Singapore Market 2Q19 Results Review - DBS Research 2019-08-20: Look Here For Yields

SGinvestors.io

MANULIFE US REIT (SGX:BTOU) SHENG SIONG GROUP LTD (SGX:OV8) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) UNITED OVERSEAS BANK LTD (SGX:U11) SINGAPORE TECH ENGINEERING LTD (SGX:S63)

Singapore Market 2Q19 Results Review - Look Here For Yields

• Earnings cuts prevailed, REITs brought cheer – Manulife US REIT.
• Hunting ground for yield and defensive stocks – Sheng Siong Group, ST Engineering, Thai Beverage, UOB, Frasers Centrepoint Trust, Mapletree Logistics Trust, Mapletree Commercial Trust, Manulife US REIT.
• STI year-end target revised to 3380 (previously 3450), short-term rebound to 3220-3235.

Earnings cuts prevailed, REITs brought cheer.

• 2Q19 earnings revision returned a negative 2.2% q-o-q to reverse 1Q19’s positive 0.5% revision. A lack of order wins (Sembcorp Marine (SGX:S51)) affected O&G while a weak CPO price outlook (Wilmar International (SGX:F34), Indofood Agri Resources (SGX:5JS), First Resources (SGX:EB5), Bumitama Agri (SGX:P8Z)) dragged down the consumer goods sector.
• The consumer services sector was affected by start-up losses for BreadTalk (SGX:CTN), rising cost and lower margins for Dairy Farm International (SGX:D01), and Jumbo Group (SGX:42R)’s one-off renovation disruption.
• The technology sector suffered poor visibility due to US-China trade war (Hi-P International (SGX:H17), Venture Corp (SGX:V03)) while SingTel (SGX:Z74)’s decline in associates’ profit contribution dragged the telco sector.
• REITs brought some cheer coming from acquisitions and lower interest rates (Manulife US REIT (SGX:BTOU)).

Hunting ground for yields.

• STI’s EPS growth is revised lower to +2.2% (previously +3.4%) for FY19F, unchanged at 7.9% for FY20F. We see risk of earnings cut for FY20F if the US-China trade war drags further.
• Defensive names with good visibility (e.g. Sheng Siong Group (SGX:OV8), ST Engineering (SGX:S63), Thai Beverage (SGX:Y92)) remain in favour. Singapore market continues to offer good yields from
  • banks (UOB (SGX:U11), OCBC (SGX:O39)),
  • telco (SingTel (SGX:Z74)),
  • REITs (Frasers Centrepoint Trust (SGX:J69U), Mapletree Logistics Trust (SGX:M44U), Mapletree Commercial Trust (SGX:N2IU), Manulife US REIT (SGX:BTOU)) and
  • technology players (UMS (SGX:558), Venture Corp (SGX:V03))
  at nearly 5% or more.

Year-end objective lowered to 3380.

• We lower our STI year-end objective to 3380 (previously 3450) to factor in the latest round of US tariffs and drag from HK civil protests. The STI is trading near 12x (-1SD) 12-month forward PE after adjusting for the latest earnings cuts.
• Oversold technical rallies aside, the STI has likely seen the year-high at 3400 back in April. We expect more market swings ahead.

Three reasons for September calm.

1. September is a seasonally benign month compared to ‘nasty’ August,
2. Intensity of HK civil protests lessens as the universities’ new school term starts,
3. ‘Powell put’ should underpin equity markets heading to the mid-September FOMC meeting.

• Consensus expects the FED to cut rates another three times by year-end, pulling FED funds rate down to just 1.5%. Against this backdrop, we are positive on REITs and yield stocks while oversold cyclicals get a short-term rebound.
• We see a near-term low forming recently at 3075 with a rebound to 3220-3235 in the making.
• See attached PDF for complete report.

Kee Yan YEO DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-08-20

SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100

BUY MAINTAIN BUY 1.320 SAME 1.320

BUY MAINTAIN BUY 0.910 SAME 0.910

BUY MAINTAIN BUY 29.200 SAME 29.200

BUY MAINTAIN BUY 4.640 SAME 4.640