS LIMITED (SGX:BN2)	0.68	0.99	45.6	5.9	Valuations still attractive but outlook is now foggier with the worsening trade war situation and trade diversion seen during 2Q.
JAPFA LTD. (SGX:UD2)	0.56	0.93	67.6	5.2	Valuations still attractive but the rapid ASF spread in Vietnam during Apr-July to 60 of 63 provinces now places much higher short term risk.
BUMITAMA AGRI LTD. (SGX:P8Z)	0.61	1.01	65.6	4.2	CPO prices have stayed lower for longer than expected; we still expect price recovery but prefer counters with some downstream exposure too.
ADD
SATS LTD. (SGX:S58)	5.29	6.10	15.3	3.8	SATS replacing ST Eng as top pick in the aerospace/aviation services space that we remain positive on.
STARHUB LTD (SGX:CC3)	1.55	2.00	29.0	5.8	MKE turned +ve in 2H18 but catalysts were lacking then; market should start to appreciate that 70%+ of the business restructuring is underway.
MANULIFE US REIT (SGX:BTOU)	0.88	1.00	14.3	6.7	Sits well with our defensive bias for cashflow visibility in 2H19; 94% of portfolio has rent escalation clauses and WALE is c6 years.
CACHE LOGISTICS TRUST (SGX:K2LU)	0.79	0.88	12.1	8.0	Industrial now our most preferred REIT sub-sector (vs. Hospitality earlier); stock has lagged its larger peers YTD.
FIRST RESOURCES LIMITED (SGX:EB5)	1.55	1.93	24.5	1.8	With delays in the expected CPO price recovery, we now prefer a more balanced upstream/downstream exposure for the turnaround

Singapore Sector Outlook Updates

• See attached PDF report for complete analysis. 

Neel Sinha Maybank Kim Eng Research | Lai Gene Lih Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2019-07-15

SGX Stock Analyst Report BUY MAINTAIN BUY 6.100 SAME 6.100

BUY MAINTAIN BUY 2.000 SAME 2.000

BUY MAINTAIN BUY 1.000 SAME 1.000

BUY MAINTAIN BUY 0.88 SAME 0.88

BUY MAINTAIN BUY 1.93 SAME 1.93